PHL exam 2

Problems with Conflict or Interest

1. Conflicts of interest create a temptation to violate the agent's duty of loyalty to the principle 2. Conflicts of interest can compromise the agent's objectivity 3. Even apparent and potential conflicts of interest can have a serious negative impact on the organizations climate within the company

Ethics and the Law of Agency

The 'Law of Agency" has developed in conjunction with moral norms that articulate the idea that the principle has certain fair and legitimate expectations concerning the behavior of the agent

Misappropriation

Theft - Embezzlement - Theft of intellectual property Misuse of company property

Self-Dealing

- Fairly common - Occurs when an agent uses her position to make deals with herself on behalf of the principle

Fairness

- A key application of the value of fairness is in the principle that employment decisions should be made on the basis of BFOQ's so as to avoid immoral/illegal discrimination - Another application of the value of fairness has to do with due process in discipline and termination decisions - Another application involves sexual and other discriminatory forms of harassment

Autonomy - Key moral Value

- Forms an important part of the "moral landscape" of the employment relationship - In a free society, employment is not giving up or renting autonomy, it is the free undertaking of a commitment to exercise autonomy by performing certain tasks in return for pay - Autonomy is Self determination: about deciding who to run one's own life rather than someone else's life

The "benefit to market" theory( insider trading)

- Insider trading is a good thing - not unethical, should not be illegal - Can actually benefit the market -

Competing against the Principal

- Occurs when an agent engages in an enterprise that takes business away from the principle -

Harassment

- Quid pro quo - Hostile environment - Non-sexual discriminatory harassment: work environment hostile to members of a protected group

Eugene Schlossberger's "Dual Investor" Argument

- Society provides key resources necessary for the functioning of business, Ex: material and economic structure, a trained workforce - These things are investments, that are just as important as the investment of capital that the stockholders provide - Dual investor argument claims that businesses also have an obligation to provide a return to society on its investments

The stakeholder (wide/broad) theory forms

- The strong version claims that corporations should give equal priority to the needs and interest of each stakeholder - The strong version gives the corporation the exact same duty towards its employees, customers, society, etc. as to its owners

Five obligations of agents

1. Loyalty 2. Obedience 3. Due care and skill 4. Communication 5. Respect of employer's property

The narrow/classical theory (Milton Friedman's arguments)

1. Management's obligation is to the stockholders argument 2. The 'wrong tool for the job' argument - Friedman asks how a manger intent on spending his company's money to do good is to know how to spend it

Abuse of power

Abuse of power is a form of misappropriation, in that one's power in the organization is the property of the principle and is only "on loan" to you so that you can benefit the principle

The agency relationship

Consists of an agent and a principle - Accepted the task farthing the interests of the principle - In return, the principle normally pays the agent or provides some other form of compensations

The Americans with Disabilities Act

Civil rights law that prohibits discrimination against individuals with disabilities in all areas of public life, including jobs, schools, transportation, and all public and private places that are open to the general public.

Strategic stakeholder theory

Focuses not on moral duties toward stakeholders, but on how taking care of stakeholders will often pay off purely in business terms - If this is correct, then stakeholder and narrow theories of CSR may not be far apart after all

Freeman's "Economic argument" (be familiar with this)

Freeman argues that the pursuit by managers on behalf of stockholders must be constrained for two reasons - The public goods problem threatens to create bad situations unless business look beyond profits to the common good - "Moral hazards" of the real-world markets Conclusion: Sound economic reasons support recognizing business's obligations to do more than seek profit

Freeman's "legal argument" (be familiar with this)

Freeman sees an erosion in the consensus for "managerial capitalism" - Legal developments in the 2nd half of the 20th century increasingly recognize broader social obligations for business than making $ for stockholders

Nepotism

Hiring or supervising a friend or relative - Personal/family loyalty may conflict with obligations to the principle

What is wrong with insider trading

Illegal because it is widely believed to be unethical

Goodpaster's No Moral Immunity Argument

In short, corporation has an obligation to benefit society bc its owners do

Employment at Will

In the absence of a specific contract to the contrary, a private employer could fire an employee for a good reason, a bad reason, or no reason at all - Creates a kind of symmetry between the employee and employer - Unless there is a specific contract, the employee has the right to terminate the employment contract at will; therefore, it seems natural to give the employer a similar right to terminate the employment relationship

Kenneth Goodpaster

Modern version of the stakeholder theory: - Claims that while corporations have duties to all stakeholders, they have special duties to the owners - On this version of the theory, a company's first but not only duty is to its stockholders

Nonfeasance, Misfeasance, and Malfeasance

Most basic way to violate one's agency duties is through simple nonfeasance or misfeasance. - Failing to do a good job is an ethical issue.

Insider trading

Occurs when a person trades stock based on material information about the company that is not accessible to the public, and which was gotten because someone violated a fiduciary or other duty of confidentiality. Involves 3 methods - Info must be inaccessible to the public - Info must be "material" in the sense that it could lead an investor to change his mind about the value of the stock - Person using the info got it because someone violated an obligation of confidentiality

The Employee Polygraph Protection Act

Prevents employers from using polygraph (lie detector) tests, either for pre-employment screening or during the course of employment, with certain exemptions.

Solomon's Diverse Motivation Argument

Solomon writes that "stockholders are not homines economici, that is, merely economic self-maximizing beings. They are people with values and virtues who presumably care about something more in life than how their shares are doing." - Stockholders are also members of one or more of the other stokeholds groups. As such, they have interests that go beyond merely maximizing the return on their investment.

Primary insider trading

Stock is traded on the basis of non-public info by someone who has a fiduciary duty to the company whose stock it is

Griggs v. Duke Power

The Supreme Court ruled that the company's employment requirements did not pertain to applicants' ability to perform the job, and so were discriminating against black employees. The judgment famously wrote that "Congress has now provided that tests or criteria for employment or promotion may not provide equality of opportunity

Employment at Will and Bargaining Power

The employee generally needs his/her job far more than the employer needs any particular employee - Many limitations to EAW are meant to prohibit employers from taking unfair advantage of their greater bargaining power

The "unfair advantage" theory (insider trading)

The unfairness is not due to the differential of info constitutes unfairness, since we often make transactions on the basis of differential information. - The fact that someone chooses to invest in less information than i do does not, by itself, make it unfair for me to use my information - Unfair advantage because he/she has access to the information that outsiders could not get, even if they choose.

The stakeholder (wide/broad) theory

There have always been business leaders who believe in a moral obligation to "give something back" to society; stakeholder theory is just the newest version of this idea Pioneered in R. Edward Freeman's strategic management: A stakeholder approach, which: - Helped add the concept of stakeholders to management theory - sought to develop an approach to management that was both profitable and socially responsible - offered various arguments for the claim that business has moral obligations to all of it stakeholders

Legal limits to Employment at Will

There is no blanket Federal law completely overturning EAW - Federal protections: illegal to fire someone for reasons that are discriminatory; or for reporting certain kinds of violations to the government - State protection: Some recognize a "public policy exception", which makes it illegal to fire for reasons that violate "public policy". Some recognize a tort of wrongful discharge

The narrow/classical theory

This view has been held and defended by a large number of theorists and practicing business persons and in some cases by the courts - Milton Friedman - A corporation is the private property of its owners - Therefore, it should be run in whatever (legal) way the owner decides - Because of this, a corporation should have no other purpose than to make money for the owners, unless it is explicitly given some other purpose by its owners

The "harm to market" theory (insider trading)

Trading is unethical because it harms the market - Investors will leave if they believe that insiders are trading

Secondary insider trading

Trading stock by someone who has no fiduciary obligations of their own to the company, who got the inside info bc someone else violated a fiduciary duty to the company

Misappropriation theory

Unethical because it involves violating a fiduciary obligation to the company's owners - If I engage in insider trading by using info that i acquired as a result of my agency relationship, then i am using information that was given to me for the companies benefit, and using it to line my own pockets

Question of Corporate social responsibility

What, if anything, does a corporation owe to society? What, if anything, is a business morally required to 'give back' to society? - The narrow/classical theory: Business owes society nothing more than playing by the rules - The Wide/Broad/Stakeholder: Business has an obligation to do more than just play by the rules; it has an obligation to 'give something back' to society