its prescriptive force is independent of its consequences. Kant believed that every rational
creature can act according to his or her categorical imperative because all such persons have
“autonomous, self-legislating wills” that permit them to formulate and act on their own systems
of rules.
II. Using Ethical Reasoning: Two Cases
The instructor might wish to revisit the Practicing Ethics entries at the beginning of this chapter at this
point and ask the students to identify whether their responses reflected utilitarian or formalist reasoning.
A. Are Layoffs Unethical? Case One—Toyota
Despite its highly publicized product defect problems and the global financial crisis, Toyota has tried to
continue its half-century-old policy of not laying off permanent employees. When Toyota halted
production in some of its U.S. plants in 2008, the 4,500 idled workers were kept on with full pay and
benefits at a cost estimated at more than $50 million. Toyota executive Norm Bafunno said the
retention decision was easy because the company used the economic slowdown as an opportunity to
retrain its team members. Despite its protective policies, Toyota has laid off thousands of temporary
workers and in 2010, its Fremont, California plant was shut down leaving 4,700 workers without jobs.
B. Are Layoffs Unethical? Case Two (Part I)—Aaron Feuerstein and Malden Mills
Fabric manufacturer Malden Mills of Lowell, Massachusetts, provided 3,100 high-paid manufacturing
jobs in the Boston area when a 1995 fire destroyed most of the plant. The next morning Aaron
Feuerstein, CEO of the family-controlled mill, announced that the business would be rebuilt and all
employees would retain their jobs.
Following the fire, makeshift production lines were developed in warehouses and about 85 percent of
the employees returned to work with the remaining 400 workers or so remaining idle but paid.
Professor Michael Useem, commenting on Feuerstein’s commitment to his workers, said that the idea
had appeal: “The thinking is: employees can be seen as an ultimate competitive advantage. If you
treat them well, they’ll pay you back in really hard work later on.”
C. Are Layoffs Unethical? Case Two (Part 2)—Aaron Feuerstein, Malden Mills, and Bankruptcy
In November 2001, Malden Mills was forced to enter Chapter 11 bankruptcy proceedings for the
purpose of reorganizing its finances under court protection. At the time, Malden Mills was bearing a
$140 million debt load. In late 2003, Malden Mills emerged from bankruptcy. Then in 2007, Malden
Mills was once again forced into bankruptcy and was purchased by Chrysalis Capital partners, a
private-equity firm that renamed the company Polartec LLC. Aaron Feuerstein’s association with the
company ended with the sale.
Part Three—Managerial Misconduct?
A. Corporate Ethical Climate
Public attitudes toward big business are not positive. In Gallup’s 2012 poll of confidence in major
institutions only 21 percent of Americans expressed a “great deal” or “quite a lot” of confidence in big
business and in banks. According to a large 2011 national survey, 45 percent of for-profit employees
witnessed misconduct at work but that number compares with 49 percent in 2009 and 55 percent in
2007.
I. Why Do Some Managers Cheat?
A. Moral Development
Psychologist Lawrence Kohlberg built and empirically tested a comprehensive theory of moral
development in which he claimed that moral judgment evolves and improves primarily as a function of
age and education.
Kohlberg, via interviews with children as they aged, was able to identify moral development as
movement through distinct stages, with the later stages being improvements on the earlier ones.
Kohlberg identified six universal stages grouped into three levels:
Preconventional level:
oStage 1: Obey rules to avoid punishment.
oStage 2: Follow rules only if it is in own interest, but let others do the same. Conform to
secure rewards.
Conventional level:
oStage 3: Conform to meet the expectations of others. Please others. Adhere to
stereotypical images.
oStage 4: Doing right is one’s duty. Obey the law. Uphold the social order.
Postconventional or principled level:
oStage 5: Current laws and values are relative. Laws and duty are obeyed on rational
calculations to serve the greatest number.
oStage 6: Follow self-chosen universal ethical principles. In the event of conflicts,
principles override laws.
Kohlberg found that many adults never pass beyond Level 2. Consequently, if Kohlberg was correct,
many managers may behave unethically simply because they have not reached the upper stages of
moral maturity.Although many critics remain, the evidence, in sum, supports Kohlberg’s general
proposition. [For a link to an overview of moral development and moral education, see
http://www.davidsongifted.org/db/Resources_id_11335.aspx.]
Feminine Voice
Kohlberg colleague Carol Gilligan contends that people’s conceptions of morality are, in substantial
part, gender-based. She claims that men typically approach morality as a function of justice,
impartiality, and rights (the ethic of justice), whereas women are more likely to build a morality
based on care, support, and responsiveness (the ethic of care). Men, she says, tend to take an
impersonal, universal view of morality as contrasted with the feminine “voice” that rises more
commonly from relationships and concern for the specific needs of others. Gilligan criticizes
Kohlberg because his highest stages, 5 and 6, are structured in terms of the male approach to
morality while the feminine voice falls at stage 3.
B. Reason or Emotion?
Kohlberg and Gilligan (and most moral philosophers) take the position that moral decision making is
the controlled product of analysis, deliberation and experience. In recent years, however, new
psychological and neuroscience evidence has supported an alternative theory of morality that involves
decision making by emotion or intuition. The emotion/intuition approach claims that moral decision
making is an automatic, nonreflective process in which an individual mind, when confronted with a
moral question, instantaneously generate feelings of approval or disapproval. Brain-scanning
experiments have provided support for the automatic emotion/intuition hypothesis.
C. Moral Identity?
Early evidence suggests that a critical feature in total moral development, including the will to act,
involves what is labeled moral identity. In general, moral identity involves the degree to which moral
concerns are central to one’s sense of self. As Professor Sam Hardy explains it, a person might have
a stronger sense of moral identity if that identity is centered more on moral virtue than on amoral
virtues such as creativity.
D. Organizational Forces
Individual character influences corporate misconduct, but organizational culture is also important.
Unfortunately, only 10 percent of American companies demonstrate the characteristics that are
associated with a “strong ethical culture,” according to a 2007 Ethics Resource Center study. [For the
Business Roundtable Institute for Corporate Ethics, see http://www.corporate-ethics.org/]
E. The Boss
Top corporate bosses have hit a particularly rough patch in American life. Many have been disgraced
by various scandals, and a number of them are in jail. Wall Street executives are accused of bringing
the economy to near collapse while continuing to collect big bonuses. Although business leaders often
blame these trust woes on a “few bad apples,” the 2013 Edelman Trust Barometer (a survey of 26,000
people in 26 countries) found that only 18 percent of respondents “would trust a business leader to tell
the truth in a complex situation.” [For a film treatment of ethical issues in the business community, see
the trailer Wall Street: Money Never Sleeps.]
Bill Hawkins: A Tough Decision
Bill Hawkins, CEO at Medtronic ($14.6 billion, Minneapolis-based medical device maker), faced a
critical ethical decision-making moment in 2007 when he learned that Medtronic’s Sprint Fidelis leads
might have been malfunctioning at an unacceptably high rate.
The leads had been on the market for about 38 months and 268,000 had been implanted. The day the
recall was announced, Medtronic had its worst day on the stock market in 23 years with a 12 percent
decline and its market share in the category fell from 51 to 47 percent. Within two years, however,
Medtronic had largely recovered from the episode, a software package had been developed that
would alert patients that a lead might be fracturing, and a favorable U.S. Supreme Court decision was
offering Medtronic substantial shelter from lawsuits.
Bank Robber to Boardroom
Some bosses go wrong but correct their lives—none more dramatically than James Joseph Minder,
74-year-old former chairman of Smith & Wesson Holding Corp. In his twenties, Minder was the
notorious “Shotgun Bandit” of Michigan. He served time in prison and was free of trouble after 1965.
After retiring in the 1990s, Minder got involved in the gun industry and eventually became chairman of
handgun manufacturer, Smith & Wesson. Then in 2004 a reporter came to his home asking about his
past. At first he denied he was the “Bandit,” but he reconsidered and decided, “I had better tell the
truth.” He later told the other members of the Smith & Wesson board, and resigned as chairman.
Part Four—Business Ethics in Practice
I. Introduction: Corporate/White-Collar Crime
Forty-five percent of U.S. respondents to Pricewaterhouse-Coopers’ (PwC) 2011 economic crime survey
reported that their organization had suffered fraud in the previous 12 months. The U.S. government
struggles to curb corporate crime, but in 2012, corporate payments to the government to settle fraud
charges reached a record total of about $8 billion. The task of linking particular people to instances of
wrongdoing can be extremely difficult and expensive. Because of those difficulties and expenses, the
government has recently turned with frequency to what are called “deferred prosecution” or
“nonprosecution” agreements with corporations and individuals.
Is Theft Sometimes OK?
A shopper wrote a letter to the editor explaining how he felt after observing what appeared to be a theft:
[A]t Wal-Mart I saw a person try to put an item in their jacket. At first I thought this person was a jerk…But
after I returned home, I became convinced that it was OK to steal…When I compare the theft of a $15
item to the grand larceny by corporate America, which ran Enron into the ground, which reaps record oil
profits,…which occupies the seats of go vernment and takes bribes, I now see the act of stealing a small
gift…as heroic.
A. Prevention or Enhanced Punishment
Responding to public outrage over Enron, WorldCom, and other stunning and destructive corporate
scandals, Congress and the president approved the 2002 Sarbanes-Oxley Act (SOX) to attack
corporate crime by publicly traded companies. Among its provisions, the bill establishes an
independent board to oversee the accounting profession, requires corporate executives to personally
certify the accuracy of their financial reports, and so on.
SOX is often criticized as a drain on company resources and an impediment to economic growth, but
most organizations seem to have settled in to the SOX requirements and often praise its effects. A
2009 Securities and Exchange Commission study concluded that the benefits of SOX exceeded its
costs. Worrisome, perhaps, is the apparent underutilization of SOX in response to the financial crisis
as reported by The Wall Street Journal in 2012.
B. Sentencing
Federal sentencing guidelines, issues by the U.S. Sentencing Commission, provide ranges within
which judges are advised to impose sentences. The guidelines are designed to provide greater
predictability and consistency in punishment. However, recent Supreme Court decisions have
diminished the power of the guidelines by significantly restoring federal judges’ authority to deviate
from them.
Too Lenient?
Federal judge Sandra Beckwith in Ohio stretched sentencing latitude to the maximum in her 2011
sentencing of Michael E. Peppel, former chair and CEO of technology firm MCSi. Peppel pleaded
guilty to fraud resulting in estimated damages of $18 million. The sentencing guidelines called for 8 to
10 years of incarceration, but the judge handed down a sentence of seven days in jail and three years
of supervised release. On appeal, however, the Sixth Circuit ruled that Judge Beckwith had abused
her discretion. Following the appeals decision, Judge Beckwith sentenced Peppel to two years in
prison, three years of court supervision, and a $5 million fine.
II. Global Bribery
In many cultures, the payment of bribes—baksheesh (Middle East), huilu (China), vzyatku (Russia),
mordida (South America), or dash (Africa)—is accepted as a necessary and, in some cases, a lawful way
of doing business. The Foreign Corrupt Practices Act (FCPA), the chief federal weapon against bribery
abroad, was enacted in 1977 in response to disclosure of widespread bribery by American firms. In brief,
the FCPA provides that U.S. nationals and businesses acting anywhere in the world, foreign nationals and
companies acting in U.S. territory, and foreign companies listed on a U.S. stock exchange are engaging in
criminal conduct if they offer or provide money or anything of value to foreign government officials to
obtain or retain business or otherwise secure “any improper advantage.” [For a summary of the FCPA,
see http://www.fcpaenforcement.com/explained/explained.asp.]
A. Controversy
The FCPA has been controversial from the outset. Some businesspeople see it as a blessing both
because it is an honorable attempt at a firm moral stance and because it is often useful for an
American businessperson abroad to say, “No, our laws forbid me from doing that.” On the other hand,
some consider the act damaging to competitiveness. The United States also participates in several
other anticorruption initiatives including the U.N. Convention against Corruption, the OECD
Anti-Bribery Convention, and the Inter-American Convention. [For details on the OECD Anti-Bribery
Convention, see http://www.oecd.orgl]
United States Corruption
Total corporate sanctions under the FCPA reached a record $1.7 billion in 2011. The United States
ranked only 19th in Transparency International’s 2012 Corruption Perceptions Index, which
aggregates data provided by experts and business leaders to assess the perceived level of public
sector corruption around the globe. The countries perceived to be least corrupt were Denmark,
New Zealand, and Finland.
B. Bribery in Daily Life
Bribery appears to be a routine cost of living in some countries. Russian think tank INDEM estimates
that, on average, Russian businesses spend 7 percent of their budgets on bribes. Interestingly, Russia
has recently strengthened its antibribery laws. China executed the former head of its food and drug
agency in 2007 for allegedly accepting $850,000 in bribes from Chinese pharmaceutical companies,
but bribery continues to be a routine feature of business practice in China. The World Bank estimates
that bribes to government officials globally total $1 trillion annually
Practicing Ethics: Bribe the Terrorists?
Banadex, a subsidiary of Cincinnati-based Chiquita Brands International, paid bribes to Colombian
rebels over a period of years, including $1.7 million from 1997 to 2004 to the AUC (Autodefensas
Unidas de Colombia), a right-wing Colombian terrorist group. Chiquita, one of the world’s leading
banana producers with operations in 70 nations, learned of the payments in 2000, but allowed them to
continue. Reliable reports indicated that thousands of people had been killed, tortured, raped, or
“disappeared” by the AUC (now disbanded).
In 2007, Chiquita entered a guilty plea to the felony of engaging in transactions with terrorists. A
federal judge sentenced Chiquita to $25 million in fines and five years probation. During the period of
Chiquita payments to AUC, some 4,000 Colombians were killed in the banana-growing region of
Colombia. Colombian officials argue that Chiquita was not a victim of extortion and that the company
knew AUC was using the bribery proceeds to attack peasants, union workers, and various rival
groups.
III. Whistle Blowing
Many federal statutes include whistle blower provisions and the federal False Claims Act rewards those
who help stop fraud involving government contracts. Whistle blowers typically are entitled to 10 to 30
percent of the recovery from the wrongdoer. Whistle blowing appears to be on the rise following the
passage of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act which includes a cash
reward for those whose information regarding federal securities law violations leads to a recovery
exceeding $1 million. The Securities and Exchange Commission received about 3,000 tips in the first year
of the program. [For an overview of whistle blower activity and protections, see
http://www.whistleblowers.org and for a law firm dedicated to representing whistle blowers as well as their
stories, see http://www.phillipsandcohen.com.]
A. Retaliation
Despite expanded legal protection, whistle-blowers often pay a high price for exercising their
consciences. Americans have long deplored “squealing,” and tend to ignore violations, partly out of
fear of retribution. A recent survey found that 73 percent of full-time American employees observed
wrongdoing on the job, but only about 36 percent of those employees actually reported that
wrongdoing to bosses. Dodd-Frank expressly forbids discharge, demotion, and other forms of
retribution against securities law whistle-blowers; other federal laws, such as Sarbanes-Oxley, provide
varying degrees of protection in some other areas of enforcement.
IV. Ethics Codes
Most big companies have voluntarily developed ethics codes; some providing rather detailed “dos and
don’ts” about employee conduct and others consisting of more generalized statements of principles.
Section 406 of Sarbanes-Oxley—specifically requires publicly traded companies to adopt a code of ethics
for senior financial officers or to explain why they have not done so. [For the Ethics Officers Association,
see http://www.eoa.org.]
Responding to SOX and other pressures, an increasing number of companies have prepared more
detailed codes, displayed them more prominently, required employees to read and sign the codes, and
created training methods to more firmly integrate ethical expectations into company decision making. [For
the Ethics Resource Center, see http://www.ethics.org/.]
Companies that maintained high-quality codes of conduct were found to rank highly in corporate
citizenship, sustainability, ethical behavior, and public perception of the firm. [For information on global
corporate governance and citizenship, see http://www.conference-board.org.]
Assuring an Ethical Culture at Raytheon
Jay Stephens, general counsel, and Patti Ellis, vice president for business ethics and compliance, at
defense contractor Raytheon, outlined some strategies for building an ethical commitment throughout a
complex organization, which are as follows—aim high, keep learning, discuss, keep it real, and step back.