The Importance of Business Ethics
are AIG, Halliburton, General Motors, Chrysler, Washington Mutual, Citigroup, Merrill Lynch, ExxonMobil, and Ford Motor Company. There remain companies that are admired by respondents, including Johnson & Johnson, Google, Sony, Coca-Cola, Kraft Foods, Amazon.com, Microsoft, General Mills, 3M, and Toyota Motor. The economic lapses associated with the recession have damaged the “emotional appeal” of many companies, which is often the strongest driver of reputation.10
Insider trading remains a serious issue in business and in ethics. Eugene Plotkin, a former Goldman Sachs executive, was sentenced to almost five years in prison for a case of insider trading that yielded about $6.7 million. The Harvard graduate worked with a former Merrill Lynch analyst, a New Jersey postal worker, and two workers at a Business Week printing press. The former Merrill Lynch employee provided tips to Plotkin at Goldman on mergers and acquisitions. Another angle involved getting prepublication copies of Business Week and trading on that information. The third element involved working with a New Jersey postal worker who served on the Bristol-Myers Squibb grand jury investigation and shared inside information with Plotkin.11
Inflating earnings involves attempting to embellish or enhance a firm’s profitability in a manner that is inconsistent with past practice, common regulatory guidelines, or industry practice. Many companies maintain a focus on making short-term profits and know that analysts and investors critique the company according to its ability to “make the numbers.” PricewaterhouseCoopers (PWC) was forced to pay $97.5 million to settle a class action lawsuit for involvement with AIG in overstating their earnings. This settlement is a small part of a larger case against both AIG and its former CEO, Hank Greenberg. AIG’s improper accounting for reinsurance and other dealings led to a restatement of earnings in the amount of $3.9 billion. The lawsuit normally proceeds against the company and personnel first, with the related firms (such as PWC) paying a percentage of that settlement.12 Highly publicized cases such as this one strengthen the perception that ethical standards in business need to be raised.
Ethics play an important role in the public sector as well. In government, several politicians and some high-ranking officials have experienced significant negative publicity and some have had to resign in disgrace over ethical indiscretions. Alaskan Senator Ted Stevens was convicted of 7 felony counts of corruption weeks before the election of President Barack Obama. He was charged with hiding $250,000 in gifts he had allegedly received from oil companies. The U.S. Department of Justice filed a motion to have the case dismissed against Stevens due to mishandled evidence, and the case was officially dropped. However, the impact of the negative publicity on the senator was significant and most likely contributed to his losing his bid for reelection.13
Irv Lewis “Scooter” Libby, a White House advisor, was indicted on five counts of criminal charges: one count of obstruction of justice, two counts of perjury, and two counts of making false statements.14 Each count carries a $250,000 fine and maximum prison term of 30 years.
Several scientists have been accused of falsifying research data, which could invalidate later research based on their data and jeopardize trust in all scientific research. Bell Labs, for example, fired a scientist for falsifying experiments on superconductivity and molecular electronics and for misrepresenting data in scientific publications. Jan Hendrik Schon’s work on creating tiny, powerful microprocessors seemed poised to significantly advance microprocessor technology and potentially bring yet another Nobel Prize in physics to the award-winning laboratory, a subsidiary of Lucent Technologies.15 Hwang Woo-Suk was found to have faked some of his famous stem cell research in which he claimed to have created 30
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10 Part : An Overview of Business Ethics
cloned human embryos and made stem cell lines from skin cells of 11 people, as well as producing the world’s first cloned dog. He also apologized for using eggs from his own female researchers, which was in breach of guidelines, but still denies fabricating his research.16
Even sports can be subject to ethical lapses. Manny Ramirez was suspended for 50 games from the Los Angeles Dodgers for violating the league’s drug policy. Ramirez tested positive for a female fertility drug that has been taken by steroid users to increase testosterone levels. The ban on playing cost Ramirez $7.7 million of his $25 million annual salary. Ramirez
stated that he was under a doctor’s care for a “personal health issue” and indicated that he thought the medication was allowed. Baseball players are encouraged to check a hotline that identifies legal and illegal substances and encourages players to seek “therapeutic use exemptions” for legitimate use of banned substances.17
Whether made in business, politics, science, or sports, most decisions are judged as either right or wrong, ethical or unethical. Regardless of what an individual believes about a particular action, if society judges it to be unethical or wrong, whether correctly or not, that judgment directly affects the organization’s ability to achieve its business goals. For this reason alone, it is important to understand business ethics and recognize ethical issues.
The Reasons for Studying Business Ethics Studying business ethics is valuable for several reasons. Business ethics is not merely an extension of an individual’s own personal ethics. Many people believe that if a company hires good people with strong ethical values, then it will be a “good citizen” organization. But as we show throughout this text, an individual’s personal values and moral philosophies are only one factor in the ethical decision making process. True, moral rules can be applied to a variety of situations in life, and some people do not distinguish everyday ethical issues from business ones. Our concern, however, is with the application of principles and standards in the business context. Many important ethical issues do not arise very often in the business context, although they remain complex moral dilemmas in one’s own personal life. For example, although abortion and the possibility of human cloning are moral issues in many people’s lives, they are usually not an issue in most business organizations.
Professionals in any field, including business, must deal with individuals’ personal moral dilemmas because these issues affect everyone’s ability to function on the job. Normally, a business does not establish rules or policies on personal ethical issues such as sex or the use of alcohol outside the workplace; indeed, in some cases, such policies would be illegal. Only when a person’s preferences or values influence his or her performance on the job do an individual’s ethics play a major role in the evaluation of business decisions.
Just being a good person and, in your own view, having sound personal ethics may not be sufficient to enable you to handle the ethical issues that arise in a business organization. It is important to recognize the relationship between legal and ethical decisions. Although abstract virtues linked to the high moral ground of truthfulness, honesty, fairness, and openness are often assumed to be self-evident and accepted by all employees, business- strategy decisions involve complex and detailed discussions. For example, there is considerable debate over what constitutes antitrust, deceptive advertising, and violations of the Foreign Corrupt Practices Act. A high level of personal moral development may
Regardless of what an individual
believes about a particular
action, if society judges it to be unethical or
wrong, whether correctly or not, that judgment
directly aff ects the
organization’s ability to
achieve its business goals.
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Chapter 1: The Importance of Business Ethics 11
not prevent an individual from violating the law in a complicated organizational context where even experienced lawyers debate the exact meaning of the law. Some approaches to business ethics assume that ethics training is for people whose personal moral development is unacceptable, but that is not the case. Because organizations are culturally diverse and personal values must be respected, ensuring collective agreement on organizational ethics (that is, codes reasonably capable of preventing misconduct) is as vital as any other effort an organization’s management may undertake.
Many people who have limited business experience suddenly find themselves making decisions about product quality, advertising, pricing, sales techniques, hiring practices, and pollution control. The values they learned from family, religion, and school may not provide specific guidelines for these complex business decisions. In other words, a person’s experiences and decisions at home, in school, and in the community may be quite different from his or her experiences and decisions at work. Many business ethics decisions are close calls. In addition, managerial responsibility for the conduct of others requires knowledge of ethics and compliance processes and systems. Years of experience in a particular industry may be required to know what is acceptable. For example, Caraco Pharmaceutical Laboratories, a generic drug manufacturer, voluntarily recalled all tablets of its digoxin drug used by patients with heart failure and abnormal heart rhythms. The drug was recalled because of variation in sizing, which could impact the actual dosage received by a patient. The recall was designed to protect those who were using the drug and the company had to carefully assess the product and the potential harm it could cause in its more inconsistent form. Significant medical expertise and testing resulted in the recall.18
Studying business ethics will help you begin to identify ethical issues when they arise and recognize the approaches available for resolving them. You will also learn more about the ethical decision making process and about ways to promote ethical behavior within your organization. By studying business ethics, you may begin to understand how to cope with conflicts between your own personal values and those of the organization in which you work.
THE DEVELOPMENT OF BUSINESS ETHICS The study of business ethics in North America has evolved through five distinct stages—(1) before 1960, (2) the 1960s, (3) the 1970s, (4) the 1980s, and (5) the 1990s—and continues to evolve in the twenty-first century (see Table 1–2).
Before 1960: Ethics in Business Prior to 1960, the United States went through several agonizing phases of questioning the concept of capitalism. In the 1920s, the progressive movement attempted to provide citizens with a “living wage,” defined as income sufficient for education, recreation, health, and retirement. Businesses were asked to check unwarranted price increases and any other practices that would hurt a family’s “living wage.” In the 1930s came the New Deal, which specifically blamed business for the country’s economic woes. Business was asked to work more closely with the government to raise family income. By the 1950s, the New Deal had evolved into the Fair Deal by President Harry S. Truman; this program defined such matters as civil rights and environmental responsibility as ethical issues that businesses had to address.
Until 1960 ethical issues related to business were often discussed within the domain of theology or philosophy. Individual moral issues related to business were addressed in
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12 Part : An Overview of Business Ethics
churches, synagogues, and mosques. Religious leaders raised questions about fair wages, labor practices, and the morality of capitalism. For example, Catholic social ethics, which were expressed in a series of papal encyclicals, included concern for morality in business, workers’ rights, and living wages; for humanistic values rather than materialistic ones; and for improving the conditions of the poor. Some Catholic colleges and universities began to offer courses in social ethics. Protestants also developed ethics courses in their seminaries and schools of theology and addressed issues concerning morality and ethics in business. The Protestant work ethic encouraged individuals to be frugal, work hard, and attain success in the capitalistic system. Such religious traditions provided a foundation for the future field of business ethics. Each religion applied its moral concepts not only to business but also to government, politics, the family, personal life, and all other aspects of life.
The 1960s: The Rise of Social Issues in Business During the 1960s, American society turned to causes. An antibusiness attitude developed as many critics attacked the vested interests that controlled the economic and political sides of society—the so-called military-industrial complex. The 1960s saw the decay of inner cities and the growth of ecological problems such as pollution and the disposal of toxic and nuclear wastes. This period also witnessed the rise of consumerism—activities undertaken by independent individuals, groups, and organizations to protect their rights as consumers. In 1962 President John F. Kennedy delivered a “Special Message on Protecting the Consumer Interest” in which he outlined four basic consumer rights: the right to safety, the right to be informed, the right to choose, and the right to be heard. These came to be known as the Consumers’ Bill of Rights.
The modern consumer movement is generally considered to have begun in 1965 with the publication of Ralph Nader’s Unsafe at Any Speed, which criticized the auto industry