Business Ethics, 7E Richard T DeGeorge Solution Manual with Essay and Quizzes

Instructor’s Manual with Essays and Quizzes

Kevin K. Durand Henderson State University

BUSINESS ETHICS Seventh Edition

Richard DeGeorge

CONTENTS

1. Ethics and Business 2. Conventional Morality and Ethical Relativism 3. Utility and Utilitarianism 4. Moral Duty, Rights, and Justice 5. Virtue Ethics and Moral Reasoning 6. Moral Responsibility: Individual and Corporate 7. Justice and Economic Systems 8. American Capitalism: Moral or Immoral 9. The International Business System, Globalization, and Multinational Corporations 10. Corporations, Morality, and Corporate Social Responsibility 11. Corporate Governance, Disclosure, and Executive Compensation 12. Finance, Accounting, and Investing 13. Safety, Risk, and Environmental Protection 14. Whistle-Blowing 15. Marketing, Truth, and Advertising 16. Workers’ Rights: Employment, Discrimination, and Affirmative Action 17. Workers’ Rights and Duties Within a Firm 18. Workers’ Rights and International Business 19. The Information Age: Property and New Technologies 20. Information, Computers, the Internet, and Business 21. Global Issues and International Obligations 22. The New Moral Imperative for Business

CHAPTER 1: ETHICS AND BUSINESS OBJECTIVES 1.

2.

3.

4.

5.

6.

Identify what the Myth of Amoral Business is.

Understand the relationship between business as a human activity and, thus, as something that can be evaluated from a moral point of view.

Understand the relationship between business and society, as a whole.

Identify descriptive ethics, normative ethics, and metaethics.

Identify how business issues fits with the other systems of ethics.

Identify the five kinds of activities that comprise business ethics.

CHAPTER SUMMARY HORATIO ALGER AND STOCK OPTIONS In the last decades of the nineteenth century, the novels by Horatio Alger caught the imagination of young Americans. The stories presented a “rags to riches” plot about the energetic and dedicated work of the hero. The novels gave flesh to the widespread belief that America was the land of opportunity in which those who worked hard could make it big. Hard work and a little luck were all that was required. Oddly, alongside that belief was another contradictory one that anyone who was or became rich must have become so by unethical activity and behavior.

Stock options have been one way in which the American “dream” was instantiated – companies made stock options a feature of employee compensation in lieu of higher compensation. As stock options rose, many employees, particularly in high-tech companies, became very wealthy – on paper. As the market dropped, and the value of the stock dropped below the strike price, the weaknesses and volatility of the stock option programs was made clear. Additionally, the large blocks of stock given to top executives far exceeded those options given to employees. The disparity seems to have influenced both the rags to riches image of Horatio Alger and the suspicion that those who had exceeding wealth had acquired it unscrupulously.

The American people have for a long time been ambivalent in their response, and despite a growing consensus that ethics has a role to play in business, the public view of business is still expressed in what can be called the Myth of Amoral Business.

THE MYTH OF AMORAL BUSINESS The Myth of Amoral Business expresses the ambivalence of many toward business and a popular, widespread view of American business. The myth describes how many American businesses and American businessmen and businesswomen perceive themselves and are perceived by others: Business is concerned primarily with profit. To earn a profit, a business produces goods or provides services and engages in buying and selling. According to the myth, however, businesses and people in business are not explicitly concerned with ethics. They are not unethical or immoral; rather, they are amoral insofar as they feel that ethical considerations are inappropriate in business. What is the true relation of ethics and business, which is only slowly emerging? What are the indications of its emergence?

BUSINESS ETHICS AND ETHICS Business Ethics as a Part of Ethics 1.

Descriptive ethics is closely related to anthropology, sociology, and psychology and leans heavily on them.

• It consists of studying and describing the morality of a people, culture, or society.

• It compares and contrasts different moral systems, codes, practices, beliefs, principles, and values.

• It provides basic material that normative ethics must account for, and it provides a touchstone of the considered morality of a people or society with which the normative theory must more or less coalesce.

2.

Normative ethics builds on the whole that descriptive ethics provides and attempts to supply and justify a coherent moral system based on it.

• It attempts to form into a related whole the various norms, rules, and values of a society’s morality. It tries to render these as consistent and coherent as possible, with perhaps some hierarchical arrangement of norms.

• It attempts to find the basic principles from which the particular norms can be derived.

• It attempts, in a variety of ways, to justify the basic principle of morality.

• It attempts to provide a procedure by which conflicting norms can be adjudicated and particular cases decided.

3.

Metaethics, the third portion of general ethics, is closely related to normative ethics. Metaethics is the study of normative ethics, and, to some extent, both normative and descriptive ethics involve some metaethical activity.

It is sometimes called analytical ethics because it is concerned with analysis.

• First, metaethics deals with the meaning of moral terms. It asks, for instance, what the terms good and bad mean in the moral sense and what moral responsibility, moral obligation, and other similar phrases mean.

Meaning, of course, is closely related to linguistic usage. Some people think meaning is identical with such usage. To say what good means may be distinct from saying what things or actions are good. The former is generally considered a metaethical concern, the latter a normative ethical concern.

• Second, metaethics studies the logic of moral reasoning.

The analysis of moral reasoning involves clarifying and evaluating presuppositions and investigating the validity of moral arguments. A famous, and still not completely resolved, metaethical dispute concerns the question of whether a moral ought or duty can be derived logically from a statement of what is, exclusive of normative premises. For instance, from the fact that people typically wish to live rather than die, can we infer a right to life or an injunction against murdering them?

From the fact that people pursue pleasure, can we conclude that it is ethically right or good to pursue pleasure? If we cannot derive how we should act from facts about how we do act, can we derive them from any set of facts, or do we need values or preferences or rules? If we do, why should we act in accordance with these? What is the basis or rationale for prescribing how we should act? The general answer to that question is metaethical. A particular theory that in fact presents a basis or rationale is a normative theory.

• Third, metaethics analyzes hidden presuppositions and brings them to light for critical scrutiny. Many of the activities of ordinary life are simply accepted as given. By viewing them as social constructs, one can look, for instance, at the presuppositions of what is taken to be a just society or a just practice and see if it stands up to critical scrutiny.

Business ethics typically involves five kinds of activities.

• The first is the applying of general ethical principles to particular cases or practices in business. Deciding whether the actions involved are immoral or morally justifiable is important. But the analysis of cases does not end there. Solving cases frequently involves the development, as well as the application, of special rather than general moral principles, which can nonetheless be made universal. Cases involving unethical activity sometimes suggest issues that need attention, clarification, and discussion. Such cases also challenge us to consider imaginatively how we can prevent similar cases from arising in the future, and to develop suggestions that business, if it wishes to act ethically, might implement, or that government, if necessary, might adopt. Some of the questions are as follows: What changes in organization, managerial techniques, social structures, programs, or approaches are required? And would moral imagination, care in assessing future development, or changes in attitude help preclude moral dilemmas? Business ethics, however, involves more than just applying moral principles to business.

• The second kind of activity is metaethical. We shall investigate, for instance, whether moral terms that are generally used to describe individuals and the actions they perform can also be applied to organizations, corporations, businesses, and other collective entities. For instance, are corporations artifacts to be controlled, or moral or quasi-moral entities with rights, or do they have some other status? Do they have consciences in the same way individuals do? Does moral language appropriately apply to them, and if so, does it apply in the same way as it does to individuals? The answers to these questions are not supplied by general ethical theory, which traditionally has been concerned with the actions of human individuals. The meaning of responsibility must be changed if it is to be appropriately applied to corporations as well as to human persons. The analysis of this type of problem in business ethics cannot take place in abstraction from general ethical theory. There is a reciprocal relation between business ethics and general ethics. But those involved in business ethics often engage in metaethical inquiries that their work demands and that general theory does not provide.

• A third activity of business ethics is the analysis of the presuppositions of business—both moral presuppositions and presuppositions from a moral point of view. Because business operates within an economic system, part of the proper task of business ethics is to raise questions about the morality of economic systems in general and about the morality of specific, for example, the American, economic systems in particular. In evaluating structures of business, we must also analyze the meaning and justification of such nonmoral terms as property, exploitation, competition, and the presuppositions and uses of cost-benefit analyses, accounting procedures, and so on.

• Fourth, those in business ethics are sometimes led by embedded problems to go beyond the field of ethics into other areas of philosophy and into other domains of knowledge, such as economics or organization theory. But when they go beyond their own areas, they usually do so to resolve some problem in business ethics or to investigate in some other area what appeared, initially, to be a problem in business ethics. This activity becomes especially important in dealing with macromoral issues, such as whether rich countries have any moral obligations to poor countries, or multinational corporations to host countries. Here our ordinary moral intuitions are less clear than they are in our personal dealings with individuals. Hence, there is a special need to sort out the issues carefully, to see which are moral and which are not, and to clarify the language and the level of moral discourse. Sometimes the task concerns reducing moral problems to managerial, organizational, or economic problems, or vice versa.

• The fifth activity in which business ethics is typically involved is describing morally praiseworthy and exemplary actions, of either individuals in business or particular firms. Business ethics initially developed in reaction to scandals, and the cases that aroused public indignation were those that violated fundamental norms of human decency. Business ethics, however, is involved not only in the negative task of trying to clarify what actions are wrong, but also of presenting moral ideals to which businesspeople and corporations can rise. Just as society provides moral exemplars, heroes, saints, and others on whom we can model our lives and behavior, so there are moral exemplars in the business world who can serve as examples to others and set a goal toward which others might aspire.

Business ethics can help people approach moral problems in business more systematically and with better tools than they might otherwise use. It can help them to see issues they might typically ignore. It can also impel them to make changes they might otherwise not be moved to make. But business ethics will not, in and of itself, make anyone moral. Business ethics, as is true of ethics in general, presupposes that those who study it already are moral beings, that they know right from wrong, and that they wish to be even better, more thoughtful, and more informed moral beings. Business ethics will not change business practices unless those engaged in the practices that need moral change wish to change them. Business ethics can produce arguments showing that a practice is immoral, but obviously, only those in a position to implement the changes will be able to bring them about. Business ethics is a field with practical import, but it is up to those who study it to put what they learn into practice.

CASE SUMMARIES The Case of the Collapsed Mine Though this case is fictitious, the reality of collapsed mines in the coal industry is an unfortunate reality. The use of cases can cause general questions in ethics to come into clearer focus.

Consider the case of the collapsed mine shaft. In a town in West Virginia, miners were digging coal in a tunnel thousands of feet below the surface. An explosion traps eight miners in a pocket. The explosion was one of great force, and the extent of the tunnel’s collapse was considerable. The cost of reaching the men in time to save their lives would amount to several million dollars. The problem facing the manager was whether the expenditure of such a large sum was worth it. What, after all, was a human life worth? Who should make the decision, and how should it be made? Did the manager owe more to the stockholders of the corporation or to the trapped workers? Should he use the slower, safer, cheaper way of reaching them and save a large sum of money, or the faster, more dangerous, more expensive way, and possibly save their lives?

TEACHING STRATEGIES As with some chapters of this text, the first case study is a starting point for conversation and for the earlier section of the chapter. Another case study completes the chapter. At times, it is more pedagogically appropriate to save both case studies for later, and in those instances, the opening case study is grouped along with the concluding one.

In this chapter, however, as the story of Horatio Alger and the historical background with regard to stock options is crucial in developing the notion of the myth that is the arc of the entire text, it is discussed prior to the beginning of the chapter material.

As a pedagogical matter, it would be helpful here to encourage students to offer stories they have heard or that are part of their own past as examples of either “rags to riches” stories or corporate scandals. Generally discussions of predatory business practices or “pragmatic” business practices wherein “ethics” is seen as a quaint or irrelevant feature will be lively. One can expect the students to arrive at the substance of the Myth of Amoral Business through the course of the discussion. Then, it makes it clearer going forward that there is an argument being developed throughout the text as well as in the opening chapter – that the Myth of Amoral Business is a myth and that there is not only a place for ethics in business, but indeed, that ethical business is itself good business.

KEY TERMS AND CONCEPTS The Myth of Amoral Business Metaethics Property Exploitation Competition Descriptive ethics Normative ethics ESSAY QUESTIONS 1.

2.

3.

4.

5.

What is the Myth of Amoral Business? In what ways is it both an accurate representation of business and an inaccurate one?

Compare and contrast descriptive ethics and normative ethics.

What are the three kinds of business ethics discussed in the chapter, and how are they similar and different?

How is the “business of business” decided? By whom and on what basis?

What is the difference between metaethics and casuistry?

MULTIPLE CHOICE 1.

Who was the moral philosopher who wrote The Theory of Moral Sentiments as well as The Wealth of Nations?

A. John Locke B. John Wesley C. David Hume D. Adam Smith E. Immanuel Kant

2.

Who was the philosopher who condemned usury?

A. Thomas Aquinas B. Reinhold Niebuhr C. Adam Smith D. Immanuel Kant E. G. W. F. Hegel

3.

The Myth of Amoral Business is consistent with which of the following?

A. Business and people in business are immoral.

B. Businesses and people in business are inherently ethical.

C. Businesses and people in business are not explicitly concerned with ethics.

D. Businesses and people in business are unethical

4.

Which of the following describes descriptive ethics?

A. It deals with the meanings of moral terms.

B. It compares and contrasts different ethical systems, codes, practices, and beliefs.

C. It attempts to form into a related whole the various norms, rules, and values of a society’s morality.

D. It studies the logic of moral reasoning.

5.

Which of the following describes normative ethics?

A. It attempts to form into a related whole the various norms, rules, and values of a society’s morality.

B. It compares and contrasts different ethical systems, codes, practices, and beliefs.

C. It studies the logic of moral reasoning.

D. It deals with the meanings of moral terms.

6.

Which of the following describes metaethics?

A. It compares and contrasts different ethical systems, codes, practices, and beliefs.

B. It attempts to form into a related whole the various norms, rules, and values of a society’s morality.

C. It attempts to justify the basic principle of morality.

D. It analyzes hidden presuppositions and brings them to light for critical scrutiny

7.

Which of the following describes normative ethics?

A. It attempts to justify the basic principle of morality.

B. It compares and contrasts different ethical systems, codes, practices, and beliefs.

C. It consists of studying and describing the morality of a people, culture, or society.

D. It analyzes hidden presuppositions and brings them to light for critical scrutiny

8.

Special ethics applies to which of the following?

A. It analyzes hidden presuppositions and brings them to light for critical scrutiny B. It consists of studying and describing the morality of a people, culture, or society.

C. It analyzes societal practices and their application to particular problems.

D. It consists of applying general ethics to particular problems.

9.

Which of the following is the art of solving difficult problems, cases, or deliberations through the careful application of moral principles?

A. special effects B. normative ethics C. casuistry D. metaethics

10. Business ethics is typically which of the following?

A. special effects B. normative ethics C. casuistry D. metaethics

ANSWERS: 1. D; 2. A; 3. C; 4. B; 5. A; 6. D; 7. A; 8. D; 9. C; 10. C

CHAPTER 2: CONVENTIONAL MORALITY AND ETHICAL RELATIVISM OBJECTIVES 1.

2.

3.

4.

5.

Identify the levels of moral development.

Identify the differences between subjective and objective morality.

Identify the differences between descriptive relativism and normative ethical relativism.

Identify the differences between moral absolutism and moral pluralism.

Identify the differences between theologically based ethics and philosophically based ethics.

CHAPTER SUMMARY SUBJECTIVE AND OBJECTIVE MORALITY Three characteristics are usually associated with such judgments.

• First, moral judgments about the rightness or wrongness of an action are held to be universally applicable. If an action is right for me, it is also right for anyone else in the same circumstances. If it is wrong for you, it is also wrong for anyone else similarly placed. Something of the notion of universality is captured in the injunction “do unto others as you would have them do unto you.” The moral rule against murder says it is wrong for anyone to murder someone else. It is universal because it applies to everyone.

• Second, moral judgments are important. They are so important, in fact, that they override other considerations.

We are morally bound to do what we sometimes may not want to do. For instance, it is wrong to steal, even when we would like to steal. If we say that it is our moral duty to perform an action, that means we have an obligation to do it, and this can only be overridden by a stronger moral consideration. Convenience, personal gain, and even legal requirements fall before moral obligations.

• Third, moral praise can properly accompany the doing of morally right actions, and moral blame can properly accompany acting immorally. If we say that someone in a business transaction acted immorally, this means that, from a moral point of view, it is appropriate for us to blame that person. For instance, if taking bribes is immoral, then those involved in bribery deserve moral blame or censure.

DESCRIPTIVE RELATIVISM Descriptive transcultural relativism describes the differences between cultures. In some cases, the differences are such that the terms “right” and “wrong” or “better” and “worse” are not applicable to the differences noted. All cultures have a language, and some languages are more complex than others. But it makes little sense to say that one language is, in some absolute sense, better than another. Similarly, many aspects of one culture will differ from aspects of another, but the two can be equally good.

NORMATIVE ETHICAL RELATIVISM Normative ethical relativism claims that when any two cultures or any two people hold different moral views of an action, both can be right. Thus, an action may be right for one person or society, and the same action, taken in the same way, may be wrong for another person or society, and yet the two persons or societies are equally correct.

MORAL ABSOLUTISM One alternative to ethical relativism is moral absolutism. A moral absolutist holds that there are eternal moral values and eternal moral principles that are always and everywhere applicable.

MORAL PLURALISM We can distinguish four levels of moral pluralism: radical moral pluralism, the pluralism of moral principles, the pluralism of moral practices, and the pluralism of self-realization.

• Radical moral pluralism describes that state of affairs in which people hold mutually irreconcilable views about morality, such as what the terms “right” and “wrong” mean, and which actions are right or wrong.

• A plurality of moral principles within a society does not necessarily mean irreconcilable diversity. Pluralism on the level of moral principles is compatible with social agreement on the morality of many basic practices.

• On the level of specific actions, we encounter a variety of moral opinions about some of them. This pluralism regarding moral practices may stem from differences of moral principles, but it may also stem from differences of fact or perception of facts, differences of circumstances, or differences in the weighing of relevant values.

Even when there is basic agreement on principles, not all moral issues are clear.

• The fourth level of moral pluralism is that of self-realization. As long as the members of a society abide by the basic moral norms, they are allowed, in such a pluralistic society, to choose freely their other values and their lifestyles.

PLURALISM, BUSINESS, AND THE LAW • What laws should a society establish and how are they justified? Many laws prohibit immoral practices; immoral practices, for the most part, are socially harmful practices. Some, such as murder, stealing, and perjury, are so harmful that to moral sanction is added the sanction of law. Hence, one way to argue that a law should be passed is to argue that the conduct the law is to govern is immoral and seriously harmful to society. For instance, racial discrimination was immoral before it was made illegal. The worst abuses by business—such as slave or child labor or sweatshop conditions—although unethical could only be substantially eliminated when made illegal. If law were the only guide, it would not have been possible to argue against those abuses.

• Law is for the most part reactive. There is a lag between practices that society discovers are harmful and legislation being drafted and passed to render them illegal. One reaction to scandals is often an attempt to preclude similar future scandals by legislation. Thus law is important not as a determinant of what is or should be permitted but as an enforcer of rules that aim to prevent social harm or promote human or social well-being.

• Not all laws are morally defensible. Laws requiring racial segregation and discrimination are a case in point. To abide by the law in practicing discrimination was, in fact, to act immorally. It is dangerous to equate law with what one is morally, as well as legally, required to do because this denies the possibility of arguing, from a moral point of view, that either a law should be passed or a bad law should be repealed.

• Not everything that is immoral can be made illegal. Although, for instance, it is immoral to lie, this does not mean that all lying should be made illegal. Such a law would be unenforceable, nor would it be worth the time and effort to try to enforce it to any considerable extent. Yet it does not follow—even for those in businesses who claim that they are bound only by law—that it would be right for businesspeople to lie whenever they feel like it, either to those within the company or to those with whom they do business. In most cases it would be considered bad business as well as immoral.

• All this notwithstanding, it is sometimes the case that actions that are not unethical in themselves become unethical because of laws that are passed. This is because in general, members of a society have a moral obligation to obey the just laws of their society. An example would be the obligation to pay one’s income tax.

Members of a society have no general moral obligation to give money to the government. Once a tax law is passed, however, they incur the moral obligation to pay their fair share of taxes. The amount they pay is determined by the law, and may vary from time to time, place to place, and level of income. Cheating on one’s income tax is both unethical and illegal, and in this case is unethical because it is illegal.

BUSINESS AND RELIGIOUS ETHICS Just as law is important but not the solution to moral pluralism, so religious ethics is important to many in and out of business, but not the solution to moral pluralism because there are many religions and their ethical codes are not all the same. This is clearly the case on the global level and is also true on the national level if a single religion is not enforced by the state. This does not mean that individuals may and many do live their lives, including their business lives, on the basis of their religiously held moral beliefs.

APPROACHES TO ETHICAL THEORY The search for a completely satisfactory ethical theory is a never-ending one. There is no theory on which all people or all philosophers agree. Nonetheless, we need not describe here the many different ethical systems that have been developed in the history of philosophy. Through the centuries, two basic approaches to moral reasoning have

prevailed. One approach argues on the basis of ends. This approach to ethical reasoning is called a teleological approach, the most prominent version of which is consequentialism. The latter states that whether an action is right or wrong depends on the consequences of that action. A common form of consequentialist ethics, one that is very strongly represented in our society, is utilitarianism, a theory we shall examine in the next chapter.

Philosophers and others who wish to be consistent often attempt to use only one of the ethical approaches to questions. Because they hold a single approach, they are called ethical monists. Those who are willing to mix their approaches are sometimes called ethical pluralists. They hold one primary approach or set of principles but join them with another approach or set of principles.

CASE SUMMARY Purchasing Abroad Mary Thompson is the vice president and head of the strategic planning division of an American-based multinational. She long believed in the slogan “When in Rome, do as the Romans do,” but in recent years she has been forced to rethink that position. Faced with the prospects of purchasing fabric likely produced with forced labor, or with child labor, or in situations where women are systematically oppressed, should she use American values and American views as a guide to what is right and wrong, or should she simply get the best products she can at the best price and not worry about how or by whom they are produced?

TEACHING STRATEGIES It is most important to make clear the distinctions between relativism and consequentialism and the ways in which each of the principles/ethical approaches is developed. Incorporating the Purchase Abroad case allows the instructor to distinguish between descriptive and normative relativism (and, perhaps, continue the conversation of the first chapter on the Myth of Amoral Business into this chapter).

Making the distinction between ethical monism and ethical pluralism is also an important building block for later chapters. The different paths – approaching problems from a single ethical perspective or from a plurality of them – form the basis of much of the analysis in the forthcoming chapters.

This is a chapter that continues to build the foundation of the ethical frameworks that will be necessary for truly assessing ethical situations. Again, it is important that that foundation is solidly understood before progressing.

KEY TERMS AND CONCEPTS Ethical pluralism Ethical monism Consequentialism Utilitarianism Moral pluralism Relativism Descriptive Relativism Normative Ethical Relativism Moral Absolutism Subjective Morality Objective Morality ESSAY QUESTIONS 1.

2.

3.

4.

Compare and contrast theologically base ethics and philosophically based ethics.

Compare and contrast the teleological approach to ethics and a deontological one.

What is the difference between ethical monism and ethical pluralism? What are the strengths and weaknesses of each?

What is the difference between saying that something is objectively right and subjectively right?

5.

What is the distinction between being a moral absolutist and a moral relativist? Is there some position between the two and, if so, what is it?

MULTIPLE CHOICE 1.

What is the first level of moral development, according to Lawrence Kohlberg?

A. preconventional B. conventional C. autonomous D. postconventional

2.

According to Lawrence Kohlberg, what is the second level of moral development?

A. preconventional B. conventional C. autonomous D. postconventional

3.

Which level of moral development does Kohlberg call the “principled level”?

A. Level I B. Level IV C. Level III D. Level II

4.

What does it mean for an action to be subjectively right?

A. An action is subjectively right if it is in conformity with the moral law.

B. An action is subjectively right if a person believes that the action is moral.

C. An action is subjectively right if it promotes the greater good.

D. An action is subjectively right if it advances one’s own self-interest.

5.

What does it mean for an action to be objectively right?

A. An action is objectively right if a person believes that the action is moral.

B. An action is objectively right if it promotes the greater good.

C. An action is objectively right if it advances one’s own self-interest.

D. An action is objectively right if it is in conformity with the moral law.

6.

What is the name given to philosophers who attempt to use only one ethical approach to ethical questions?

A. ethical pluralists.

B. utilitarians C. ethical monists.

D. deontologists

7.

What is the name given to philosophers who construct their ethical approaches with mixed approaches?

A. ethical pluralists.

B. utilitarians C. ethical monists.

D. deontologists

8.

Consequentialism belongs to which sort of ethical approach?

A. deontological B. special C. teleological D. theological

9.

A Kantian ethical approach applies to which sort of general ethical approach?

A. deontological

B. special C. teleological D. theological 10. John Stuart Mill’s approach to ethics would be classified as which sort of general ethical approach?

A. deontological B. utilitarian C. theological D. ontological

ANSWERS. 1. A; 2. B; 3. C; 4. B; 5. D; 6. C; 7. A; 8. C; 9. A; 10. B

CHAPTER 3: UTILITY AND UTILITARIANISM OBJECTIVES 1.

2.

3.

4.

5.

6.

Describe the development and types of utilitarianism.

Identify the differences between hedonistic utilitarianism and eudaimonistic utilitarianism.

Identify the similarities (and differences) between the pleasure/pain calculus of utilitarianism and the costbenefit analysis in business.

Identify the strengths and weaknesses of utilitarian ethics as experienced in American business.

Discuss the problems with an ethical theory that seems to elevate consequences (or ends) over means.

Identify the differences between act- and rule-utilitarianism.

CHAPTER SUMMARY UTILITARIANISM Utilitarianism is an ethical theory that holds that an action is right if it produces, or if it tends to produce, the greatest amount of good for the greatest number of people affected by the action. Otherwise the action is wrong.

This cost-benefit analysis is a form of utility calculation. People in business theory use utility curves to plot the results of various actions, choosing those that maximize whatever it is that they wish to achieve. This utility approach is not foreign to most people. It is widely used in many forms of general decision making and can be applied to moral issues as well as to strictly business issues. A defense of utilitarianism as an ethical theory is that it describes what rational people actually do in making moral decisions. It explicitly formulates for them the procedures they intuitively and spontaneously use in moral reasoning. The theory renders explicit what is implicit in the ordinary moral reasoning and argumentation that we ourselves use Utilitarianism adopts a teleological approach to ethics and claims that actions are to be judged by their consequences. According to this view, actions are not good or bad in themselves. Actions take on moral value only when considered in conjunction with the effects that follow upon them.

ACT AND RULE UTILITARIANISM Act utilitarianism holds that each individual action, in all its concreteness and in all its detail, is what should be subjected to the utilitarian test.

Rule utilitarians hold that utility applies appropriately to classes of actions rather than to given individual actions. Thus, by looking at the general consequences of breaking contracts in the past, we can determine that breaking contracts is immoral.

OBJECTIONS TO UTILITARIANISM One objection claims that utilitarianism is ungodly because it proposes utility, rather than the Bible or God, as a basis for moral judgments.

A second objection frequently brought against utilitarianism is that no one has the time to calculate all the consequences of an action beforehand.

A third objection to utilitarianism is that we cannot know the full results of any action, nor can we accurately weigh the different kinds of good and evil that result. The calculation is artificial and not practical.

APPLYING UTILITARIANISM

1.

2.

3.

4.

5.

6.

7.

8.

9.

Accurately state the action to be evaluated.

Identify all those who are directly and indirectly affected by the action.

Consider whether there is some dominant, obvious consideration that carries such importance as to outweigh other considerations.

Specify all the pertinent good and bad consequences of the action for those directly affected, as far into the future as appears appropriate, and imaginatively consider various possible outcomes and the likelihood of their occurring.

Weigh the total good results against the total bad results, considering quantity, duration, propinquity or remoteness, fecundity, and purity for each value (kind of good and kind of bad), and the relative importance of these values.

Carry out a similar analysis, if necessary, for those indirectly affected, as well as for society as a whole.

Sum up all the good and bad consequences. If the action produces more good than bad, the action is morally right; if it produces more bad than good, it is morally wrong.

Consider, imaginatively, whether there are various alternatives other than simply doing or not doing the action, and carry out a similar analysis for each of the other alternative actions.

Compare the results of the various actions. The action that produces the most good (or the least bad, if none produces more good than bad) among those available is the morally proper action to perform

UTILITARIANISM AND BRIBERY Bribery in business is an interesting kind of action to examine from a utilitarian point of view, because those who engage in bribery frequently justify their actions based on something similar to utilitarian grounds.

Utilitarianism, far from being a self-serving approach to moral issues, demands careful, objective, and impartial evaluation of consequences. It is a widely used—but often misused—approach to moral evaluation. A powerful tool of moral reasoning, it is a technique well worth mastering.

CASE SUMMARIES An Airplane Manufacturing Case An airplane manufacturer has spent a great deal of money developing a new airplane. The company badly needs cash because it is financially overextended. If it does not get some large orders soon, it will have to close down part of its operation. Doing that will put several thousand workers out of jobs. The president of the company bribes a foreign minister to insure the purchase of the planes, arguing that the good done overall justifies the use of bribery.

TEACHING STRATEGIES Utilitarianism is deceptively simple. A less than fully reflective reading of utilitarianism could imagine it used to justify all manner of activities – the end justifying the means. It is also deceptively simple in that one can rather easily imagine applying the utilitarian calculus to many situations quite easily. That it is difficult in practice becomes clear almost immediately in the context of class discussion. On the theoretical side of things, it is important to note that there are various versions of utilitarianism, and that those conceptions are modifications of the theory to overcome some of the difficulties. For example, Act- and Rule-utilitarianism emphasize different approaches to applying the theory in order to avoid being overwhelmed with the burgeoning complexity of most attempts to apply the view. It is important to emphasize that utilitarianism is neither simple nor a panacea for ethical problems encountered in the business setting. The Airplane Manufacturing Case is a nice example, although any of the preceding case studies can be used effectively to demonstrate that sloppy applications of utilitarianism can actually cause situations that reinforce the Myth of Amoral Business.

KEY TERMS AND CONCEPTS Act Utilitarianism Rule Utilitarianism Bribery

ESSAY QUESTIONS 1.

2.

3.

4.

5.

Compare and contrast hedonistic utilitarianism, eudaimonistic utilitarianism, and ideal utilitarianism.

Compare and contrast act- and rule-utilitarianism.

How does John Stuart Mill respond to those critics who say utilitarianism ignores God and the biblical witness?

Is it possible that a utilitarian calculation could lead to an unjust action? Why or why not?

How might a utilitarian respond to the criticism that utilitarianism cannot make an account of justice, where justice is understood as giving to each person his or her due and treating people equitably?

MULTIPLE CHOICE 1.

The ethical approach that maintains that what has to be calculated is not pleasure or happiness but all intrinsically valuable human goods, which include friendship, knowledge, and a host of other goods valuable in themselves A. hedonistic utilitarianism B. ideal utilitarianism C. eudaimonistic utilitarianism D. all of these

2.

The ethical approach maintains that what has intrinsic value is not pleasure, but happiness.

A. hedonistic utilitarianism B. ideal utilitarianism C. eudaimonistic utilitarianism D. all of these

3.

The ethical approach maintains that what has intrinsic value pleasure and pain.

A. hedonistic utilitarianism B. ideal utilitarianism C. eudaimonistic utilitarianism D. all of these

4.

Which of the following is NOT a step to be taken in a utilitarian analysis?

A. Identify all those who are directly and indirectly affected by the action.

B. Specify only the good consequences of the action for those directly affected.

C. Carry out a similar analysis, if necessary, for those indirectly affected, as well as for society as a whole.

D. Consider, imaginatively, whether there are various alternatives other than simply doing or not doing the action, and carry out a similar analysis for each of the other alternative actions.

5.

Which of the following was a common objection to utilitarianism during John Stuart Mill’s era?

A. Utilitarianism proposes to use the Koran, rather than the Bible, as the basis for good.

B. Utilitarianism argues that utility commands what God would command.

C. Utilitarianism argues that the commands of God are wholly irrelevant.

D. Utilitarianism proposes utility as the basis for good rather than God or the Bible.

6.

Which of the following was the utilitarian who argued that utilitarianism isn’t subject to most of the cultural criticism it received.

A. Jeremy Bentham B. John Stuart Mill C. Immanuel Kant D. John Rawls

7.

Which of the following was a hedonistic utilitarian that argued that we should consider intensity, duration, certainty, propinquity, and fecundity when performing an analysis?

A. Jeremy Bentham

B. John Stuart Mill C. Immanuel Kant D. John Rawls 8.

When faced with the temptation to break a contract, we are always concerned with a particular contract in a particular set of circumstances. To determine the morality of the action, we should calculate the effects of breaking this particular contract. Which sort of utilitarianism is represented here?

A. rule-utilitarianism B. deontological-utilitarianism C. theological-utilitarianism D. act-utilitarianism

9.

When faced with the temptation to break a contract, we should determine the morality of the action, by evaluating the general consequences of breaking contracts in the past. Which sort of utilitarianism is represented here?

A. rule-utilitarianism B. deontological-utilitarianism C. theological-utilitarianism D. act-utilitarianism

10. Which of the following common business practices is roughly analogous to the utility calculus?

A. system analysis B. marketing research C. public relations D. cost-benefit analysis ANSWERS: 1. B; 2. C; 3. A; 4. B;

5. D; 6. B; 7. A; 8. D; 9. A; 10. D

CHAPTER 4: MORAL DUTY, RIGHTS, AND JUSTICE OBJECTIVES 1.

2.

3.

4.

5.

6.

7.

Identify the distinction between deontological ethics and other approaches to ethics.

Understand the tradition of the deontological ethical position.

Identify the connections between reason, duty, and the moral law.

Identify the difference between the Categorical and Hypothetical Imperatives.

Identify the strengths and weaknesses of deontological ethics as experienced in American business.

Discuss the problems with an ethical theory that seems to focus on intentions (which are internal mental states).

Identify the distinctions between retributive, commutative, procedural, and distributive justice.

CHAPTER SUMMARY DEONTOLOGICAL APPROACHES TO ETHICS In general, a deontological approach to ethics denies the utilitarian claim that the morality of an action depends on its consequences. Deontologists maintain that actions are morally right or wrong independent of their consequences. Moral rightness and wrongness are basic and ultimate moral terms. They do not depend on good and the production of, or the failure to produce, good. One’s duty is to do what is morally right and to avoid what is morally wrong, regardless of the consequences of so doing.

REASON, DUTY, AND THE MORAL LAW The deontological tradition holds that what makes an action right is not the sum of its consequences but the fact that it conforms to the moral law. The Kantian test of conformity to the moral law which an action must pass is a formal one. An action is morally right if it has a certain form; it is morally wrong if it does not have that form. The moral law at its highest and most general level states the form that an action must have to be moral. But the moral law at this level, or the highest principle of morality, does not state what content an action must have to be a right action. It states only the form the action must have. Such an approach is therefore called a formalist ethical approach.

Because the moral law is a law, it issues a command or states an imperative—something that must be done. The imperative is an unconditioned one. It states what everyone is to do because it is a command of reason.

A hypothetical imperative states that an action should be done if, or on the hypothesis that, one wishes to achieve a certain end. Thus, “If you wish to do well in school, study!”

The moral law binds unconditionally. Kant called the statement of the moral law, or of the supreme principle of morality, the Categorical Imperative.

For an action to be a moral action, (1) it must be amenable to being made consistently universal; (2) it must respect rational beings as ends in themselves; and (3) it must stem from, and respect, the autonomy of rational beings.

Consistency in Universalization We are inquiring whether the rule, principle, or maxim of the action is internally consistent when made universal.

Since the test is a logical or conceptual one, it does not depend on the factual question of whether everyone does or would do the action.

The formulation of the Categorical Imperative that Kant gave concerning this condition of consistent universalization was, “Act only according to that maxim by which you can at the same time will that it should become a universal law.”

Respect for Rational Beings

Kant formulated a second version of the Categorical Imperative: “Act so that you treat humanity, whether in your own person or in that of another, always as an end and never as a means only.”

Autonomy Three aspects of morality are captured in the notion of autonomy: freedom, the self-imposition of the moral law, and the universal acceptability of the moral law.

1.

This freedom, which we can call the rational freedom of self-determination, becomes moral freedom when we choose to act in accordance with the moral law.

2. The second aspect of autonomy emphasizes the fact that moral beings give themselves the moral law. As ends in themselves, moral beings are not subservient to anyone else. They each determine the moral law for themselves in accordance with reason. They impose it on themselves and accept its demands for themselves. The Categorical Imperative is the same for all of us, though imposed by each of us and recognized by each of us for ourselves. Kant’s third formulation of the Categorical Imperative is “Act only so that the will through its maxims could regard itself at the same time as universally lawgiving.”

3. The third aspect of autonomy, the universal acceptability of the moral law, is a function of the fact that moral beings give themselves the moral law. The test is whether all rational beings, thinking rationally, should accept it regardless of whether they were the agents or the receivers of the actions.

APPLICATION OF THE MORAL LAW The Categorical Imperative, or the ultimate principle of morality, according to the dominant deontological position, requires that any second-order moral rule or maxim must be capable of being consistently universalized, must respect the dignity of persons, and must be acceptable to rational beings. Any action ruled out by one of these criteria should be ruled out by the other two. But sometimes one rather than another of the tests is clearer and leads more obviously to a moral evaluation. In testing whether the maxim of an action is moral, therefore, it is prudent to apply all three tests. If the maxim passes all three tests, it is moral; if it fails any one of the three, it is immoral.

1.

2.

3.

4.

5.

Accurately state the action to be evaluated, being careful not to specify it too narrowly.

Can the action be subsumed under some generally acknowledged (prima facie) substantive duty, such as not to kill, lie, or steal? a. If so, and if there is only one such duty, that duty applies. b. If there are actions about which there is doubt, go to step 3. c. If the action falls under more than one of these, go to step 5; or describe the action as a universalizable exception, and go to step 3.

Submit the action to the three tests: a. Can the action be performed by everyone without any contradiction developing to prevent its continued performance? If no, the action is immoral. If yes, go to b. b. Does the action respect people as ends and not as means only? If no, the action is immoral. If yes, go to c. c. Is the action such that all rational people, whether on the giving or receiving end of the action, would will all people to so act? If no, the action is immoral. If yes, the action is prima facie moral.

If the action is prima facie moral, does it conflict or seem to conflict with other general prima facie duties, such that both cannot be fulfilled together? If no, then the morality of the action is decided. If yes, go to step 5.

Consider arguments in defense of and against each of the prima facie duties being the actual duty in the case in question. The one with the strongest argument in its favor is the actual duty.

IMPERFECT DUTIES, SPECIAL OBLIGATIONS, AND MORAL IDEALS There are some duties, however, that cannot be specified with the same precision or may not bind with the same rigor. These are called imperfect duties. In some cases, the object of the action in question is indeterminate; in others, the degree to which the rule must be fulfilled is indeterminate. Some actions are indeterminate in both respects.

Special Obligations We can divide special obligations into a great many kinds; three are of particular importance: 1. those obligations that come from special relations; 2. those obligations that come from particular actions we perform; and 3. those obligations that come from the particular roles we occupy.

RIGHTS AND JUSTICE Rights Moral rights are important, normative, and justifiable claims or entitlements.

Rights are sometimes divided into negative and positive.

• Negative rights require others to forbear acting in certain ways and to allow the bearer of the right to act without impediment.

• Positive rights, on the other hand, require either the government or other individuals to provide the bearer of the right with certain positive goods or opportunities.

Moral rights also carry with them moral obligations. Our right to life, negatively interpreted, for instance, imposes the obligation on all others (including government) not to kill us, and it imposes the positive obligation on government to provide adequate protection against others killing us.

• Civil rights are legal rights, and typically they apply to citizens and not to all human beings Justice There are different kinds of justice. Compensatory justice consists in compensating someone for a past injustice or making good some harm he or she has suffered in the past. Retributive justice concerns punishment due a lawbreaker or evildoer. “Procedural justice” is a term used to designate fair-decision procedures, practices, or agreements. Commutative justice refers to justice in transactions. Distributive justice involves the distribution of benefits and burdens, usually by the state.

Since commutative justice refers to justice in transactions or exchanges, it is of great importance in business.

Commutative justice demands that equals be exchanged for equals. In general, an exchange or transaction is just or fair if both parties to the transaction • have access to all the pertinent information about the transaction; • enter it freely and without any coercion; and • benefit from the transaction.

The contemporary American philosopher John Rawls8 has formulated an influential theory of distributive justice, which attempts to answer this question. Rawls states the two principles as follows: • First: Each person is to have equal right to the most extensive basic liberty compatible with similar liberty for others.

• Second: Social and economic inequalities are to be arranged so that they are both a. reasonably expected to be to everyone’s advantage and b. attached to positions and offices open to all.

We can summarize the general application of rights and justice 1. State clearly the moral issue to be resolved and whether it involves claims of justice or rights.

2. In some cases, both sorts of consideration are present. If so, can you either translate the moral norm expressed in rights terms into justice terms or vice versa? If you can, do so.

3. If rights are the dominant consideration, then determine about each right: a. Is it widely accepted and acknowledged as a right? If not, how can it be defended? b. Who holds the right and against whom is it exercised in this case? c. What obligation does it impose on the one against whom it is exercised? d. Is there more than one right present in the case, and if so, do they conflict?

4.

5.

6.

7.

8.

9.

If the rights conflict, determine which is most important and should take precedence in this case, presenting the reasons for that precedence.

Having determined the dominant right in the case, is there any reason to think it might be overridden by other considerations? If so, consider them. If not, apply the right in question.

If justice is the dominant consideration, determine which kind of justice is pertinent.

If distributive justice or questions about the ordering of society or law are in question, apply Rawls’s two principles.

If other types of justice are at issue, go behind an imaginary veil of ignorance and ask whether all affected parties, if they did not know whether they were on the giving or receiving end of the action (or transaction or practice), if they were adequately informed with the appropriate information, and if they were thinking as rational people, would view the proposed action as acceptable. If so, the action is thus far just. If not, it is not just.

Determine whether there are other considerations, consequences, or circumstances that mitigate or change the application of that judgment. If so, settle these to determine whether the action is just. If there are none, the previous conclusion stands.

CASE SUMMARIES The Johnson Controls Case What steps should employers take to protect the health of the fetus of a pregnant employee? In 1977, Johnson Controls, Inc., manufacturer of lead batteries, answered this question by requiring women to sign a statement that they had been told of the risks associated with having a child while exposed to lead in the workplace.

However, when some women became pregnant with high lead blood levels, the company adopted a fetal protection policy that excluded all women of childbearing age from all jobs where lead is present. In April 1984, a class action suit was filed charging that Johnson Control’s fetal protection policy violated the Title VII prohibition against sex discrimination.

TEACHING STRATEGIES Kant’s work often seems more complex than it is, at least with regard to the application of the Categorical Imperative. This is as much a matter of terminology as anything else. It’s important to move slowly through the Kantian concepts lest students become overwhelmed with the vocabulary. Rawls’s work is, on the other hand, deceptively simple. The application of Rawls’s principle of justice can be particularly devilish in the details of any given situation. Combining both in this chapter allows the student to explore some of the ways a sort of Rawlsian approach to justice can supplement a deontological perspective.

KEY TERMS AND CONCEPTS Deontology Retributive Justice Commutative Justice Distributive Justice Categorical Imperative Hypothetical Imperative Civil Rights Positive Rights Negative Rights ESSAY QUESTIONS 1.

2.

3.

4.

5.

Explain how utilitarian considerations can be incorporated usefully into a deontological analysis.

How do Hypothetical and Categorical Imperatives differ?

Compare and contrast retributive justice, distributive justice, and commutative justice.

What makes autonomy a moral concept?

Explain how one might resolve a situation in which secondary moral principles come into conflict.

MULTIPLE CHOICE 1.

For someone in the Kantian tradition, to be moral is the same as being which of the following?

A. emotional B. free C. obedient D. rational

2.

Which of the following is a formalistic ethical approach?

A. The moral law specifies precisely what the right actions must contain.

B. The moral law contains both formal elements and content for moral actions.

C. The moral law does not state what content an action must have to be a right action.

D. The moral law contains only the content of the action that is right.

3.

Which of the following is NOT a condition for an action to be considered a moral action?

A. It must take into consideration the particular circumstances.

B. It must be amenable to being made consistently universal.

C. It must respect rational beings as ends in themselves.

D. It must stem from, and respect, the autonomy of rational beings

4.

According to Kant, all people should be treated in which of the following ways?

A. As an end in themselves.

B. As a means, if the end is desired.

C. As a means to an end.

D. As an end as long as the means are considered.

5.

According to Kant, the first form of the Categorical Imperative is which of the following?

A. Act so that you treat humanity, whether in your own person or in that of another, always as an end and never as a means only.

B. Act only in that way that you would want another to act toward you.

C. Act only according to that maxim by which you can at the same time will that it should become a universal law D. Act only so that the will through its maxims could regard itself at the same time as universally lawgiving.

6.

According to Kant, the second form of the Categorical Imperative is which of the following?

A. Act so that you treat humanity, whether in your own person or in that of another, always as an end and never as a means only.

B. Act only in that way that you would want another to act toward you.

C. Act only according to that maxim by which you can at the same time will that it should become a universal law D. Act only so that the will through its maxims could regard itself at the same time as universally lawgiving.

7.

Which of the following is NOT captured by the notion of autonomy?

A. Freedom B. The external imposition of the law.

C. The self-imposition of the law.

D. The universal acceptability of the moral law.

8.

According to Kant, the third form of the Categorical Imperative is which of the following?

A. Act so that you treat humanity, whether in your own person or in that of another, always as an end and never as a means only.

B. Act only in that way that you would want another to act toward you.

C. Act only according to that maxim by which you can at the same time will that it should become a universal law

D. Act only so that the will through its maxims could regard itself at the same time as universally lawgiving.

9.

Which of the following are strictly legal rights?

A. negative rights B. positive rights C. civil rights D. special rights

10. Which of the following rights involves the punishment due a law-breaker or evildoer?

A. distributive justice B. retributive justice C. commutative justice D. procedural justice

ANSWERS: 1. D; 2. C; 3. A; 4. A; 5. C; 6. A; 7. B; 8. D; 9. C; 10. B

CHAPTER 5: VIRTUE ETHICS AND MORAL REASONING OBJECTIVES 1.

2.

3.

4.

Identify the differences between virtue ethics, on the one hand, and deontological and utilitarian approaches, on the other.

Identify ways in which Aristotle’s conception of virtue ethics continues to be influential in contemporary considerations of virtue and moral action, Identify the differences between intellectual and moral virtues.

Discuss the role of analogy in moral decision-making, with particular attention to its strengths and pitfalls.

CHAPTER SUMMARY VIRTUE As a reaction against a legalistic approach to ethics, a number of philosophers in recent years have argued for a virtue-based moral theory, in addition to or instead of the deontological and utilitarian approaches we have seen so far. Aristotle’s analysis of the moral life emphasizes the importance of judgment, virtue, and character. The art of making good or sound decisions involves the exercise of judgment. Those who emphasize virtue argue that moral rules do not solve real moral problems because they must always be applied, and any application requires judgment, which cannot be automatic, and which requires a virtuous person to make the judgment correctly Aristotle divided virtues into two basic kinds, which he called the intellectual virtues and the moral virtues.

• •The intellectual virtues, the highest of which is wisdom, result from the proper functioning of the higher or intellectual aspects of human beings. Since human beings are, for Aristotle, rational animals, what distinguishes them from other animals is their reason. Hence, the proper functioning of reason constitutes the highest excellence human beings can achieve, and, for him, wisdom is the highest virtue.

• •The moral virtues, on the other hand, come about from the proper control by reason of the bodily appetites and inclinations. We are not born virtuous. We become virtuous by practice. Only when our actions become habitual and we have the disposition to exercise the proper mean, do we have the virtue in question. These dispositions, when viewed collectively, are sometimes called character.

Systems and Organizations—Virtue There are two observations we can make at this stage. The first is that people are the center of ethics, and the ethical analysis of systems and organizations will always in the end hinge on how people are affected. The second is that while systems and organizations are created by people, each individual is born into an already existing society that contains an economic, political, and social system, and a variety of organizations, all of which affect the individual.

Moral Ideals Moral ideals and counsels of perfection are goals toward which we can strive. We deserve moral blame when we fail to fulfill our moral obligations.

APPLYING MORAL REASONING Actions—Solving Moral Problems 1. Get all the facts about the case.

2. Determine the ethical issue or issues to be resolved.

3. Use your moral imagination to consider the possible alternatives.

4. Determine all those affected by the action who should be considered in your analysis.

5. Determine whether the action you are now contemplating is morally required or whether it constitutes an ideal toward which you aspire. If the latter, the action is good but not required.

6. If required, in the most promising alternative(s), does some clear prima facie obligation apply, such as don’t kill or steal or lie? If so, apply it.

7.

8.

Is there still an ethical issue? If no, act appropriately. If yes, go to step 8.

If there are two or more prima facie obligations that apply and they conflict, does one clearly take preference?

If so, act on it. If not, go to step 9.

9. Does the case or practice or issue lend itself more clearly and obviously to a utilitarian analysis or to a deontological approach of duties, rights, or justice? Use the approach that applies most clearly or obviously.

10. After using that approach, determine whether considerations of consequences, duty, justice, or rights that were not used in step 9 are pertinent and should be added to the analysis. If yes, do so.

11. Consider how someone who disagreed with your analysis might argue for the opposite moral conclusion.

Note that the objection might be made using a different approach from the one you used in step 9. Adjust your conclusion if you discover some error or oversight in your previous analysis; otherwise, reply to the objection and show why the objector’s analysis is mistaken or deficient.

12. Is the action you have now arrived at one that lives up to your sense of moral integrity, that exemplifies moral virtue, and that would be chosen by someone whom you consider a moral model? If no, reconsider until you find an alternative that does.

13. Determine whether you would be comfortable if your acting as you presently contemplate were made public.

If not, determine why and how to reconcile the discomfort with the analysis. If you would be comfortable, act accordingly.

Levels of Moral Evaluation Although all human actions are performed by human beings, we can nonetheless speak of levels of moral evaluation.

This is because we can evaluate from a moral point of view not only individual actions, but also collective actions, as well as policies, laws, and systems. We can speak of a first level of individual actions; a higher and more complex level of the actions and policies of groups (either formal organizations, such as corporations, or informal associations); a third level of an industry or group of firms; a fourth level of the policies, laws, and actions of nations; a fifth level of actions and policies on the international level; and a sixth level, the global level, or of those actions that involve all peoples together.

Business ethics involves a whole variety of ethical evaluations—of individuals, corporations, nations, organizations, motives, structures, laws, and systems. In small businesses, many of the evaluations focus on individual actions: the actions of the owner or manager and the actions of the individual employees.

As firms get larger and larger, they tend to become less and less personal, and coordinating the actions of many people doing different tasks demands more complex organizations, policies, and governance. At the heart of all businesses, large and small, are the individual people who make them up. The actions of all can be morally evaluated. But the scale of harm that can be inflicted by large corporations leads to their dominating the attention of the public and of those in business ethics.

Moral Analysis and Context Context is important in moral analysis in numerous ways, and often must be taken into account as part of the facts of a case. Cases do not arise or exist in a vacuum and getting and stating all the facts may involve stating explicit or implicit aspects of the context. Four types of considerations will illustrate the point.

• One hinges on the multiplicity of ways in which actions can be described and the fact that the same kind of action can have different consequences because of different contexts.

• A second involves operating in corrupt environments.

• A third consists in apparently similar actions done by indigenous businesses and by multinational corporations.

• A fourth is the result of similar actions taking place in a context of different traditions and expectations.

The Role of Analogy in Moral Reasoning In analyzing difficult or unclear, or new practices, such as those introduced by new technologies, people often argue by analogy. Arguing by analogy sometimes sheds light on the case or practice. But such arguments must be used with care, because one must be sure to capture the right part of the analogy, for all analogies include both similarities between the actions compared and dissimilarities.

Moral Imagination and Moral Reasoning Moral Imagination is a necessary ingredient in solving cases. Moral imagination requires that we put ourselves in the place of each of the people involved in whatever issue or case we are considering. Moral imagination also requires empathy toward others so that we feel what they feel or what we or they would feel under certain circumstances or if we were the recipients of certain actions. Moral imagination makes it possible for us to appreciate the need and the appropriateness of, for instance, tempering justice with compassion. Moral imagination helps us avoid settling too quickly on what seems to be an insoluble dilemma.

The Need for Moral Judgment in Moral Reasoning The process of moral reasoning is a continuous individual and social endeavor, applicable to business as to all other spheres of life.

CASE SUMMARIES The Case of Dora and Joe Dora and Joe, having received a substantial income tax return, decide that the money should go to charitable causes. This decision is not one that is deliberated overmuch. The question is which charity or charities, not whether it should be given. This decision and the action that follows grow out of the sort of character that Dora and Joe have.

TEACHING STRATEGIES Virtue ethics is both a relative new-comer to ethical analysis, as well as the most ancient of the ethical traditions. Virtue, or character, ethics dates to Aristotle and the ancient Greeks. While virtue ethics does not play a significant role in the remainder or the text, it is an important analytical tool. Going forward, one can portray virtue ethics as a sort of ethical pluralism because while character and its development are the essential features of virtue ethics, the focus on character can be seen as roughly analogous to the paired focuses on consequences (utilitarianism) and deontology (intention, motivation, duty). Showing the relationship between virtue ethics and the two main traditions discussed heretofore will provide the student with yet another framework by which the student can perform ethical analysis of business situations.

KEY TERMS AND CONCEPTS Ethical Displacement Moral Imagination Moral Judgment Virtue Character Dispositions

ESSAY QUESTIONS 1.

2.

3.

4.

5.

What is the relationship between intellectual virtue and moral virtue?

How is virtue acquired?

Describe the role of analogy in moral decision-making.

What is the role of judgment in moral decision-making?

How does the virtue differ from a utilitarian approach?

MULTIPLE CHOICE 1.

Sound judgment involves all except which of the following?

A. B. C. D.

a well-developed moral sense experience moral luck careful deliberation

2.

Which of the following is the highest virtue, for Aristotle?

A. wisdom B. courage C. justice D. generosity

3.

Which of the following would be the conclusion a virtue ethicist might make of one who reacts to strong temptation by frequently giving in to it?

A. The person has an excellent character.

B. The person has an immoral character.

C. The person has a strong character.

D. The person has a weak character.

4.

Which of the following would be the conclusion a virtue ethicist might make of one who reacts to strong temptation by habitually giving in to it?

A. The person has an excellent character.

B. The person has an immoral character.

C. The person has a strong character.

D. The person has a weak character.

5.

Which of the following would be the conclusion a virtue ethicist might make of one who reacts to strong temptation by habitually resisting?

A. The person has a morally good character.

B. The person has a weak character.

C. The person has an immoral character.

D. The person has great moral luck.

6.

Which of the following is a good definition of the virtues?

A. The virtues are characterized by the habit of going along with the majority.

B. The virtues are skills of discerning the rules and obeying them.

C. The virtues are characterized by emphasizing the ends over the means.

D. The virtues are skills of excellence in the art of living in society with others.

7.

Which of the following describes a moral ideal?

A. A pleasure or happiness.

B. A disposition.

C. A goal toward which we can strive.

D. A talent or ability.

8.

Which of the following is necessary for sound moral action, on a virtue view?

A. Moral luck B. An attention paid to the means C. Strong emotional commitments D. Sound moral judgment

9.

All actions by nations or companies involves, first and foremost, which of the following?

A. actions by individuals B. actions by legislative bodies C. actions by corporate entities D. actions by nation states

10. For a virtue ethicist, which of the following would be why bribery would be considered wrong?

A. it is not universalizable B. it is contrary to developing good character C. it treats peoples as means to an end D. it does not bring about the greatest good

ANSWERS: 1. C; 2. A; 3. D; 4. B; 5. A; 6. D; 7. C; 8. D; 9. A; 10.B

CHAPTER 6: MORAL RESPONSIBILITY: INDIVIDUAL AND CORPORATE OBJECTIVES 1.

2.

3.

4.

5.

Identify the differences between responsibility, obligation, and liability.

Identify the differences between causal responsibility and moral responsibility.

Identify excusing conditions, particularly those of excusable ignorance and invincible ignorance.

Identify the different sorts of status a corporation and formal organization can be rationally thought to express.

Identify the differences between agent moral responsibility and role moral responsibility.

CHAPTER SUMMARY MORAL RESPONSIBILITY Responsibility and obligation are closely related. In general, we have an obligation or a duty to fulfill our responsibilities, and we are responsible for fulfilling our obligations Causal responsibility is an ingredient in both moral and legal responsibility. For an action to be a moral action, it must be done knowingly and willingly. For instance, though I am causally responsible for things I do in my sleep, I am not morally responsible for them. Actions I do in my sleep are neither moral nor immoral. When we say that I am morally responsible for an action, then, we mean • that I did the action (i.e., I am the cause of the result of the action), • that I did the action knowingly, and • that I did the action willingly.

EXCUSING CONDITIONS Precluding the Possibility of Action We are excused from moral responsibility if (a) the action in question is an impossible one to perform, (b) we do not have the ability required in the given case, (c) the opportunity for our performing the action is absent, or (d) the circumstances are beyond our control.

Conditions Precluding or Diminishing Required Knowledge With respect to knowledge, we can distinguish two excusing conditions: (a) excusable ignorance and (b) invincible ignorance. Both are failures of knowledge. Lack of knowledge is excusable if through no fault of our own, we did not know the circumstances or the consequences. Ignorance, however, does not excuse us from moral responsibility if we could have and should have known of the circumstances or consequences.

Conditions Precluding or Diminishing Required Freedom The third set of excusing conditions has to do with impairments or impediments to our freely choosing the action in question. We can distinguish four of them: (1) the absence of alternatives, (2) lack of control, (3) external coercion, and (4) internal coercion.

LIABILITY AND ACCOUNTABILITY Moral responsibility is closely connected to several other concepts besides duty and obligation, possibility, knowledge, freedom, and choice. These include liability, accountability, agency, praise, blame, intention, pride, shame, remorse, conscience, and character.

• Liability for one’s actions means that one can rightly be made to pay for the adverse effects of one’s actions on others.

• Accountability is the obligation of giving (or of being prepared, if called upon to give) an account of our actions. The account should explain the reasonableness, appropriateness, correctness, legality, or morality of the action. Accountability might be moral or legal.

• Moral accountability consists of being prepared to render a moral account of an action done either for ourselves or as agents for others.

• Conscience is the ability to reason about the morality of an action, together with a set of values, feelings, and dispositions to do or to avoid doing certain actions. Conscience is something that every rational being has, insofar as he or she is rational.

AGENT AND ROLE MORAL RESPONSIBILITY If one person acts for another person, we can often correctly say that the second person is acting as an agent for the first person. We can, accordingly, speak of agent responsibility.

Closely related to agent moral responsibility, and often overlapping it, is role responsibility. Role responsibility is usually a corollary of assuming a certain position, function, or role in society or an organization, or of becoming a member of a certain profession, class, or group that assumes special obligations.

Members of a profession and of certain groups (e.g., religious groups) frequently take on special moral obligations of the profession or group.

THE MORAL STATUS OF CORPORATIONS AND FORMAL ORGANIZATIONS Corporations are not reducible to the human beings who make it up at any one time, yet corporations cannot act without human beings acting for them. The corporation is a special kind of entity. In 1819, Chief Justice Marshall, in Dartmouth College v. Woodward, defined it as follows: “A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of creation confers upon it, either expressly, or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created.”

From the formal definition of a corporation, it is clear that they can and do have legal responsibilities.

Yet, since moral responsibility is usually both ascribed to and assumed by individuals, does it make any sense to speak of the moral responsibility of corporations, or of nations and other formal organizations?

Organizational View of the Corporation The Organizational View, is a variant of the Myth of Amoral Business. It was developed in part as a reaction to a number of moral demands made by environmentalists and consumer groups concerning the social responsibility of business.

Moral Actor View of the Corporation Insofar as corporations act intentionally, they can be held morally responsible for their actions. They are thus moral actors. But because corporations are not ends in themselves, they are not moral persons. Hence, we can morally evaluate the ends for which a corporation is established. Because corporations are not human beings, they cannot claim the moral rights of human beings—the right to life or continued existence, for example. The attempt to attribute all the rights of human persons to corporations results from a confusion about the moral status of corporations. Because the moral status of corporations is different from the moral status of human beings, the moral obligations of corporations are different from the moral obligations of human beings. The difference hinges on the fact that corporations are limited and organized for only certain purposes. The fact that a corporation does exist and has been established for certain purposes is no guarantee that it should exist or that its purposes are morally justifiable. But although we can morally evaluate the ends for which corporations are formed and the means by which those ends are pursued, corporations are not bound by a large range of moral rules that bind natural persons.

CASE SUMMARIES

The Love Canal Case Despite warnings about the presence of toxic waste buried in the area, the Niagara Falls Board of Education elected to build a school atop the burial site and to sell the land not needed for the school to developers for development into housing communities. The rupture of the Love Canal and the bursting of underground drums of toxic waste contaminated the land and water resulting in the required relocation of more than 2,500 families. The death and cancer rates spiked precipitously. The area was declared a Superfund site. So9me of the questions that arise from the Love Canal case have to do with the interaction of government and business, the disposal of toxic waste and the requirement to inform those potentially harmed by the decisions of business and government with respect to toxic chemicals.

TEACHING STRATEGIES It seems clear that corporations bear some responsibility for the products they make and any waste products that are the result of those products. It also seems clear that corporations bear some responsibility for proper handling and disposal of waste. The same can be said of governmental bodies and individuals. When those responsibilities are ignored as in the Love Canal case, the results can be devastating.

In leading the discussions about corporate responsibility and its moral implications, it is important to distinguish between legal liability and moral liability. Presumably, it may well be legal to do something like bury toxic waste in drums that are likely to fail and release their deadly contents into the water table, but it is not, in virtue of not being illegal, therefore morally permissible to do so. The notion of “strict liability” is to be juxtaposed with notions of excusing conditions that might be justifiably advanced. Further, the notion of strict liability needs to be compared and contrasted with the notion of “moral accountability.” It is also important to make the distinction between individual culpability and corporate.

With regard to agent responsibility, special attention must be given to the moral accountability that attaches to the role that is played by an agent. Since the agent is assuming a certain position and acting on behalf of another, he or she has greater responsibility for those actions. Getting students to identify instances in which one acts as an agent for another may well help to flesh out what some of those particular responsibilities are.

KEY TERMS AND CONCEPTS Causal Responsibility Moral Responsibility Excusing Conditions Liability Accountability Strict liability Moral accountability Conscience Agent responsibility

ESSAY QUESTIONS 1.

2.

3.

4.

5.

How are causal responsibility and moral responsibility related? Which depends on the other and why?

How are the Moral Person View and the Moral Actor View different? How are they related?

What is the difference between responsibility, accountability, and liability?

What are excusing conditions, and how do they relate to the ascription of morality or immorality to an action?

Can corporations (or nations) be held morally responsible? If so, how, and if not, why not?

MULTIPLE CHOICE 1.

Which of the following is not meant by being “morally responsible” for an action?

A. I did not perform the action.

B. I performed the action.

C. I performed the action knowingly.

D. I performed the action willingly.

2.

Which of the following is an excusing condition that has to do having only one possible action that I can perform?

A. lack of control B. external coercion C. the absence of alternatives D. internal coercion

3.

If I fainted and in the process of fainting, knocked over a lamp, which started a fire, which sort of excusing condition would limit my moral responsibility for the fire?

A. lack of control B. external coercion C. the absence of alternatives D. internal coercion

4.

If a bank robber puts a gun to a bank teller’s head and tells him to hand over the money in the cash drawer, which of the following excusing conditions would limit the teller’s moral responsibility?

A. lack of control B. external coercion C. the absence of alternatives D. internal coercion

5.

Which of the following excusing conditions has to do with a clinical abnormality?

A. lack of control B. absence of alternatives C. external coercion D. internal compulsions

6.

Which of the following is the feeling of sorrow for our immoral actions, along with the intention not to perform similar actions in the future?

A. Moral guilt B. Moral shame C. Moral remorse D. Conscience

7.

Which of the following is the ability to reason about the morality of an action, together with a set of values, feelings, and dispositions to do or to avoid doing certain actions?

A. Moral guilt B. Moral shame C. Moral remorse D. Conscience

8.

If one person acts for another person, we can often say that the second person has what sort of responsibility?

A. role responsibility B. agent responsibility C. paternal responsibility D. fiduciary responsibility

9.

Which view of the corporation is a variant of the Myth of Amoral Business?

A. The Organizational View B. The Moral Person View C. The Moral Actor View D. The Organizational Actor View

10. Which view of corporations contains the notion that the assumption of responsibility must always be by individuals, whether they assume it for themselves or, by virtue of their position, for the corporation?

A. B. C. D.

The Organizational View The Moral Person View The Moral Actor View The Organizational Actor View

ANSWERS: 1. A; 2. C; 3. A; 4. B; 5. D; 6. C; 7. D; 8. B; 9. A; 10. C

CHAPTER 7: JUSTICE AND ECONOMIC SYSTEMS OBJECTIVES 1.

2.

3.

4.

5.

6.

Identify the differences between a structural analysis and an end-state analysis.

Identify the differences between a practice and an economic system.

Identify the differences between an historical analysis of economic systems and an analysis of contemporary economic systems.

Distinguish between historical and contemporary capitalism.

Identify the central characteristics of the Free-Market system.

Identify the key differences between a socialist economic system and a capitalistic one.

CHAPTER SUMMARY MORAL EVALUATION OF ECONOMIC SYSTEMS We can evaluate the economic systems in two ways.

• One involves evaluating the morality of the fundamental economic relation on which it is built, and by extension analyzing the actions that follow as a result of that relation. This is a structural analysis. It involves looking at the basic structures and practices of the system, because the system is defined by its structures and practices. These are necessarily seen as relations among people, and as practices that involve transactions among people. Are these fair and just?

• The second way of evaluating economic systems is an end-state approach. It involves looking at what the system as a whole does to the people affected by it.

ECONOMIC MODELS AND GAMES Though economics might be considered a game, economic systems when actually implemented are not games.

Frequently, economics is studied as if it had nothing to do with people, as if it was simply the study of abstract concepts, such as supply and demand, money, price, and profits. Ultimately, however, economic systems are ways in which people are related. Their relations are mediated by money and commodities, prices and wages, and supply and demand. And all of these relations, in the end, are descriptions of how people interact. Their lives are shaped and seriously affected by the system in which they find themselves, and by the rules according to which that system operates. Hence, economic systems are not, ultimately, morally neutral; they should be closely examined from a moral point of view.

A CAPITALIST MODEL A model may not correspond to any social reality. A model of capitalism may also not correspond to any economy existing in a society. But a model can help us get conceptual clarity on some issues.

Most economic systems produce and exchange commodities, use money as a medium of exchange, and pay labor.

What are the specific defining features of the model of classical capitalism? We shall consider three that are necessary to it. Although each of the three features may be found in other kinds of economic systems, it is the combination of the three that makes the model different from other models. The three are • an available accumulation of industrial capital, • private ownership of the means of production, and • a free-market system.

The model of classical capitalism includes industrialization and capital. It does not question where capital comes from or how it was developed. Because the model is not a historical account but an analytic tool, the presence of capital is given, a prerequisite of a capitalist model.

Available Accumulation of Industrial Capital

Capitalism derives its name from the fact that it is a system based on accumulated industrial capital. In a barter economy there is no accumulation of capital. Goods are exchanged for goods of equal value; there is no residue.

Private Ownership of the Means of Production The distinguishing characteristic of capitalism is sometimes said to be private ownership of the means of production.

The second ingredient of private ownership characteristic of capitalism is that not everyone owns the means of production. The majority of people in our model of capitalism do not individually own the means of production that they use; they are employed by others and work for wages. Wages are the dominant source of income for the vast majority in our capitalist model.

A Free-Market System The third characteristic of our capitalist model is a free, competitive market system.

1. A free market is one that is not controlled either by government or by any small group of individuals. In a free market, government does not • set the price of goods • set wages or • control production.

2. A second necessary component of our model is competition.

3. In order to try to achieve greater returns on investment, perhaps by taking more risk, resources must be free to move within the system to whichever portion of it someone believes will bring the greatest return.

CAPITALISM AND GOVERNMENT The structural components of capitalism and the end-state produced in a capitalist society can be morally evaluated, but to attempt to do so in a vacuum would be unrealistic, for capitalism is always found embedded in some cultural and political setting. In any given society, a mix of several types may be present. Looking at each of the six separately will help us gain some clarity on the relations.

1. The first is the model of laissez-faire capitalism. The model, however, fails to take into adequate account the good of society as a whole, opposed simply to the good of those who enter into economic transactions.

2. The second model depicts government as the protector of capitalists at the expense of the other members of society.

3. The third version of the model is one of governmental protectionism.

4. The fourth version of the model assigns to government a variety of different tasks vis-à-vis business, all of which are responsive to the general interests of the citizens.

5. In the fifth version of the model, government and business cooperate for the sake of both business and the society as a whole.

6. The sixth version of the model comes closest to socialism.

A SOCIALIST MODEL There is no classical model of socialism as a purely economic system. Historically, we have a number of very diverse societies that have been, or are called, socialistic. To the extent that socialism involves government ownership, it is very difficult, if not impossible, to separate socialism as an economic system from socialism as a political system. At the same time, socialism should not be identified with or confused with communism.

Communism, as an economic system, has never been achieved, though some countries, such as the former Soviet Union, claimed to have been developing such an economy.

A partial model of socialism which is restricted to socialism as an economic system could be characterized by three features, each of which parallels to some extent our model of capitalism. The three features are as follows: • an industrial base, • social ownership of the means of production, and • centralized planning.

ECONOMIC SYSTEMS AND JUSTICE We cannot be moral and choose or espouse an inherently immoral economic system. But on the assumption that there is more than one economic system that is not inherently immoral, there is no moral imperative mandating that we choose one rather than another.

Distributive justice—that is, justice in the social allocation of benefits and burdens—is frequently thought to be the most important moral component of any economic system. Distributive justice could be formulated in a variety of ways. In the capitalist system, justice demands equality of opportunity; it does not demand equality of results.

Justice in a socialist system consists not only in equality of opportunity, although it also allows proportionality of differential rewards. It guarantees that all receive some reward, but it tends to limit the amount of the reward anyone may get.

CASE SUMMARIES The Case of Two Slaveholders Clearly, slaveholding is immoral. However, given that at various points it has not only been considered morally permissible, and perhaps, even necessary as an economic system, this case provides the space for a conversation about varying economic systems. Since one system, slaveholding, is seen as obviously and intrinsically immoral, regardless of what economic benefits might flow from it.

TEACHING STRATEGIES Obviously, very few, if any, economic systems are as clearly inherently immoral as slaveholding. However, arguments have been made at various times that socialism and capitalism are both moral economic systems and immoral economic systems. It is quite important to draw some distinctions very clearly. One of those distinctions is between economic systems and governmental systems. A democratic governmental model need not entail either a capitalistic or socialistic economic system. Another set of important distinctions has to do with the relationships between government and economic systems, each of which can be captured in one of the six models of governmental and economic interaction.

In discussion of the various models, a discussion of the characteristics of capitalism is critical. It is a helpful practice to have students discuss the aspects of capitalism that they envision as essential properties of a capitalist model as a way of exploring or refining their suggestions in light of the text.

It is also of some importance to clarify precisely what the critiques of capitalism are. Students are likely to have visceral reactions to terms like Marxism and socialism that have little to do with the content of those views or the very telling critiques that each can offer to at least versions of capitalism. Taking time to let students discuss the views of Marxism and capitalism that they bring to the class can be a profitable way of dispelling myths and, in the same moment, provide some benefit for their assessment of capitalism itself.

KEY TERMS AND CONCEPTS Structural analysis End-state analysis State Capitalism Personal property Laissez-faire capitalism Free-market system Marxism Socialism Centralized planning ESSAY QUESTIONS

1.

2.

3.

4.

5.

What are the differences between free-market or private-ownership capitalism and state capitalism?

Describe the three components necessary for the existence of a free market.

Can the economic system based on slavery be argued to be immoral? On what grounds?

What are the features of a socialist economic system? How do they differ from the features required in the classical model of capitalism?

What are the differences between personal property and private property?

MULTIPLE CHOICE 1.

The argument that slavery, in the ancient world, was a necessary step toward feudalism, and thus a necessary step in the development of the modern world belongs to which class of arguments?

A. Utilitarian B. Deontological C. Virtue D. None of these

2.

Which of the following economic systems did not exist prior to the industrial revolution?

A. feudalism B. totalitarianism C. capitalism D. democracy

3.

On the view of this sort of capitalism, the function of government is to preserve the peace and to adjudicate disputes among those engaged in business transactions.

A. state capitalism B. socialism C. totalitarianism D. laissez-faire capitalism

4.

Which of the following is the philosopher who argued that the “invisible hand” of the market will be a greater benefit to society than any attempt to directly benefit society?

A. Adam Smith B. John Stuart Mill C. John Rawls D. Immanuel Kant

5.

Which of the models of capitalism and government comes under the critique of the Marxist critics?

A. Government only preserves the peace and adjudicates disputes among those engaged in business.

B. Government is the protector of capitalists at the expense of the other members of society.

C. Government should help business by imposing quotas, import taxes, and other means to make foreign interests less competitive.

D. Government and business cooperate for the sake of both business and society as a whole.

6.

Which of the models of the relation between government and business can be described as “protectionism?”

A. Government only preserves the peace and adjudicates disputes among those engaged in business.

B. Government is the protector of capitalists at the expense of the other members of society.

C. Government should help business by imposing quotas, import taxes, and other means to make foreign interests less competitive.

D. Governments should take over and run those industries that private enterprises cannot handle successfully.

7.

Which of the models of capitalism comes closest to socialism?

A. Government only preserves the peace and adjudicates disputes among those engaged in business.

B. Government is the protector of capitalists at the expense of the other members of society.

C. Government should help business by imposing quotas, import taxes, and other means to make foreign interests less competitive.

D. Governments should take over and run those industries that private enterprises cannot handle successfully.

8.

Which of the following is the model of capitalism that is closest to the model employed in contemporary Japan?

A. Government only preserves the peace and adjudicates disputes among those engaged in business.

B. Government is the protector of capitalists at the expense of the other members of society.

C. Government should help business by imposing quotas, import taxes, and other means to make foreign interests less competitive.

D. Government and business cooperate for the sake of both business and society as a whole.

9.

Socialism is commonly, and erroneously, often confused with which of the following?

A. capitalism B. communism C. feudalism D. None of these

10. Which of the following is not something that is championed by advocates of socialism?

A. free enterprise B. equality C. security D. absence of exploitation

ANSWERS: 1. A; 2. C; 3. D; 4. A; 5. B; 6. C; 7. D; 8. D; 9. B; 10. A

CHAPTER 8: AMERICAN CAPITALISM: MORAL OR IMMORAL OBJECTIVES 1.

2.

3.

4.

5.

Identify the features beyond a minimalistic state that are sought in the relationship of the American government to the economic system.

Identify the ways in which the government attempts to address boom/bust cycles within the economic system.

Identify the elements of the Marxist critique of capitalism.

Identify the elements of non-Marxist critiques of American capitalism.

Identify the elements of the moral defense of the American free-enterprise system.

CHAPTER SUMMARY THE AMERICAN ECONOMIC SYSTEM American capitalism, from its inception to the present day, has grown, developed, and changed. To reduce it to one of the models described in the previous chapter would be a gross oversimplification. Although it continues to contain the general features of capitalism, its varying relations to government are central to the changes that have taken place in its development. The American economic system is closely tied to the political, cultural, and social system of the United States, and an adequate moral evaluation of it must take these relations into account. The American economic model we examine, therefore, must include government’s action with respect to it.

RELATION OF THE AMERICAN GOVERNMENT TO THE AMERICAN ECONOMIC SYSTEM The economic system can operate only in a broader social system of reasonable security and stability. Government has traditionally provided security and stability for the people of a country by arranging for the means of common defense, protecting the person and property of the members of a society from incursion by other members, enforcing contracts, and by facilitating conditions for the exchange of goods and services. At least five other needs arose, which the government sought to meet.

Development of a Welfare Safety Net Provision of Common Goods Control of Economic Cycles Correction of Unfair Tendencies and of Market Failures Within the Free-Enterprise System Taxation THE MARXIST CRITIQUE Exploitation of the Workforce The first charge states that capitalism is based on exploitation of the worker—that is, not paying him what he truly deserves. The basis for the claim of necessary exploitation is Marx’s labor theory of value.

Alienation of the People The second Marxist claim is that capitalism is inherently immoral because it alienates human beings. It does not treat them as ends in themselves; it separates them into antagonistic camps and sets one against another; it stultifies the workers; it involves domination of some by others; and it produces other negative effects on all those who live within the system.

Vested Interests The third Marxist charge is that capitalism defends the vested interests of the few and prevents the vast productive forces of society from truly serving the masses. The natural tendency of the productive process is toward social ownership instead of private ownership of the means of production.

NON-MARXIST MORAL CRITIQUES OF AMERICAN CAPITALISM There are three non-Marxist criticisms that are symptomatic of others: (1) Capitalism creates waste and false needs, (2) capitalism feeds the military/industrial complex at the expense of the general population, and (3) capitalism creates gross and unjust inequalities.

THE MORAL DEFENSE OF THE AMERICAN FREE-ENTERPRISE SYSTEM A defense of the American free-enterprise system includes (1) emphasis on its values, especially freedom and efficiency, (2) its historical record in the production and distribution of wealth, and (3) its preferability to actual socialist societies.

Freedom and Efficiency From a moral point of view the importance of human freedom scarcely needs defense. Each person is an end in himself or herself and worthy of respect. The free-enterprise system starts by recognizing this and then attempts to give it substance. The system allows the greatest freedom of action and choice to each person, compatible with a like freedom for all. Political freedom, the defenders of free enterprise insist, is possible only when economic freedom is its concomitant. In terms of Rawls’s theory of justice, the American free-enterprise system thus satisfies—at least in principle—the first principle of justice. Because recognition of human freedom is an essential ingredient in treating people morally, the free-enterprise system is morally based. It values and enhances all aspects of human freedom, and it makes this the centerpiece of its moral justification.

The Production of Wealth With the introduction of the machine and the rise of the industrial age, there has been a manifold increase in human productivity. From a moral point of view, we can evaluate the result of the U.S. economic system over time. It has unquestionably enhanced human life and welfare, not only for Americans but also for many people in other lands, through the export of its know-how and technology, its goods, and its example, as well as providing a refuge for people from a great many different lands. All this must certainly be to its moral credit.

Hence, the American free-enterprise system satisfies Rawls’s second principle of justice.

Preferability to Actual Socialist Systems The third prong of the moral defense of American capitalism begins with the admission that it is not perfect. No system is. Every system can be improved, and the moral task of American free enterprise requires that its immoral aspects be constantly fought and that human welfare be further enhanced.

NONSOCIALIST ALTERNATIVES TO CONTEMPORARY AMERICAN CAPITALISM There are three approaches to changing the present American system championed by various groups. The three are not necessarily mutually exclusive. One is libertarianism, a movement of the right. A second is workers’ democracy, a movement of the left. The third is piecemeal change, wherever and however possible, with no overall blueprint.

The Libertarian Alternative They not only consider this the major virtue of the free-enterprise system, but they also believe that only a minimalist government is compatible with liberty. They therefore complain that government has entered the marketplace with its laws, regulations, and taxes to the detriment of the freedom of the American citizen and businessman.

The libertarian view is based on the notion of the sanctity of private property. Private property belongs to an individual. If he has worked for it, he deserves to keep what he has earned. If he has taken risks, if he has been lucky, if he has worked especially hard, and if he has been innovative, the market will reward him. The libertarian

view has, therefore, a moral thrust. It champions liberty as a moral virtue worthy of human beings. It faults government as acting immorally through taxation, welfare, and many of its other programs.

Workers’ Democracy Workers’ democracy sees government as inextricably intertwined with big business. Defenders of workers’ democracy point out that many of the decisions made by the major corporations in America affect all of our lives more than the decisions made in Congress. We elect our representatives in Congress, but we have no say at all in what the board of directors of General Motors or Exxon or any other large corporation decides. The allocation of resources, the building and closing of plants, and the creation and termination of jobs are all decisions that directly affect large numbers of people who have no voice in these decisions. Nor is government regulation the answer, because government is intertwined with big business.

Piecemeal Change The consensus in the United States is that no new system is needed. No other system is clearly morally preferable, or waiting to be adopted. Americans can and should make the morally necessary changes in American capitalism, improve it, and work toward a yet unattained maximal mix of freedom and justice. The real alternative to the present American system does not consist in holistic change. What is most likely to succeed is piecemeal change: correcting ills where possible, outlawing immoral practices, and implementing structural changes that promote moral conduct.

PHILANTHROPY Philanthropy on a large scale, such as practiced by Gates and Buffett, is criticized not because they are giving away their money. After all, it is theirs to use as they want, and giving it to help other is, from a moral point of view, preferable to using it on lavish living, conspicuous consumption, or on other such purposes. The criticism is not of these and similar individuals, but of the system that allows them to accumulate such enormous wealth that they can indulge in such great philanthropy. A more equitable society would not have any superrich with the ability to contribute so much. Nor would a more equitable society have the need for individual philanthropy and charity, if the needs of people were properly addressed by society as a whole. Philanthropy, moreover, in some people’s eyes took on a dubious pedigree when it was used by the late-nineteenth- and early twentieth-century captains of industry who garnered their millions by dubious practices and at the expense of workers and the environment. Giving some of their wealth to causes they chose was seen as a way of trying, unsuccessfully, to make up for the ills they had caused. Philanthropy and charitable giving are part of the American system. Whether it makes up for what critics see as defects of the system is a matter of debate.

CASE SUMMARIES The Case of Bill Gates and Warren Buffet Two of the wealthiest men in America and, indeed, the world, are Bill Gates and Warren Buffet. For many years, Gates was criticized for giving little to charity. With the creation of the Bill and Melinda Gates Foundation, however, Gates has become one of the foremost philanthropists in the world. Warren Buffet’s contribution to the work of the Gates Foundation is perhaps the equivalent of $30 billion. Some critics of the economic system in which there are fabulous fortunes acquired are similar to the critics of the Carnegies of earlier generations.

The American system allows some people to become very rich, while others are poor. Bill Gates achieved his billions by starting and running a new company which grew enormously. Warren Buffett rose from his modest beginnings to being the richest man in the world through shrewd investments. Is such a system morally defensible?

Both Gates and Buffett, unlike many others, have pledged to give most of their wealth to charitable foundations, and have begun to do so. Does philanthropy make up for any perceived injustice in the system? From a moral point of view, what are we to say about the American system in particular, and about liberal democratic capitalism in general?

TEACHING STRATEGIES Following the largely theoretical questions of the previous chapter, DeGeorge turns to an examination of the American economic system in particular – one that suffers from some of the pitfalls that expose it to criticism as immoral while providing many of the benefits that are thought indispensible to the American standard of living.

This chapter provides students a guided framework through the application of the previous chapter to both strength and weaknesses of the American economic system. One beneficial pedagogical strategy here is to expand on the examples DeGeorge provides as a way of more completely grasping the argument he advances. To apply this strategy, the instructor need only provide the students the opportunity to discuss, for example, how government meets (or fails to meet) each of the five challenges. A discussion of taxation is both easy to begin and potentially difficult to manage, so it is important that the instructor create a space for the discussion that does not become a free-for-all.

Similarly, this chapter provides students the opportunity to see how the theoretical critiques of the Marxist or Libertarian might be applied to the American economic system. Helping students to see that the critiques are not just blatantly wrong-headed but rooted in some weaknesses within the system can help them understand the system more effectively.

KEY TERMS AND CONCEPTS Labor Theory of Value Alienation Marxism Philanthropy Libertarian Workers’ Democracy Socialism Alienation ESSAY QUESTIONS 1.

2.

3.

4.

5.

Compare and contrast the Marxist and non-Marxist critiques of American Capitalism.

What is the labor theory of value?

How does the libertarian alternative critique American capitalism?

Describe the five functions of government beyond the minimalistic state that are common to American government.

What are the proper ends of a practice of taxation?

MULTIPLE CHOICE 1.

Which philosopher claims that each person, in pursuing his own good, indirectly and unknowingly also promotes the public interest?

A. John Stuart Mill B. Jeremy Bentham C. John Rawls D. Adam Smith

2.

For advocates of the free enterprise system, it works as it should, it does which of the following?

A. Rewards all of those in society, regardless of their contributions.

B. Rewards only those who contribute to the economy, and only in proportion to their contribution.

C. Rewards only those who contribute to the economy, and singles out for punishment, those who don’t.

D. Rewards members of society randomly.

3.

Which of the following needs that the American government has sought to meet has to do with caring for those ignored by the free enterprise system?

A. Development of a welfare safety net B. Provision of common goods C. Control of economic cycles D. Correction of unfair tendencies and of market failures

4.

Which of the following needs that the American government has sought to meet has to do with economic booms and busts and the effects of those on the unemployed?

A. B. C. D.

Development of a welfare safety net Provision of common goods Control of economic cycles Correction of unfair tendencies and of market failures

5.

Which of the following needs that the American government has sought to meet has to do with the financing of government activities?

A. Control of economic cycles B. Taxation C. Correction of unfair tendencies and of market failures D. Development of a welfare safety net

6.

Antitrust legislation is an example of which of the following?

A. Control of economic cycles B. Taxation C. Correction of unfair tendencies and of market failures D. Development of a welfare safety net

7.

Which of the following is not a Marxist critique of nineteenth-century capitalism?

A. Capitalism is inherently immoral because it promotes the benefit of the whole of society rather than any particular group.

B. Capitalism is inherently immoral because it cannot exist without robbing the worker of his due.

C. Capitalism is inherently immoral because it necessarily involves the alienation of human beings.

D. Capitalism is inherently immoral because it protects the vested interest of the few.

8.

Which of the elements of Marxist theory has to do with the notion that capitalism divides people into antagonistic camps and sets one against another?

A. exploitation B. prevents production C. vested interests D. alienation

9.

Which of the following non-Marxist moral critiques of American capitalism involves the notion that capitalism creates waste?

A. The military-industrial complex B. False needs and overproduction C. Inequalities inherent in the system D. Exploitation

10. Which of the following is the non-Marxist critique of American capitalism that involves the view that the government overtaxes the population to produce unnecessary war materiel?

A. The military-industrial complex B. False needs and overproduction C. Inequalities inherent in the system D. Exploitation

ANSWERS: 1. D; 2.B; 3. A; 4. C; 5. B; 6. C;

7. A; 8. D; 9. B; 10.A

CHAPTER 9: THE INTERNATIONAL BUSINESS SYSTEM, GLOBALIZATION, AND MULTINATIONAL CORPORATIONS OBJECTIVES 1.

2.

3.

4.

5.

Identify the institutions principally involved in the globalization of business.

Identify the controversies that surround the globalization of business.

Identify the reasons that multinational corporations operate in less developed countries.

Identify the moral norms that provide the ethical guidelines for activities of multinational corporations.

Identify the international codes that govern multinational corporations.

CHAPTER SUMMARY JUSTICE AND THE INTERNATIONAL ECONOMIC SYSTEM If we look at the total international stage on which business operates, can the system—amorphous as it may be—as a whole be ethically justified?

We can sort out four issues in sketching an answer to this comprehensive question.

• The first concerns the unequal distribution of wealth.

• The second issue arises from the fact that, although the national systems of free enterprise are situated within the framework of their particular national legal, political, and social system, there is no comparable international framework for international business.

• The third issue arises from the fact that in the model of capitalism that we examined in Chapter 7, we noted that in a free-market system resources—including both capital and labor—must be free to move freely.

• The fourth issue. If we grant that ethics is important in international business, whose ethics should business follow?

THE GLOBALIZATION OF BUSINESS Although the internationalization, and so the globalization, of business is not a new phenomenon, globalization in its current meaning is of fairly recent vintage. Internationalization focused on MNCs insofar as they operated in a number of countries. Globalization involves the further notion that companies not only operate in a variety of countries but that they functionally divide their activities in different countries, producing one part of a product here, another part there, assembling them elsewhere, marketing them throughout the world, and controlling and coordinating all these activities from a home base.

The central role of the WTO in global business is undisputed, but it is not without controversy or complaint. The major complaints are basically three: • that the conditions of trade are unfair to less developed nations, • that the trade which has developed is actually detrimental to the development of LDCs and is in fact exploitation, and, • that the WTO process is undemocratic and lacks transparency.

MULTINATIONAL CORPORATIONS AND ETHICS Multinationals are corporations that operate extensively in more than one country, usually through branches or subsidiaries engaged in production, marketing, or both. On the international level, there is no effective way to prevent firms from forming cartels and controlling prices and production.

The following are three general, major charges: (1) MNCs operate immorally in the LDCs by exploiting workers, exploiting natural resources, and reaping exorbitant profits; (2) MNCs compete unfairly in the LDCs, to the detriment of the host countries; and

(3) MNCs are a major cause of the impoverishment of the LDCs and of the unrest found there. Each of the charges has some basis in fact and history.

Multinationals and Exploitation Multinational corporations operate in LDCs for a variety of reasons. They seek cheap labor, available resources, tax shelters and relief, and markets.

The Unfair Competition of Multinationals The charge that MNCs compete unfairly in the LDCs has two major components.

• MNCs are able to operate on especially favorable and uncompetitive terms.

• MNCs do not carry their fair share of the cost of social development, which imposes greater burdens on local industries.

The charges that MNCs use advanced technology, are more productive, and undercut local firms are in part true.

Multinationals and Impoverishment of Less Developed Countries It is important to note that there are different senses of impoverishment. Indeed, poverty is a relative term, to a great degree.

The charge that MNCs are the cause of the impoverishment of LDCs and of the unrest found there is partly correct.

(1) Colonialization was a mixed blessing for most nations. To some extent the substructure of the countries was developed. The people of all LDCs were poor before colonization. Hence, the sense in which they were impoverished is not in the ordinary sense of the word. They were impoverished culturally.

(2) People of the LDCs were also impoverished in a comparative sense. Poverty is not only an absolute condition; it is also relative.

(3) There is a third sense in which the developed countries are partly responsible for the impoverishment of the LDCs; paradoxically, this is related to the gains made by the LDCs. Increase in life expectancy. This has contributed to the population growth in many LDCs, which poses enormous problems and leads to increasing poverty and starvation.

(4) Several MNCs have directly helped produce starvation in some countries. The typical scenario is this: An MNC goes into a country and buys up large portions of the productive land. It then grows cash crops for export, whereas, before, local farmers grew food for local consumption. The best land is thus taken out of production for local consumption, people are no longer able to grow their own food, and the result is frequently increased malnutrition or starvation.

The abuses by MNCs in LDCs need not, and should not, be denied, ignored, or excused. But even taken at their worst, and as a whole, they do not establish the case that the American free-enterprise system rests on the exploitation of LDCs. The United States, because of its size, wealth, and global importance, intervenes in the economy of many nations even if it does nothing to them directly.

ETHICAL GUIDELINES FOR MULTINATIONAL OPERATIONS The most striking structural difference between the American system and the system of international business is the paucity on the international level of background institutions—which include laws and accepted practices, moral norms, and social demands—to control or guide international business. The situation is doubly bad with respect to LDCs, which tend to have inadequate background institutions internally as well. This situation makes possible many great abuses.

(1) The first norm, “the moral minimum,” is the norm to do no intentional direct harm. This moral minimum applies to all actions of all people, corporations, and countries.

(2) The second norm builds on the first. Not only should the multinational do no direct intentional harm, but if its activity is to be morally justified, its activity must benefit the host country.

A critical distinction - A corollary to this norm is that the good of the country is not the same as the good of corrupt leaders or the good of an oppressive elite of the country. The good of the country must include the good of the ordinary people of the country.

(3) The third norm is to respect the human rights of the workers, consumers, and all others in the host country.

(4) The fourth norm is to promote the development of just background institutions internally within the country as well as on the international level.

(5) The fifth norm requires a multinational to respect the laws of a host country, as well its culture and local values, providing these do not violate human rights or impose immoral laws.

These five rules are examples of the kind of rules that can be generated and defended with respect to the actions of multinationals in LDCs. Following these rules will preclude many of the unjust practices with which multinationals are so often charged.

MULTINATIONALS AND HUMAN RIGHTS The UN Universal Declaration on Human Rights is a widely accepted beginning point. Starting from there we can talk about the obligations of multinationals with respect to human rights on three levels; • On the first level, the multinational has the obligation to respect the human rights of all those with whom it has contact—its employees, suppliers, customers, the people in communities who are affected by its actions, and so on.

• The second level has to do with multinationals using contractors or suppliers or engaging in joint partnerships or joint ventures. Just as multinationals may not directly violate human rights, so they may not indirectly violate them by using contractors or suppliers or joining partners who violate human rights.

• The third level in which human rights come into play is the level of operating in countries whose governments engage in egregious violations of human rights.

Some multinationals have decided against doing business in countries that grossly violate human rights; others have decided to enter such markets cautiously. At the very least, whether or not they are able to bring about changes in governmental policy, while operating in such countries they must take all measures possible to ensure that they do not violate human rights either directly or indirectly.

INTERNATIONAL CODES The best starting point in the further development of standards for international business is self-regulation by business within the guidelines and standards that already exist. The UN Global Compact with business was proposed by the UN secretary-general in January 1999. The Compact was and is a challenge to business to work with other companies, UN agencies, and nongovernmental organizations (NGOs) to support and implement ten basic principles stated in the Compact. The first two principles deal with respecting human rights as listed in the UN Declaration of Human Rights and related documents. The next four outline labor standards (including the abolition of forced and child labor and discrimination). The next three deal with protecting the environment. The tenth principle is against corruption.

The ILO is a specialized agency of the UN that has set up principles governing labor standards. The Caux Principles (named after the Swiss city, Caux, in which they were formulated) were launched in 1995, and emerged from a series of dialogues among a group of European, Japanese, and American firms. They are rooted in two basic principles, the Japanese principle of kyosei (working together for the common good) and the Western notion of the dignity and value of each human person as an end and not simply as a means to be used by others.

Ethical standards adopted by firms are a reflection of ethical standards held by people. Hence, the importance of public opinion and public pressure cannot be overstated. In the end it is public input that makes the difference between standards that are respected and followed and those that are benignly ignored or allowed to atrophy.

CROSS-CULTURAL JUDGMENTS, NEGOTIATION, AND INTERNATIONAL JUSTICE

A cross-cultural judgment concerns practices, institutions, general systems, or theories other than those of one’s culture, society, or system. These judgments are the product of a country’s own point of view or concept of justice inasmuch as it is impossible to adopt all points of view at once or to make judgments from no point of view.

Different systems can be just, and justice does not require that all countries adopt the U.S. (or any other) view of justice, changing their political, social, and economic systems to match or suit those of the any other country.

Exchange and trade are dominant forms of interaction on the international level, and transactional justice governs such activities. It requires that equals be exchanged for equals and that those who enter into a transaction enter freely, with each seeking to secure its own good.

Negotiation and compromise are ingredients in the notion of transactional international justice. Negotiation in business sounds political and therefore many treat it as having little to do with justice. Nonetheless, negotiation is morally justifiable and is often the proper procedure to follow. To say that a transaction or practice is just if all those importantly affected by it freely agree to it as just is to characterize justice by a procedure rather than by a specific outcome determined by a set of substantive principles. This is in fact what we find taking place with respect both to trade between and among countries, and to attempts to settle disputes, whether they be about borders, security, international pollution control, or other issues. A just compromise does not involve compromising one’s principles.

Even with global agreement, however, negotiation is essential to international business. The ethical requirement is to keep negotiation fair and just, however all the concerned and affected parties define justice

CASE SUMMARIES The WTO and Agriculture: A Case Study In September 2003, ministers of the World Trade Organization (WTO), who meet about every two years for negotiations, met in Cancun, Mexico. The negations were difficult. The primary reason is that the less developed countries (LDCs) claimed that the agricultural agenda, like the other agendas, had been prepared by the developed countries, primarily the European Union and the United States, and represented their interests. There had been an attempt in Doha to pay greater attention to the interests of poor countries, and these were to be worked out in the Cancun negotiations. The LDCs protested especially vigorously the large agricultural subsidies made to the agricultural sector by the rich countries and their refusal to cut these substantially or to free farm trade. The subsidies by the United States and the European countries to their farmers made it possible for them to export their surpluses at below-market prices because their profits were guaranteed by the subsidies. This made it impossible for the farmers from LDCs to sell their produce abroad because without subsidies by their own governments, they had to charge the full price of production. Moreover, other LDCs were equally worried about the effect of free imports on their local farmers, and about whether they could in fact compete locally if subsidies had not been eliminated. If all tariffs had to be eliminated by all countries, the richer countries (if they continued their subsidies) could sell their food products at cheaper prices than the farmers in poor countries could in their own country, thus driving the local farmers out of business. Some in the rich countries, not only the farmers, also wondered why their own national policies should be dictated by negotiations at the WTO in Cancun rather than decided by the democratic process in their own countries.

TEACHING STRATEGIES We live in a global economy. In past generations, it has been possible to argue that this wasn’t so, or that the American economic system could be examined in isolation from the rest of the world. This is clearly not the case now. As one part of a global economy, distinct problems arise – how might the clash of cultures be reconciled in the doing of business; how might different cultures understand the nature of business, itself; how are the differing notions of justice and fairness adjudicated between different settings? Each of these questions can, on its own, spark a long and fruitful conversation. What is more beneficial, however, is to begin with some of the ethical guideline for multinationals and ask how those might be applied in a particular cultural situation. Questions that will arise later like outsourcing production to countries in which wages are substantially lower than in the United States and practices of bribery and navigating institutionalized corruption in local governments are all likely to grow out of this application. This chapter provides a framework to discuss those questions later. Thus, it is important to focus here

on the nature of multinational corporations (what is a MNC, what things – good and bad – do all [or most] MNCs have in common), the nature of international organizations that are quasi-governmental (the WTO, for instance) and what those organizations are developed to accomplish, and the nature of claims about human rights. Some very important distinctions made here can definitely facilitate conversations later. The instructor need not be tied to pursuing the text in order, one chapter following the next. This is a good example of a chapter that can be paired with several other chapters later; thus, the instructor can individualize the shape of the course by putting chapters together in differing orders.

KEY TERMS AND CONCEPTS Multinational Corporations Poverty MNC LDC UN Global Compact ILO Principles Caux Round Table Principles for Business noblesse oblige reciprocity ESSAY QUESTIONS 1.

2.

3.

4.

5.

What are some of the ways in which multinational corporations have been responsible for damaging conditions in developing countries?

What is the proper relationship between multinational corporations and the background institutions of the host country? What principles govern this relation?

How do the UN Global Compact, the ILO Principles, and the Caux Principles seek to create an environment for ethical practices by multinational corporations?

What effects does Globalization have on LDCs? Are these effects always negative?

Explain how it is possible to engage in compromise and yet maintain one’s integrity and principles.

MULTIPLE CHOICE 1.

What did Lenin call the last stage of fully developed capitalism?

A. imperialism B. socialism C. totalitarianism D. communism

2.

What, in the eyes of critics, has come to represent the epitome of globalization?

A. International Monetary Fund (IMF) B. Multinational Corporations (MNC) C. World Trade Organization (WTO) D. Less Developed Countries (LDC)

3.

Which of the following is not a charge leveled against the World Trade Organization?

A. That LDCs are not benefited and are, in fact, harmed.

B. That all nations, regardless of size and wealth, are given equal voice.

C. That the organization is not democratic nor transparent in its practices.

D. That all of the nations are not, in fact, equal.

4.

Which of the following represent reasons for multinational corporations to operate in less developed countries (LDCs)?

A. highly trained labor, tax incentives, scarce resources B. cheap labor, available resources, tax shelters C. good infrastructure, well-educated populace, textile factories

D. strong currency, developed bureaucracies, decent healthcare 5.

Which of the following is not an unfair competition charge against multinationals?

A. Multinationals pay higher wages than local companies.

B. Multinationals do not carry their fair share of the cost of social development.

C. Multinationals are able to operate on especially favorable and uncompetitive terms.

D. Multinationals can borrow money at more favorable rates than local companies.

6.

Which of the following is expressed by the norm to “do no intentional direct harm?”

A. the moral maximum B. the moral mean C. the moral median D. the moral minimum

7.

Which of the moral norms prevents engaging in slavery and apartheid, paying less than subsistence wages, and providing less than adequate and safe working conditions.

A. Promote the development of just background institutions internally.

B. Respect the human rights of workers C. Do no intentional direct harm D. Respect the laws of a host country.

8.

The restriction of multinationals from lobbying against reforms or laws that protect workers or consumers is an expression of which norm?

A. Promote the development of just background institutions internally.

B. Respect the human rights of workers C. Do no intentional direct harm D. Respect the laws of a host country.

9.

The recognition that the “good of the country” is not the same as the “good of corrupt leaders” is an expression of which moral norm for multinational operations?

A. Activity must benefit the host country B. Do no intentional direct harm C. Respect the human rights of workers D. Respect the laws of a host country

10. Which of the following is a statement of reciprocity?

A. A transaction is just if there is a general feeling that it is just.

B. A transaction is just if all those importantly affected by it freely agree to it as just.

C. A transaction is just if the majority of people are treated fairly, as long as no direct harm is done to others.

D. A transaction is just as long as due process of law within the host country is observed.

ANSWERS: 1. A; 2. C; 3. B; 4. B;

5. A; 6. D; 7. B; 8.D; 9. A; 10. B

CHAPTER 10: CORPORATIONS, MORALITY, AND CORPORATE SOCIAL RESPONSIBILITY OBJECTIVES 1.

2.

3.

4.

5.

6.

Indentify some of the differences between expectations that attach to privately owned businesses and publically owned ones.

Identify the ways in which businesses are labeled small- or medium-sized by governmental entities.

Identify the distinctions between shareholders and stakeholders.

Identify the responsibilities of management.

Identify the general obligations of corporations.

Distinguish between legal responsibility, social responsibility, and moral responsibility.

CHAPTER SUMMARY PRIVATELY OWNED, SMALL AND MEDIUM-SIZED BUSINESSES To some extent, the rules for privately owned companies are different from the rules for those that are publicly owned. Publicly traded companies are obliged to reveal a good deal of information about their financial status, so that investors can make informed decisions about buying and selling their stock. More is legally required in order to protect the interest of the shareholders.

Small and Medium-Sized Businesses Although giant corporations tend to dominate business and are the focus of most discussions about business and business ethics, small and medium-sized businesses are the most numerous in all societies and have often been among the most innovative. The definition of a small or medium-sized business varies. In the European Union and such organizations as the WTO and the UN, which use the term “small and medium-sized enterprises” (SMEs), the generally accepted definition of a small business is one with 50 or fewer employees and a medium-sized business is one with 250 or fewer. Those numbers are doubled in the American use of the term “small and medium-sized businesses,” and sometimes the designation is based not on the number of employees but on annual sales, or net profit, or value of total assets. Small and medium-sized businesses are frequently treated differently under the law.

All this notwithstanding, the emphasis in most discussions of business ethics and in this book is on corporations, and especially on large corporations. The reasons are many. The first is that their size in some instances rivals that of small countries. Their power and influence—for good and bad—make them of central concern. The harm that they can and have done is far greater than that possible for small firms. Large corporations are typically not only powerful but impersonal. Large corporations employ large numbers of people, who are dependent on the corporations. With great power goes great responsibility. And one of the tasks of business ethics is to help clarify those responsibilities to society, employees, stockholders, consumers, and all others affected by a corporation’s actions.

CONCEPT OF THE CORPORATION: SHAREHOLDER VERSUS STAKEHOLDER Corporations have a special status under American law in that they have limited liability. This means that the owners of stock in the company are only liable for the amount they have invested in the company’s stock. Their personal assets are not at stake. The classical concept of the corporation presents the corporation as existing primarily to serve the shareholders. According to this view, the interests of the shareholders are paramount and come first over all other interests.

The challenge to this interpretation is based on two different kinds of considerations. The first is that shareholders, although legally the owners, are very often simply speculators with no real interest in the long-range future of the company. The second consideration is that although stockholders of a corporation are technically the owners and have rights, including the right to have the company run well, there are other constituents who have a much stronger interest and involvement in the firm, and a much stronger stake in it and in its continuance and success.

All those to whom the corporation has any obligations are collectively referred to as stakeholders in the corporation.

A stakeholder analysis of an issue consists of weighing and balancing all of the competing demands on a firm by each of those who have a claim on it, in order to arrive at the firm’s obligation in any particular case. The stakeholder approach has the strength of forcing us to consider carefully all the obligations involved, for instance, in a plant closing, instead of just looking at the closing from the point of view of profitability, and so from the point of view of the shareholders.

MORAL RESPONSIBILITY WITHIN THE CORPORATION A corporation has the same ethical obligations to its shareholders, employees, customers, suppliers, and the community and the same responsibilities with respect to the environment whether it is conceived on the shareholder or the stakeholder model. The general obligations of corporations stem from the nature of the corporation, society, and the implicit agreement between the two.

• The first is the obligation to “Do no harm.”

• The second general obligation comes from the nature of the free-enterprise system in which the corporation is founded. The corporation depends on the integrity of the system and thus has the moral obligation not to undermine the freedom and the values of the system.

• The third general obligation is to be fair in the transactions in which it engages.

• The fourth general obligation is to live up to the contracts into which one enters freely These four general obligations are derived from the system of free enterprise. They can also easily be defended as second-order ethical principles by both a utilitarian and a deontological approach. They are obligations that all corporations have.

The members of the board are responsible to the shareholders for the selection of honest, effective managers, and especially for the selection of the CEO and of the president of the corporation. They may also be responsible for choosing the executive vice president and other vice presidents. They are morally responsible for the tone of the corporation and for its major policies; they can set a moral tone, or they can condone immoral practices.

Management is responsible to the board. Management is responsible for setting the moral tone of the firm. Unless those at the top insist on ethical conduct, unless they set an example of moral conduct, and unless they punish unethical conduct and reward ethical conduct, the corporation as a whole will tend to function without considering the moral dimensions of its actions.

Management is also responsible to the workers. Workers, in turn, are responsible for doing the jobs for which they are hired. From a moral point of view, one’s job can never legitimately involve either breaking the law or doing what is unethical, even if one is ordered to do so. But within the guidelines of one’s job description, employees are expected to carry out their jobs as instructed by those above them.

Corporations are responsible to their suppliers and competitors for fair treatment. Fairness precludes lying about one’s competitor or the competitor’s products; it precludes stealing trade secrets, sabotage, or other direct intervention in the competitor’s firm. Fairness in dealing with one’s competitor also precludes colluding with competing firms, price fixing, manipulating markets, and in other ways acting to undermine fair competition at the public’s expense.

The corporation is responsible to the consumer for its products. The goods produced should be reasonably safe.

Finally, the corporation is morally responsible for its actions to the general public or to society in general. In particular, it has the moral obligation not to harm those whom its actions affect. There are three general obligations that are connected with this notion of responsibility to society in general: • The first can be called its obligation not to harm the environment that it shares with its neighbors.

• The second group of moral obligations to the general public concerns the general safety of those who live in an area affected by a company’s plant.

• The third set of responsibilities to the public concerns the location, the opening, and the closing of plants— especially in small communities and one-industry towns.

CORPORATE SOCIAL RESPONSIBILITY The three sets of obligations, from a corporate point of view, frequently correspond, respectively, to the notions of moral responsibility, legal compliance, and social responsibility. Not surprisingly, given the Myth of Amoral Business and the confusion often associated with the terms, the latter two tend to dominate the corporate literature.

Corporate Moral Responsibility, Legal Compliance, Corporate Social Responsibility Moral demands stem from the moral law. The term “corporate social responsibility” or CSR has become the favorite term both of many corporate critics and of many within corporations. The term “corporate social responsibility” became popular in the 1960s and has remained a term used indiscriminately by many to cover legal and moral responsibility as well as social responsibility more narrowly construed.

Moral obligations are sometimes correctly put forth as social obligations because they can and should be demanded by a moral society. Such moral demands as the obligation not to harm (e.g., in the case of pollution) may be handled in various ways by a society. What society demands of firms in this instance are actually social demands. They are morally justifiable both because they implement a moral demand and because society has the right to impose particular demands on corporations as a condition for doing business, providing the demands are in the interest of the common good.

Corporations are to be applauded for their social responsibility programs. Nonetheless, five criticisms of the CSR bandwagon carry some weight.

• The first is that CSR is often not only confused with a corporation’s moral responsibility, but it is sometimes equated to it.

• Second, social responsibility programs are often self-serving and are used by companies to deflect legitimate moral complaints and criticism.

• Third, in many cases the socially responsible action that a company undertakes is one of its own choosing.

• Fourth, where laws are absent, exactly what society expects or demands may be difficult to determine.

• Fifth, the extent to which corporations are not only national entities but are also international in both reach and organization complicates the application of CSR. Moral and Social Audits and Standards One standard that is receiving a good deal of attention is that contained in what is known as “The Triple Bottom Line.” The Triple Bottom Line position is that a corporation can and should be evaluated not only in terms of its financial bottom line, but also in terms of its environmental bottom line and its social/ethical bottom line.

In the first chapter of this book we examined the Myth of Amoral Business. The myth tends to obscure the moral obligations of corporations. The myth should be put to rest. Corporations have moral obligations, and they can and should be held morally accountable for fulfilling them. If such an audit were required of all large corporations, it would go a long way toward replacing the Myth of Amoral Business with a clear and open approach to corporate moral obligations.

CORPORATE CODES Although corporate codes cannot be expected to contain a detailed presentation of moral reasoning, they can make reference to general moral principles. The injunction to employees (found in one corporate code) to act in such a way that they would not be ashamed to have their actions exposed to the public—for instance, in the headlines of the local newspaper—is a step in the right direction. A code could appropriately and helpfully refer to the principles from which the code flows, to principles of justice and fairness. It could also refer to these moral principles: objectively weighing the consequences to all those affected by one’s actions, respecting the rights of others, and the like.

They are inadequate as guides to moral conduct or as guarantees that a profession or firm is serving the public and preventing its members from acting in a way detrimental to the public interest. But they are frequently better than nothing at all, and there are several advantages to developing them.

• First, the very exercise of doing so is in itself worthwhile, especially if it forces a large number of people in the firm to think through, in a fresh way, their mission and the important obligations they as a group and as individuals have to the firm, to each other, to their clients or customers, and to society as a whole.

• Second, once adopted, a code can be used to generate continuing discussion and possible modification of the code. • Third, it could help to inculcate in new employees at all levels the perspective of responsibility, the need to think in moral terms about their actions, and the importance of developing the virtues appropriate to their positions. Fourth, a code can be used as a document to which employees can refer to when asked to do something contrary to it. Fifth, a code might be used to reassure both customers and the public of the fact that the firm adheres to moral principles, and to provide them with a touchstone against which they can measure the firm’s actions.

CORPORATE CULTURE AND MORAL FIRMS We can, however, properly speak of a corporate culture, and this may either foster or inhibit moral action on the part of its members. Corporate culture is analogous to the culture of a society, people, or nation. It includes the ambiance of the corporation, its values, beliefs, and practices; the relation of the people within the corporation to one another, and their feelings toward the firm; the history of the corporation; and the extent to which the present members identify with the history and tradition of the corporation in the past and present.

A moral firm, or a firm that acts with integrity, lives up to and fulfills its responsibilities. It helps its employees to act responsibly by clarifying their responsibilities, and it encourages them to assume their responsibilities. Only when all those within a firm assume appropriate moral responsibility can the full moral responsibility of a firm be met. Ultimately, moral responsibility, and morality itself, must be self-imposed and self-accepted.

CASE SUMMARIES The Case of Malden Mills Malden Mills had been founded in 1906 by Henry Feuerstein, the grandfather of the present owner, Aaron Feuerstein. In 1956, the business had been moved from Malden to Lawrence, Massachusetts. By 1995, most of the other fabric companies in Lawrence had closed or moved South or abroad to take advantage of cheaper labor costs.

On Dec. 11, 1995, a fire destroyed the main manufacturing buildings. Rather than relocate the plant, Feuerstein kept it in Lawrence and paid his employees during the rebuilding process at great personal expense. Even when he had to lay off workers, he continued to pay for their health insurance. Almost decade later, with the downturn in the economy, Malden Mills went under. In the end, he lost his company. But although it was taken over, many of his former employees have work they would not have had had he closed his plant or relocated it elsewhere. The city of Lawrence, where Malden Mills was located, did not suffer the devastation of so many other New England towns whose plants were closed. The downturn in the popularity of Polartec was not related to the fire, and the fact that Feuerstein lost control of his company is not clearly or necessarily related to the fire. Was what Feuerstein did the right thing to do, as he claims, not only from a business point of view but also from an ethical point of view? Was it ethically mandatory or was it beyond what ethics demands? Would a publicly owned company have been able to make the same grand gesture and would the shareholders of the company and the Wall Street analysts have seen the move as enlightened business practice?

TEACHING STRATEGIES In the discussion of the role of business within the communities in which they exist, the notion of corporate social responsibility is inescapable. The case of Malden Mills seems to lie on one side of the discussion, with Aaron Feuerstein acting in ways that may seem an extreme commitment to social responsibility and the Love Canal case of an earlier chapter seeming somewhat less so. Perhaps the most important aspect of this chapter has to do with the distinction between shareholders and stakeholders and the discussion of what responsibilities a corporation has to each. In some cases, those responsibilities will overlap. In others, they will diverge. When those responsibilities diverge, the nature of the responsibilities becomes somewhat clearer. After a brief assessment of the different responsibilities that can be assigned with regard to shareholders and stakeholders, it is helpful to examine the

different arguments with regard to the level of responsibility due different stakeholder groups. There are, obviously, some who argue that no responsibility obtains. Several distinctions are necessary – between corporate social responsibility and corporate moral responsibility, and between both of those and corporate legal responsibility. It is also important to discuss the role of the corporate culture in establishing a pattern/practice of social responsibility within communities.

KEY TERMS AND CONCEPTS Shareholder Stakeholder Limited liability CSR The Triple Bottom Line Corporate Codes ESSAY QUESTIONS 1.

2.

3.

4.

5.

What is the difference between a shareholder and a stakeholder?

How are legal demands felt differently by smaller businesses than by larger ones? Are ethical demands also felt differently?

How are the general obligations of the corporation and the general responsibilities of management related?

What is the difference between legal responsibility, social responsibility, and moral responsibility?

How are the responsibilities of management, workers, and corporations related?

MULTIPLE CHOICE 1.

For the EU and the WTO, a small business is one with how many employees?

A. 51-100 B. 50 or fewer C. 101-200 D. 201-300

2.

For the EU and the WTO, a business is considered “medium-sized” if it has how many employees?

A. 100 or fewer B. 250 or fewer C. 50 or fewer D. 250-301

3.

Which of the following is not a measure by which businesses in the United States are determined to be small- or medium-sized?

A. Number of managers B. Annual sales C. Net profit D. Value of total assets

4.

Which of the following is the general obligation derived from the system of free enterprise that holds that parties must be able to count on the actions of other agents with whom they interact?

A. the obligation to be fair in the transactions in which it engages B. the obligation not to undermine the freedom and values of the system C. the obligation to do no harm D. the obligation to live up to the contracts into which one enters freely

5.

Which of the following is the general obligation derived from the system of free enterprise that restricts bribery?

A. the obligation to be fair in the transactions in which it engages B. the obligation not to undermine the freedom and values of the system

C. the obligation to do no harm D. the obligation to live up to the contracts into which one enters freely 6.

Which of the following is the general obligation derived from the system of free enterprise that is sometimes called the “moral minimum”?

A. the obligation to be fair in the transactions in which it engages B. the obligation not to undermine the freedom and values of the system C. the obligation to do no harm D. the obligation to live up to the contracts into which one enters freely

7.

Which of the following is the general obligation derived from the system of free enterprise that covers the wide range of issues from just compensation to truth in advertising to providing the quality of goods or services that one represents oneself as providing?

A. the obligation to be fair in the transactions in which it engages B. the obligation not to undermine the freedom and values of the system C. the obligation to do no harm D. the obligation to live up to the contracts into which one enters freely

8.

Which of the following is not true about the moral responsibilities of management?

A. Management is responsible to the board.

B. Management is responsible to the workers.

C. Management is responsible to maximize profits.

D. Management is responsible to the shareholders.

9.

Which of the following is one of the moral responsibilities of management?

A. Management is responsible to the board.

B. Management is responsible to the workers.

C. Management is responsible to maximize profits.

D. Management is responsible to the shareholders.

10. Which of the following is not a part of the “Triple Bottom Line?”

A. The financial bottom line B. The environmental bottom line C. The social/ethical bottom line D. The human resources bottom line ANSWERS. 1. B; 2. B;

3. A; 4. D; 5. A; 6. C; 7. A; 8. C; 9. B; 10. D

CHAPTER 11: CORPORATE GOVERNANCE, DISCLOSURE, AND EXECUTIVE COMPENSATION OBJECTIVES 1.

2.

3.

4.

5.

Identify the ways in which the Sarbanes-Oxley Act address the roles of CFOs and CEOs with regard to financial disclosure and other aspects of management.

Identify the ethical issues surrounding insider trading.

Identify the ethical issues and controversies surrounding golden parachutes.

Identify the ethical failings brought to light by corporate scandals – Enron, Tyco, Martha Stewart, etc.

Identify the ethical issues and controversies surrounding exorbitant executive compensation.

CHAPTER SUMMARY CORPORATE GOVERNANCE The corporate scandals at the beginning of the new century were almost exclusively scandals about corruption at the top. In case after case, management was not responsible to their boards, and the boards were not accountable to their shareholders. The reaction of the U.S. government was not only to condemn the abuses but to attempt to legislate remedies. A difficulty with such legislation is that it is often cumbersome and expensive to implement. It addresses past abuses; no such legislation can fully anticipate future abuses. They often specify particular requirements that are not ethically required, although they may help a corporation act more ethically.

Top Management The Sarbanes-Oxley Act served as a good start to addressing issues of corporate governance. The law, which took effect in July 2002, was the most sweeping law governing corporations since the 1930s.

Frequently members of the top management of corporations have acted as if the code of their companies applied to lower members within the firm, but not to them. Sarbanes-Oxley addresses that issue in Section 406 by directing the SEC to require that a company disclose whether it has a code of ethics for its senior financial officials. If it does, the company must disclose the contents of the code, and any waiver of or change in the code that it may make. If it does not have a code, the company must explain why it does not.

Two of the employee complaints in the Enron case were as follows: First, at the same time that top executives were selling their stock in the company, these same executives were encouraging the employees to buy the stock; and second, during part of the period of the stock’s collapse, Enron employees could not sell their stock because of action taken by the company.

The Corporate Board Corporate boards vary considerably from company to company. For many years, the composition of the board was dependent in many companies on the choice of members made by the Chairman of the Board, who was most often also the CEO. One function of a board is to oversee the management of the corporation by its executives. SarbanesOxley attempts to give investors some assurance that the board is able to act independently. In general, in the past, the independence of the board was not necessarily a paramount consideration. Now it is. Under the new rules, the independent members of the board are required to hold regularly scheduled meetings without management.

CORPORATE DISCLOSURE The information that a corporation is morally obliged to disclose coincides with much that is legally required, although pressures for increased disclosure are based for the most part on moral arguments. The moral basis for disclosure of corporate information rests primarily on two second-order, substantive moral principles: (1) Each person has the right to access the information he needs to enter into a transaction fairly, and (2) each person has the right to know those actions of others that will seriously and adversely affect him.

A transaction is fair if those who are a party to it have access to the appropriate information and freely enter into it.

The second principle can be derived from our earlier analysis of moral responsibility. We saw that each person is morally responsible for his actions and their effects.

To Whom Is Disclosure Appropriate?

Because each group relates differently to the corporation, what is to be disclosed will vary from group to group. In each case the two principles apply. (a) Disclosure of information to stockholders and to potential stockholders The right of shareholders to information about the company is a right that no one denies. But exactly what they have the right to, in addition to what is already required by law, is a matter of debate. Corporations have argued that investors are interested only in financial information, and they claim that they already supply much more than the vast majority of investors are interested in having. Shareholders are legally represented by members of the board of directors of a corporation. Shareholders, therefore, should be informed about the operation of the board and the actions of its members. Shareholders have a right to know not only for whom they are voting but (in addition to the Sarbanes-Oxley requirement concerning making public how the nomination procedure for board members works) who nominated the members of the proposed slate, how the board functions, who sets agendas, how often the board meets, who serves on the committees of the board, the number of meetings each board member has attended in the previous year, and the reasons for the resignation of any board members. (b) The members of the board of directors are the legal representatives of the shareholders, so they owe the shareholders appropriate information, as well as honest service in their interests. Yet board members need not make public everything they learn. (c) What must be disclosed to the workers? They have a right to know the conditions of work, including their rights, benefits, and obligations. Workers also have a right to know the general policy of the corporation in the areas in which they have moral concerns. Workers also have the right to know, in ample time, about decisions made by management that will directly and adversely affect them. (d) Government has the right to know that corporations are complying with the law. (e) The corporation, from a moral point of view, should disclose to its suppliers whatever is necessary to make the contracts between them fair. (f) Consumers should be informed of any dangers posed by the use of the product they purchase. (g) The term “general public” includes more than simply a corporation’s customers or potential customers.

What Should Be Disclosed?

On the basis of the two principles stated previously, a corporation has the moral obligation to disclose appropriate information to those with whom it enters into transactions and to those whom its actions affect seriously and adversely. In broad terms, those affected are (a) the shareholders and potential shareholders of the corporation, (b) the board of directors, (c) the workers, (d) government, (e) the corporation’s suppliers and agents, (f) the consumer of the corporation’s product, and (g) the general public, whether or not they are consumers of the product.

What Form Should Disclosure Take?

The appropriate channels for reporting information concerning the moral dimensions of some of a corporation’s actions have yet to be decided upon, much less standardized. The moral audit fits into the question of disclosure at this point and will, if developed, be an appropriate vehicle for such information.

Corporations have typically been reluctant to disclose information about their activities. If left to themselves, some of them would consider all their internal operations trade secrets. Shareholders’ meetings are only one forum for raising and discussing these questions. Such meetings are more and more frequently used, often because this is the only channel available to those who have concerns about corporations, their policies, and their activities. It is possible to find other channels, and they are needed; they are certainly not beyond the organizational capacities of most large corporations. Sarbanes-Oxley has moved toward greater disclosure and transparency. There is room for much more of both.

INSIDER TRADING Insider information is information that someone within a company has but that is not available to those outside the company. This includes not only trade secrets, but company strategy and plans. The moral problems connected with insider information concern the use individuals may make of such information while they are still members of a firm. Two aspects of the question raise special problems.

• One is that of someone within the firm using information for his or her own private gain, at the expense of the firm. This is called conflict of interest.

• The other is the use of insider information by someone within a firm to secure personal advantage over those not in the firm. The most serious instance of this concerns inappropriate insider trading.

Some instances of the illegitimate use of insider information include use of information for personal gain at the company’s expense and use of information for personal gain at the expense of those not connected with the company but who do not have access to the information at the core of the insider information itself.

The SEC considers an “insider” anyone who has pertinent information that is not publicly available and that gives the trader an advantage over the public.

The SEC argues that insider trading will dampen the public’s interest in investing in what people feel is an unfair market, one in which insiders have all the advantages. But the SEC has its critics. They claim that the practice of insider trading is so widespread that the SEC investigations barely scratch the surface and are not worth the money or effort poured into attempts to stop such trading. Furthermore, they claim, insider trading has not discouraged investor interest in the stock market, and hence the SEC’s fears are unfounded.

The mistake of those who attempt to justify insider trading in terms of market efficiency is that, believing in the Myth of Amoral Business, they see the market as an impersonal mechanism, which does not care who gains or loses in its transactions. Winners and losers are beside the point, because the market is simply an efficient means of matching buyers and sellers. Yet even though the stock market acts impersonally, it mediates transactions between people, and transactions between people are properly subject to moral rules. Clearly, those who buy and sell do care who gains and loses. Both parties desire and deserve a fair market.

Those who engage in illegal insider trading misappropriate—and thus steal—information that they properly have only in their corporate role and that they inappropriately use in their private capacity for personal gain.

Information plays a central role in modern business. Information is vital for the adequate evaluation of business activities. The tension between a corporation’s urge for secrecy and the right to know of those affected or involved can strain a corporation’s relations with the public. But if a corporation responds to this tension creatively and openly, it can lead to the exercise of more responsibility on the part of a corporation and to greater trust of corporations on the part of the general public.

EXECUTIVE COMPENSATION One of the responsibilities of a corporate board is the appointment and evaluation of the corporation’s CEO, and the determination of his or her compensation. The issues are not only the extravagant absolute amount, but executives being handsomely rewarded for downsizing and cutting payrolls of workers and for presiding over failing companies with declining shareholder value, and receiving golden parachutes and what seem to many observers excessively high severance pay packages.

If there is no principled way to decide that a multiple of five or seven or ten or one hundred is the proper upper multiple, then we should not attempt to set one. Rather, we should ask what background institutions are appropriate to keep income differentials from skewing our society in undesirable ways, robbing those less well off of their dignity and personal or social esteem.

In 1992 the SEC, partially in response to public demand, issued new executive compensation rules, under which appropriate data must be publicly stated in a standard form, all compensation is to be disclosed, and the firm’s compensation committee is to disclose the factors on which the compensation decision was made.

What gets more media attention than the average pay of CEOs is the extremely high packages of CEOs who leave failing or failed companies.

The term “golden parachute” refers to a practice of guaranteeing that the chief officers of a company are given a certain set of benefits—sometimes a multimillion dollar payment—if the company is taken over and the executives are fired or their positions are eliminated. It has been extended to cover extremely large severance packages that are guaranteed to executives in any case of involuntary termination. The justification given for such a practice is threefold.

First, it makes it easier to hire a new CEO in a climate of corporate takeovers, where one may lose one’s job through no fault of his or her own.

Second, it increases the cost to the predator company.

Third, it gives the chief executives an incentive to work toward the interests of the shareholders in case of a takeover threat.

Critics object that this is an inappropriate use of a company’s money. First, many doubt that well-paying CEO positions would go begging without golden parachutes. Second, given the scale of large takeovers, the cost of golden parachutes is unlikely to prevent a takeover. Third, and most important, CEOs are already very well compensated in their jobs, and they are paid precisely to manage the company as best they can for the benefit of— among others—the shareholders, even at some possible detriment to themselves.

CASE SUMMARIES The Enron Case The Enron case has become a standard case study1 of a business failure for many reasons. Kenneth Lay started Enron, which resulted from a merger of two natural-gas pipeline companies. It rapidly expanded, extending its activities overseas. In 1994 it moved into the area of electricity trading and energy management services. By 2000 its reported revenues had reached $100 billion. In February 2001, Jeff Skilling, who had joined the company in 1990 and had become President and Chief Operating Officer, took over as CEO, while Ken Lay remained Chairman of the Board. In August, Skilling resigned, and Lay took over again. On October 24, Andrew Fastow, Enron’s Chief Financial Officer, who had joined the company in 1991, was placed on leave, after the company announced it had to reduce its reported assets by over a billion dollars. On December 2, 2001, Enron filed for bankruptcy, to become the biggest corporate bankruptcy in American history up to that time. Arthur Andersen was the firm’s outside auditor. It failed to turn up the off-the-book transactions, and in September through November, even after the Securities and Exchange Commission (SEC) announced it was conducting an investigation into Enron, Arthur Andersen advised and took part in destroying financial documents. It was not the only shady dealing in which the accounting firm was involved, and eventually the company, which is in the business of trust, lost credibility and was forced to close.

Enron’s former treasurer, Ben F. Glisan, pleaded guilty to conspiring to commit fraud (as did four others) and was sentenced to five years in prison. In January 2004, Fastow pleaded guilty to two charges of fraud and was sentenced to ten years in prison, and paid $23.8 million. In February 2004, Skilling was charged with over three dozen counts of fraud and other charges, and he pleaded not guilty. Ten other executives were indicted on criminal charges. Ken Lay, who pleaded ignorance of the wrongdoing, was indicted by a grand jury in 2004. His trial began in January 2006, and in May of that year he was found guilty of ten counts of securities fraud and related charges.

The Martha Stewart Case In 2002, Martha Stewart, CEO of Martha Stewart Omnimedia, made headlines when she was charged with lying in connection with making an alleged insider trade. In late December the company learned that the Food and Drug Administration (FDA) would most likely not approve the drug. On December 27, 2001, one day before the news that

the FDA had rejected the drug became public, Martha Stewart sold her shares for $227,000, at $58 a share. Once the news broke, the stock’s value plummeted. At the end of trading on December 28, the stock was selling at $46 per share. By her trade, Stewart had avoided losses of $45,673.

Boesky, Milken, and an Insider Trading Case In January 1985, Ivan Boesky, an arbitrager for Ivan Boesky Corporation in New York, was reported to have received a call from Michael Milken, who was the head of high-yield securities of the financial firm of Drexel, Burnham, Lambert, Inc. in Beverly Hills. Milken told Boesky that he had learned of a merger between Occidental Petroleum Corporation, which Milken’s firm was representing, and Diamond Shamrock. According to the terms of the merger, which had not been made public, Diamond Shamrock’s stock would go up in price and Occidental’s would fall. On the basis of that phone call, Boesky immediately set about buying as much of Diamond Shamrock stock as he could. He sold short as much Occidental stock as he could, in anticipation of replacing the Occidental stock with shares that he would buy after its price fell. Thus, they would make money on both stocks.

TEACHING STRATEGIES This chapter delves into the complexities of corporate misconduct. Because of the complexity of the chapter, several case studies are included. It may well be the best teaching strategy to begin with the cases as a way of developing the first and second-order principles with regard to disclosure, for example. Then, return to the case studies to discuss executive compensation. In other words, setting up a dialectic between the case study, on the one hand, and the set of principles in the particular area to be discussed, on the other, and doing so in a sequential and focused way in which only one set of principles is under examination, may well be the most profitable way of approaching the complexities. After having developed the sets of principles, it would be helpful to return again to the cases and see the ways in which the sets of principles are, at times, in conflict, and how the students’ intuitions about the resolution of those conflicts create greater nuance in their analytical abilities.

KEY TERMS AND CONCEPTS Sarbanes-Oxley Act Insider Trading Conflict of Interest Golden parachute Golden coffins Perjury Disclosure ESSAY QUESTIONS 1.

2.

3.

4.

5.

Why is it appropriate that disclosure rules would require different kinds of disclosure to different groups? Give examples.

How are insider trading and misappropriation related?

What are golden parachutes and golden coffins, and what are the controversies surrounding them?

How does the Sarbanes-Oxley Act make the board of directors of a company more responsive to shareholders?

Using the Enron case as an example, explain the difference between an act being illegal and it being unethical.

MULTIPLE CHOICE 1.

Which of the following was a result of the Enron failure?

A. The Rescue Bill B. The Employee Compensation Act C. The Sarbanes-Oxley Act D. The Corporate Democracy Act

2.

Which of the following was an employee complaint in the Enron case?

A. At the same time top executives were selling their stock, the same executives were encouraging employees to buy the stock.

B. During the period of the stock’s collapse, Enron employees were encouraged to sell their stocks.

C. While top executives were buying stock in the company, they were encouraging employees to sell their stocks.

D. Top management was encouraging employees to hold their stocks because they felt the stock would rebound.

3.

Which of the following is a moral basis for disclosure of corporate information?

A. Each person has the right to know those actions of others that could benefit him.

B. Each person has the right to any information about a company he desires.

C. Each person has the right to enter a transaction fairly and thus is required to inform others of his intent.

D. Each person has the right to know those actions of others that will serious and adversely affect him.

4.

Martha Stewart was charged with which of the following?

A. Making an insider trade.

B. Lying in connection with making an alleged insider trade.

C. Failing to disclose the financial position of her company.

D. Obstructing justice by not providing proper documentation of workplace safety.

5.

In the Diamond Shamrock and Occidental Petroleum Corporation deal, which of the following best describes the actions of Ivan Boesky and Michael Milken?

A. They shared inside information with intent to make a significant profit, but because of actions that neither foresaw, they lost money.

B. They shared inside information with the intent to make significant profit, but were found out and thus doomed the deal.

C. They traded inside information with intent to make significant profit, and, after the deal went through, both made substantial profits.

D. They traded insider information with intent to make significant profit, but decided that it was improper and so did not take advantage of the information.

6.

At its height, the compensation of top executives at large companies was, on average, how much higher than the pay of the average worker?

A. 7 times greater B. 20 times greater C. Over 700 times greater D. Over 300 times greater

7.

What is the term that refers to compensation given the family of a CEO in the event that he dies in office?

A. the golden coffin B. the golden parachute C. the golden egg D. the golden will

8.

Until Ben Cohen retired as CEO of Ben & Jerry’s, the cap on executive pay was which of the following?

A. Twenty times that of the average worker B. Seven times that of the lowest paid worker C. Fourteen times that of the average worker D. Fifty times that of the lowest paid worker

9.

Which of the following is not considered inside information?

A. Trade secrets B. Company strategy C. Company plans D. Stock value

10. Which of the following groups is not held accountable by the Sarbanes-Oxley Act? A. Corporate boards B. Management

C. Shareholders D. Accountants

ANSWERS. 1. C; 2. A; 3. D; 4. B; 5. A; 6. C; 7. A; 8. B; 9. D; 10. C

CHAPTER 12: FINANCE, ACCOUNTING, AND INVESTING OBJECTIVES 1.

2.

3.

4.

5.

Identify the role each of the factors (home buyers, lenders, insurers, raters, and government policy) that led to the financial meltdown of 2008.

Identify the arguments for and against corporate takeovers.

Identify the roles that efficiency, diversity, and valuation of companies play in establishing rationales for corporate takeovers.

Distinguish between leveraged buyouts, corporate takeovers, and downsizing.

Identify some of the ethical issues for accountants.

CHAPTER SUMMARY MORTGAGES, RISK, AND FINANCIAL INSTITUTIONS The free-market system has typically allowed companies to fail. Competition means that some will succeed and others will not. Traditionally, those who produce most efficiently, serve their customers with the best prices for the goods they produce that people want, and outperform their competitors tend to succeed. Through competition, the general public reaps the benefits of lower prices and better goods and services. The role of government is to keep competition fair.

We have seen that a fair transaction requires that both parties have access to the appropriate information, and it is part of the function of government oversight institutions, disclosure laws, and the like to ensure that this is the case in the securities market. At the turn of the century, however, this model was slowly replaced as lenders no longer sought their profit from long-term mortgages, but reaped them from origination fees or from commissions on making loans, which they sold to others who in turn bundled them, divided them, and sold them to still other investors. The name of the game was profit from commissions, in which no new value was added, but successive parties made their fortunes by reselling the basic properties in various ways.

The Home Buyers Can we morally fault those who took out mortgages in this scenario? Those who lied about their income are guilty of lying or falsification of some sort. Those who took on more house than they could afford seem to have acted imprudently, but with the housing market booming at the time, this did not seem as reckless as it turns out to have been.

The Lenders The moral consideration, however, leads us to the next level, namely, the mortgage lenders and brokers. Some people have blamed the mortgage lenders—the banks—and mortgage brokers, who received handsome fees for writing mortgages and who attracted as many buyers as possible. Critics charge them and others up the line with greed and acting unethically.

Had the banks, savings and loans, and mortgage brokers simply lent money to home buyers and assumed the risk of their failure to keep up payments, the mortgage crisis would not have arisen.

The commercial banks sold mortgages, while the investment banks bought these mortgages, combined them into bundles, and then issued securities based on the collateral they provided. The bundles were divided into various sorts of securities and were in turn sold to investors of all kinds—including pension and retirement funds, insurance companies, and state and local governments. The bundles often included subprime mortgages, and some were composed entirely of subprime mortgages. The investment banks come in for their share of the blame here. They are the ones who developed the new financial instruments that became so complex that no one really knew what they represented and so no one really knew what they were worth.

It seems clear that the large investment banks became interested primarily in the commissions they could get from selling the various financial instruments they invented, and gave insufficient thought to the value of the underlying mortgages, their value, and the degree of risk they were incurring. What is also clear is that they exposed a large number of other institutions and individuals to great risk.

No one was sure what MBSs were worth or whether they could rely on CDSs, and the lack of knowledge led to a lack of trust and the drying up of credit worldwide. When AIG went into crisis mode, lending froze as banks refused to lend to one another, since no one knew which bank or business might default or go bankrupt. Trust evaporated.

No one knew who held toxic assets and in what amounts. The stock market lost almost half its value from its high.

The Insurers If blame is to be assigned, much of it must go to AIG and to the structuring of CDOs, which was in such a way that no one really knew what the collateral was, how much of it was subprime, and so how much the risk was. It also was arguably morally deficient in providing the equivalent of insurance when it did not have the assets to make good on the instruments it was selling.

The Raters Three bond-rating agencies: Standard and Poor, Moody’s, and Fitch. Their ratings range from AAA to C. The higher the rating, the more secure the rating agency considers the investment, the less the risk, and the more certain the interest payments. All three agencies gave AIG’s CDOs and CDSs AAA ratings—ratings which were shown to be exaggerated, because the raters failed to foresee the possibility, which turned into the reality, of a falling housing market and because the raters made their ratings without really knowing whether the collateral was available. That the rating agencies are paid for their ratings by the firm issuing the bonds seems a clear conflict of interest, yet one that had not been challenged over the years.

Whatever the reason, the rating agencies certainly did not perform their function well until it was too late. Their disastrous performance in this instance clearly indicates that something needs to be done to better inform the public and bond buyers of the risk involved in their purchases.

Government Policy The final culprit is the lack of regulation by governments, both in the United States and in the other countries worldwide. The government also bears responsibility for its failure to keep the market fair. It failed to do this by not providing sufficient regulations and oversight of the financial giants. It allowed AIG to issue what amounted to insurance without making sure that it had the assets in reserve to cover its commitments. Credit default swaps were over-the-counter two-party contracts, and so not subject to regulation. Yet the harm that has resulted for so many indicates they were too dangerous to leave unregulated.

The Moral Lessons A clear lesson we can draw from the financial chaos is that risk should be borne by those who are likely to benefit from it, and that those who assume risk in expectation of returns should not only be willing to bear but should bear the negative as well as the positive consequences of their actions.

Although the term “transparency” has become almost a cliché, the need for making transactions at every level clear to all those directly affected by the transaction is a matter of justice. This means that those who buy securities should know what they are buying and the level of risk involved.

Because moral injunctions are not effective in the face of strong incentives to act unethically or recklessly, we need either market-generated controls or government controls, or both.

Finally, when government steps in to remedy situations that imperil the nation’s economy and the welfare of millions of its citizens, its remedies should be carefully constructed to be fair to all.

CORPORATE TAKEOVERS AND RESTRUCTURING The trend toward corporate mergers and takeovers that developed especially in the 1980s has been called the restructuring of American business. The trend continued into the 1990s, when it was joined with the downsizing of many firms. The number of takeovers of one company by another often brought about significant changes in the companies taken over, and the threat of takeover frequently promoted, if it did not force, changes in many other companies.

Three general topics are pertinent to an evaluation of the restructuring that has been and is taking place: corporate takeovers, LBOs, and downsizing.

Corporate Takeovers One set of ethical debates for and against corporate takeovers of any type is between those both pro and con who implicitly accept a utilitarian approach to ethics, even though they do not necessarily identify themselves by that label. Another set, both pro and con, argues in terms of justice and freedom.

The second set of debates focuses not on efficiency or good over bad consequences, but on freedom versus fairness or justice. The benefit of this approach is that it allows us to make well-founded ethical decisions now, rather than waiting for anticipated or predicted consequences—such as the failure of junk bonds or the onset of a recession.

Leveraged Buyouts The strategy here is to “take private” a publicly owned company by buying up its stock. The money for the buyout comes from what have become known as “junk bonds.” These are bonds issued against the assets of the company.

They are called junk bonds because they are below investment grade.

From an ethical point of view, LBOs by management raise a serious issue of possible conflict of interest. Clearly, it would be in the interest of the managers to purchase the stock at the smallest possible premium above its current price. But as the representatives of the shareholders, it is their duty to get for the shareholders the highest price possible.

The role of the government in this area is not clear and is now being debated. The difficulty is that the debates tend to be about specific proposed pieces of legislation, and there is little discussion of the whole picture, of which these various practices are interrelated parts.

Downsizing As the 1990s emerged, restructuring via downsizing joined the restructuring via mergers and takeovers that was rampant in the 1980s. Although the argument was still efficiency, the threat now was not only predators but competition, especially international competition. Downsizing involved making do with fewer workers, both at the managerial and lower levels.

Workers do not have any right to lifelong employment with a firm, but they do have the right to be treated with respect, and companies have the obligation to do as little harm as possible in firing workers who have done good work and would normally be kept on.

Ethics and Restructuring Although the contemporary restructuring of American corporations has been defended in terms of efficiency, it is not yet clear whether the wave of takeovers has been efficient. Critics claim that no new products have resulted, along with no increased productivity and no new jobs. The process has also tended to undermine corporate loyalty and to increase the level of fear about job security.

A second complaint is that takeovers have been fed by large institutional holders of stock, such as pension funds.

The managers of such funds have the fiduciary obligation to try to maximize the results of investments. In any takeover bid, they would therefore, critics claim, be obliged to vote in favor of a takeover that pays a premium for their stock, even if it were not in the best long-term interests of the company.

We can join both the utilitarian and the deontological approaches in an effort to evaluate restructuring financial practices by considering the implicit contract of finance with society. As a basis for this line of ethical analysis, we can go back to the justification for the free-enterprise system and the implicit contract between society and business.

Central to the market is competition, and central to acceptable competition is fairness. In addition to fairness, the market should operate to the benefit of society in general. If the root of the problems in the finance industry has been correctly identified as greed, the solution is not to attempt to change people so they are not greedy or to motivate them to control their greed, but to establish structures that eliminate the temptations to which many succumb.

ACCOUNTING Accounting is simply the process by which any business keeps track of its financial activities by recording its credits and debits and balancing its accounts.

Management—in a large company, usually the chief financial officer—is responsible for the firm’s financial statements, and for choosing among the various approved accounting methods for reporting assets and liabilities.

In our discussion we shall focus on two aspects of accounting. The first is the least controversial and deals with the actual difficulties encountered by individual accountants in their daily work. The second deals with larger questions of the accounting procedures and practices themselves and the accounting profession’s enforcement of its rules

Ethical Issues for Accountants Accountants face a great many pressures from clients who want them to do what is illegal: underreporting income, falsifying accounts, taking questionable deductions, illegally evading income tax, and engaging in outright fraud.

Accountants are governed by three codes: Generally Accepted Accounting Principles (GAAP), Generally Accepted Auditing Standards (GAAS), and a Code of Professional Ethics (COPE).

For many practicing accountants, obeying the rules is the guide to ethical behavior. However, for some critics, it is not the honesty of individual accountants as they try to live up to the rules that is the problem. They attack the rules and the system itself as ethically deficient.

The Accounting Rules The major issue is the (at least) apparent conflict of interest, to which we already referred, that is built into the American accounting system. A second complaint stems from the fact that the accounting firm simply certifies that the company’s accounts are correctly presented and are in accord with the generally accepted accounting and auditing standards. As a result of the widespread scandals, the general public lost the confidence it once had in accounting firms and corporations in general, even though only a very small percentage had engaged in wrongdoing.

The Sarbanes-Oxley Act was an attempt to help restore public confidence and trust.

ETHICAL INVESTING Moral responsibility involves a causal connection to an action or result that is morally evaluated, and moral responsibility is properly ascribed and assumed only if the action in question was done knowingly and freely, and if there were no excusing conditions.

Shareholders cannot be held morally responsible for what the firm does since the shareholder is in fact very distant from the causal relation between an action of the corporation and its effects—but this does not relieve shareholders of all moral responsibility. Recall that no one is ethically allowed to invest in an unethical operation.

What makes a company unethical? The easy cases are those in which companies engage primarily in unethical activity.

There are at least three considerations in answering such questions.

• One is the company’s policies.

• The second way of evaluating a company is in terms of its record.

• The third issue is whether a company is to be held responsible for anything that any of its employees do, or whether it is to be held unethical only if the action done by a corporate official is part of company policy.

From an ethical point of view, before we can be excused from responsibility because of ignorance, we must be sure that our ignorance is not culpable. In general, this means considering whether ordinary persons would have known or could have known if they paid sufficient attention and exercised proper care.

The analysis is not quite the same with respect to large investors and institutional investors. Because of their greater assets, they can afford to determine with greater care than the individual investor the ethical quotient of the companies in which they invest. Hence, more care can be expected of them prior to purchase.

Criticisms One argument claims that the demands of ethical investing are too stringent and so are impossible to follow.

Another attack on ethical investing claims that if some individuals and institutional investors do not invest in companies that act unethically, other less scrupulous individuals and institutions will; hence, one cannot bring moral pressure to bear on companies in this way. Another frequently used argument claims that ethical investing demands too much because it looks only at specific policies and fails to consider the broader picture.

The final argument we shall look at claims that there is no evidence that ethical investing actually applies pressure on companies to change their policies. The reply here is threefold.

• First, that is not the only reason for ethical investing. Even if companies do not change, that is no reason for others to indirectly engage in unethical practices by providing them with funding.

• Second, there is some evidence that the strong protests against American companies operating in South Africa during the apartheid period had some effect, since so many of them withdrew from South Africa in one way or another.

• Third, ethical investing should be seen as only one part of an overall strategy to apply moral pressure on companies to operate ethically.

CASE SUMMARIES The Case of Lehman Brothers The headline in the New York Times on September 16, 2008, read, “Lehman Brothers Collapse Sends Shockwave Round World.” The shock was just the first of many that followed as the financial markets not only in the United States but around the world fell into crisis mode. On September 15, 2008, Lehman Brothers, one of the oldest and most respected investment banks in the United States, had filed for Chapter 11 bankruptcy protection. It was the largest bankruptcy filing in U.S. history. What made the case stand out was that it was sandwiched between bailouts by the U.S. government of the Bear Sterns Companies, Inc. (one of the largest investment banks and securities trading firms) and the world’s largest insurer, American International Group (AIG). Lehman Brothers was the only one of the major investment firms to actually go bankrupt. Why was it allowed to fail when other large financial Whatever view one takes of the matter, we can look more closely at Lehman Brothers. Its financial meltdown was due to its heavy exposure in subprime, or particularly risky, mortgages. In the second quarter of 2008, its losses led to its selling off $6 billion of its assets. Its fortunes continued to deteriorate as investors lost confidence in the firm and its stock price kept falling. The head of the Federal Reserve called a meeting to see if Barclays or Bank of America would take over Lehman Brothers, but neither would do so unless the government financed the deal.

Treasury Secretary Henry Paulson refused. And the next day the company filed for Chapter 11 bankruptcy protection. Various portions of it were bought by Barclays, the Japanese brokerage firm Nomura Holdings, and others. Many people had expected the U.S. government to intervene, as it has in the case of Bear Sterns. When it did not, the failure of Lehman Brothers affected markets worldwide and exposed the subprime situation, which affected many of the major financial institutions. Perhaps that in turn convinced the U.S. government that it could not let other similar institutions fail, and so led to its action with respect to AIG and its $700 billion “bailout” package, known as Troubled Asset Relief Program (TARP).

The demise of Lehman Brothers did not end the story, however, as both investors and the federal prosecutors began to question how the firm got into the situation it did, and who was to blame.2 In particular, the prosecutors were interested in whether the firm had misled investors, including New Jersey’s pension fund, about its financial situation. Attention focused particularly on Richard S. Fuld, Jr., Chairman and CEO of Lehman Brothers.

According to a Wall Street Journal report, although on September 9 Lehman executives knew that the firm needed $3 billion in new capital, on September 10 they told investors the firm needed none. A proffered explanation was that just prior to the announcement, the company’s officers had decided that they would sell assets to make up for its shortfall. They did announce that they expected to report a quarterly loss of $3.9 billion. The executives purportedly knew that the firm’s real estate holdings were overvalued by $10 billion, but assured customers the firm’s financial base was sound. If the firm had revealed its true situation, it could never have raised the money it needed. In the company’s last days, Mr. Fuld tried to sell off some of its assets and to borrow money to make good on the claims it had been making. JP Morgan demanded $5 billion in collateral to back up its transactions with its clients. When Lehman Brothers could not come up with the collateral, credit-ratings agencies downgraded their ratings, which led to customers withdrawing their money. In testimony during a House Oversight and Government Reform Committee hearing on October 6, Mr. Fuld denied that he had deceived customers. Just days before filing for bankruptcy, Lehman had paid one executive who was fired $2 million and another $16.2 million. A third who resigned received $5 million. The fact that Mr. Fuld institutions, such as Bear Sterns and AIG, were not? Was the government’s policy fair to all parties? Some people argued that the government should not have intervened in any company; others argued that if the government intervened in some companies that were “too big to be allowed to fail,” they should have intervened in the case of Lehman Brothers also.

TEACHING STRATEGIES It is important to not get bogged down in the scandals that provide the case studies for this chapter. There are so many different things that went wrong at so many different levels, that it can be difficult to see exactly which principles should be brought to bear to make sense of the role of business, government, and regulatory agencies.

Accounting rules, leveraged buyouts, and the complexity of the investments that brought down businesses that were “too big to fail” are all very complicated and it takes a slow, deliberate discussion process to tease out all of the issues. A useful tool for this is to break a class into groups, each of which is focused on only one set of principles or misdeeds. Each group will compile an analysis of the violations of that set of principles only – they will develop the ability to not become overcome by details and will hone their analytical skills by sifting through the data to focus on only those pieces that pertain to the particular assignment that they have.

KEY TERMS AND CONCEPTS Mortgage-backed Securities (MBSs) Adjustable Rate Mortgages (ARMs) Collateralized Debt Obligations (CDOs) Leveraged Buyouts (LBOs) Downsizing ESSAY QUESTIONS 1.

2.

3.

4.

5.

What are the benefits and potential pitfalls (including the ethical ramifications) to downsizing?

Describe the ethical problem of “liar’s loans.”

What ethical issues arise in a leveraged buyout?

What were the various factors that combined to create the financial downturn in 2008? What ethical principles were compromised by each?

What principles were in play in the governmental policy of providing greater opportunities for home ownership? How did those principles collide to help cause the home mortgage crisis?

MULTIPLE CHOICE 1.

Which of the following is the popular name of the Federal National Mortgage Association?

A. Fannie Mae B. Freddie Mac C. Freddie Mae D. Fannie Mack

2.

Which of the following is the popular name of the Federal National Mortgage Association?

A. Fannie Mae B. Freddie Mac C. Freddie Mae D. Fannie Mack

3.

What type of mortgage involves an interest rate that rises to a specified amount after an initial period of (usually) three to seven years?

A. simple interest mortgages B. fixed rate mortgages C. compound interest mortgages D. adjustable rate mortgages

4.

Which of the following is a common rationale for mergers and acquisitions?

A. diversification B. bankruptcy C. monopolization D. capitalization

5.

In the 1980s, the prime rationale for takeovers was which of the following?

A. company valuation was accurate.

B. companies were overvalued.

C. company valuation was not a prime consideration.

D. companies were undervalued.

6.

“Junk bonds” are attractive to a wide range of investors because they produce which of the following?

A. high risks B. normal yields C. high yields D. below average risks

7.

During the 1990s, the primary form of corporate restructuring was which of the following?

A. downsizing B. leveraged buyouts C. corporate takeovers D. bankruptcy

8.

Which of the following is not an ethical issue facing accountants?

A. underreporting income B. falsifying accounts C. preparing audits of clients D. taking questionable deductions

9.

Which of the following was set up by the Sarbanes-Oxley Act. A. Generally Accepted Accounting Principles B. Code of Professional Ethics C. Generally Accepted Auditing Standards

D. Public Company Accounting Oversight Board 10. Which of the following describes the relationship between managers and shareholders?

A. Individual shareholders exercise considerable control over managers.

B. Individual shareholders have little, if any, control over managers.

C. Individual shareholders have control over all of management functions.

D. Individual shareholders and managers are equally responsible for the actions of the other.

ANSWERS: 1. A; 2. B; 3. D; 4. A; 5. D; 6. C; 7. A; 8. C; 9. D; 10. B

CHAPTER 13: SAFETY, RISK, AND ENVIRONMENTAL PROTECTION OBJECTIVES 1.

2.

3.

4.

5.

Identify the steps involved in the assessment of safety from an ethical point of view.

Identify the ethical issues and the relationships involved with product safety and corporate liability.

Distinguish the benefits and criticisms of a policy of strict liability.

Identify some of the moral issues involved with transferring dangerous industries to less developed countries.

Distinguish between pollution created by industry and pollution created by individual action, and evaluate the ethical distinctions that arise.

CHAPTER SUMMARY CORPORATIONS, PRODUCTS, AND SERVICES Since the primary function of a corporation, other than making money, is to produce a good or service, we can begin our ethical analysis with what is produced and how it is produced. A somewhat similar, although not identical, analysis applies to services.

We can certainly distinguish products, which in themselves are neither good nor bad, from harmful or unethical uses to which they might be put by some people. From a utilitarian perspective, one might wish to inquire which use is likely to be most prominent, whether the harm produced by making the product available outweighs the benefits, and whether the harm can be adequately controlled through legislation, public disapproval and pressure, or other similar means.

The goods produced should be safe and not cause preventable, foreseeable harm; they should be produced in conditions that do not harm those engaged in the productive process; and they should be produced in such a way as to minimize any harm done to the environment.

DO NO HARM The injunction “Do no harm” is widely accepted as a prima facie second-order moral obligation binding on both individuals and corporations.

SAFETY AND ACCEPTABLE RISK We can distinguish three different steps involved in the assessment of safety from an ethical point of view.

• The first is determining how much safety is attainable and how to attain it in a given endeavor. This is technical knowledge that producers should have or obtain.

• The second is deciding how much safety is demanded with respect to a particular product or activity. This is a question of acceptable risk.

• The third step, once that determination is made, is ascertaining whether a particular instance of a product or activity comes up to the specified standards.

In trying to decide how much risk to accept or how much safety to demand (the second of the above three steps) or for people to rationally decide about risk, four conditions must be satisfied.

• First, they must know that they are exposed to it.

• Second, people must know not only that they are at risk but also the nature and source of the risk to which they are exposed, if they are rationally to evaluate it.

• Third, in order to evaluate the risk the user must know both how great it is and how to deal with it—for instance, by avoiding it or minimizing it.

• Fourth, in order to rationally assess risk one must know what the alternatives are, if any.

PRODUCT SAFETY AND CORPORATE LIABILITY

If a manufacturer knows of a defect that increases risk to the purchaser and neither corrects the defect nor informs the purchaser, then the manufacturer is open to a charge of reckless negligence.

In the United States, the task of making that decision of “how safe is safe” has fallen on the NHTSA, but since its establishment in 1966 it has not established many standards.

STRICT LIABILITY Manufacturers are responsible for the products they produce and are liable for the harm they do. Harm caused by negligence, however, is another matter. In such cases, compensatory justice demands that the purchaser be made whole and recompensed for any monetary loss as well as any harm suffered.

The doctrine of strict liability does not assess blame, and is different from finding a company negligent, or culpable of not taking sufficient care in producing its products, or of failing to correct defects it knows about. Punitive damages may amount to many times the amount of actual damages paid to a plaintiff.

Strict liability is a legal doctrine, not a moral one. A company held strictly liable under the law cannot be held morally liable if it could not know of the harm that would come from the product’s use. Nonetheless, arguments have been given to show that the doctrine of strict liability is neither unreasonable nor unfair to corporations. The basic argument in defense of strict liability has three parts.

• The first is the claim that strict liability is justified by the doctrine of the “deep pocket.” Harm is done, and the question is who is in the better position to accept the cost of the harm: the producer or the consumer?

• The second part of the argument claims that through the doctrine of strict liability manufacturers are given a greater incentive to make their products safer than they would have without such liability.

• Third, the manufacturers are in the best position to fix defects in their products in the event harm occurs, and the threat of having to pay for such harm under strict liability laws gives them an incentive to fix the defects or recall the products sooner rather than later.

Knowingly falling below socially accepted and expected standards is morally culpable, but what that standard is can vary from product to product and society to society.

PRODUCTION SAFETY Just as the level of safety expected or demanded by a society with respect to products may vary, depending on what is possible and what level of safety the society can afford, the same is true of the safety expected and demanded in the production process. At stake here is the safety of workers or employees, rather than of customers or consumers.

In the United States, the Occupational Safety and Health Administration (OSHA) specifies in great detail what safety measures employers have to provide. The law in some cases goes beyond what ethics demands, and not all developed industrial countries have the same health and safety requirements in this regard as does the United States.

Employers are responsible for safe working conditions and are liable for injuries that workers suffer due to faulty equipment or unsafe working conditions.

Product safety, production safety, and environmental protection properly involve social as well as individual decisions and choices, risk assessment, and the careful sorting of complex issues. Ethics plays an important role in resolving them. While ethical concerns come into play in setting safety standards for both products and the environment, ethics comes even more clearly into play once the standards have been set. Willfully falling below them is prima facie unethical and a violation of the injunction to do no harm.

THE TRANSFER OF DANGEROUS INDUSTRIES TO LESS DEVELOPED COUNTRIES Multinationals are responsible for any harm they do, directly or indirectly, intentionally or unintentionally, and they should make restitution or pay compensation as appropriate.

Second, it is fairly clear in the Union Carbide case that the company insisted on 50.9 percent control of the company. By insisting on majority financial control, Union Carbide maintained majority responsibility. It would be inconsistent to claim majority financial control and still insist that the Bhopal branch of the company was independent and hence completely and solely responsible for the disaster that occurred and for the damage done.

Informed consent is necessary if the action is to be moral, but it is not sufficient. There are some things (e.g., selling oneself into slavery) to which no one can morally consent. There are also some conditions that are immoral for an employer to impose on his or her workers, even if the latter agree to work under those conditions. Consent is not enough because people who desperately need money may agree to work under almost any conditions. Built into capitalism is the tendency of employers to pay workers as little as possible and to spend as little as possible on a safe work environment. In the United States, this tendency has been offset by unionization and government legislation. In countries where it is not offset, employers can take unfair advantage of workers and engage in immoral practices.

ENVIRONMENTAL HARM The type of analysis we have applied to product safety and risk and to production safety and risk applies as well to environmental safety and risk.

The blame for the deterioration of the environment frequently falls squarely on business. Factories pollute; manufacturers pour toxic substances into rivers and streams and bury noxious substances, often without regard to public safety; greedy entrepreneurs denude forests, strip-mine the land, and heedlessly eliminate increasing numbers of species. Business has had a serious and often deleterious effect on the environment. Yet the fact that, with respect to the degradation of their environment, socialist countries have fared no better, and often worse, than free-enterprise countries indicates that the harm may be due more to modern technology and its abuse than to business greed alone.

In many instances of environmental harm, the harm done is not wanton and produces some good. From a utilitarian point of view, we must ask whether more good is done than harm, looking at all those affected, not only immediately but in the long run as well. From a deontological perspective, we need to ask whether the activities violate people’s rights. From either perspective, we must remember that though harming the environment is bad, at least to the extent that it directly or indirectly harms people, the actions that cause the harm frequently have positive effects as well.

POLLUTION AND ITS CONTROL We can distinguish intentional from unintentional pollution, and major from minor polluters. In all cases, what we mean by pollution is crucial, and defining it is no easy task. What we often mean by pollution is the contamination of air, water, and land with substances that harm us or our interests; and in pollution control, we are primarily concerned with preventing harm that can be avoided and that results from human activity. That is the only kind of activity that we can classify as moral or immoral.

Pollution, we noted, can be ethically handled in many ways. One way is for those who produce harm to reimburse those harmed for the harm done. In this way compensatory justice is brought into play after the fact. When the harm done is both serious and preventable, such pollution is not usually ethically justifiable, even though reimbursing those harmed is preferable to not reimbursing them. In some cases, however, the harm done is not serious, and recompense is a satisfactory remedy.

A second approach allows a firm to pollute but attempts to eliminate the pollution or clean it up before it damages anyone.

A third approach to pollution is to prevent it at the source. This means that the pollution will not be allowed to develop.

What makes the issue of vehicular pollution different from the issue of pollution caused by factories is that the actual pollution is caused not by a company or firm, but by individual cars, and hence by individual drivers.

GLOBAL WARMING AND THE KYOTO PROTOCOL

Although the world’s climate has gone through many changes from the Ice Age to the present, the rate of change is accelerating, and for the first time it appears that human activity is contributing to the change.

The Protocol attempts to balance three principles. The first is that because the developed countries were responsible for creating most of the greenhouse gas emissions, in fairness they should bear the greatest burden in reducing them; second, that because the poorest countries are the smallest emitters per capita, and if they are allowed to sell their emission credits to developed countries that wish to exceed their limits, the money and technology the poorer countries receive can help finance their development and pay for their adoption of cleaner technology than they otherwise could; and third, that less developed countries have the right to develop, have to be given a chance to do so with technologies they can afford, and so in fairness for a given period of time should be held to lower standards than developed countries.

The moral obligation on the part of all to do something seems clear. But trying to specify what justice and concern for the future require now on the host of levels and getting all to take the necessary and expensive steps are daunting tasks.

CASE SUMMARIES The McDonald’s Polystyrene Case For years, McDonald’s, like most other quick-food chains, used polystyrene containers—the famous Big Mac clamshell—for its hamburgers. Because of its size and dominant position, McDonald’s became the target of the Environmental Defense Fund, which claimed that making polystyrene packaging created toxic fumes, that it took up too much landfill, and that it took too long to biodegrade. In addition, a lobby called the Pro-Environment Packaging Council, funded by paper companies, started targeting schools with a campaign about the adverse impact of polystyrene products. McDonald’s was soon faced with what Forbes magazine called a “children’s crusade,” which involved a Send-It-Back campaign, letters written by classes of children, and a threatened boycott.2 On November 2, 1990, McDonald’s announced that within 60 days it would phase out its polystyrene clams and replace them with coated paperboard. But who informed grade school children of the facts that led to their uncharacteristic assertiveness on this issue, and did they get the whole story? McDonald’s move to paper products was probably a good business decision, given the circumstances and the pressure it was under. Was it the best environmental decision? Was it a socially responsible action? Was it morally obliged to take the action it did?

The Bhopal Case On December 3, 1984, a poisonous cloud rose silently above the Union Carbide plant in Bhopal, India. Before it dissipated, it had killed over 3,000 people and had injured over 200,000 others. It was the worst industrial disaster on record. It took place in a less developed country and was caused by modern technology used by a foreign subsidiary of an American-based multinational chemical corporation. It dramatically raised the question of the safety obligations of multinational corporations operating in less developed countries. Who should have been held responsible for the disaster, and what sort of compensation should have been paid to those injured and to the families of those killed?

TEACHING STRATEGIES There are several important issues raised by these cases and by this chapter. The role of public opinion, even when it runs counter to the best science, in forming corporate policy is immense. The McDonald’s case is an excellent example of this. At the same time, the Union Carbide case gives a bright-line example of the connection between pollution and human life.

The science of global warming is fairly well settled. The politics of global warming is not. How business navigates between science, politics, and public opinion is not merely an academic exercise. It is important for the instructor to keep the conversation about corporate responsibility and pollution from devolving into a political discourse/debate. That pollution occurs is without question. Thinking clearly about the role of business in both the cause and solution to pollution is the aim of this chapter.

KEY TERMS AND CONCEPTS

Kyoto Protocol Global Warming Pollution OSHA Environmental harm Acceptable risk Negligence ESSAY QUESTIONS 1.

2.

3.

4.

5.

Evaluate the justifications given by the United States for not ratifying the Kyoto Protocol.

What does the “Do No Harm” principle require with regard to the production of consumer goods and the environment?

What are the benefits and criticism of the doctrine of strict liability?

How does one go about developing an ethical safety assessment?

To what extent are manufacturers ethically required to make their products as safe as possible?

MULTIPLE CHOICE 1.

What is the first step in the assessment of safety?

A. Deciding how much safety is demanded with respect to a particular product or activity.

B. Determining how much safety is attainable and how to attain it in a given endeavor.

C. Ascertaining whether a particular instance of a product or activity comes up to standards of safety.

D. Lowering the level of risk until it is found, by the ordinary person, to be acceptable.

2.

What is the second step in the assessment of safety?

A. Deciding how much safety is demanded with respect to a particular product or activity.

B. Determining how much safety is attainable and how to attain it in a given endeavor.

C. Ascertaining whether a particular instance of a product or activity comes up to standards of safety.

D. Lowering the level of risk until it is found, by the ordinary person, to be acceptable.

3.

What is the third step in the assessment of safety?

A. Deciding how much safety is demanded with respect to a particular product or activity.

B. Determining how much safety is attainable and how to attain it in a given endeavor.

C. Ascertaining whether a particular instance of a product or activity comes up to standards of safety.

D. Lowering the level of risk until it is found, by the ordinary person, to be acceptable.

4.

Which step in the assessment of safety is a technical question?

A. Deciding how much safety is demanded with respect to a particular product or activity.

B. Determining how much safety is attainable and how to attain it in a given endeavor.

C. Ascertaining whether a particular instance of a product or activity comes up to standards of safety.

D. Deciding who will experience the risk.

5.

Which step in the assessment of safety involves a question of acceptable risk?

A. Deciding how much safety is demanded with respect to a particular product or activity.

B. Determining how much safety is attainable and how to attain it in a given endeavor.

C. Ascertaining whether a particular instance of a product or activity comes up to standards of safety.

D. Deciding who will experience the risk.

6.

Which of the following is a problem with strict liability?

A. Manufacturers are given greater incentive to make their products safer.

B. The company is in the best position to fix a defect in its product.

C. A company has a “deep pocket,” and so is best able to accept the cost of harm.

D. No company can foresee all of the misuses of its product.

7.

Which of the following is an example of preventing pollution at its source?

A. Reimbursing those harmed for the harm done.

B. Disposing of the pollution in an appropriate way.

C. Not allowing the pollution to develop.

D. Properly creating a “paper trace” to track pollution.

8.

Which of the following is an example of a compensatory response to pollution.

A. Reimbursing those harmed for the harm done.

B. Disposing of the pollution in an appropriate way.

C. Not allowing the pollution to develop.

D. Properly creating a “paper trace” to track pollution.

9.

Which of the following makes the issue of vehicular pollution different from industry/factory pollution?

A. The pollution is the result of creating a product for wide consumer consumption.

B. Companies produce the vast majority of their goods for individual consumption.

C. Individuals cannot control the kinds of materials used in the manufacturing process.

D. Individual cars, and thus individual drivers, are the source of the pollution.

10. Which of the following is not a human contribution to global warming?

A. deforestation B. pollution of water C. industrial use of fossil fuels D. individual use of petroleum products

ANSWERS: 1. B; 2. A; 3. C; 4. B; 5. A; 6. D; 7. C; 8. A; 9. D; 10.B

CHAPTER 14: WHISTLE-BLOWING OBJECTIVES 1.

2.

3.

4.

5.

6.

Identify what whistle-blowing is.

Identify the differences between different kinds of whistle-blowing.

Identify the conditions under which whistle-blowing is justified or permissible.

Identify the moral dilemmas surrounding the concept of “employee loyalty.”

Identify the business issues that sometimes make whistle-blowing a necessity, as well as steps that can be taken, at the legal and corporate levels, to make whistle-blowing unnecessary.

Identify the legal standing of whistle-blowers, and those conditions that must be present in order for the legal protections to be applicable.

CHAPTER SUMMARY BLOWING THE WHISTLE Corporations have a moral obligation not to harm. This obligation falls on the corporation as such, and internally it falls primarily on those who manage the corporation. Yet other members of the corporation—for instance, engineers and assembly-line workers—are not morally allowed to take part in any immoral activity. As a general rule, people have a moral obligation to prevent serious harm to others if they are able to do so and can do so with little cost to themselves.

KINDS OF WHISTLE-BLOWING “Whistle-blowing” is a term used for a wide range of activities that are dissimilar from a moral point of view.

Sometimes the term refers to disclosures made by employees to executives in a firm, perhaps concerning improper conduct of fellow employees or superiors who are cheating on expense accounts, or are engaging in petty or grand theft. This can be called internal whistle-blowing, Someone who reports sexual harassment is also sometimes said to blow the whistle on the offender; this is often because simply speaking to the person has no effect. In this case, the charge is about an offense not against the organization or system, but against oneself Personal whistle-blowing is, in general, morally permitted but not morally required.

Whistle-blowing sometimes refers to government employees who divulge to a governmental regulatory or investigative bureau unethical practices in their division or office and/or to employees within a firm that has government contracts who report fraud against the government. We can call all these kinds of disclosure governmental whistle-blowing.

We shall restrict our initial discussion to a specific sort of whistle-blowing—namely, nongovernmental, impersonal, and external whistle-blowing.

We shall be concerned with (1) employees of profit-making firms, who, for moral reasons, in the hope and expectation that a product will be made safe, or a practice changed, (2) make public information about a product or practice of the firm that owing to faulty design, the use of inferior materials, or the failure to follow safety or other regular procedures or state of the art standards (3) threatens to produce serious harm to the public in general, to employees, or to individual users of a product.

WHISTLE-BLOWING AS MORALLY PROHIBITED To admit that whistle-blowing is often an instance of disobedience to the corporation and that at least sometimes one (i.e., the corporation) is owed obedience leads us to the conclusion that at least sometimes whistle-blowing is morally wrong. That it is sometimes morally wrong seems the general consensus in American society, and there is

no reason to challenge the consensus. But sometimes whistle-blowing is morally permissible, and sometimes it is even morally obligatory.

WHISTLE-BLOWING AS MORALLY PERMITTED Whistle-blowing is morally permissible if the following conditions are met: 1. The firm, through its product or policy, will do serious and considerable harm to employees or to the public, whether in the person of the user of its product, an innocent bystander, or the general public.

2. Once employees identify a serious threat to the user of a product or to the general public, they should report it to their immediate superior and make their moral concern known. Unless they do so, the act of whistleblowing is not clearly justifiable.

3. If one’s immediate superior does nothing effective about the concern or complaint, the employee should exhaust the internal procedures and possibilities within the firm. This usually will involve taking the matter up the managerial ladder and, if necessary—and possible—to the board of directors.

From an ethical point of view, the employee who has taken these three steps without successful remedy is permitted to go outside the company and blow the whistle externally in order to prevent the threatened harm.

WHISTLE-BLOWING AS MORALLY REQUIRED For there to be an obligation to blow the whistle, two conditions must be met, in addition to the foregoing three.

4. The whistle-blower must have, or have accessible, documented evidence that would convince a reasonable, impartial observer that one’s view of the situation is correct, and that the company’s product or practice poses a serious and likely danger to the public or user of the product.

5. The employee must have good reasons to believe that by going public the necessary changes will be brought about. The chance of being successful must be worth the risk one takes and the danger to which one is exposed.

INTERNAL WHISTLE-BLOWING Impersonal external whistle-blowing is the most dramatic and publicized kind of whistleblowing. An equally troubling kind is impersonal, internal, nongovernmental whistle-blowing. The analysis of the conditions under which the first kind is prohibited, permitted, or mandatory does not automatically apply to the internal kind. If serious harm is threatened to employees, then the first three conditions come into play and the analysis yields an obligation to internally blow the whistle. But in many instances of internal whistle-blowing, there is no question of going outside the firm because the harm done is not to employees or to the public but to the firm.

A company that wishes to foster both collegiality and honesty among its employees will have policies that will help employees work through their responsibilities with respect to issues involving ethical breaches on the part of superiors and fellow employees.

PRECLUDING THE NEED FOR WHISTLE-BLOWING The need for moral heroes shows a defective society and defective corporations. It is more important to change the legal and corporate structures that make whistle-blowing necessary than to convince people to be moral heroes.

Whistle-blowing is a relatively recent phenomenon in the workplace. It is one more indication of the falsity of the Myth of Amoral Business. Whistle-blowing should also alert corporations to what can and should be done if they wish to be both moral and excellent. When corporate structures preclude the need for whistle-blowing, they protect both workers’ rights and the public’s good.

CASE SUMMARIES The Ford Pinto Case

Although a good deal of time has passed, the Ford Pinto case remains a classic in the annals of whistle-blowing.

In the late 1960s, American automobiles were losing market share to smaller Japanese imports. Lee Iacocca, then CEO of the Ford Motor Company, wanted a 1971 model to meet the competition. He reportedly ordered that Ford produce a car for 1971 that weighed less than 2,000 pounds and that would be priced at less than $2,000. The resulting car was the Pinto. The car had a design flaw that caused it to erupt in flames. The fix for the flaw was a baffle that cost less than $11.

A company cost-benefit analysis that weighed the cost of adding the baffle against the estimated cost of suits resulting from “excess” accidental deaths and injuries indicated that it would cost the company less not to insert the baffle than to insert it. For whatever reason, the company did not change the design from 1971 to 1978.

Nor did the company offer its customers the option of purchasing the baffle. Between 1976 and 1977 alone, Pintos suffered 13 fiery rear-end collisions, which was more than double the number for comparable-size cars. As it turned out, suits brought against Ford and the amount it had to pay (estimated at more than $50 million) far exceeded what it saved ($20.9 million) by not correcting the defect—not to mention the cost of bad publicity.

Ford’s actions with respect to the Pinto have been widely criticized. Harley Copp, a former Ford executive and engineer, was critical of the Pinto from the start. He left the company and voiced his criticism, which was taken up by Ralph Nader and others.

Three Cases Whistle-blowing took center stage in economics and politics during 2001 and 2002, resulting in TIME’s naming of three whistle-blowers as its people of the year: Sherron Watkins (of ENRON), Cynthia Cooper (of WorldCom), and Colleen Rowley (of the FBI). Each was frustrated by her respective attempts to bring to the attention of her superiors actions that were detrimental to the company and, in the case of Rowley, potentially disastrous for the nation. It was their commitment to high ethical standards and to the truth that pushed them to move outside of the corporate channels when deaf ears were turned toward their warnings and concerns. There is some question about whether or not each of these women meet the strictest definition of a whistle-blower, but it is clear that each sought to exemplify the highest standards of ethical behavior and to expect similar behavior from her superiors.

TEACHING STRATEGIES Whistle-blowing is a difficult and complex topic. It is not so easy as seeing something wrong and telling someone about it. There are many negative repercussions that might attend blowing the whistle, and there are many restrictions that limit when it is permissible. Indeed, there are some circumstances in which blowing the whistle might even be morally prohibited. Working from the three cases of whistle-blowing, it will be helpful to distinguish between internal and external, between governmental and non-governmental, and between personal and impersonal whistle-blowing.

KEY TERMS AND CONCEPTS Whistle-blowing Internal whistle-blowing External whistle-blowing Governmental whistle-blowing Non-governmental whistle-blowing Personal whistle-blowing Impersonal whistle-blowing ESSAY QUESTIONS 1.

2.

3.

4.

5.

What is “whistle-blowing”? Why might it be considered ethically problematic? Why might it be morally justified?

Why is the issue of “loyalty” problematic for whistle-blowers? What are the conditions where the loyalty argument might not prohibit whistle-blowing?

What are the distinctions between internal and external whistle-blowing?

What are the four general types of governmental whistle-blowing, and why does the case of Coleen Rowley not fit nicely into any of them?

What are some of the changes that can be made to legal and corporate structures to make whistle-blowing unnecessary?

MULTIPLE CHOICE 1.

Which of the following should be considered when deciding whether or not to blow the whistle?

A. How will this look on the employee’s resume?

B. Is there the possibility of promotion?

C. Is the employee making the report based on a hunch or guess?

D. Has the employee reported the matter to his/her immediate supervisor?

2.

Where does tradition with the corporate community tend to place the burden of justification in a whistleblowing case?

A. On the whistle-blower’s co-workers who should support the whistle-blower.

B. On the whistle-blower’s immediate superior.

C. On the employee blowing the whistle.

D. On the corporation’s senior management and corporate attorneys.

3.

Which of the following conditions is necessary for whistle-blowing to be morally permissible, but not morally obligatory?

A. The firm will do serious and considerable harm to employees or to the public.

B. The whistle-blower has documented evidence that would convince a reasonable, impartial observer that one’s view of the situation is correct, and that the company’s product poses a serious danger to the public.

C. The employee has good reason to believe that by going public, the necessary changes will be brought about.

D. The whistle-blower has reason to believe that he/she will be seen as failing to be loyal to the company.

4.

Which of the following conditions is necessary for whistle-blowing to be morally permissible, but not morally obligatory?

A. The whistle-blower has documented evidence that would convince a reasonable, impartial observer that one’s view of the situation is correct, and that the company’s product poses a serious danger to the public.

B. The employee has good reason to believe that by going public, the necessary changes will be brought about.

C. The whistle-blower has reason to believe that he/she will be seen as failing to be loyal to the company.

D. The employee has exhausted the internal procedures and possibilities within the firm, maybe even to the board of directors.

5.

Which of the following conditions is necessary for whistle-blowing to be morally obligatory?

A. The employee has exhausted the internal procedures and possibilities within the firm, maybe even to the board of directors.

B. The employee has good reason to believe that by going public, the necessary changes will be brought about.

C. The firm will do serious and considerable harm to employees or to the public.

D. The employee has reported the serious threat to his/her immediate supervisor.

6.

Which of the following conditions is necessary for whistle-blowing to be morally obligatory?

A. The employee has exhausted the internal procedures and possibilities within the firm, maybe even to the board of directors.

B. The whistle-blower has documented evidence that would convince a reasonable, impartial observer that one’s view of the situation is correct, and that the company’s product poses a serious danger to the public.

C. The firm will do serious and considerable harm to employees or to the public.

D. The employee has reported the serious threat to his/her immediate supervisor.

7.

Which of the following conditions is necessary for whistle-blowing to be morally permissible, but not morally obligatory?

A. The employee has reported the serious threat to his/her immediate supervisor.

B. The whistle-blower has documented evidence that would convince a reasonable, impartial observer that one’s view of the situation is correct, and that the company’s product poses a serious danger to the public.

C. The employee has good reason to believe that by going public, the necessary changes will be brought about.

D. The whistle-blower has reason to believe that he/she will be seen as failing to be loyal to the company.

8.

The Sarbanes-Oxley Act of 2002 attempts to do which of the following?

A. Provide protection for corporations with whistle-blowers.

B. Makes whistle-blowing illegal.

C. Provide some protection for whistle-blowers.

D. Creates a federal office for whistle-blowers to report to.

9.

Whistle-blowing is often thought to indicate the falsity of which common myth?

A. The Myth of Stakeholder Interest B. The Myth of Amoral Business C. The Myth of Moral Business D. The Myth of Shareholder Interest

10. Which of the following describe “personal whistle-blowing”?

A. Morally permitted, but not morally required.

B. Morally obligatory.

C. Morally forbidden.

D. Morally irrelevant.

ANSWERS: 1. D; 2. C; 3. A; 4. D; 5. B; 6. B; 7. A; 8. C; 9. B; 10. A

CHAPTER 15: MARKETING, TRUTH, AND ADVERTISING OBJECTIVES 1.

2.

3.

4.

Identify the elements of marketing, with particular attention to the ways in which marketing can present ethical challenges.

Distinguish ways in which competition can be ethically justifiable and ways in which it is not.

Identify the five areas in which the moral dimension of advertising is of central importance.

Identify and distinguish between the five groups to whom moral responsibility in advertising is generally allocated.

CHAPTER SUMMARY MARKETING Once a manufacturer produces a certain product, its aim is to sell it. Marketing is the process by which it does so.

Competition Competition tends to produce efficiency in the market and benefits the general consumer by resulting in a variety of goods at the best prices. But the competitive market works to the advantage of the buyer only when the competitive process is fair.

One major way of undermining competition is through the creation of monopolies. If we admit that monopolies constitute a restraint on the market, which is detrimental to the general public, and are therefore not morally justifiable, then practices executed with the intent of producing monopolies are also not morally justifiable.

A second way of controlling competition is for a small group of producers of a product to collude for their common good. For example, they may agree on the prices to charge—a practice known as price fixing. Such collusion is generally illegal because it undermines the competitive system to the detriment of the buyer.

Pricing We shall deal with only two issues in pricing: first, overpricing and, second, markup and markdown.

In general, the competitive system should preclude the possibility of overpricing where this means charging much more than the producer knows the product is worth, thus yielding an excessive profit. There are some who might claim that overpricing is a misnomer because there is no specific limit of justifiable profit. But this claim assumes that prices are competitive, and they are not always competitive.

A second area in which excessive rates arise is in the lending of money. For those unable to borrow money in the conventional, competitive way, loan sharks can charge usurious rates A clearly immoral practice, because it is deceptive, is setting a price for a product higher than that at which it is ever sold, so that it can always be sold at a discount. This is deceptive, because to sell at a discount implies a discount from its real price, not a discount from an artificially inflated one.

Price Gouging Price gouging refers to the practice of a seller putting a much higher price on the item for sale than is considered fair or reasonable. Price gouging usually refers to the pricing not of luxuries or optional items, but of practical necessities—fuel, food, water, and shelter—in times of emergency.

Bidding

Not all bidding is secret, but much of it is. secrecy tends to produce fairer bids and lower prices for the purchaser.

This happens in two ways. If the process were open, a firm that could make a profit at a price considerably less than the competition would make a bid only just enough less to win the contract.

Second, if the competition were open, a firm might start out at a bid low enough to scare off others from bidding, even though the bid is not the lowest he would offer if forced to make a secret bid.

In addition to fraud, using materials inferior to those specified in the bid, and perpetrating other obvious violations of justice, honesty, and fairness, bidding has led to other questionable practices. Two that involve government contracts are common enough to deserve some discussion. One deals with road-building and large construction projects, the other with defense and similar government contracts.

One difficulty many of the states in the United States encounter is that there are only a few construction companies capable of handling a given state’s large construction needs, whether for roads or large buildings.

A second area involves government contracts, for instance, in the defense industry. Two aspects have raised questions of morality. One is cost overruns; another is locking in the government to a single supplier.

A third kind of case involves the purchase of goods by a government or large firm. Several pitfalls are common.

There is always the possibility of leaking information to a potential supplier—an unfair practice. This is sometimes done as a result of bribery or offers of a kickback. Both are clearly immoral. There is also the possibility of writing specifications in so detailed and narrow a way that only one supplier can fill the order, thereby undermining the purpose of the bidding procedure.

Consumer Marketing The opportunities for fraud, deception, and unethical practices are endless, but most such practices are clearly immoral and so raise no ethical problems. A few of the issues of current concern, however, include truth in lending, unit pricing, and labeling and dating. All of these have become items of consumer concern and the focus of attention by the consumers’ movement.

Direct Marketing Direct marketing takes various forms. Direct-to-individual marketing involves contacting or targeting individuals rather than broadcast advertising to a large indiscriminate audience. Three principal ways of contact are through direct mail, direct phone solicitations, and email or other electronic means. The first is often referred to as junk mail, the second as marketing calls, and the third as spam Questionable Products So far we have assumed that what it is legal to manufacture, it is legal to sell. But there are products that some have questioned in this regard. One such item is small, cheap handguns, known as “Saturday night specials.” It is idealistic to think that weapons manufacturers will limit the arms they sell and will voluntarily restrict their sales, even though they may not ethically sell to corrupt parties—be they private or governmental.

ADVERTISING A product might be advertised through a direct-mail campaign or through use of the media—newspapers, magazines, and TV. Advertising, therefore, is part of the process of selling one’s products.

We shall consider five areas in which the moral dimension of advertising is of central importance: (1) the immorality of untruthful, misleading, or deceptive advertising; (2) the immorality of manipulation and coercion through advertising, including the question of audience; (3) the morality of paternalism with respect to advertising; (4) the immorality of preventing some kinds of advertising; and

(5) the allocation and distribution of moral responsibility with respect to advertising.

TRUTH AND ADVERTISING A major function of advertising is to sell goods. Advertising may educate the public or mold public opinion.

Through advertisements, some companies wish to achieve public notice and recognition; they feel that people tend to buy products with a familiar name. The purpose of some advertising is the building of goodwill for the producer, who assumes that public goodwill will eventually help sales.

The terms “true” and “false” are properly predicates of sentences or propositions. Only a proposition can be true or false. A statement or proposition is true, roughly speaking, if the stated relation between subject and predicate corresponds to the actual relation in the world between what are designated or referred to by the subject and predicate.

Lying consists, however, not simply in making a false statement. Lying consists in making a statement, which one believes is false, to another person, whom one has reason to think will believe the statement to be true.

Whether a statement or proposition is true or false depends on the world; whether a statement is an instance of lying depends on the intent of the speaker.

Some advertisements contain sentences—express propositions—that are appropriately evaluated in terms of truth and falsity. If an ad makes a false claim, which the advertiser knows to be false, for the purpose of misleading, misinforming, or deceiving potential customers, then the ad is immoral. It is possible to deceive and mislead without making statements that are false, and it is also possible, as we have seen, not to deceive or mislead while making statements that are not literally true.

Without making any false statements, an ad might be misleading or deceptive. A misleading ad is one in which the ad does not misrepresent or make false claims but makes claims in such a way that the normal person, or at least many ordinary people, reading it quickly and without great attention and thought, will make a false inference or draw a false conclusion.

A deceptive ad is one that either makes a false statement and therefore lies, or that misrepresents the product without making any statement.

The final aspect of truth in advertising that we shall consider is the question of half-truths. A statement made about a product may be true, may not mislead, may not deceive, but may be morally objectionable nevertheless. Sometimes, what the ad does not say is as important as what the ad does say. It is immoral to advertise and sell a dangerous product without indicating its dangers.

MANIPULATION AND COERCION Persuasion in itself is not immoral. Further, persuasion is different from manipulation and coercion, In Kantian terms, both coercion and manipulation treat another person only as a means to one’s own end and deny respect for his or her freedom. Coercion involves force or the threat of force, either physical or psychological.

Manipulation does not use force; it involves playing upon a person’s will by trickery or by devious, unfair, or insidious means. Both take unfair advantage of a person, and the use of either renders a transaction between the two parties unfair or unjust. Coercion and manipulation in advertising are therefore immoral.

PREVENTION OF ADVERTISING The prevention of advertising, in some cases, comes up against the First Amendment’s right of free speech. We have seen that in some instances the government can, with the consent of the people, exercise a certain amount of paternalism.

Is it appropriate for the American Medical Association (AMA) or the American Bar Association (ABA) or other professional organizations to prohibit advertising by their members? Until recently, many professionals were restricted from advertising by their professional associations. Advertising was considered to be in poor taste, vulgar, and unprofessional.

The arguments in favor of changing them were several. One can be put in utilitarian terms. Essentially, the good gained by the lawyers and doctors and their respective professions was less than the evil suffered by their potential and actual clients and patients.

Another argument rests on the right of the individual practitioner to make known his services and to compete, in price and in kinds of services provided, for the business of potential clients. We therefore conclude that in some cases it is immoral to prevent advertising, just as in other cases, morality demands that certain advertising be restrained or prohibited.

ALLOCATION OF MORAL RESPONSIBILITY IN ADVERTISING In each of the preceding sections we have seen that certain advertising practices are immoral. Who is morally responsible for advertising, and who has moral responsibility with respect to it? We can identify five groups: (1) the producer or manufacturer, (2) the advertising agency, (3) the media in which or through which the advertisement appears, (4) the general public, and (5) government and governmental agencies.

1.

2.

3.

4.

5.

Prime responsibility for advertising rests on the one who initiates and directs the advertising.

Advertising agencies handle the promotion of a great many goods. Advertising agencies have the moral responsibility not to lie, mislead, or misrepresent products. They also have an obligation to investigate when they suspect that they are being asked to lie, mislead, or misrepresent a product.

Once an advertisement or an advertising program has been produced, it can be presented to the public in a variety of forms. All TV stations, magazines, and newspapers have the moral responsibility for what appears in their shows or in the pages of their publications.

If members of the general public are concerned about the truthfulness or accuracy of an ad, if they feel an ad is misleading or deceptive, they can perform a public service by making their feelings and perceptions known.

Government has taken an active role in regulating and monitoring advertising. The role of government in the area of advertising is to protect the public interest.

CASE SUMMARIES Case Study: Direct-to-Consumer Drug Advertising Prescription drugs are drugs that can be obtained by a patient only with or under the orders of a licensed physician.

The reason for the restriction is that the drugs contain side effects, are not considered safe for casual use, and should be taken under a doctor’s supervision. Some such drugs, after many years of safe use with few side effects, are allowed to become over-the-counter drugs, and can be purchased and used with a doctor’s prescription.

The United States and New Zealand are the only two developed nations that allow direct-to-consumer advertising of pharmaceutical drugs. Is direct-to-consumer advertising of pharmaceutical drugs ethical? Should it be restricted or eliminated by law? These questions are hotly debated in the United States, as the pharmaceutical industry attempts to get the European Union to allow such advertising there.

The Nestle Infant Milk Formula Infant milk formula is a common, useful, and popular product, widely used in the United States and Europe as a substitute for mother’s milk. In an attempt to increase sales, Nestlé as well as other producers of infant formula extended the sale of their product to many countries in Africa. Mothers who were given free samples immediately after giving birth were more inclined to bottle-feed than breast-feed their newborns. The company knew that the mother’s milk would dry up and that the mothers would be dependent on the formula when they returned home. In

addition, the representatives of the company who went through the wards giving out the samples wore white, and so the mothers easily mistook them for nurses. Therefore, they were more prone to accept and use the formula than if the distributors were easily identified as salespeople. Assuming that the above information is accurate, did Nestlé have a moral obligation to change its practices? Since its practices were legal and accepted in developed countries, why could it not follow them in less developed countries? Did American consumers have any obligation to join the boycott?

TEACHING STRATEGIES This chapter addresses several hot button topics about which there is little consensus. The notion of truth with regard to marketing is a slippery one. One of the best ways to approach this topic is with examples, drawn from television or magazines. Have students collect examples of advertising in which the product advertised is suggested to have properties that it doesn’t have. Querying the class about what the ad actually communicates and what it is supposed to communicate can demonstrate some distinctions between persuasion, manipulation, and, perhaps, even coercion. This is then a useful way to begin the conversation about everything from product labels to promotional giveaways to direct to consumer marketing.

KEY TERMS AND CONCEPTS Federal Trade Commission (FTC) Food and Drug Administration (FDA) Advertising Persuasion Coercion Monopoly Marketing Truth-in-lending Unit pricing Paternalism ESSAY QUESTIONS 1.

2.

3.

4.

5.

What is immoral or unethical about creating a monopoly?

How do truth-in-lending, unit pricing, labeling and dating meet ethical concerns about marketing products?

Why would professional associations bar their members from advertising their services? What ethical principles might justify this practice, and which ethical principles might be used to critique it?

What ethical problems arise with the practice of usury?

What is paternalism, and under what circumstances might it be a justifiable ethical practice? What ethical critique might be given against paternalism in advertising?

MULTIPLE CHOICE 1.

Which are the only two developed nations that allow direct-to-consumer advertising of pharmaceutical drugs?

A. United States and Great Britain B. United States and New Zealand C. United States and Germany D. United States and Canada

2.

Which of the following is not a way in which a company undercuts the competition afforded by another unethically?

A. Pricing one’s product lower than one’s costs, thus making the competition operate at a loss.

B. Buying up competitor companies to eliminate competition.

C. Targeting products in one area to subsidize losses in another, thus driving out the competition.

D. By producing a better product and coming to dominate the field.

3.

When, in the event of a civil emergency like a hurricane, merchants raise prices beyond what is considered a fair or reasonable price, the practice is called which of the following?

A. Price gouging B. Price fixing C. Price markups D. Price jobbing

4.

Which of the following is a way in which secret bidding tends to produce fairer bids?

A. If the process were open, a firm that could make a profit at a price considerably less than the competition might bid up the price to put pressure on that competitor.

B. If the competition were open, a firm might start out at a high bid to scare others off from bidding.

C. If the process were open, a firm that could make a profit at a price considerably less than the competition would make a bid only just enough less to win the contract.

D. If the competition were open, firms might get into a bidding war for the contract.

5.

Which of the following is the argument offered against direct marketing in the form of junk mail?

A. It is a waste and misuse of paper, adding to the depletion of forests and overtaxing landfills.

B. It is an invasion of privacy.

C. It is time consuming and intrusive.

D. It is a significant inconvenience because of the considerable volume.

6.

Which of the following is the argument offered against direct marketing in the form of spam?

A. It is a waste and misuse of paper, adding to the depletion of forests and overtaxing landfills.

B. It is an invasion of privacy.

C. It is time consuming and intrusive.

D. It is a significant inconvenience because of the considerable volume.

7.

Which of the following is the argument offered against direct marketing in the form of direct phone solicitation?

A. It is a waste and misuse of paper, adding to the depletion of forests and overtaxing landfills.

B. It is an invasion of privacy.

C. It is time consuming and intrusive.

D. It is a significant inconvenience because of the considerable volume.

8.

Which of the following is not a major supplier of arms?

A. Russia B. United States C. Germany D. France

9.

Subliminal advertising is immoral for which of the following reasons?

A. It makes false statements about a product.

B. It is an overt attempt to persuade.

C. It is coercive and manipulative.

D. It is meaningless because it is easily dismissed.

10. One might argue that attempts by the government to limit an individual’s of tobacco or alcohol is an example of which of the following?

A. Manipulation B. Coercion C. Fairness D. Paternalism

ANSWERS: 1. B; 2. D; 3. A; 4. C; 5. A; 6. D; 7. B; 8. C; 9. C; 10. D

CHAPTER 16: WORKERS’ RIGHTS: EMPLOYMENT, DISCRIMINATION, AND AFFIRMATIVE ACTION OBJECTIVES 1.

2.

3.

4.

5.

Identify the obligations of employers and employees in the employment-at-will system.

Identify the ways in which the asymmetric nature of employment-at-will is addressed.

Identify the various issues surrounding discrimination.

Identify the current legal environment with regard to Affirmative Action.

Identify the utilitarian, Kantian, and Rawlsian arguments against discrimination.

CHAPTER SUMMARY EMPLOYMENT-AT-WILL We have seen that the implicit contract between society and corporations is that the latter are allowed limited liability and the opportunity to reap profits from their activity on condition that they benefit society by providing goods and services at reasonable prices and that they provide employment for the members of society.

The contract between employers and employees is generally viewed as a kind of transaction, and we have seen that transactions are fair or just if both parties have access to appropriate information, both benefit by the transaction, and both enter into the transaction freely. In the absence of specific contracts, the default position in the United States has been the development of a legal position known as the doctrine of employment-at-will. According to this doctrine, employers are free to hire whomever they choose and to fire them whenever they choose, for any reason or even for no particular reason. Similarly, individuals are free to work for whomever they choose who offers them a job or position, and they may quit whenever they wish, for any reason or even for no particular reason.

Although the doctrine sounds fair and symmetrical, it has come under greater and greater attack and has been more and more circumscribed by law, for ethically justifiable reasons. Because the ordinary worker must work to get the wherewithal to live, he is both forced to work (and often must accept work not of his preference) and lives in fear of losing his job if he has no contract guaranteeing him a secure position. He is not free to set the conditions of his employment the way the employer is free to set the conditions for the potential employee.

RIGHTS IN HIRING, PROMOTION, AND FIRING The clearer the conditions of employment—including promotion, salary increases, and possible termination—before a person is hired, the more likely it is that the employment agreement is truly fair. The rights to rest periods, vacations, holidays, and workdays of reasonable length are all generally acknowledged in American society.

Once hired, employees have the right to cost-of-living increases periodically and to fair consideration for merit salary raises and should be given the reason for lack of such increases if they might usually be expected.

One principle states that the longer one has been employed by a firm, the greater the obligation of the firm not to fire, except for cause.

The second principle states that the employer should inform the employee of the reason for the termination of employment.

DISCRIMINATION, AFFIRMATIVE ACTION, AND REVERSE DISCRIMINATION The issues of discrimination, affirmative action, and reverse discrimination have been hotly debated on the American scene since 1961, when President John F. Kennedy issued Executive Order 10925 creating the Committee on Equal Employment Opportunity.

The reaction of corporate America to these Court decisions was similar to the split reaction of the universities and the general public. The message they took away was that seeking a diverse employment environment is acceptable, while quotas are not.

DISCRIMINATION Because workers have the right to equal treatment, discrimination on the basis of non–job-related characteristics when hiring, firing, or promoting people is immoral. Few dispute this statement, which is fairly easy to demonstrate using a utilitarian, a Kantian, or a Rawlsian approach.

Because it seems so clear that discrimination is immoral, we should pause to consider why discrimination has been so widely practiced in U.S. society. Part of the reply comes from historical circumstances.

Discrimination is unjust and causes harm to those against whom it is practiced. Compensatory justice demands that restitution be made to those harmed. The compensation should be equivalent to the harm suffered, and it should be paid to the one harmed by the one who caused the harm.

The conclusion to which we are reluctantly brought is that the class approach to discrimination and compensation itself involves discrimination, produces harm to those who did not cause it, does not solve the social problems of discrimination, and is immoral. Yet we saw that the individual approach is not sufficiently extensive and that it ignores many who still suffer indirectly from the discrimination practiced against their parents. Is there any way to satisfy the demands of compensatory justice without continuing discrimination in another form—frequently called reverse discrimination?

We suggest four answers.

• First, the problem is not simply one of individuals, classes, or groups; the problem involves all members of society. Past discrimination was a result of social structures; therefore, these have to be changed, and some beneficial structures must be built that give at least some compensation for those still suffering from the effects of discrimination.

• •Second, in an attempt to change existing conditions, the government has mandated equal employment opportunity for all. Although this is morally proper, some claim it is not enough.

• Third, affirmative action can be taken to ensure that members of those groups previously discriminated against are not further ignored by the system.

• Fourth, preferential hiring can arguably be implemented to achieve affirmative-action goals without involving reverse discrimination. Each of these deserves further discussion.

REVERSE DISCRIMINATION If discrimination using non–job-related criteria of race, color, sex, religion, or national origin is unjust when used against women or members of minority groups, it would also be unjust when used against white males.

If a person is denied a job solely because of sex, race, or religion, that person is a victim of discrimination.

The open question is this: it is fair or just to hire qualified women or minority members over equally or more qualified white males. Crucial to answering this question is the answer to another question: Can hiring women or minority members in order to rectify past discrimination or to balance one’s workforce be a legitimate aim for a firm? If so, then fulfilling that aim is a consideration that a firm may appropriately take into account in advertising and filling positions.

BALANCED OR PREFERENTIAL HIRING Preferential hiring is the hiring of women or minority applicants over equally or more qualified white males.

In order to give a better perspective, we might discuss balanced hiring, that is, the hiring of qualified women or minority members in order to balance the composition of one’s workforce for any one of several organizationrelated reasons: to help make up for past discrimination; to provide role models in certain positions, such as in

schools; to achieve a desired diversity that makes the employee composition more attractive for all applicants regardless of sex or race; and so on. If and when justified, preferential hiring equals balanced hiring.

If the qualifications listed in a job advertisement are not the qualifications required for the job, and if the firm is going to consider someone with lesser qualifications if that someone is female, then the job description should be written differently.

We can generalize from our discussions of cases: 1. Affirmative action does not justify hiring unqualified women or minority members in preference to qualified white males.

2. Qualified women and minority members can morally be given preference, on the basis of sex or race, over equally qualified white males, in order to achieve affirmative-action goals.

3. Qualified women and minority members can morally be given preference over better qualified white males in order to achieve affirmative-action goals.

4. Preferential hiring is not mandatory in any given case, although overall, a firm must make adequate progress toward achieving affirmative-action goals.

CASE SUMMARIES The Case of the 2008 Presidential Election: The End of Affirmative Action The U.S. 2008 presidential campaign and election were historic in many ways. In the Democratic Party’s primary election two candidates emerged as the front-runners: a woman, Hillary Rodham Clinton, and an African American, Barack Obama. There had never been either a woman or an African American as a presidential candidate, much less as the president, in American history. Both women and African Americans had in the past encountered discrimination in many aspects of life, including both business and politics. In both areas, women and African Americans were present at the higher levels. But there was a glass ceiling that acted to prevent their achieving the highest positions. The ultimate glass ceiling was the one that kept them from the highest position in the land, the office of President of the United States.

President Obama did not run on an affirmative-action platform and was not elected as an affirmative-action candidate. He was elected on his ability and the faith that the majority of the electorate placed in him, his vision of the future, and his promise of change. His election proved that the majority of Americans could rise above race consciousness in choosing their highest elected official. At the same time, did the election of 2008 symbolize the beginning of the end of the need for affirmative action with respect to race and possibly to gender as well?

TEACHING STRATEGIES Few concepts in business are more hotly debated than Affirmative Action. However, it is important to discuss the underlying economic, social, cultural, and historical realities that gave rise to the notion that Affirmative Action was, and perhaps, is an appropriate way of trying to address them. It is also important to make the distinction between equality of opportunity and equality of outcome and to dispel many of the myths about Affirmative Action that include quotas or the hiring of non-qualified individuals over qualified ones.

One way to begin the discussion of discrimination is to ask students to describe, either orally or in writing, a situation in which they witnessed discrimination. Having described the situation, asking the student to suggest what remedy, if any, might have been available is a useful way of discussing the topic. In this, the instructor will get examples of things that fall under both the discrimination and reverse discrimination heading.

As rights with regard to hiring and firing differ rather a lot from one state to the next, it is likely a useful supplement to this chapter to contact the state employment division to see what each state allows. Contacting an employment attorney is also a helpful approach, as many of them are particularly interested in guesting in business ethics classes.

KEY TERMS AND CONCEPTS Discrimination Reverse Discrimination Affirmative Action

Quota Preferential Hiring Employment-at-will ESSAY QUESTIONS 1.

2.

3.

4.

5.

Compare the arguments against sexual discrimination from a Kantian and utilitarian perspective.

Why is the employment-at-will doctrine considered asymmetric?

How are preferential hiring and reverse discrimination related?

What constitutes just cause for firing?

Can the intuition toward and the requirements of compensatory justice by satisfied without necessarily resorting to a different sort of injustice? Explain.

MULTIPLE CHOICE 1.

Which of the following is true about the rights and obligations of employers in the employment-at-will doctrine?

A. Employers are free to hire whomever they choose but must give just cause for firing them.

B. Employers must hire the best qualified person for the job and must give just cause for firing them.

C. Employers are free to hire whomever they choose and to fire them whenever they choose.

D. Employers must fire the best qualified person for the job but can fire them whenever they choose.

2.

Which of the following is true about the rights and obligations of employers in the employment-at-will doctrine?

A. Employees are free to work for whomever they choose who offers them a job, but they must give some reason for quitting when they choose to leave employment.

B. Employees are free to work for whomever they choose who offers them a job, and they may quit whenever they wish, for any reason or even for no particular reason.

C. Employees must take the first job offered, but they may quit whenever they wish, for any reason or even for no particular reason.

D. Employees are free to work for whomever they choose who offers them a job, but they can only quit with the mutual agreement of the employer.

3.

Which of the following is not a criticism of the employment-at-will doctrine.

A. The relationship is not symmetrical because the employee can set the conditions of employment because it is his or her labor that is purchased.

B. The relationship is not symmetrical because ordinary workers must work to get the wherewithal to live, and so he is both forced to work and lives in fear of losing his job if he has no contract guaranteeing him a secure position.

C. The relationship is not symmetrical because ordinary workers are not free to set the conditions of employment they way the employer is free to set the conditions for the potential employee.

D. The relationship is not symmetrical because the employee cannot work for whatever company he or she chooses, but is limited by the openings available and by the choice or choices offered.

4.

Which of the following is a right workers have?

A. Vacations B. A living wage C. Rest periods D. Workdays of reasonable length

5.

Which of the following is a utilitarian argument against discrimination?

A. People are treated as members of class with a certain characteristic, not as persons. They are not ends in themselves, but because of that characteristic, they are denied equal treatment and respect.

B. Since the least advantaged in a society would be better off in a nondiscriminatory society than in one that discriminates, the rational person would see that nondiscrimination is morally preferable.

C. The dominant class has a desire to maintain its superiority and its class prerogatives.

D. Systematic discrimination produces a class of people who are arguably treated unjustly. Other groups in the society will also have cause to worry about whether they will be the next group to be discriminated against. On the whole, more harm than good is done.

6.

Which of the following is a Kantian argument against discrimination?

A. Since the least advantaged in a society would be better off in a nondiscriminatory society than in one that discriminates, the rational person would see that nondiscrimination is morally preferable.

B. People are treated as members of class with a certain characteristic, not as persons. They are not ends in themselves, but because of that characteristic, they are denied equal treatment and respect.

C. The dominant class has a desire to maintain its superiority and its class prerogatives.

D. Systematic discrimination produces a class of people who are arguably treated unjustly. Other groups in the society will also have cause to worry about whether they will be the next group to be discriminated against. On the whole, more harm than good is done.

7.

Which of the following is a Rawlsian argument against discrimination?

A. Since the least advantaged in a society would be better off in a nondiscriminatory society than in one that discriminates, the rational person would see that nondiscrimination is morally preferable.

B. People are treated as members of class with a certain characteristic, not as persons. They are not ends in themselves, but because of that characteristic, they are denied equal treatment and respect.

C. The dominant class has a desire to maintain its superiority and its class prerogatives.

D. Systematic discrimination produces a class of people who are arguably treated unjustly. Other groups in the society will also have cause to worry about whether they will be the next group to be discriminated against. On the whole, more harm than good is done.

8.

Which of the following is true about affirmative action?

A. Qualified women and minority members cannot be given preference on the basis of sex or race.

B. Affirmative action justifies hiring unqualified women or minority members in preference to men.

C. Preferential hiring is a mandatory way of making adequate progress toward achieving affirmativeaction goals.

D. Qualified women and minority members can morally be given preference in order to achieve affirmative action goals.

9.

Which of the following is true about preferential hiring?

A. Preferential hiring is not mandatory in any given case, although overall, a firm must make adequate progress toward achieving affirmative-action goals B. Qualified women and minority members cannot be given preference on the basis of sex or race.

C. Affirmative action justifies hiring unqualified women or minority members in preference to men.

D. Balanced hiring requires that firms must employ quotas to meet affirmative-action goals.

10. The rule of “last on, first off” with respect to firing policies protects which of the following?

A. The rights of junior members of a firm to job security B. The job security of middle management.

C. Seniority rights to job security D. The pension rights of new employees.

ANSWERS: 1. C; 2. B; 3. A; 4. B; 5. D; 6. B; 7. A; 8. D; 9. A; 10. C

CHAPTER 17: WORKERS’ RIGHTS AND DUTIES WITHIN A FIRM OBJECTIVES 1.

2.

3.

4.

5.

6.

Identify the nature and scope of workers’ rights.

Identify the distinction between special rights, moral rights, and civil rights.

Identify the distinctions in the right to freedom of speech, both on and off the job.

Identify the types of sexual harassment.

Identify the levels of interpretation of the principle of equal pay for equal work.

Identify the ways in which the use of polygraph tests and drug tests can be morally justifiable.

CHAPTER SUMMARY THE RIGHTS OF EMPLOYEES WITHIN A FIRM As moral beings, employees carry with them in all their endeavors and undertakings the moral obligation to do what is right and to avoid doing what is wrong. Neither on the job nor in any other aspect of their lives are they free to do whatever they choose. They remain bound by the moral law in all their activities. An employer—whether we mean by employer the corporation as a legal entity or the actual persons who act for the corporation—is also bound by the moral law. Hence, neither side in the hiring process has the moral right to set whatever terms it wishes.

The background conditions for any contract between employer and employee are the conditions set by morality, law, and local custom, and by the existing social circumstances in which the contract is made.

We can make some general statements about the rights of all workers.

EMPLOYEE CIVIL RIGHTS AND EQUAL TREATMENT Civil rights are legal rights that entitle each person covered by them to certain treatment or that guarantee noninterference in their acting in certain ways. The right to equal employment regardless of race or sex makes it illegal for employers to discriminate in their hiring practices with respect to these.

Civil Rights on the Job No employer has the right to deprive his employees of their civil rights off the job. The extent of an employee’s right to freedom of expression on the job is not a clear-cut issue, and in part depends on who the employer is. If the employer is the government, then the employee’s right of freedom of expression is fully protected. Even here, however, employees do not have the right to sow disaffection and foment employee unrest during their working hours.

The Right to Treatment with Respect The right of an employee to be treated like a human being is a moral right. It is an extremely broad and, in many ways, a vague right. Nevertheless it is a central right. Its foundation is straightforward: Each person is a human being, a moral agent deserving of respect.

Sexual Harassment The right to freedom from sexual harassment in the workplace has come to the fore in recent years. Sexual harassment is demeaning and fails to show people the respect they deserve. The courts in the United States have recognized two types of sexual harassment: quid pro quo harassment and hostile environment harassment. The first type involves submission to sexual requests or advances as a condition of continued employment or of some job benefit, such as promotion. The second requires the employer to keep the workplace free from actions or words by

other employees or managers that create a hostile, intimidating, or offensive environment such that it interferes with the employee’s work or performance.

THE RIGHT TO A JUST WAGE The right to a just wage, sometimes called a living wage, is a right derived from the right to life, the right to employment, and the right to respect.

Keeping Desperation Out of the Labor Market We can talk meaningfully about a just wage only in relation to a system. A just legal and political system must at least provide an income floor and must keep desperation out of the market by providing alternatives to forced acceptance of any wage offered, regardless of conditions. Only within a set of what can be called fair background institutions can the market be allowed to determine wage differentials.

Although in general the approach to wages in the United States is both morally justifiable and acceptable to most Americans, and although gross exploitation is not a burning issue in American labor relations, it does not follow that the notion of a fair or just wage is absent from the American scene.

Fairness Beyond the Minimum Once we have background conditions that keep desperation out of the labor market, we can speak of fairness beyond the minimum wage.

If we go back to the nineteenth century, we find a doctrine of a just wage spelled out, for instance, in some of the papal encyclicals. In general, a just wage was one sufficient to keep a family at a reasonable level of life beyond bare subsistence.

Equal pay for equal work, however, is not a simple principle, nor an unambiguous one. It admits of at least five levels of initial interpretation: (1) on an international level, across an occupation or position; (2) on a national or regional level, across an occupation or position; (3) on an industry level; (4) on a company level; and (5) on an individual or interpersonal level.

If equal pay for comparable work is a justifiable principle, it has not yet been shown to be such.8 Consideration of the principle does illustrate, however, how discussion of the justice or fairness of wages can and does take place within the system of American free enterprise.

PRIVACY, POLYGRAPHS, AND DRUGS Employees have a moral right to privacy. They work for their employers for a certain period of time each day, and the rest of their time does not belong to the company but to themselves. They should be allowed to do what they want during that time, free from company interference.

Polygraph Testing A polygraph or “lie detector” is a machine that tests and records simultaneously a number of physiological reactions—such as perspiration and heart rate—of a subject as questions are posed by an investigator.

Until 1988, the test was widely used by business and government for two purposes. One was to prevent the hiring of those who might steal from the employer or might be security risks in a sensitive position. The other use was to help find the culprit in instances of theft or of other crimes within a company.

Did the taking of a polygraph test violate the applicants’ right to privacy? It might in three ways. First, it might if the questions asked were of a type that the firm had no right to ask.

Second, the range of questions employers sometimes asked went well into other areas that some employer might wish to know about but into which employers have no right to go, such as one’s sexual preferences, religious beliefs, political affiliations, home life, and drinking habits.

A third objection is that those taking the test had no guarantee that the results of the test would be kept private.

Hence, the use of polygraph tests for preemployment purposes is at least prima facie unethical. Without some such rationale, if the test violates the right to privacy and fair treatment in the private sector, it seems to do so as well in the public sector.

Drug Testing No one can plausibly claim a right to take illegal drugs. Therefore, that cannot be used as a defense for those who refuse to submit to drugs tests at work. The conditions for the proper use of testing apply. Involuntary random testing suffers from the same difficulties as preemployment testing. If it is morally justified, the reasons must be important enough to override the employee’s right to privacy.9 Random drug testing also tends to cause uncertainty and uneasiness among workers, since they never know when they will be called. Defenders of the practice claim that this is the point: Since workers do not know when they will be tested, they have an incentive not to use drugs. That random drug testing actually decreases drug use has not been demonstrated. Nor has it been shown that companies that use random testing suffer fewer injuries or other difficulties than do companies that do not use random drug testing.

Testing for AIDS The emergence of AIDS (acquired immunodeficiency syndrome) has raised issues about workers’ rights. One issue concerns the right of the person with AIDS to privacy. The second is the right of the person with AIDS to nondiscriminatory treatment. The third is the claimed right of other workers not to be exposed to a fatal and communicable disease. This last right of others is a real right. But all the evidence so far indicates that AIDS is not transmitted by casual contact such as that occurring between fellow workers. Hence, the right of workers not to be exposed to fatal diseases is not violated by hiring or keeping on employees infected with the AIDS virus.

EMPLOYEE DUTIES Although workers have rights on the job, they are hired to perform specific tasks, and justice demands they do the job for which they are hired. The list of a worker’s obligations depends in part on his or her job or position, but we can specify in general some obligations that hold true for all employment. Workers are morally obliged to obey the moral law, and they are legally obliged to obey the civil law at work, just as during all other times.

They are obliged not to lie, not to spread false information, not to sexually or otherwise abuse or harass others. They are morally obliged to treat their fellow employees, whether above or below them, with respect. They are also obliged to fulfill the terms of their contracts. Employees are obliged, in addition, to consider the interests of the firm for which they work.

WORKER LOYALTY AND OBEDIENCE Though obedience can be morally justified, there are clear moral limits to obedience. No one can be morally obliged to do what is immoral. Loyalty is also a quality expected and demanded by many firms. Being loyal in these ways is morally permissible, but it is not morally obligatory. One has no general moral obligation of loyalty to one’s employer, even though employers would like to have loyal employees.

THE RIGHT TO ORGANIZE: UNIONS In a just society, among the institutions necessary to achieve a system of fair wages, unions have played an important role. Individual workers, of course, are no match for large corporations and are in a very weak position with respect to negotiation. Individual workers are most often given the choice simply of accepting employment on the terms offered by a firm or of not accepting such terms and conditions.

How is the claimed right to form unions justified? The justification in the free-enterprise system stems from the prior right of individuals to the greatest amount of freedom compatible with a like freedom for all. This includes the right of individuals to pursue their own ends and the right to associate with others to achieve common ends. The free association of workers to achieve common ends leads to the organization of labor unions. The right to form unions is recognized in the UN Universal Declaration of Human Rights, as well as in many international conventions.

Although workers have the right to form and join unions, workers have no obligation to do so.

THE RIGHT TO STRIKE In relations between labor and management, there are four major groups involved, not merely two. The four are labor, management, government, and the general public.

There may be times, however, when the public’s rights are violated by a strike. In such cases, the right of the public must be weighed against the right of the workers to strike. A frequent example is public-sector strikes. The general public has the right to protection by police and firefighters. Does its right to such protection override the right of police and firefighters to strike? Clearly, the considerations here are different from those in the auto industry, for in these cases we are weighing competing rights and not rights versus good. The right of workers in the public sector to strike is controversial. In the United States, public-sector strikes are strikes by federal, state, and municipal employees.

The adversarial relation of workers and management in the American system is not in itself unethical or immoral.

Yet simply because workers have the right to strike does not mean that workers ought to strike. The exercise of a right to strike is often shortsighted, and from an economic point of view may in the long run as well as the short run not be in the interest of the workers, management, or the general public, whose lives are disrupted in one way or another.

The consideration of the general good is not sufficient to override the right of the workers to strike, but it is sufficient to provide the basis for legislation requiring attempts at negotiation prior to a strike.

CASE SUMMARIES Case Study: Drug and Polygraph Testing at Company X Polygraph tests are notoriously inaccurate. Drug tests are significantly more accurate. Are Moss’s or Hempin’s arguments stronger? Are drug and polygraph tests an invasion of privacy? Should companies in the private sector use such tests routinely in either preemployment screening or after hiring people?

TEACHING STRATEGIES It is a helpful strategy to introduce this topic by first relating some background on the Civil Rights movement.

Having done that, the instructor may ask students to recount instances in which they have witnessed the civil rights of others being violated.

Another useful tool is to ask students whether or not they would be willing to take a polygraph test that would ask whether or not they had ever cheated on an exam or turned in work that was partially plagiarized. Or, if they would think it appropriate for a school to test them for alcohol use or drug use, either randomly or systematically, even when the use of alcohol or drugs would have happened when they were off school grounds and on their own time. These questions can provoke a lively discussion that can then carry over to the conversation about the use of polygraphs and drug tests in the workplace. In addition to the cases, the hypothetical situations are very useful for testing ethical intuitions about hiring, discrimination, and affirmative action.

KEY TERMS AND CONCEPTS Civil Rights Just Wage

Sexual harassment quid pro quo Equal work for equal pay Privacy ESSAY QUESTIONS 1.

2.

3.

4.

5.

What is the difference between a civil right and a moral right?

How do civil rights, moral rights, and special rights differ? Can special rights be moral rights? Why or why not?

Loyalty is generally accepted moral virtue. To what extent can firms morally claim that workers owe the firm loyalty?

How are the principles of equal pay for equal work and equal pay for comparable work related? What justifications might be given to not given two workers in comparable job situations equal pay?

To what extent can companies morally justifiably restrict the right of employees to unionize? To what extent can the right of employees to unionize be said to impose an obligation of companies and governmental agencies?

MULTIPLE CHOICE 1.

Which of the following is true about the right to freedom of expression?

A. Employers can morally limit the right of employees to freedom of speech on the job.

B. Employers can morally limit the right of employees to criticize the company outside of the workplace.

C. Employers can morally limit the right of employees to criticize the company when away from the job and on their own time.

D. Employers cannot morally limit the right of employees to freedom of speech.

2.

Which of these is not a right that employees have?

A. The right to be treated with respect.

B. The right to be fairly compensated.

C. The right to meaningful work.

D. The right to work in safe conditions.

3.

Which of the following is an example of quid pro quo sexual harassment?

A. Submission to sexual requests as a condition of continued employment.

B. Failure to keep the workplace free from actions by other employees or managers that create an offensive environment.

C. Words or actions of a sexual nature that interfere with one’s work.

D. Words or actions with sexual overtones that make an employee uncomfortable.

4.

Which of the following is an example of hostile environment sexual harassment?

A. Submission to sexual requests as a condition of continued employment.

B. Failure to keep the workplace free from actions by other employees or managers that create an offensive environment.

C. Words or actions of a sexual nature that interfere with one’s work.

D. Words or actions with sexual overtones that make an employee uncomfortable.

5.

The right of the employee to be free from sexual harassment does not impose an obligation on which of the following?

A. the employing firm B. supervisors C. other employees D. the court system

6.

Which of the following is the Marxist response to the notion of a just wage?

A. A just wage is a wage that provides the worker with the means to live a prosperous life.

B. A just wage is whatever the market will bear.

C. Wages cannot ever by just because all wage labor involves exploitation.

D. Wages can only be just if the wage is just compensation for the labor expended.

7.

Which of the following is not an historical and potential consequence of unrestricted free markets?

A. sweatshops B. living wages C. child labor D. unhealthy working environments

8.

The United States government defines which of the following as the income level at which a family of four can be supported?

A. the poverty level B. the minimum wage level C. the living wage level D. the welfare level

9.

Which of the following would justify paying a professor of humanities a different amount that paying a professor of computer science if all other things like publications, class sizes, and the like were equal?

A. Computer science is a harder discipline than the humanities.

B. The humanities are harder disciplines than computer science.

C. Professors of computer science tend to be paid more, and thus, it is reasonable to continue the practice.

D. A professor of humanities is in less demand outside academia than a professor of computer science.

10. Which of the following arguments assumes that some fair determination of comparable work is not only possible, but morally justifiable (and perhaps, morally required)?

A. Equal pay for equal work B. Equal pay for equivalent work C. Equal pay for comparable work D. Equal pay for incompatible work

ANSWERS: 1. A; 2. C; 3. A; 4. B; 5. D; 6. C; 7. B; 8. A; 9. D; 10. C

CHAPTER 18: WORKERS’ RIGHTS AND INTERNATIONAL BUSINESS OBJECTIVES 1.

2.

3.

4.

5.

Identify the contributory aspects of international business that contribute to child labor.

Identify the regulatory agencies that police child labor, and the role of multinationals is both the use of child labor and its restriction.

Identify the difficulties multinationals face with regard to workers rights when those multinationals operate in cultures with very different understandings of human rights than are recognized in the United States.

Identify the claims of the “right to work” and the criticisms of its detractors.

Identify the Sullivan Principles.

CHAPTER SUMMARY CHILD LABOR International outsourcing is the practice of a company manufacturing or contracting all or parts of its product abroad. Through such outsourcing, a company can purchase what it needs more cheaply abroad than making it itself, or if it manufactures the product itself, it does so using cheaper labor than is available at home.

Child labor is illegal in the United States and in many other parts of the world, but it is not illegal everywhere.

The International Labor Office claims that 25 percent of children between the ages of 10 and 14 are working not only in Asia but even in parts of Western Europe. Child labor is not simply a matter of children working. Often they are paid nothing or are charged more for their room and board than they earn, making them bonded servants working long hours in extremely poor conditions.

In discussing human rights, we saw that multinationals may not directly or indirectly violate human rights. With respect to child labor, they may not directly employ child labor in their factories. They also may not use suppliers that employ child labor. The obligation not to use child labor further implies that multinationals cannot simply claim ignorance about the workers who produce the goods they buy or the conditions in which they work.

SWEATSHOPS The problem of sweatshops is in many ways comparable to that of child labor. Both are often found in the same poor, developing countries. “Sweatshops” is a term that is broadly used to include a variety of poor working conditions. Typically sweatshops are in old buildings, with poor or little ventilation; poor sanitary facilities; and unsafe, unhealthy, and crowded working conditions. They pay very low wages for long hours of work, and the workers have no rights within them. They receive no benefits, and are often subject to physical and verbal abuse and sexual harassment or worse. Sweatshops, however defined, violate the human rights of workers, and hence should be eliminated.

Although multinationals face the problem of sweatshops as they search for less and less expensive sources for apparel and sportswear and equipment, they are also turning more and more to outsourcing high-tech and whitecollar jobs. The workers’ rights issues here are not about how those who get the jobs are treated, but whether the rights of the workers who lose their jobs have been violated.

OUTSOURCING AND INTERNATIONAL BUSINESS The export of American manufacturing has been faulted from many points of view. Some people complain when a company moves its factory from the northern part of the United States to the Sun Belt, where it can find cheaper labor. Many argue this is ethically and economically acceptable, despite the cost that is imposed on workers who lose their jobs and factory towns that lose an important part of their financial base. Yet when the same company for the same reasons—namely, to lower labor costs—moves from the United States to abroad, many of these same people condemn the action as unethical. The reason for the difference, they claim, is that although the northern states

may be adversely affected by the first move, the Sun Belt states benefit, and the overall benefit to the country balances out the harm done. When industry is exported, however, then Americans lose jobs, and harm is done to the country as a whole from the loss of industry as well as jobs. This adds to unemployment, reduces the national tax base, and benefits the company at the expense of the country. The argument is of a utilitarian type. But it is onesided, for it considers only the company, American workers, and the United States. It fails to consider the fact that exporting industry in this way helps provide jobs for people in the host country, where often the unemployment rate is staggering. To argue only in terms of the benefits for the United States and its citizens is not to take a broadenough perspective.

The argument against the export of jobs is usually held inconsistently. Those who decry such outsourcing have no complaint about other countries opening manufacturing plants in the United States and providing jobs for Americans. They welcome such plants when opened, for instance, by Toyota or other car manufacturers. To be consistent, they would have to hold that, since the jobs of American companies belong to Americans, the jobs of Japanese or German or other companies belong to their respective workers. If outsourcing is unethical, then to accept such outsourced jobs from other countries would be to be complicit in an unethical practice.

That no one defends such a claim is indicative of the one-sided view that the opposition to outsourcing jobs abroad involves.

MIGRANT AND ILLEGAL WORKERS The term “migrant works” is used somewhat differently in different countries. The UN in 1990 established an “International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families.”16 That document defines a migrant worker as “a person who is to be engaged, is engaged or has been engaged in a remunerated activity in a State of which he or she is not a national.”

Migrant Workers As the term is used in the United States, migrant workers include all workers, regardless of citizenship, who work in primarily poor-paying agricultural or seasonal jobs. The opportunity for employers exploiting migrant workers is considerable, and the workers have few of the safeguards that employees with permanent positions enjoy. They get no retirement or fringe benefits and usually no health insurance. The work is physically demanding, and the pay is poor. The housing that is provided, if it is available, is primitive and lacks many of the basic facilities taken for granted even by poorly paid factory workers. Many of the workers are immigrants because the work they do is eschewed even by poor Americans. In agriculture, the largest number of immigrant workers in the United States come from Mexico. They come because, despite the hardship, the conditions are better than those they find at home, and they can get work, which they cannot get at home.

The United States is not the only country, however, that imports labor for jobs that its nationals do not want.

Germany and Japan are among the others for which this is true, and Great Britain and France have considerable immigrant populations that also take on the less desirable jobs.

Although the societies in question are suffering the ills of social unrest and are struggling with effective ways to possibly assimilate their immigrant population, the immigrants themselves suffer not only second-class status, but discrimination and lack of opportunity beyond the poorest-paying jobs. The role and responsibility of the farmers’ groups and of the larger corporations to open their doors, develop training programs, and integrate their migrant works is little discussed. There is no affirmative action program or mentality and few antidiscrimination laws. The U.S. civil rights movement had a dramatic effect on business and workers’ rights within the firm. That could set a model for European countries to emulate.

Illegal Immigration A current labor issue in the United States is the problem of what to do about the approximately 12 million (and perhaps as high as 20 million) illegal immigrants, of which about 7 million come from Mexico.20 The United States is a country that is built on successive waves of immigration. The number of illegal border crossings has increased consistently since 1980, with most of the illegal immigrants being poor and having little education.

The number of illegal immigrants increased because both they and the businesses that hired them found the situation advantageous, even though some in the society at large complained of the drain on social services and the added costs of sustaining a social welfare net.

DISCRIMINATION, CORRUPT GOVERNMENTS, AND MULTINATIONALS The Case of General Motors and Apartheid In 1926, General Motors opened its first factory in South Africa. It preceded by many years the introduction of what were to become known as apartheid laws, which began to be passed in 1948. Under apartheid, the blacks in South Africa suffered extreme oppression. The answer to the second question came in 1977 from Leon Sullivan, a black Philadelphia pastor and a member of the GM board of directors. He proposed a set of principles, known as the Sullivan Principles. Among other provisions, these principles prohibited GM from following the apartheid laws and required no segregation in the company’s operations, equal pay for equal work regardless of race, and the promotion of qualified black workers over white workers. Whether or not the sanctions and the Sullivan Principles were effective, in 1991 the South African government began to repeal the apartheid laws. In 1993, the white rulers agreed to end apartheid completely and to allow universal elections under a new constitution.

The Lessons of Business in South Africa The experience of U.S. multinationals in South Africa allows us to derive a number of lessons about how to operate in the context of a structurally immoral society. As Sullivan also pointed out, simply refusing to follow the apartheid laws was not sufficient justification for remaining in South Africa, for the American companies helped the South African government indirectly in a number of ways, only one of which was through taxes. To offset the indirect support the companies gave the government, they had to take active steps to undermine the government’s unethical practices and laws. Passive resistance was not enough. The South African experience shows that shareholders can hold multinationals accountable if they truly wish to do so.

Racial and Gender Discrimination In each of the instances of considering workers’ rights on the international stage, we have focused on the obligations of businesses, both local and multinational. But basic to all such discussion is the role of government and the human right of all people to work.

THE RIGHT TO WORK The right to work is recognized in the UN Declaration of Human Rights, which says, “Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.”25 The right is appropriately applied differently in different societies, but is a right in all societies.

It can be considered on four dimensions: as a negative right, as a positive right, as having an individual dimension, and as having a social dimension.

The right to work as a universal, human right is itself a derived right. Defenders of the right have attempted to derive it from the right to life, the right to development, and/or the right to respect. In each case the derivation hinges on certain assumptions and background conditions. Thus, the right to work can be derived from the right to life to the extent that access to work is necessary to obtain the wherewithal to preserve life. The right to life carries with it the right to engage in those activities, compatible with the exercise of the rights of others, necessary to sustain life.

CASE SUMMARIES Nike: A Case Study Nike is a household name when it comes to sports apparel and equipment. It has worked hard to burnish its image, especially by garnering endorsements from big names in the sports world, such as Michael Jordan. But in 1996 its silver image began to tarnish. It knew it was in trouble when an article on child labor in Pakistan appeared in Life

magazine with a picture of a 12-year-old boy sewing a Nike soccer ball in a factory, and activists started showing up in front of Nike outlets holding posters with the boy’s picture on it. Although child labor is illegal in Pakistan, the law is not enforced and child labor is widespread. The factory in question was not run by Nike, but by a subcontractor or supplier. Nonetheless, Nike was held responsible by many, especially in the United States and Canada. One immediate result was a “Boycott Nike” movement, which continued to monitor and report on Nike’s actions.

In 2001 Nike’s CEO, Philip Knight, claimed that the company’s policy with respect to the employment of child labor was “the highest in the world: 18 for footwear manufacturing, 16 for apparel and equipment.”5 But he acknowledged that there were instances in which the company used contract factories abroad where the policies had been violated. With respect to the company’s violations in Cambodia that had been reported by the BBC, Mr. Knight cited the fact that evidence of age could be bought there for as little as $5, and that following the charge the company reexamined all employee records there.

TEACHING STRATEGIES This chapter is a good example of incorporating cases into the flow of the chapter itself. Two cases are discussed in greater depth in the course of the text. One of the most important issues that comes up in the conversation about the globalization of economies is that of the oppression of workers. Child labor, slave labor, migrant labor, and sweatshop labor all make headlines from time to time. Clearly, the United States has fairly strict rules against child labor within the United States, but since jurisdiction is limited to the borders of the sovereign country, to what extent are multinational companies like Nike subject to the moral strictures that lie behind the ethical intuitions that gave rise to the laws in the first place? Students tend to quickly reject child labor and sweatshop labor, but they might begin to have internal debates on the matter of migrant labor. It is important to distinguish between the laws that make immigrant laborers illegal and the work that attracts immigrant laborers to the fields. It is also important to note that business and economic pressure can help to bring about substantial change with respect to human rights in those places where human rights are being systematically violated. South African apartheid is a good case in point.

KEY TERMS AND CONCEPTS Child labor Immigration Sweatshop Sullivan Principles Outsourcing Right to Work ESSAY QUESTIONS 1.

2.

3.

4.

5.

What is child labor, and why is it objectionable? What are some reasons given in support of various sorts of child labor?

What is at least one ethical argument in favor of multinationals practicing international outsourcing?

What is the responsibility of multinationals toward unjust and discriminatory legal systems in foreign settings?

How are the Sullivan Principles used as a template for multinationals in their relationships not only with historical South Africa, but in other international relationships as well?

Why might having “clean hands” as a multinational with respect to child labor and/or discriminatory practices not be an ethically sufficient position?

MULTIPLE CHOICE 1.

Which of the following is not a benefit of international outsourcing?

A. Purchasing goods more cheaply B. Cheaper labor C. Closer controls on the manufacturing process D. Easier regulatory practices

2.

According to the International Labor Office, what percentage of children between the ages of 10 and 14 are working (not only in Asia, but in parts of Western Europe, as well)?

A. 25% B. 50% C. 75% D. 5%

3.

“Child Labor” refers, generally, to which of the following sets of practices?

A. Working on farms doing chores before and after school for little or no pay.

B. Working at a part-time job after school for minimum wage.

C. Working in unsafe conditions often damaging to health for poor pay.

D. Babysitting and/or mowing yards for neighbors for very little pay.

4.

According to UNICEF, what percent of child labor is involved in the production of goods for export?

A. 5% B. 25% C. 50% D. 75%

5.

Sweatshop conditions are often compared to those of which other group of workers’ conditions?

A. Multinational corporations B. Graduate assistants C. Child laborers D. Migrant farmworkers

6.

The minimal ethical obligation of employers is to respect the human rights of their workers, and in the case of migrant labor, this means to abide by the rules of which of the following?

A. The UN Declaration on Human Rights B. The Migrant and Seasonal Agricultural Work Protection Act C. The International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families D. The Illegal Immigration Act

7.

Which of the following is a negative or liberty right of the “right to work”?

A. Each person has a claim against his society to have the opportunity to work.

B. Each person has the right to pursue work and should not be prevented by others from doing so.

C. Work is important for the social dimension that it communicates.

D. The person has a right to develop and express himself through productive labor.

8.

Which of the following is a positive right of the “right to work”?

A. Each person has a claim against his society to have the opportunity to work.

B. Each person has the right to pursue work and should not be prevented by others from doing so.

C. Work is important for the social dimension that it communicates.

D. The person has a right to develop and express himself through productive labor.

9.

Which of the following is an individual right of the “right to work”?

A. Each person has a claim against his society to have the opportunity to work.

B. Each person has the right to pursue work and should not be prevented by others from doing so.

C. Work is important for the social dimension that it communicates.

D. The person has a right to develop and express himself through productive labor.

10. Which of the following can be derived from the right to work?

A. The right to be free of sexual harassment B. The employment-at-will principle C. The right to employment D. The right to self-determine

ANSWERS: 1. C; 2. A; 3. C; 4. A; 5. D; 6. B; 7. B; 8. A; 9. D; 10. C

CHAPTER 19: THE INFORMATION AGE: PROPERTY AND NEW TECHNOLOGIES OBJECTIVES 1.

2.

3.

4.

5.

6.

Identify the different sorts of property rights and the particular difficulties with questions of intellectual property.

Distinguish between information and knowledge.

Identify the relationships between law and fair use.

Identify the general scope of fair use.

Distinguish between facts, knowledge, understanding, information, data Identify the patent questions surrounding the questions of life-saving drugs and their availability in impoverished countries.

CHAPTER SUMMARY INTELLECTUAL PROPERTY The notion of property is best analyzed as a bundle of rights. The exact nature of the bundle varies from society to society and from one kind of property to another. When people think of property, they often think first of what is called tangible property. As the name implies, this comprises physical items that we can touch.

Real property refers to land and to the buildings and additions on the land.

Intangible property consists of money, stocks, bonds, and other financial securities.

A fourth type of property is intellectual property. Intellectual property is constituted by a bundle of rights governing products of the mind or intellect. The rights that one has with respect to these products are different from the bundles of rights that constitute tangible, real, or intangible property. Intellectual property is significantly different from the other types of property because it can be shared with others without losing any part of it oneself.

There are four recognized ways by which legally, and ethically as well, one can protect intellectual property, and to a large extent that protection determines the bundle of rights that one has with respect to intellectual property. The four ways are trademarks, trade secrecy, copyright, and patent.

Trademarks Trademarks are defined by the U.S. Patent and Trademark office as “a word, name, symbol or device which is used in trade with goods to indicate the source of the goods and to distinguish them from the goods of others.”

Trademarks, unlike copyrights and patents, do not expire after a certain length of time, and the rights one has continue indefinitely.

Trade Secrets In a broad sense, the term trade secrets refers to all knowledge developed by a firm, which it guards as proprietary; in a narrow sense, trade secrets designate an alternative to patents and copyrights as a means to protect inventions, formulas, and the like. Three indicators are useful in determining what information is appropriately secret, what information belongs to a given firm, and hence what information an employee has a moral and a legal obligation not to reveal.

• First is the amount of security the company employs to maintain the secrecy of the information.

• Second is the amount of money that a firm has spent in developing the information.

• Third is the value of the information to a competitor.

The right of the company to be the first to use and profit from its research is nonetheless in general morally defensible. As we have seen, however, this does not mean that it has the exclusive right to what it develops forever.

Nor does this mean that if it develops a product that would benefit society, it can for its own reasons indefinitely prevent it from ever becoming known. Knowledge is not something that one can keep locked up for as long as one likes.

The distinction between the information and knowledge that belong appropriately to the employer and the information and knowledge that belong appropriately to the employee is not always an easy one to draw. Several guidelines may help. Information that is available in the public domain is not secret.

From the foregoing analysis, we can conclude that firms have the right to protect certain kinds of information if it belongs to them, and that they can legitimately impose restrictions on their employees not to divulge such information. The analysis provides some rough guidelines. But the conclusion should not be taken to be stronger than it actually is. In particular, we should note two points. First, the employee’s obligation not to sell or give to another what properly belongs to the firm is a moral obligation The second point again concerns the information that a company can appropriately keep secret. Companies’ claims to secrecy have to be balanced against claims of the employees to freedom of speech and movement, and against claims of the government, stockholders, and the public to information that concerns them and that they have a right to know.

Copyrights and Patents While trade secrecy is the legal right to keep one’s information, ideas, plans, projects, and so on secret, copyrights and patents give their holders certain rights with respect to their products on condition of their making them public in certain prescribed ways.

Copyrights were instituted in order to protect the written expression of ideas.

Patents cover not the expression of ideas but inventions, machines, processes, or composition of matter. Patents give inventors protection for their innovation.

Patents do not prohibit reverse engineering.

The justification for offering both copyright and patent protection is twofold, the first based on consideration of justice, the second on utilitarian considerations.

Law, Ethics, and Fair Use Although we have given a general moral justification for the legal protection of intellectual property, we should note the relation of ethics and law with respect to intellectual property. We should note that in most jurisdictions there are legal exceptions to copyright grouped under the heading of fair use. Fair use applies to the authorized use of copyrighted material without permission under certain conditions, including but not limited to the condition that the items used be for personal, noncommercial use. Allowed are “purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research.”

PROPERTY: INFORMATION AND SOFTWARE From the start computer programs did not fit the copyright pattern either obviously or very well. The problem begins in trying to say just what a computer program is. It certainly seems to be the expression of an idea of some sort. But it is in essence a string of commands that instructs a certain type of machine, a computer, to do certain things in a stated order. Should it be considered part of the computer because it is used to make the computer do certain things, even though it is not part of any given computer.

What constitutes intellectual property must be determined before we can make valid judgments about who, if anyone, properly owns such property, under what conditions, and for how long.

Data and Information

Knowledge can be of facts, and in part knowledge consists of facts as known. Understanding consists of knowledge that is integrated in some unified way and evaluated. The word information is sometimes used to include data, facts, and knowledge, as when we speak of information systems.

What computer systems can be properly said to contain and manipulate are data. What is entered into a computer are data. The entered data can represent either words, letters, or numbers, and so the data can represent facts in coded fashion. So far as computers have developed, they do not know anything in the sense that humans do, nor do they understand anything. But computers can handle data and manipulate them with great speed. Data may represent falsehood as well as facts, and the two should not be confused.

The Protection of Computer Software Because neither patents nor copyrights were originally developed with computers in mind, numerous difficulties have arisen. The line between software (programs used to run computers) and computer hardware (the physical computer) is becoming less and less clear, as is the line between physical and intellectual property. Some programs are of the “read-only” variety, and these may simply control a certain activity—for instance, the working of part of an automobile engine. Such a program is not read, in the usual sense, by a human being. It may be on a silicon chip.

It is simply instructions to a machine.

Attempting to solve moral issues related to computers is often complicated by the lack of any established and agreed-upon practices. Many computer programmers, for example, feel no proprietary claim to the programs they write; they trade them with others or allow others to copy them freely. Others claim proprietary rights even if they do not copyright their programs. Therefore, the question of how to handle programs is often not clear. Should one treat all programs as if they are the property of others, or should one treat them all as common property, unless they are copyrighted? Another difficulty is knowing exactly when enough changes are made in a program to make it a new program.

Program Property Rights Between Employer and Employee The wise firm will establish guidelines and ground rules governing computer use and programs before problems arise.

Copying Programs and Fair Use The copying of computer programs for sale is not covered by the doctrine of fair use. When done by commercial firms or groups in other countries, it is often called piracy. The development of peer-to-peer technology on the Internet, which makes it possible to share large databases—music, films, and the like—to many thousands of users has forced legislators to consider what additional legal protection might be appropriate and for producers of music and films to reconsider how they market their products and how they might protect themselves against illegal copying. Once again, the intuitions of the general public have been formed in part by earlier accepted practice and have not caught up with the practices made possible by the new technology. When VCRs were first introduced, TV broadcasters claimed that copying a televised program to replay later was a violation of its property rights under copyright law, since it did not authorize making and replaying copies of its program. The courts disagreed, and ruled that under the doctrine of fair use, individuals could make copies of programs on TV and replay them later for personal use. The concomitant attempt to legally ban not only the use of VCRs but also their purchase and sale failed once it was clear that VCRs had a perfectly legal use, despite the fact that they might be used in violation of copyright.

Copying music was thus seen initially by many as comparable to taping a movie, or taping a song from TV or radio.

The appearance of Napster and other peer-to-peer technology, however, that allowed the downloading of music in MP3 format was importantly different from copying from a public source for individual private use.

Intellectual Property and the Internet

The difficulty is exacerbated by the Internet because it crosses borders with such ease that sometimes one does not know the country of origin of a given site. Because copyright and patent protection is nation based, each country issues legal protection only for its own jurisdiction.

Partially in an attempt to give special protection to music, films, and TV programs, which are easily copied by electronic means and which were being spread via peer-to-peer technology over the Internet to millions of users in violation of copyright law, in 1998 the United States. passed the Digital Millennium Copyright Act (DMCA).

Despite the objections and calls on the part of many to amend the law, it still remains on the books and is enforced.

Patents and Software Patent protection is much stronger than copyright protect, since it precludes any use without a license of the protected item, even if one arrives at the same item independently.

PATENTS AND PHARMACEUTICAL DRUGS While the patent system is criticized for issuing patents on methods of doing business and on software because it impedes development, both the pharmaceutical drug companies and the patent system have come under intense criticism by those who see patents as the means by which pharmaceutical companies have a monopoly on needed life-saving drugs—for instance, AIDS drugs—which in effect keeps the drugs from the desperately poor who need them. The pharmaceutical companies are blamed for not making their drugs available at prices those who need them can afford, and the patent system is criticized for enabling the companies to do so.

People and countries do not typically complain about the patent system with respect to inventions and machines.

Drugs are seen as different because they are needed to save lives, not simply like most machines and inventions that make life easier and more pleasant in one way or another.

The argument that poor people and poor countries cannot afford the new drugs until the patents expire does not necessarily lead to the conclusion that patent protection is morally unjustified. The question is whether the drugs can be made available without eliminating patents on drugs and so potentially cutting off the development of new drugs.

A related issue is whether under conditions of emergency it is the pharmaceutical companies that should have to bear the financial burden of giving away their drugs, or whether the cost should be shared by governments and perhaps by other firms that operate in the less developed countries.

CASE SUMMARIES Two Intellectual Property Cases Most people would readily agree that stealing is wrong and that the misappropriation of another person’s property is stealing. In the area of computer software, however, what constitutes stealing or misappropriation is not always clear.

One of the unclear areas concerns the so-called look and feel disputes, the most prominent of which is the Apple versus Microsoft case. Apple had produced the Macintosh computer and had developed a distinctive graphical user interface to go with it, including pull-down screens or windows, windows within windows, and a variety of icons for a variety of different tasks (e.g., a file folder represented a file and a trash can represented discarded files). When Microsoft introduced the now very popular software program Windows, which was written not for Apple computers but for IBM-compatible computers that use MS-DOS as the operating system, it included many of the features that were previously available only on Apple computers.

Our concern here is not with the technical legal aspects of the case, for those were argued by the respective lawyers and decided by Judge Walker. Our concern, rather, is with what morally belongs to whom in such a controversy. Is there any way to argue that one or the other side was morally right in its claim, even though the copyright laws did or did not grant the disputed property right? Is what is morally correct here decided by law— meaning that without a legal decision there is no right or wrong or that there is no claim to a right unless it is

protected by law? On utilitarian grounds, is more good than harm done for software-producing firms, users, and society in general if the look and feel of computer software is protected by copyright? Are there ownership rights to an artistic and creative screen design that should be respected?

TEACHING STRATEGIES This chapter is complex for reasons unlike those which made the chapters on accounting and insider trading and the like complex. This one is complex because the rapidly changing nature of technology have made older ways of discussing intellectual property – and, indeed, property itself – border on the obsolete. Patent law and copyright law does little to address the incredible changes in data sharing that computers make possible. One way of encouraging students to engage in this chapter is to discuss file downloads and file sharing, particularly as they relate to music. Most students have download music and many participate in peer to peer sharing of files. These numbers are drastically higher than those who copied movies from VHS or made copies of tapes of songs to give to their friends. Attitudes with respect to ownership are also changing rapidly. Getting a sense of the justifications that students have for sharing information is a good way to begin discussing matters like intellectual property and fair use.

KEY TERMS AND CONCEPTS Intellectual Property Fair use Patents Copyright Tangible property Intangible property Real property Reverse engineering Trademarks Trade Secrets ESSAY QUESTIONS 1.

2.

3.

4.

5.

To what extent is it morally justifiable for a pharmaceutical company to enforce a patent on a life-saving drug?

How is the doctrine of “fair use” applied differently with respect to the music industry than in television or print media?

Is reverse engineering a morally justifiable practice? Are there limits that can be place upon it?

What are the ethical factors an employee should consider when determining what company information is appropriately secret?

What are the moral justifications for copyrights and patents?

MULTIPLE CHOICE 1.

Which of the following is an example of tangible property?

A. Land, buildings, and additions on the land.

B. Money, stocks, bonds, financial securities.

C. Expressions of ideas, inventions, discoveries.

D. Some physical item that we can touch, though not usually land and buildings.

2.

Which of the following is an example of intangible property?

A. Land, buildings, and additions on the land.

B. Money, stocks, bonds, financial securities.

C. Expressions of ideas, inventions, discoveries.

D. Some physical item that we can touch, though not usually land and buildings.

3.

Which of the following is an example of real property?

A. Land, buildings, and additions on the land.

B. Money, stocks, bonds, financial securities.

C. Expressions of ideas, inventions, discoveries.

D. Some physical item that we can touch, though not usually land and buildings.

4.

Which of the following is an example of intellectual property?

A. Land, buildings, and additions on the land.

B. Money, stocks, bonds, financial securities.

C. Expressions of ideas, inventions, discoveries.

D. Some physical item that we can touch, though not usually land and buildings.

5.

From an ethical perspective, which is the proper response with regards to the length of a copyright?

A. Ethics cannot provide a specific period.

B. The longer contemporary period is better than the shorter historical period.

C. The shorter historical period is better than the longer contemporary period.

D. Both the shorter historical period and the longer contemporary period are best for their time periods

6.

What can ethical reflection tell us about the proper length of a copyright period?

A. No particular length is justified.

B. The period should vary with the quality of the work.

C. Some length or other is justified and an indefinitely long period is too long.

D. Whatever legal definition of the period’s length is appropriate.

7.

Which of the following is not covered by the doctrine of fair use?

A. Scholarly criticism and scholarship B. Research C. News reporting D. Using copies instead of assigning a text

8.

Which of the following is not covered by the doctrine of fair use?

A. Copying chapters of books B. Copying computer programs C. Copying television programs for later viewing D. Copying newspaper articles for class

9.

What of the following is an example of reverse engineering?

A. Searching patents and developing a product that navigates between the already outstanding patents.

B. Taking a particular product and, through analysis, deriving the formula for that product.

C. Preparing a product from scratch that looks and feels like another popular product.

D. Copying and distributing copyrighted material.

10. Which of the following is a problem with considering pharmaceuticals to be analogous to machines and software, with respect to patents?

A. Pharmaceuticals tend to require much greater costs to develop than machines and software.

B. Pharmaceuticals are easy to produce, once the drug is developed.

C. Pharmaceuticals can be expensive to produce.

D. Pharmaceuticals are fairly easy to reproduce.

ANSWERS: 1. D; 2. B; 3. A; 4. C; 5. A; 6. C; 7. D; 8. B; 9. B; 10. A

CHAPTER 20: INFORMATION, COMPUTERS, THE INTERNET, AND BUSINESS OBJECTIVES 1.

2.

3.

4.

5.

Identify some moral issues that are related to computer hardware.

Identify some of the social impacts of the use of computers, particularly in the workplace.

Distinguish between information privacy and electronic privacy.

Identify the four new sorts of problems that arise from the extensive use of computers in business.

Identify the issues surrounding identity theft and phishing.

CHAPTER SUMMARY BUSINESS AND COMPUTERS Some moral issues deal with computer hardware—for example, with the morality of its production, sale, and abuse.

The social impact and use of computers raise other moral issues. Issues related to the displacement of workers by computers are partially questions of business ethics, partially questions of social practice or public policy.

There are, however, some areas in which the introduction of the computer into business either raises familiar problems in a somewhat different way or raises new problems. We shall consider four such areas: (1) computer crime; (2) computers and corporate responsibility; (3) computers and privacy; and (4) the changing nature of work.

COMPUTER CRIME Stealing via computer is immoral, just as is stealing by any other means. But stealing by computer has raised a number of problems for businesses. The computer theft plaguing business is of three types. One is the actual stealing of funds or assets. A second is the stealing of information. A third is the stealing of computer time.

Viruses, Worms, and Spam Computer viruses have increased in number and so has the number of antivirus programs readily available. The war between those who develop and launch malware of many types and those who develop antimalware software is a never-ending one. There is general consensus, however, that launching such malware is ethically wrong, even when not illegal.

A consensus has been slower in building on the use of spam, however. Much of the spam sent is of a sexual nature, often of pornographic sites, and opening such items can cause discomfort, embarrassment, or create what would, if done intentionally, a hostile sexual environment. Add to this the difficulty of distinguishing spam from some of the messages that contain viruses, and the dubious commercial transactions that are sometimes presented in spam, and the problem is exacerbated. There may be some justification for some forms, and there may be a small number of receivers who value receiving at least some of the ads they receive. But they seem to be a small minority compared with the large majority for whom spam is at best an annoyance and at worst a costly intrusion upon them and their time.

Computer Theft of Funds The stealing of funds or assets by computer has resulted in the loss to business of what is conservatively estimated to be $3 billion annually.

On the personal level, two types of theft are personal identify theft and phishing. The first consists of gathering through various means an individual’s social security number and perhaps a credit card number and then using them to open a credit card account in the name of that individual.

Phishing is the technique of getting information such as social security numbers, bank account numbers, and credit card numbers and other such personal financial information through an email directing the receiver to a Web site that purports to be the legitimate site of a bank, a credit card company, or a government office.

Both identity theft and phishing are forms of fraud, and clearly both are legally and ethically wrong.

Theft of Information and Unauthorized Computer Entry Corporate espionage is made easier by computer theft than before the widespread introduction of computers; it is more likely to occur and is on the rise. Such theft once again raises no special problems. It is clearly immoral.

Theft of Computer Time and PC Hijacking What of stealing computer time? This can be done either internally or externally. Surreptitious entry into a system does not mean that automatically one has access to private files. One might simply break into a system in order to use the computer for one’s own purposes. The fact that the entry is surreptitious is enough to make the act morally suspect.

There is no consensus on the use of computer time by employees when a computer is idle. IBM does not allow any personal use of its computers. General Electric allows employees to use the computer for personal purposes during their own time, when the computer is not in use; COMPUTERS AND CORPORATE RESPONSIBILITY Corporations act only through human individuals who act for it, the individuals are morally responsible for what the corporation does. They must assume the responsibility for actions attributable to the corporation, if it is assumed at all. The same is true with respect to computers. Computers, no matter how sophisticated, are simply machines. They are incapable of assuming responsibility, and responsibility cannot be correctly ascribed to them. Anything they do can be traced back to human beings, who are ultimately responsible.

Just as human beings are morally responsible for the harm done to other human beings by computers or through their use, so human beings are responsible for any use to which computers are put. Computers, like other areas of modern technology, are not good or bad in themselves. They can be used to benefit or to harm human beings and whether they are used to benefit or harm is up to human beings.

As we search for legal means of protection, and applicable moral norms, we, as a society, must look at the implications of computers for our ordinary definitions of property and privacy—both of which are being stretched beyond their ordinary meaning.

COMPUTERS AND PRIVACY “Privacy” is a relative term. Notions of privacy vary greatly from society to society. Moreover, the term is used to cover a great variety of actions and cases. Two kinds of privacy have special relevance with respect to computers, however, which we can call information privacy and electronic privacy.

Information Privacy Information privacy refers to a claimed right on the part of individuals to keep information about themselves private. The capacity to assemble such information raises questions about whether our privacy is in fact invaded by the collection of such information, whether our rights are in any way violated, and whether we are threatened with potential damage. There are moral issues in the collection and use of information that require some reflection and that may yield moral problems for which we have no ready answers. Let us extend the distinction between data and

facts or information in several ways. If we cannot own facts, then we cannot own facts about ourselves, any more than we can own other kinds of facts We should be careful of our distinction. Facts are statements about the way the world is, and hence, by definition, true; data—as we have been using the term—are neither true nor false. When interpreted, data may yield falsehoods.

The definitions we gave of fact and data, moreover, are compatible with several restrictions on use of data and on the method of learning facts.

Ownership is not the only way of preventing use or dissemination of facts. Nor does the statement that no one owns facts mean that everyone has a right to know all facts. Society can—and many societies do—for good reason, recognize certain areas of privileged communications, of secrecy, and of privacy. Patient–doctor confidentiality, priest–penitent confidentiality, and lawyer–client confidentiality are all instances of privileged communication.

Society recognizes that statements that patients, penitents, or clients make are appropriately kept confidential.

What of one’s right to privacy?3 There are grounds for keeping confidential facts about people. Our society recognizes areas of privacy for the individual, into which others have no right to penetrate, unless serious harm is threatened to others.

In the United States commercial interests legally trump those of individuals. Anything revealed—with certain exceptions—through commercial transactions belongs to the business. Individual laws protect certain kinds of information—such as medical records to some extent, and the record of the videotapes one rents. But for the most part the rule is that the default is “opt in,” and if one wants to “opt out” of having one’s information sold, traded, or otherwise used for purposes other than those for which it was revealed, one must take specific steps to make one’s wishes known.

Data mining is a technique of using special software to sift through large databases in order to derive information that is implicit but not explicit in the data. It can be used by businesses to determine demographic information about their customer base, or to aggregate information on customers from a number of different databases. In data mining, information that is provided for one purpose is screened to see if by inference or statistical correlation or some other method, new useful information can be derived about customers, potential customers, or their habit that may be of use for advertising or marketing.

Electronic Privacy Electronic privacy refers primarily to the use by employees of email and the Internet.

The status of email, however, is legally comparable neither to regular mail nor to telephone use. U.S. courts have declared that computers belong to the company that purchases and owns them, and that everything on the computer is hence company property, including email sent or received by employees.

The computer, in all these and other ways, raises new problems for business and places new responsibilities on corporate managers. The major difficulty is that change in this area is taking place so fast that inadequate thought has been given to the moral implications involved in the changes.

The Internet and Privacy Surfing the Internet is deceptive in a variety of ways because it renders many of our basic assumptions and intuitions inapplicable and society has not yet had time fully to adjust or develop appropriate new intuitions. When we walk down a street in a large city, we expect a certain amount of privacy, brought about by our being anonymous. We do not expect to be followed or to have all our actions observed, and if someone were noting all our actions, we would be uncomfortable, uneasy, and might well object. But once we go on the Internet, the situation changes. Although we may click on a site on the World Wide Web from the privacy of our room, we have entered a public zone in which, unlike walking on the street, we are not automatically anonymous and are being tracked from the start.

The legal status of pornography on the Web raises some interesting issues that have repercussions for other areas as well. Of particular interest is the battle between defenders of free speech on the Internet and those who would like to see access to pornographic sites controlled, especially with respect to access by children and to indiscriminate sending of spam advertising pornographic sites. In the off-line world, pornography in the United States and in many countries of the world is legal, and defended as a form of free speech. Adults who wish to access or purchase such material are allowed to do so, despite the claim of many that it is immoral to distribute or access such material.

The commercialization of the Web began only in 1994. Its introduction was very swift, and it became the standard way of accessing information so quickly that the ordinary user accepted it as it developed without question. Whether attitudes will change still remains to be seen. But in Latin America, Africa, and parts of Asia, the European rather than the American approach is gaining currency.

THE CHANGING NATURE OF WORK Flextime and Teleworking The assembly line model of work has been replaced by a more flexible one. Certain tasks may still have to be done sequentially. But if a certain report or piece of a project is due by 9:00 on Tuesday morning, it does not matter whether the person responsible works on it during a 9:00 to 5:00 period or during the early morning hours. Nor need they be physically present to deliver their report or work, since it can be easily sent via email almost instantaneously.

The point is that flextime has become a reality for many workers as a result of computers and information technology. The same is true with respect to telework.

Outsourcing and Expert Systems The fact that work no longer has to be done in a certain location has led to the increased outsourcing by large and medium-size firms. Expert systems present another challenge. Properly managed, they can increase productivity.

Used poorly, they can replace people and depersonalize services to the detriment of social contacts. Expert systems consist of programs designed to carry out some function by initially imitating and then replicating what the expert in a given field would do.

Once again, the challenge is to use expert systems to help people, not to render them obsolete. As businesses move to take advantage of the possibilities offered by computerizations, this should remain a prominent consideration.

The Digital Divides The most obvious is the divide between those better off societies and poorer societies which cannot afford computers, as well as between the better off in any society that can afford computers and those in the same society who cannot. But that is not the only divide. There are others, such as the divide between older people—who are uncomfortable with computers and either do not know how to use them or use them only to perform a few tasks such as substituting a computer for a typewriter and accessing the Internet— and younger people who grew up using computers as young children, learned to play games on them, and then developed their expertise as they grew up.

Breaking down these divides is not only a social challenge, but also one in which business can play a crucial role.

Ideally computers should be made easy and intuitive to use, so that it is accessible as a tool to all without a great amount of training.

The Information Age is still in its infancy. It poses many challenges to business and provides endless opportunities.

In pursing the challenges, corporations and societies should keep before them the aim of improving the condition of all, rather than using information technology to dominate others, to divide people within countries and one country from others, or in other ways to produce more harm than good overall.

CASE SUMMARIES

The Electronic Privacy at ABC Control Case Barbara Hanley and Jim Sampson, who worked for ABC Control (a fictitious company), were told that they had been terminated from the firm—Barbara for sending personal email from her company computer and Jim for spending too much time surfing the Web at recreational sites and downloading pornography. Both would be stunned. They had received no warning. They did not know they were in violation of company policy—since none had been promulgated. They did not know they were being monitored. And their productivity and work output had not diminished since they were favorably rated at their last annual evaluation. What sort of company policy might be useful here?

TEACHING STRATEGIES Privacy, as we’ve already seen, is a tricky matter to define, but is a right that people hold quite dearly. The advent of computer technology has, as with the previous chapter, contributed to a technology growth curve that makes understanding what privacy amounts to in a cyber-world that much more difficult. Students are often amazed to discover what information about them and their computer use is preserved by a computer and shared, through a variety of means, with others, particularly business. Search engines now target ads to individuals based on their browsing history, for example. While this can be particularly disquieting, it is also a very useful starting point for the discussion. The question of personal use of business computers is a tricky one that is often not neatly settled.

However, the debate is a useful one.

KEY TERMS AND CONCEPTS Data Facts Knowledge Hacking Cookies Privacy Data Mining Spam ESSAY QUESTIONS 1.

2.

3.

4.

5.

How might one argue that the practice of hacking is ethically justifiable?

To what extent does a person own the facts about himself or herself? What challenges are there to the claim of ownership of facts about oneself?

Is there a morally relevant difference between robbing a bank at gunpoint and robbing it by computer? Analyze each to show the similarities and differences.

Are “cookies” an invasion of privacy? Why or why not?

What sorts of ethical problems does pornography on the Internet pose?

MULTIPLE CHOICE 1.

Which of the following is not an instance of privileged communication?

A. patient-doctor confidentiality B. teacher-student confidentiality C. priest-penitent confidentiality D. lawyer-client confidentiality

2.

Which of the following is an example of screening information that is provided for one purpose to see if new useful information can be derived about customers?

A. Data mining B. Hacking C. Cracking

D. Monitoring 3.

To which of the following is email legally comparable?

A. regular mail B. telephone use C. certified mail D. none of these

4.

Accessing pornographic sites while at work can constitute sexual harassment for which of the following reasons?

A. It can be offensive to coworkers.

B. It can take too much time away from work activities.

C. It can produce a sexually hostile environment.

D. It can suggest a quid pro quo to coworkers.

5.

Which of the following is true about the right to privacy with relation to the Internet?

A. The right to privacy is ethically covered, but not legally.

B. The right to privacy is legally covered, but not ethically.

C. The right to privacy is neither ethically nor legally covered.

D. The right to privacy is both legally and ethically covered.

6.

The introduction of the computer into business raises new problems. Of which of those new problems is the use of viruses, worms, and spam?

A. Computer crime B. Computers and corporate responsibility C. Computers and privacy D. The changing nature of work

7.

The issue of the availability of personal information is a problem of which of the following?

A. Computer crime B. Computers and corporate responsibility C. Computers and privacy D. The changing nature of work

8.

The Y2K problem is an example of which sort of problem that arises from the extensive introduction of computers into business?

A. Computer crime B. Computers and corporate responsibility C. Computers and privacy D. The changing nature of work

9.

Which of the following can be true or false and tends to obscure the issue and location of truth?

A. facts B. information C. data D. mistakes

10. What makes spam particularly more problematic for receivers than bulk mailed advertisements?

A. It is a nuisance to have an inbox clogged by considerable numbers of spam email.

B. The cost of bulk mailing is borne by the advertiser.

C. Junk mail and spam are roughly equivalent.

D. Bulk junk mail is a relatively small phenomenon.

ANSWERS: 1. B; 2. A; 3. D; 4. C; 5. C; 6. A; 7. C; 8. B; 9. B; 10. A

CHAPTER 21: GLOBAL ISSUES AND INTERNATIONAL OBLIGATIONS OBJECTIVES 1.

2.

3.

4.

5.

Identify and distinguish between claims about international obligations and morally justifiable international obligations.

Distinguish between primary and secondary ethical principles.

Divide problems into small pieces and apply secondary ethical principles to help clarify them.

Identify the ethical issues associated with the asymmetrical allocation of world resources.

Distinguish between natural, developed, manufactured, and non-manufactured resources and goods.

CHAPTER SUMMARY GLOBAL ISSUES If we look at the world as a unit, can we morally evaluate its overall system? We have already noted the absence of adequate and effective international background institutions, and we have argued that there is a moral obligation to help create such institutions.

The people of “have-not” nations are saying—more clearly and more often—that it is not fair. They are calling more and more strongly for an international plan of redistribution.

The moral intuitions of most people falter when they are faced with questions of this scope. It is easier to ignore them than to face them. But both as a nation and as individuals, we would be immoral if we chose to ignore our moral obligations simply because they were difficult and new and concerned people who were far away in space or time.

FAMINE, MALNUTRITION, AND MORAL OBLIGATION The most fruitful approach to complex moral problems is to divide them into smaller, more manageable parts. As we develop clarity in each of the parts, we develop greater clarity with respect to the problem as a whole. In dealing with the general problems of famine and malnutrition, therefore, we should see if we can reduce them to manageable pieces. We should also see if we can find some appropriate second-order moral principles that are applicable.

Suppose that as a nation all Americans are adequately fed and that they have surplus food or resources to produce it.

There are starving people in other countries. Do Americans have a moral obligation to feed them? We saw that all persons have an obligation to help someone in serious need if they can do so at little cost to themselves. Is the principle applicable here?

There is a difference between a country suffering from a temporary famine because of an unusual and devastating drought and a country whose people suffer from chronic malnutrition. Are the obligations of those able to help the same in both cases?

Nation-states are not moral beings. The international arena is not one of total anarchy because there is cooperation and there are some agreed-upon rules of interaction. And although all peoples of the earth form a moral human community, the nations of the world form an ambiguous moral community. Although each of us has the obligation to help people in dire need, governments come and go and national boundaries change.

A U.S.-based multinational corporation has increased obligations because of its international activity. It is more closely tied to foreign peoples and nations than are businesses that operate only in the United States. Multinationals are citizens of more than one country and hence have obligations to the people of all the countries in which they operate. The obligation to pay their fair share of taxes in each country is clear. The obligation not to harm is also clear. Agricultural multinationals have the obligation not to contribute to starvation and malnutrition by buying up farmland for export crops with no concern for the effect of this action on the local population. The general principles

of morality will require different specific actions by particular corporations in particular countries. But the obligations of these corporations directly involved in a foreign country are greater to that country than are the obligations of corporations not so involved.

COSMOPOLITANISM AND POVERTY Our discussion of famine is only one of a number of issues that raise the question of global justice. Others involve the inequitable distribution of natural resources (which we shall deal with in the next section), and the lack of adequate medical care, educational opportunities, and other advantages that stem arguably from lack of development, corrupt or inefficient governments, and more generally from the poverty of many peoples and countries.

An approach that has attracted many people working with issues of ethics and global challenges is known as cosmopolitanism. Cosmopolitans, therefore, both claim a moral justification for putting the equality of people above obligations tied to nations and claim that their approach to moral issues coheres better with the actual geopolitical as well as economic reality of the world. While many of the claims made by cosmopolitans are valid and make sense, their approach must still contend with the realities of existing nations and sovereignty.

The question of poverty is better approached not as an abstract one of a consideration of income levels, but one in which welfare is improved by increasing health care, medical care, education, and so on, as well as by helping provide the means whereby those in need can develop their resources and talents and lead productive lives.

Among the impediments, as we have noted before, are corrupt governments who are more interested in their own wealth and comfort than in that of their people. A cosmopolitan approach has nothing more to offer in the way of a solution to this problem than does any other ethical approach. Cosmopolitanism, however, can prompt new thinking about the existing social order and how to cooperatively approach global issues on a global level, in which the rights of all people and all individuals get fair consideration. Their call for new global institutions is appropriate.

PROPERTY AND ALLOCATION OF THE WORLD’S RESOURCES In speaking of the resources of the world and asking to whom they belong, we imply that the resources are property.

But there is a good deal of ambiguity in the term resources. We can categorize resources in several ways. In one category we can place natural resources—air, water, minerals, land, and trees. In a second category we can include natural but developed resources—cultivated fruits and vegetables, domesticated animals and their products (milk, meat, wool, eggs, and so on). In a third category we can place manufactured goods, and in a fourth, social, nonmanufactured goods—knowledge, technology, organization, talents, skills, and perhaps even language.

The Status Quo View of Resources The commonsense view of natural resources is that we must start from where we are. The world is divided into countries, each of which makes territorial claims. Most of these are not challenged by others, even though a few areas and borders are in dispute. Each of the countries has within it a government and an economic order. Ownership means different things in different societies, and claims and rights are treated differently in different countries. The reality of sovereignty is of significance, not only for how much any one country can do for another, but also for any discussion of the rights of countries with respect to the allocation of resources. The status quo view resists any claims by resource-poor countries on the resources of other countries The Universal-Ownership View The status quo view is attacked, however, by those who claim that the present division of the world’s resources is unjust.

From a moral point of view, the natural distribution can be taken as the starting point; but it must be corrected so that the resources serve the good of all people, not only the good of the lucky and rich.

In one sense, something can belong to everyone if each person has a right to its use, and no one has a right to exclude anyone else from its use.

A second sense in which all land, resources, and productive property may belong to everyone is this: Each has the equal right to appropriate and use (and in the process, consume) the item in question.

Clearly, if we were to have a society of any complexity, there would have to be rules and regulations about allocation, production, work, and the distribution of goods. How allocation, production, and distribution would be carried out in a society in which all property is socially owned is far from clear; thus far, socially owned property has been more or less equal to government-owned property.

Defenders of the universal-ownership view have no clear plan for worldwide redistribution, but they defend the need for this redistribution nonetheless.

The Right to Universal Access Although the natural distribution of resources is arbitrary from a moral point of view, what is done with the resources is not arbitrary. According to the proponents of the right to universal access, the riches of the earth should be used for the benefit of all. Basically, the moral concern of most people is related to the standard of living of those within a country, or in the world.

What is being claimed when claiming the right of a nation to develop? There are three different, though related, components or three different subclaims. First, by the right to develop is meant the freedom to develop—that is, the right to be allowed to develop and not be prevented from developing by other nations.

Second, the claim to development may be a claim of one nation to receive from those nations that have them the wealth and resources that the first country needs in order to develop as it wishes.

The third component of the claim to development is the right to the knowledge—technological, scientific, social, and organizational—necessary for development. No one owns knowledge. It is no one’s exclusive possession, with certain small exceptions—for instance, when, for a short period of time some proprietary or other right might protect the use and dissemination of certain types of information.

Multinational corporations can provide an important means of transferring technical knowledge and training to workers of less developed countries. The obligation on the part of firms to help educate local populations, train workers, and transfer technological and organizational knowledge is one that we have seen can be made contractual, assuming that a government is interested in the development of the country and of the people, and not just in its own power, wealth, and survival.

Whether or not a fully defended moral claim can be made out for transferring some wealth to underdeveloped countries to provide capital for local development, it is prudent to extend aid. For extremes of wealth and poverty cause social disruption, and social disruption tends to hurt the well-to-do as well as the impoverished, who have less to lose.

We do not yet have a world society or even the necessary background institutions for the common sharing of goods and benefits and for implementing global distributive justice. We have, however, an obligation to attempt to establish such structures. Multinational corporations have an opportunity to play a significant role in helping the developed nations meet these obligations.

GLOBAL COMMON GOODS The question of who owns the resources of the world elicits one set of answers. The question of who owns the seas or the ozone cover, so necessary for life as we know it on earth, elicits another set of answers, the most common of which is no one. The use of the seas has been decided at least in part by various international agreements. The situation with respect to the global ozone cover poses a different set of problems. Clearly, the ozone cover belongs to no business, nation, or set of nations, and clearly, it is essential to all nations. But unlike resources that can be used up, the problem with respect to the ozone cover is not that of using it up but of preserving it.

The problem of ozone depletion demonstrates that global problems require global solutions. Those countries that are best placed to take action have the moral obligation to do so, even if others do not. But the same obligation to act when others do not cannot be placed on individual firms within a country. In that instance, firms have an obligation to develop the needed alternatives, to produce them to the extent competition makes feasible, to promote their use, and to foster rather than impede legislation that promotes the use of the alternative technology while keeping the competitive playing field level and fair for all.

OIL AND THE DEPLETION OF NATURAL RESOURCES Only in recent times have people come to realize that at our present rate of consumption and growth we can conceivably use up certain nonrenewable resources within the foreseeable future.

The Morally Justifiable Use of Oil The United States in 2004 had approximately 5 percent of the world’s population but collectively used approximately 25 percent of the world’s refined oil. If we start from the moral legitimacy of certain people owning and controlling the production of oil, then those who have a right to it are those who are able to purchase it. We adopt this general approach with nonessential as well as with essential resources. Because the people of the industrialized countries are dependent for their well-being on a continuing supply of oil, it would cause serious harm, and so be morally improper, for all oil producers to suddenly stop producing and selling oil. The price for oil is determined by the market, just as the price for other goods is determined. But when oil becomes very expensive, those who depend on it and cannot afford it must be taken care of by others.

The Needs of Developing Countries The foregoing solution is plausible if oil is inexhaustible. We did not consider the fact, however, that the world’s oil supply is not inexhaustible. Does this throw some special light on the fact that 5 percent of the people of the world use 25 percent of the oil?

Suppose we adopt the principle that each person has an equal right of access to the oil that he or she needs. Suppose, too, that Americans, for a variety of historical reasons, have built their houses in the suburbs, have not developed their public transportation systems, and hence need far more gasoline than do their German or Japanese counterparts. They also need much more gasoline than do countries with very few roads and automobiles, or small countries in which the need to travel great distances is much less than in the United States. People who live in cold climates need fuel oil to heat their homes and also need more oil than people who live in warm climates. There are a great many variables. If we consider need, therefore, the simple quotation of statistics is not necessarily morally significant.

The Needs of Future Generations We do not know the needs of all generations in the future, but there are some things we do know, assuming there will be future generations. They will have certain needs, some of which will be similar to our own. We also know that generations overlap. One obligation that every generation has to the next generation is to pass on to it the common goods that it has received. The goods of knowledge, virtue, and culture do not belong to individuals; they are not used up, and they should be passed along, at a higher level, if possible, than that at which they were received.

The passage normally takes place by one generation teaching the next. In this way each generation maximizes good, and each fulfills an obligation to the next generation.

What of goods that can be used up? There is no obligation to pass on these goods at the same level at which they were received. Such an obligation could not be discharged. Because each generation uses part of the nonrenewable resources available, it necessarily leaves less to later generations. Yet this does not mean that generations have no obligations to take into consideration the needs of those who come after them. No generation has the right to endanger future people any more than it has the right to endanger present people.

Optimally, each generation should make it possible for all succeeding generations to live at a decent level of life, well above that of subsistence. But practically, we can only foresee a certain distance into the future and can only provide for a few generations beyond us, if that far.

People are sometimes spoken of as stewards of the earth. If we are stewards, we should use the resources of the earth wisely. But such stewardship cannot justify any group’s preventing any other group from legitimate access to fulfill its needs. Nor does it demand that we not use what we need, so that we may pass it on to those who come after us.

Sustainable Development The term “sustainable development” is used in a number of different ways. Probably the more common definition used is that of the United Nations Brundtland Commission: development that “meets the needs of the present without compromising the ability of future generations to meet their own needs.”

The ideal is for the developed countries to continue to develop and for the developing countries to approach or reach the same level as the developed countries in such a way as to make continued development possible indefinitely far into the future. With respect to the environment, this means controlling pollution and noxious emissions so as not to damage the ozone level further and allow it to repair itself, and to control carbon emissions so as to eliminate the contribution by human activity to global warming. With respect to natural resources, it requires conservation to the extent possible and the search for and development of acceptable substitutes for nonrenewal resources. The general idea is not to exceed the regenerative capacity of nature. The concern is not only with the environment, however.

The approach acknowledges the legitimate right of poor nations to develop themselves. Although the developed nations grew without much regard to their use of natural resources or their impact on the environment, such an approach is not sustainable at the present time. So sustainable development encourages the positive aspects of development while discouraging the negative aspects, and requires a new and concerted effort by all. The third dimension, the social, emphasizes the fact that cultural diversity is seen as a positive value in the world, just as biological diversity is seen as a positive value in an ecosystem. The aim is to help preserve such diversity without hindering development.

CASE SUMMARIES The Case of Merck and Costa Rica Who owns the various species found in nature? One drug company extracted the multimilliondollar cancer drug, vincristine, from Madagascar rosy periwinkle, paying just a few dollars for the plant. The company made millions, and Madagascar received nothing. What should it have received? Are its plants and their potential for supplying new drugs a resource similar to oil or gold from which they should receive royalties or some other kind of return?

Merck & Company, Inc., the American pharmaceutical giant, has set an example of how multinationals might act with respect to tropical rain forests. Costa Rica has set aside a quarter of its tropical forests as nature preserves, but it can afford to do so only if those areas are in some way productive. In 1991 Merck agreed to give Costa Rica’s National Biodiversity Institute (INBio), a nonprofit organization established to inventory the country’s flora and fauna, a 5 percent share of royalties on any drug it develops from species obtained from Costa Rica’s forests.

From an ethical point of view, we may ask, who owns species existing in a forest? Who should benefit from their commercialization? What are they worth? Do pharmaceutical companies have any ethical obligation to share profits with the country in which they find a useful plant that leads them to develop a profitable drug? Was the agreement between Merck and INBio ethically justifiable?

TEACHING STRATEGIES While much of the chapter is devoted to the use of renewable resources that may be used for pharmaceuticals and sustainable development, the issue of oil and its “ownership” and use is likely to be the centerpiece of a discussion. As easily retrievable oil becomes more and more scarce, drilling in places that can jeopardize huge tracts of land and water becomes more common. Similarly, corrupt national governments tend to hoard oil profits without the nation itself experiencing the benefits of the paper wealth of the country. All of these circumstances can lead to significant conflict. The questions of ownership are central here; as is the question of the

responsibility of present generations to provide and preserve for future ones. What sorts of moral obligations to nations that would be considered “haves” have to those that are “have-nots”? Is that obligation limited to only not despoiling have-not nations of national resources, or is there a positive responsibility as well? These are questions that can be brought into clear and stark relief with a couple of well chosen examples that can then be used to apply the principles argued for in the text.

KEY TERMS AND CONCEPTS biodiversity Sustainable development Resources Universal ownership Famine Malnutrition Sovereignty Universal access ESSAY QUESTIONS 1.

2.

3.

4.

5.

It is clear that a weak second-order moral rule can but applied in the case of hunger, famine, and poverty, but can a strong second-order moral rule be developed? Why or why not?

Is there a moral difference between famine and malnutrition, depending on the fault of the people suffering the plight? Explain.

What is the ethical obligation of individuals, businesses, and nations with respect to global common goods?

What is the ethical justification for “sustainable development”?

To what extent does a generation have any responsibility with respect to resources for the generations that come after it?

MULTIPLE CHOICE 1.

An analogy between the analysis of the moral justifiability of the American system and of the international situation falters because of which of the following?

A. There is no developed international system.

B. There is no developed American system.

C. Other nations view America as distinct from the rest of the world.

D. America’s legacy of isolationism has isolated it from the rest of the world.

2.

A country suffering from an unusual and devastating drought would be said to be suffering from which of the following?

A. chronic malnutrition B. poverty C. famine D. inadequate health and safety

3.

Which of the following is generally described in terms of income?

A. Malnutrition B. Health and Safety C. Famine D. Poverty

4.

Which of the following categories would air, water, minerals, land, and trees fall under?

A. Developed resources B. Natural resources C. Manufactured goods D. Non-manufactured goods

5.

Which of the following categories would cultivated fruits and vegetables, and domesticated animals fall under?

A. B. C. D.

Developed resources Natural resources Manufactured goods Non-manufactured goods

6.

Which of the following categories would knowledge, technology, organization, talents, and skills fall under?

A. Developed resources B. Natural resources C. Manufactured goods D. Non-manufactured goods

7.

The notion that the resources of the world have already been divided up, and that corporations, governments, and individuals own them is consistent with which of the following views?

A. The Status Quo view B. The Universal-Ownership view C. The Right to Universal Access view D. The Imperialistic view

8.

The view that suggests that while the resources of the world have been already divided up, those resources by right belong to all people, however they were originally divided up.

A. The Status Quo view B. The Universal-Ownership view C. The Right to Universal Access view D. The Imperialistic view

9.

The view that while the resources of the world have been divided, the division is not necessarily morally justifiable, and that all have a universal right to the resources of the earth.

A. The Status Quo view B. The Universal-Ownership view C. The Right to Universal Access view D. The Imperialistic view

10. In 2004, the United States had approximately 5 percent of the world’s population, but used approximately how much of the world’s refined oil?

A. 10% B. 25% C. 40% D. 50%

ANSWERS: 1. A; 2. C; 3. D; 4. B; 5. A; 6. D; 7. A; 8. B; 9. C; 10. B

CHAPTER 22: THE NEW MORAL IMPERATIVE FOR BUSINESS OBJECTIVES 1.

2.

3.

4.

5.

Identify the ways in which business has sometimes been complicit in providing support for the Myth of Amoral Business.

Identify both the initial and the changing mandates of American business.

Identify the changes in the technological and business environments that have helped to shape the changing mandate of American business.

Distinguish between the four aspects of the quality of work life that have altered the perceived “business as business” model.

Identify the implications for business and morality within corporate structures emanating from the Federal Sentencing Guidelines.

CHAPTER SUMMARY THE CHANGING BUSINESS MANDATE Business met the original mandate of the American people to grow, produce a rich variety of goods at as low a price as possible, provide employment, and help society achieve the good life.

The original American mandate to business has changed, as times and conditions have changed. The change in the mandate has been gradual, and it has not been sufficiently articulated. Many businesses still do not realize there is a new mandate and struggle to maintain their old ways of doing things. They see increasing legislative controls on business not as part of a changing mandate but as a personal affront and attack by antibusiness factions and minorities.

The American people have not operated according to a plan in changing the mandate of business. It has been changed through legislation, through collective bargaining, and through the rise of a powerful new force— consumerism.

The result is a new mix on the economic scene. Decisions are not as easy to make as they once were. Instead of aiming only at profits or at increasing production, managers must now weigh many factors and interests. They must respect the rights of employees, consumers, and society in general.

The new moral mandate to business can be found not only in such movements as consumerism, environmentalism, and conservationism, but also in public outcries over bribery, windfall profits, and excessively high executive compensation, as well as in legislation such as the Sarbanes-Oxley Act. The negative response of business to each such piece of legislation shows that it is less sensitive to popular demands than many people think it should be. As a result, the general public has labeled business self-seeking, narrowly selfinterested, and socially blind. The fact that business has prospered despite such legislation demonstrates that it is more resilient and more able to face social demands than many of its leaders believe or would have us believe.

What is clear in the new mandate is that business must now consider the worker, consumer, and the general public as well as the shareholder—and the views and demands of all four—in making decisions. The good of all must be considered.

We must have moral persons if we are to have moral businesses. The virtue theorists are correct about that. But that is only half the truth. We must also have structures that reinforce rather than hinder moral action.

Business ethics has as much to do with business as with ethics. The Myth of Amoral Business with which we began this book has not yet been put to rest in the business world. Many still believe business has no moral responsibility.

The myth stands in the way of suggested changes that would reinforce moral action. Showing it to be a myth is not

enough. Corporate organization must be changed so that it can respond to moral mandates and so that those in business can act morally by design rather than by accident. Before concluding, we will briefly consider four topics: the quality of work life, the role of government, corporate democracy and the new entrepreneur, and the role of business ethics in building a good society.

QUALITY OF WORK LIFE Quality of work life is a reflection of the affluence and level of technological development present in American society, which has become concerned with the general quality of life.

The following are four aspects of the quality of work life that will throw some light on what is meant by the phrase.

The components can be scaled, though not always quantitatively, for analytic purposes. The first concerns the conditions of labor; the second, the organization of the work performed; the third, the relations of workers among themselves, with those above them, and with the tools or machines with which they work; and the fourth, the attitude of the worker toward work.

Conditions of Labor Conditions of labor also refer to the atmosphere in which work is done. Recreational centers for workers and managers. Improving the conditions of labor requires that one start from the existing conditions. The better the existing physical condition, the more concentration on other conditions—aesthetic, psychological, and personal The Organization of Work Lessening the division of labor by the use of teams of workers and worker participation in general are not yet recognized rights, but workers are expressing these wishes more and more frequently.

Worker Relations The relation of workers to others, and to their tools, is an area difficult to quantify. We can speak of cordial and less cordial relations, competitive and cooperative, and supportive and destructive ones. We can also speak of arrangements that produce certain types of relations—hierarchical as opposed to collegial, arbitrary as opposed to rule governed. We can speak of treating people with respect or treating them like things, and this can be specified in greater detail.

Worker Attitude Worker attitude is often related to worker involvement—the more involvement, the better the attitude. The changing conditions and forms of work are forcing a rethinking of work and its place in workers’ lives. Discussions of quality of work life are a sign of the change and will play a role in the change.

THE ROLE OF GOVERNMENT The government is involved with business at many levels. It is itself an employer and a purchaser of goods. It controls interest rates, regulates the money supply, and performs a great many other functions. Our central concern with respect to the new moral mandate is in government’s relation to business through its regulatory agencies or through legislation. The question that may therefore be asked is this: What is the proper role of government? From a moral point of view, no government has the right to demand, through legislation, that which is immoral. A prime requisite for a moral government is that it act justly.

A tendency for legislation to move in the direction of greater free enterprise is in itself no more or less moral than the tendency for it to move in the direction of socialism. Both are morally justifiable, providing that neither violates the rights of any citizen or infringes on norms of justice. We have seen no argument that satisfactorily concludes that one direction rather than another is morally preferable.

Issues that deserve careful scrutiny are the complaints about inefficient government regulation, about regulators being partial to the industries they regulate, about people moving back and forth between the regulating agencies and the industries that are regulated, and about overregulation. To the extent that these complaints are well founded, government tends to harm some of its citizens or to treat some of them unjustly, and it thereby violates its primary obligation.

CORPORATE DEMOCRACY AND THE NEW ENTREPRENEUR The corporation is now being looked at in a fresh light; there is more public debate about its future and concern about its power than in previous decades. But we are still a very long way from corporate democracy—whatever meaning one gives to that term.

The claim that political democracy demands economic democracy is ambiguous. In one sense, the freedom of individuals to form productive or service units and to work together to carry out an enterprise is democracy in the marketplace. The argument is reasonable if the shareholder is considered comparable to the citizen. It is less clear if the claim is that each person should have the right to some say in the operation of large corporations because such corporations influence all of our lives.

One reaction to the death of corporate paternalism has been the rise of individual entrepreneurs. Once lifelong employment could no longer be taken for granted, and once corporate loyalty had eroded, workers—especially white-collar workers—came to see that they were responsible for their own futures.

Neither the business community nor the general public has adjusted to all the changes that constitute the new mandate to business. But the changes are real, and the adjustment is taking place.

BUILDING A GOOD SOCIETY A society without justice, at least without justice in its basic institutions, cannot be a good society. A good society must also have a sufficient amount of wealth, distributed in such a way that all its people have their basic needs satisfied and enough in addition for them to enjoy some of the goods of life. Beyond this, there is no single morally preferable mix of other goods in a good society.

There are three stages in the process of overcoming the Myth of Amoral Business. The first is to see it as a myth.

The second is to raise the moral consciousness of those engaged in any aspect of business—managers, workers, shareholders, consumers, or simply people affected by what happens generally in business. The third is to change the structures that have been built under the guise of being value neutral. The processes of business are all value laden. The need for moral heroes in business is an indication of immoral structures in business. Moral heroes will appear from time to time, and they are to be applauded, but we cannot and should not expect ordinary people to be moral heroes. They cannot be trained in school or made heroic by courses in business ethics.

Business can cling tenaciously to the Myth of Amoral Business and can refuse to respond to the new moral mandate.

If it does, it will convince the public that business is business, that it condones and fosters immorality and injustice, and that it puts profit above people. Some businesses and some businesspeople act in this way; but not all businesses do. Most are ethical. Some go beyond what ethics demands and strive toward and implement moral ideals. Such companies set an example for the rest and help raise the level of popular expectation with respect to business activity. Business will enjoy the moral respect of society only when it earns it. It can show that business ethics is not a contradiction in terms, not a myth, and not merely a body of theory. Ethics and morality can be a part of business.

When they are built into its structure, when business lives up to its new moral mandate, it will deserve the public respect it will once again enjoy.

CASE SUMMARIES The End of an Era: A Case Study What makes a company’s reputation? In Fortune’s survey over the years, the qualities have been long-term (tenyear) annual return to stockholders, the quality of a firm’s management, the quality of its products or services, the

quality of its workforce, and its perceived responsibility to the community and the environment. The leaders rank high on all counts.

The disappointment that so many felt about IBM is an indication of the high ideals it exemplified. It was seen as a leader and as an example of what good companies should be. Did it act unethically in the actions it took?

Was it unethical for IBM to lay off workers when it was losing money, even if it had had a history and a policy of not doing so? Was it unethical for it to cut its dividends, even though it had never done so in the past? Was IBM held to a higher standard than other companies, and if so, was that fair? Did the fall of IBM really mean the end of the “good corporation” or did it signal a new mandate and a new image of what constitutes a “good corporation”?

TEACHING STRATEGIES The final chapter is a difficult one. To some extent, the chapter sums up all that has gone before, but primarily, it is a return to the first chapter, a review of the argument that has been the overarching arc of the entire book, and a claim that the Myth of Amoral Business is, indeed, a myth. Perhaps the best way of approaching this chapter is on its own merits. Ask of students whether or not the conclusion of DeGeorge’s argument has really been sustained throughout; has it faltered along the way; are there things that have been left out or amendments that need to be offered. To be sure, DeGeorge includes some caveats to the claim that the Myth of Amoral Business is only a myth – some companies make it very hard to believe that there is anything that matters beyond the profit/loss statement. However, DeGeorge is not making the claim that all businesses behave ethically, or even that all of them try. He is merely claiming that, on balance, it is better for them to behave in this way and that many, many companies (perhaps even most) do, in fact, behave ethically. The discussion of the claim on the part of the students is now likely to be far more sophisticated than it was at the outset.

KEY TERMS AND CONCEPTS Quality of work life Worker relations Conditions of Labor Family and Medical Leave Act Consumerism Federal Sentencing Guidelines ESSAY QUESTIONS 1.

2.

3.

4.

5.

How might one argue that the Myth of Amoral Business is a false myth?

How is the changing mandate of American business shaped by the moral intuitions of consumers and workers?

Which of the obligations of government is stronger – the obligation to not harm citizens or the obligation to provide for the welfare of citizens? Explain What are the conditions under which one might call a company a “good corporation?”

How has business been complicit in providing support for the Myth of Amoral Business?

MULTIPLE CHOICE 1.

Which of the following is not been part of the changing mandate of American business?

A. The mandate of American business has been changed through legislation.

B. The mandate of American business has been changed through collective bargaining.

C. The mandate of American business has been changed by the American people have operating with a plan.

D. The mandate of American business has been changed by consumerism.

2.

Which of the following components has been the one long ignored in the understanding of the forces shaping American business?

A. Big Business B. The Market C. The Consumer D. Big Labor

3.

What has made the rise of the power of the American consumer possible?

A. The development of technology B. The rise in spending power of the consumer C. The development of a class consciousness D. The inspirational stories of Horatio Alger and others

4.

Which of the following explains why the general public has labeled business as self-seeking, narrowly selfinterested, and socially blind?

A. The proposal of legislation by business that would increase profits and reduce protections of workers.

B. The negative response of business to legislation that has expressed social demands.

C. The positive embrace of legislation by business that has expressed social concerns.

D. The lobbying of Congress to enact strict regulatory laws governing private property

5.

Which of the following aspects of the quality of work life has to do with the amount of pay received, the number of days of vacation and sick leave provided, and the level of seniority accruing to length of service?

A. Organization of the Work Performed B. Relations of the Workers among Themselves C. The Attitude of the Worker toward Work D. Conditions of Labor

6.

Which of the following aspects of the quality of work life has to do with the greater and greater repetition of tasks?

A. The Attitude of the Worker toward Work B. Relations of the Workers among Themselves C. Organization of the Work Performed D. Conditions of Labor

7.

Which of the following aspects of the quality of work life has to do with the virtues of cooperation and support and with hierarchical or collegial organization of workers?

A. Conditions of Labor B. The Attitude of the Worker toward Work C. Organization of the Work Performed D. Relations of the Workers among Themselves

8.

Which of the following aspects of the quality of work life has to do with the involvement workers have with their work, particularly with regard to worker autonomy, worker responsibility, and greater worker interaction with management?

A. Conditions of Labor B. The Attitude of the Worker toward Work C. Organization of the Work Performed D. Relations of the Workers among Themselves

9.

Which of the following has made it more possible for more people to work from home or wherever they happen to be?

A. Outsourcing of Labor B. Corporate Democracy C. Division of Labor D. Technology

10. According to the U.S. Small Business Administration, in 2002, small businesses represented approximately what percent of all employers?

A. Over 99% B. 75% C. 50% D. Less than 25%

ANSWERS: 1. C; 2. C; 3. A; 4. B; 5. D; 6. C; 7. D; 8 B; 9. D; 10. A