Business Ethics Quiz 3

marketing practices - ethically legitimate

- marketing practices that seek to discover which consumers might already and independently be predisposed to purchasing a product are ethically legitimate

marketing practices - ethically questionable

- marketing practices that seek to identify populations that can be easily influenced and manipulated, are ethically questionable

tort standards for product liability

- negligence -reasonable care -strict liability

middle continuum: negligence

- negligence can be a failure to exercise reasonable care or ordinary vigilance resulting in injury - negligence involves the ability to foresee consequences and failing to avoid harmful ones - the standards of what can be foreseen raises ethical challenges

market exchange is prima facie legitimate because it involves

- respect for autonomy - mutual benefit

managerial capitalism

The theory that the primary obligation of business managers is to serve the interests of stockholders by maximizing profits.

the strongest sense of responsibility is

not to cause harm

consumer vulnerability

occurs when a person has an impaired ability to make an informed consent to the market exchange.

general vulnerability

occurs when someone is susceptible to some specific physical, psychological or financial harm

tort law: What duties do producers owe to consumers? continuum

one end of the continuum: producers owe those things promised to the consumer in the sales agreement strict liability: producers owe compensation to consumers for any and all harms caused by their products middle of the continuum: holds many interpretations of negligence

what standard is used most often in legal cases

reasonable person standard - a reasonable person does what we expect an ordinary, average person to do - many factors lead people to interpret the standard as thoughtful, reflective, and judicious decision making

corporate governance

the structures by which coporations are managed, directed, and controlled toward the objectives of fairness, accountability, and transparency the structures generally will determine the relationship between the board of directors, the shareholders or owners of the firm, and the firm's executives or management

control environment

the tone or culture of the firm as integrity, ethical values, philosophy, and operating style One of the five elements that comprise the control structure, similar to the culture of an organization, and support people in the achievement of the organization's objectives. The control environment "sets the tone of an organization, influencing the control consciousness of its people." refers to cultural issues such as integrity, ethical values, competence, philosophy, and operating style

advertising violates

consumer autonomy

duty of good faith

is one of obedience, requiring faithfulness to the organization's mission.

Are people truly benefited?

- Impulse buying, "affluenza," consumerism. - Injuries, unsafe products - "Contrived" wants.

Is consent to exchange really "informed"?

- Lack of information. - Deception. - Complicated information.

Is exchange "voluntary"?

- Real alternative choices may not be available - Anxiety and stress in some purchasing situations - Price-fixing, monopolies, price gouging, etc. - Targeted and vulnerable consumers.

negligence (slides)

- a concept from the area of law known as torts, provides a second avenue for consumers to hold producers responsible for their products - unintentional failure to exercise reasonable care not to harm other people - considered to be one step below "reckless disregard" and two steps below intentional harm - central component of tort law

caveat emptor (slides)

- assumes that every purchase involves the informed consent of the buyer and, therefore, it is ethically legitimate - business' only legal and ethical responsibility is to provide a good or service at an agreed upon price - places ethical constraints on the seller not to coerce, defraud, or decieve buyers

legal approaches to product safety

- contract law - tort law - strict liability

elements of an internal control structure

- control environment - risk assessment - control activities - information and communications - ongoing monitoring

section 407 SOX

- disclosure of audit committee financial expert - requires that they actually have an expert

US law imposes three clear duties on board members that comprise the board's fiduciary responsibility

- duty of care - duty of good faith - duty of loyalty

disincentives that compensation packages and reliance on stock option provide

- excutives have incentive to focus on short term stock price rather than long term corproate interests - a case can be made that stock options may be to blame for the corruption involving managed earnings - excessive compensation can also involve a variety of conflicts of interests and cronyism - another large concern is the cross-fertilization of boards

causes for conflicts of interests

- financial relationship between public accounting firms and their audit clients - conflicts between services offered by public accounting firms (auditing and consulting) - lack of independence/expertise of audit committees - self-regulation of the accounting profession - lack of shareholder activism - short-term executive greed vs. long term shareholder wealth - executive compensation structure - compensation schemes for security analysis

stealth/undercover marketing (slides)

- form of marketing to a vulnerable population - refers to situations where we are subject to directed commercial activity without our knowledge - undercover marketing is an intentional effort to hide the true marketing element of the interaction - stealth marketing has hit the internet too, you never sure who posts reviews of products online - buzz marketing - experts consider stealth marketing extraordinarily effective because the consumer's guard is down

Economic Model CSR description

- from an economic perspective a business is an institution - holds that businesses' sole social responsibility is to fulfill the economic functions they were designed to serve --- managers are employees, or agents, of those owners and must work to further the owners' interests, primarily by maximizing profits (managerial capitalism) - places shareholders at the center of the corporation - corporations are expected to obey legal mandates

ethical debates product liability: incentive

- holding someone accountable for harm provides incentive only if the person could have done otherwise. this means that harm was foreseeable and failure to act is negligent - holding business liable for unforeseeable harms does not provide an incentive to better protect future consumers

implied warranty (slides)

- in selling a product, a business implicitly assures it is suitable for it purpose - this standard shifts the burden of proof from the consumer to the producer - many businesses will issue a disclaimer or liability or offer an expressed and limited warranty

competing values

- justice example, redlining mortgages - market failures (externalities)

ethical issues in marketing

- market exchange is prima facie ethically legitimate - this ethical judgment is conditional because - is exchange voluntary - is consent to exchange really informed - are people truly benefited - competing values

stakeholder model of CSR description

- recognizes that every business decision affects wide variety of people, benefiting some and imposing costs on others - the stakeholder model simply acknowledges this principle and points out that other ethical duties have an equal claim on managerial decision making - acknowledges this fact by requiring management to balance the ethical interests of all affected parties - like utilitarianism, it asks managers to consider the consequences of its decisions - social responsibility requires decisions to prioritize competing and conflicting responsibilities

risk assessment

- risks that may hinder achievement of corporate objectives -serves as a framework for management to evaluate and improve their firms' prevention, detection, and management of risk - expands on the prior framework to include objective setting - assists an organization in resolving ethical dilemmas based on a firm's mission, its culture, and tolerance for risk

most of the ethical rationale for business's responsibility for the actions of its suppliers stems from 2 conditions:

- suppliers often act at the direction of businesses they supply - business often exercises significant influence over the actions of its suppliers

the ethical judgment is conditional because

- the transaction must be truly voluntary - informed consent is needed - benefits might not occur - other values might conflict

ethical debate product liability: financial burden

- this argument claims that business is best able to pay for damages - yet many businesses have been bankrupted by product liability claims

boards have responsibility beyond the law to explore and investigate

- whom does the board represent? - who are its primary stakeholders, ethically speaking? - if the board is aware of an unethical, but legal, practice--on what basis can the board require the practice to cease? - what is their responsibility beyond the law to explore and investigate the organizations that they represent?

integrative model description

-there are organizations that pursue social ends as the very core of their mission, such as non-profits -some for-profit organizations have social goals as central part of the strategic mission - because these firms integrate economic and social goals, they are using the integrative model of CSR - there are no claims that every business should adopt the principles of benefit corporations (B corps)

three levels of ethical responsibilities on a scale from less to more obligatory

1. ethical responsibilities to do good (volunteering, sponsoring a charity event) 2. prevent harm (good samaritan, use renewable energy) 3. do not cause harm to others (a duty or an obligation, enforced by legal punishment)

ethical framework for marketing

1. person must freely consent to the transaction 2. consent has to be voluntary and informed 3. decide if other values are affected

4 P's of Marketing

1. product - what, how, why, and under what condition is something produced? 2. price- what price is acceptable, reasonable, fair? 3. promotion - how can the product be promoted to support, enhance, and maintain sales 4. placement - where, when, and under what condition should the product be placed in the marketplace

compensation packages serve interests in two ways

1. they provide an incentive for executive performance 2. they serve as rewards for accomplishments reasonable doubts: - in many cases, there is no correlation between compensation and performance - there is a diminishing rate of return on incentives beyond a certain level

strict liability

A legal doctrine that holds an individual or business accountable / manufacturers for damages whether or not it was at fault. In a strict liability case, no matter how careful the business is in its product or service, if harm results from use, the individual or business is liable.

strict liability

A legal doctrine that holds an individual or business accountable for damages whether or not it was at fault. In a strict liability case, no matter how careful the business is in its product or service, if harm results from use, the individual or business is liable.

stakeholder theory

A model of corporate social responsibility that holds that business managers have ethical responsibilities to a range of stakeholders that go beyond a narrow view that the primary or only responsibility of managers is to stockholders.

ongoing monitoring

Assessment capabilities to uncover vulnerabilities.

reputation management

The practice of caring for the "image" of a firm.

caveat emptor (book definition)

Caveat emptor means "buyer beware" in Latin, and this approach suggests that the burden of risk of information shall be placed on the buyer. This perspective assumes that every purchase involves the informed consent of the buyer, and, therefore, it is assumed to be ethically legitimate.

information and communications

Fair and truthful transmission of information.

integrative model of CSR definition

For some business firms, social responsibility is fully integrated with the firm's mission or strategic plan.

duty of loyalty

requires faithfulness from board members by giving undivided allegiance when making decisions affecting the organization conflicts of interest are always to be resolved in favor of the organization

implied warranty (book)

Implied assurances by a seller that a product is reasonably suitable for its purpose.

economic model of CSR definition

Limits a firm's social responsibility to the minimal economic responsibility of producing goods and services and maximizing profits within the law.

stealth marketing (book)

Marketing campaigns that are based on environments or activities where the subject is not aware that she or he is the target of a marketing campaign; those situations where one is subject to directed commercial activity without knowledge or consent.

Corporate Sustainability Report

Provides all stakeholders with financial and other information regarding a firm's economic, environmental, and social performance.

tort law

The law of torts recognizes that we all have a general duty not to cause harm to others.

Corporate Social Responsibility

The responsibilities that businesses have to the societies within which they operate. In various contexts, it may also refer to the voluntary actions that companies undertake to address economic, social, and environmental impacts of their business operations and the concerns of their principal stakeholders. Specifically, CSR suggests that a business identify its stakeholder groups and incorporate its needs and values within its strategic and operational decision-making process. - business have a responsibility to obey the law - economically, businesses have a social responsibility to produce the goods and services society demands - refers to the ethical expectations that society has for business

stakeholder model of CSR definition

The view that business exists within a web of social relationships. The stakeholder model views business as a citizen of the society in which it operates and, like all members of a society, business must conform to the normal range of ethical duties and obligations that all citizens face.

insider trading

Trading of securities by those who hold private inside information that would materially impact the value of the stock and that allows them to benefit from buying or selling stock. - illegal insider trading occurs then corproate insiders provide 'tips' to family members, friends, or others to buy or sell the company's stock based on that information - 'private information' includes privildeged information that has not yet been released to the public - the SEC has treated the detection and prosecution of insider trading violations as one of its enforcement priorities - insider trading may also be based on a claim of unethical misappropriation of proprietary knowledge - propreitary knowledge refers to the knowledge only those in the firm should have, knowledge owned by the firm and not to be used by abusing one's fiduciary responsibilities to the firm - considered patently unfair and unethical as it precludes fair pricing based on equal access of information

responsibility meanings

responsibility may mean the cause of something and in another sense it involves accountability

the most basic ethical business issue facing gatekeepers involves

a conflict of interest this exists when a person holds a position of trust that requires that he or she exercise judgment on behalf of others, but where his or her personal interest and/or obligations conflict with the proper exercise of that judgement

sustainability as a topic within CSR

a firm's financial goals must be balanced against, and may be overridden by, environmental considerations

fiduciary duties

a legal duty, grounded in trust, to act on behalf of or in the interests of another--to their clients

committee of sponsoring organization (COSO)

a private sector initiative established in 1985 with the intent of improving the quality of financial reporting through a focus on corporate governance, ethical practices, and internal control

a vulnerable consumer + examples

a vulnerable consumer lacks the intellectual capacities, psychological ability, experience or maturity to make informed consumer judgments children and impaired adults are examples of consumer vulnerability

marketing

according to the american marketing association, marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit organization and its stakeholders

gatekeepers

act as watchdogs to ensure those in the marketplace play by the rules and conform to the market functions as it should

economic model csr and philanthropy

business is free to contribute to social causes as a matter of philanthropy - it builds goodwill and/or a good reputation, provides tax deduction

contractual standards for product safety

caveat emport and implied warranty

ch 5

ch 5

ch 8

ch 8

analysts contend that corruption is evidence of a complete failure in

corporate governance structures

beyond issues of personal morality and economic fairness, excessive compensation raises ethical issues of

corporate governence and finance

european union 8th directive of 2005

covers many of the same issues as SOX but applies to companies on the European Union exchanges requires cooperation with regulators in other countries does not have whistleblower protection or similar shareholder reporting as SOX

both internal factors such as the COSO controls and external factors such as SOX requirements must be supported by a

culture of accountability

in general, business has an ethical responsibility to

design, manufacture, and promote its products in ways that avoid causing harm to consumers

sarbanes-oxley act

enforced by the SEC and applies to more than 15,000 publicly held companies in the US and some foreign issuers the act is intended to provide protection where oversight did not exist (oversight in terms of accountability and responsibility) aka public reform and investor protection act of 2002

buzz marketing

happens when people are paid to create a buzz around a new product by using it and discussing it online - influencers

dependence effect

held that consumer demand depended on what producers had to sell; this has 3 major and unwelcome implications: 1. first, by creating wants, advertising was changing the law of supply and demand on its head--demand turns out to be a function of supply 2. second, advertising and marketing creates irrational and trivial consumer wants and distorts the entire economy 3. finally, by creating consumer wants, advertising and other marketing practices violate consumer autonomy

when business is held accountable, the costs for injuries eventually fall on those consumers who buy the product through

higher costs

the doctrine of respondent superior

holds an employer responsible for the actions of their employees when performing ordinary duties

which tradition in ethics would have the strongest objections to manipulation

principle-based/justice (utilitarian would state that the goodness or badness of manipulation would depend on the consequences)

section 404 SOX

management assessment of internal controls

internal control

mechanisms are established internally to comply with financial reporting laws and regulations A process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.

the problem with a focus on reputation is that social responsibility then can beocome

merely social marketing

ethics contract law would

not apply to the majority of business situations in which consumers do not have a contractual relation with the business that created or manufactures the product

control activities

policies/procedures that support control environment

SOX section 301

public company audit committees, mandating majority of independents on any board and total absence of current or prior business relationships

american institute of certified public accountants (AICPA)

publishes professional rules to prevent accountants from being put into conflicts accountants are governed by the AICPA's Code of Professional Conduct

section 406 SOX

required codes of ethics for senior financial officers

___ determine ethical duties and provide a source for rules which determine how profressionals ought to act

role identities

section 307

rules of professional responsibility for attorneys

marketing practices - ethically improper

sales and marketing that appeal to fear, anxiety, or other irrational motivations are ethically improper

SOX section 201

services outside the scope of auditors--no consulting rather than auditing

watchdogs

several important categories of business profressionals--for example, lawyers, auditors, accountants, and financial analysts--function based on the internal controls that exist within market-based economic system Some professions, such as accountant, that act as "watchdogs" in that their role is to ensure that those who participate in the marketplace are playing by the rules and conforming to the conditions that ensure the market functions as it is supposed to function.

benefit corporations

show profit is not incompatible with doing good, and therefore that one can do good profitably

Federal Sentencing Guidelines

suggest the board exercise "reasonable oversight" with respect to the implementation and effectiveness of the ethics/compliance program the program should have adequate resources, levels of authority, and direct access to the board

john kenneth galbraith claimed..

that advertising and marketing created the very consumer demand that production aimed to satisfy he dubbed the dependence effect

economic model of CSR, friedman suggests

that managers fulfill their ethical responsibility by increasing shareholder wealth and pursuing profit this common view of CSR has its roots in the utilitarian tradition and in neoclassical economics

when advertising creates the wants and desires on the basis of which consumers act the focus becomes..

the concept of autonomous desires rather than autonomous behavior consumer autonomy is violated by advertising's ability to create non-autonomous desires

duty of care

the exercise of reasonable care by ensuring that executives carry out responsibilities and comply with the law

primary question of CSR is

the extent to which businesses and the managers who run them have ethical responsibiltieis beyond producing goods and services within the law

If neither the company nor the consumer is at fault, who should pay for the injuries?

the government

contract law/model

the only duties that a person owes are those that have been explicitly promised to another party. Otherwise, that person owes nothing to anyone.

ethical responsibilties

those things that we should do, even if sometimes we would rather not

manipulate

to manipulate something is to guide its behavior, bypassing its autonomy may be done with or without deception

the worst form of manipulation occurs when

vulnerable people are targeted for abuse

GAAP - generally accepted accounting principles

was established by the Financial Accounting Standards Board that stipulate methods of gathering and reporting information govern accounting practices

when can conflicts arise (conflict of interest)

when a person's ethical obligations in their profressional duties clash with personal interests