978-0470639948 Chapter 2 Solution Manual Part 1

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Chapter 2:

A HISTORICAL PERSPECTIVE ON BUSINESS

ETHICS

CHAPTER 2 CHAPTER AND ADDITIONAL QUESTIONS

In studying this chapter, students should consider the questions below.

“CQ1” refers to “Chapter Question 1.” This question appears at the end of the textbook

chapter.

“AQ1” refers to an “Additional Question 1.” This is an “additional” question related to

the chapter. It is not listed at the end of the textbook chapter as a “Chapter Question”.

These items are numbered within the two categories based on the order in which the

answer appears in the chapter.

CQ1: What are several salient business ethics issues in pre-capitalist America?

CQ2: How did Adam Smith justify the ethics of capitalism?

CQ3: Describe how the U.S. economy grew between the Revolutionary War and World War I.

CQ4: What prominent labor issues challenged the fairness of free market capitalism?

AQ1: How have stakeholder rights been expanding since the 1960s?

CQ5: Explain the Federal Sentencing Guidelines and how a judge would apply them.

AQ2: What is a B Corporation?

AQ3: What is the Optimal Ethics Model?

CHAPTER 2 LEARNING OBJECTIVES

After completing this chapter, students should be able to:

Describe salient business ethics issues in pre-capitalist America

Understand the ethical foundation of capitalism as argued by Adam Smith in the

1700s

Appreciate the delicate balance between economic growth and stakeholder rights,

particularly labor issues, throughout U.S. history

Benchmark an organization to the Ethics Compliance Program best practices outlined

by the Federal Sentencing Guidelines

Conceptualize how to maximize ethical behaviors in organizations based on an

Optimal Ethics Systems Model

CHAPTER 2 OVERVIEW

Business ethics must be understood from an historical perspective to appreciate how the

current economic system and regulatory system has evolved over time. The movement of history

has been toward is toward the creation of a wealthy and just society, which requires balancing

economic growth and respect for people. Our current mix of ethical issues in the business sector

has grown out of the nation’s unique historical evolution.

Throughout the history of the United States, progress in business ethics has been

achieved by extending “rights” to an increasing number of stakeholders, and by the maturation of

democracy and the justice system.

This chapter describes the business dimension of Christopher Columbus’ arrival, colonial

settlements at Jamestown and Plymouth, and the build up to the Revolutionary War. The

philosophically-inclined founders of the United States, wanting to create the most just political

and economic system in the world, chose capitalism for the new nation’s economy because of its

emphasis on liberty. The nation’s historical struggle to develop an ethical business sector is

examined through the Industrial Revolution, formation of labor unions, wage issues, expansion

of stakeholder rights, and culminates in the 1991 Federal Sentencing Guidelines.

The chapter concludes with an Optimal Ethics Systems Model as a conceptual framework

for maximizing ethical behavior and reducing ethical risks in organizations.

CHAPTER 2 LECTURE OUTLINE

Teaching Objective: To recognize that unethical business activities have occurred throughout

history and laws and regulations are created to minimize harms.

Suggested Time: Two to three hours of class time is recommended to present this chapter.

I. Chapter Question 1: What are several salient business ethics issues in pre-capitalist

America?

Christopher Columbus’ Arrival

Roanoke and Jamestown Settlements

Plymouth Settlement

Build Up to the Revolutionary War

II. Chapter Question 2: How did Adam Smith justify the ethics of capitalism?

Adam Smith’s Capitalism

Smith on Labor Issues

III. Chapter Question 3: Describe how the U.S. economy grew between the

Revolutionary War and World War I.

The Industrial Revolution

Anti-Trust

Charters

Liabilities

IV. Chapter Question 4: What prominent labor issues that challenged the fairness of

free market capitalism?

Slavery

Strikes and Labor Unions

Wages and Compensation

Income Inequality

Minimum Wage

Living Wage

Executive Compensation

V. Additional Question 1: How have stakeholder rights been expanding since the

1960s?

Congress Under a Democratic Party Presidential Administration

Congress Under a Republican Party Presidential Administration

Economic Deregulation

Four Types of Social Responsibilities

VI. Chapter Question 5: Explain the Federal Sentencing Guidelines and how a judge

would apply them

Best Practices

Culpability Fine

VII. Additional Question 2: What is a B Corporation?

VIII. Additional Question 3: What is the Optimal Ethics System Model?

CHAPTER 2 SUPPORTING MATERIALS

Textbook Inserts

Ethical Dilemma Analysis

What would you do?

Let’s Build a Building

In the Real World: Enron

Exhibits

Exhibit 2.1: Ethical Foundation of Capitalism

Exhibit 2.2: Profile of a Union Organizer

Exhibit 2.3: Economic Class Structure in the United States

Exhibit 2.4: Median Personal Income by Educational Attainment

Exhibit 2.5: Best Practices for Compliance and Ethics Programs

Exhibit 2.6: B Rating System for Manufacturing Firm: Version 1.0

Exhibit 2.7: Optimal Ethics Systems Model

Thematic Boxes

Tips and Techniques

Best Practice in Use

CHAPTER QUESTION 1: WHAT ARE SEVERAL SALIENT BUISNESS ETHICS

ISSUES IN PRE-CAPITALITST AMERICA?

This section spotlights four pivotal historical periods leading up to the formation of the United

States: Christopher Columbus’ arrival, Roanoke and Jamestown settlements, Plymouth

settlement, and build up to the Revolutionary War.

These events were associated with economic growth and entangled in a web of ethical

issues prior to, during, and after their occurrence.

Their culmination led political leaders to choose capitalism as the economic system for

the newly formed United States.

CHRISTOPHER COLUMBUS’ ARRIVAL

Why did Christopher Columbus risk his life to be the first person to sail west to get to

India?

In 1453, the Ottoman Turks conquered Constantinople. The overland spice trade

routes linking Europe to India fell under the auspices of Ottoman government

officials who began charging European traders exorbitant taxes for business passing

through the city. Products were confiscated when Europeans resisted payment.

What was Columbus’ business arrangement?

Columbus secured financial funding for the never before undertaken risky adventure

from King Ferdinand and Queen Isabella, who had developed Spain into a

commercial leader and military power.

Ethical Issues?

Columbus concluded that the indigenous people would be relatively easy to conquer,

enslave, and Christianize.

ROANOKE SETTLEMENT

Creation of Charters

England, France, and the Netherlands competed with Spain to find riches in “America.”

In the 1580s, Queen Elizabeth I of England granted Walter Raleigh and his business

associates a charter to establish a colony in the area of modern-day Virginia and North

Carolina to trade, search for minerals, and plunder Spanish merchant ships.

Ethical Issues?

JAMESTOWN SETTLEMENT

Creation

King James succeeded Queen Elizabeth and chartered the Virginia Company of London

Ethical Issues?

 The laborers consisted mostly of indentured servants required to serve their masters for

seven years in exchange for transportation, food, clothing, lodging, and eventual freedom.

Many Jamestown colonists died from starvation or in military battles with indigenous

tribes who opposed encroachment on their lands and the kidnapping of their children to

Christianize them.

PLYMOUTH SETTLEMENT

Background Information

The Pilgrim settlement at modern-day Plymouth, Massachusetts was also a business

venture. The Plymouth Company, an association of merchants in England, obtained a

charter to establish a trading colony on the northeast coast of America and recruited the

Pilgrims as its settlers. The Pilgrims were willing to take on the risk for religious and

economic reasons.

Ethical Issues?

The Mayflower eventually anchored in southeastern Massachusetts, near corn fields that

had been harvested by indigenous tribes for thousands of years. Peaceful relations with

BUILD UP TO THE REVOLUTIONARY WAR

Background Information

By 1774, more than 2.3 million European colonists participated in highly regulated

Ethical Issues?

Business and tax policies exacerbated anti-England sentiments. The British government

The Currency Act of 1764 restricted the power of colonies to issue paper money. The

Sugar Act of 1764 made colonialists accountable to judicial and tax administrators the

Wealthy colonial farmers and merchants protested that they wanted greater say in

self-government. Britain’s taxing polices were unethical, they claimed, because no

The Boston Tea Party was the result of the East India Company’s monopolistic business

practices. In 1773, a worldwide financial panic threatened to bankrupt the company.

In mid-December 1773, three British ships packed with tea cargo anchored in Boston

Harbor. A large mob of politically agitated colonialists demanded that the ships return the

tea cargo to England, which is what happened at harbors in Philadelphia, New York, and

Acts of civil disobedience intensified and, within two years, the colonialist declared war

DISCUSSION ACTIVITY

In small groups or as an entire class: The arrival of Europeans – Columbus, Roanoke, Jamestown

– created a clash of cultures where European traders with greater military technology initially

traded with indigenous people and then stole from their trading partners, raped the women, and

enslaved them. Was this inevitable or could there have been a more harmonious evolution of

business relationships?

DISCUSSION ACTIVITY

In small groups or as an entire class: The British established monopolies, a highly regulated

business system, and taxed colonists without giving them political representation. These actions

fueled the Revolutionary War. If you were an adviser to the British government in the mid-1700s,

how would you have managed the colonial complaints?

CHAPTER QUESTION 2: HOW DID ADAM SMITH JUSTIFY THE ETHICS OF

CAPITALISM?

ADAM SMITH’S CAPITALISM

James Madison, Benjamin Franklin, and Alexander Hamilton relied on the writings of

Scottish philosopher Adam Smith for the economic evidence and ethical justifications of

capitalism, a free market economy.

Background Info

Smith recommended abandoning mercantilist policies that sanctioned monopolies,

put quotas on imports, and regulated tradesmen. Key management positions were

filled based on family and political connections rather than individual merit. The lack

of competition under mercantilism, Smith argued, led to high prices, low-quality

products, and shortages.

Adam Smith’s ethical defense of capitalism rests on the following beliefs:

Freedom and liberty are essential values.

A free people naturally pursue their self-interests and respect the interests of others.

DISCUSSION ACTIVITY

Small group or whole class discussion: Adam Smith maintained that, if given the opportunity to

steal something without anyone looking, most of would not because of our conscience, belief in

God, we can be reasoned with, or fear of jail. Think about a time when you stole something or

cheated. Why didn’t Smith’s four moral restraints stop you from doing so?

Now think about a time when you could have stolen something or cheated, but decided not to.

Which of Smith’s four moral restraints convinced you not to steal or cheat?

Government intervention in the marketplace is only needed under three conditions:

oFirst, when contracts are violated

oSecond, when merchants abuse their freedom by committing injustices against

others, such as in the case of slavery, and

oThird, when the pursuit of self-interest does not generate highly desired social

welfare benefits, such as national defense and certain public works, such as

roads.

SMITH ON LABOR ISSUES

Smith highlighted three problems that could occur if owners, in pursuit of greater profits,

did not rely on moral sentiments when dealing with laborers.

First, due to an overabundance of labor, owners could drive wages below subsistence

amounts because of their ability to “hold out much longer” during wage conflicts.

Laborers would become ill-fed and sick.

Second, excessive application of piece-rate incentives, could increase productivity in

the short-term, but damage a worker’s health in the long-term.

Third, excessive application of division of labor could also increase productivity in

the short-term, but damage a worker’s intellectual abilities in the long-term.

DISCUSSION ACTIVITY

Choose the number that represents the extent to which you believe the United States’ version of

free market capitalism experienced right now is ethical.

#1: Very Ethical

#2: Ethical

#3: Slightly more ethical than unethical

#4: Slightly more unethical than ethical

#5: Unethical

#6: Very Unethical

Tally the votes, form groups with common beliefs, and have them list the reasons that support

their viewpoint. Then facilitate a discussion between the group that believes capitalism is the

most ethical and the team that believes capitalism is the least ethical.

What are common points of agreement? What are areas of disagreement?