Page 5-1
prior written consent of McGraw-Hill Education.
CHAPTER 5
ETHICS AND ETHICAL REASONING
INTRODUCTION
People who work in business frequently encounter and must deal with on-the-job ethical
issues. Being ethical is important to the individual, the organization and the global
marketplace in today’s business climate. Managers and employees alike must learn how
to recognize ethical dilemmas and know why they occur. In addition, they need to be
aware of the role their own ethical character plays in their decision-making process, as
well as the influence of the ethical character of others. Finally, managers and employees
must be able to analyze the ethical problems they encounter at work to determine an
ethical resolution to these dilemmas.
PREVIEW CASES
Mathew Martoma and SAC Capital Advisors
Dov Charney and American Apparel
The chapter opens with a brief recount of the insider-trading case involving Mathew
Martoma at the hedge fund SAC Capital Advisors. Should individuals be held
accountable for business practices that may be understood as common practices among
managers or viewed as necessary to do one’s job? What would possess people to risk
being fined or imprisoned for insider-trading? What can we do, as a society, to prevent
this type of unethical behavior in the future?
A second opening case discusses how the questionable sexually-oriented ethics of Dov
Charney, founder of American Apparel, led to his dismissal by the firm’s Board of
Directors. To what extent should a CEO’s personality or values be reflected in his
behavior? Does it matter if American Apparel was profitable or not under Charney’s
leadership? How might a firm’s stakeholders respond to unethical leadership?
CHAPTER OUTLINE
I. THE MEANING OF ETHICS
Teaching Tip: Defining Ethics
Establishing a clear definition of ethics is a critical task in
understanding this and the following chapter. Ethics is not identical to
law nor is it simply personal or cultural values. Defining ethics should
promote a lively discussion, although at the conclusion of the class
session all students should have a clear definition. The issue of ethical
relativism may also spark a lively in-class discussion, especially if
students were raised in differing cultures.
Page 5-2
A. What Is Business Ethics?
B. Why Should Business Be Ethical?
Enhance business performance
Comply with legal requirements
Prevent or minimize harm
Meet demands of business stakeholders
Promote personal morality
II. WHY ETHICAL PROBLEMS OCCUR IN BUSINESS
A. Personal Gain and Selfish Interest
Teaching Tip: World’s Most Ethical Companies
Students might be interested in exploring in greater detail firms who
are considered to be the “world’s most ethical companies.” Why do
these firms consistently outperform, financially, the stock performance
benchmark?
Teaching Tip:
World’s Corporate Sentencing Guidelines
and the Sarbanes-Oxley Act
The U.S. Corporate Sentencing Guidelines and the Sarbanes-Oxley Act
appeared on the U.S. ethics scene years ago. There are numerous
current articles discussing these legal requirements. Students may be
challenged by the question: Has the U.S. Corporate Sentencing
Guidelines or the Sarbanes-Oxley Act promoted ethical behavior by
employees, or have firms only been interested in avoiding or reducing
jail time for their executives?
Teaching Tip: World’s Meet Demands of Business Stakeholders
Students may be challenged by the question: How important is it to you
to work for an ethical company? Would be willing to give up some
amount of salary or other benefits just to work for a company with a
strong ethical foundation and commitment to ethics?
Page 5-3
B. Competitive Pressures on Profits
C. Conflicts of Interest
D. Cross-Cultural Contradictions
III. THE CORE ELEMENTS OF ETHICAL CHARACTER
A. Managers’ Values
B. Spirituality in the Workplace
C. Managers’ Moral Development
IV. ANALYZING ETHICAL PROBLEMS IN BUSINESS
A. Virtue Ethics: Pursuing a “Good” Life
Teaching Tip: Ethical Egoism
There are plenty examples of ethical egoism in the media, including the
examples given in the chapter: Gary Foster and Jeffrey Shamp. What
led these people to act so selfishly? Are there local examples of selfish
behavior, examples of ethical egoism, which students could research
and discuss in class?
Teaching Tip: Conflicts of Interest
Conflicts of interests are reportedly one of the most common forms of
ethical dilemmas in the workplace. Perhaps students can identify and
describe their own conflicts of interest – how they spend their time,
with whom they spend their time, how they make decisions to resolve
their conflicts of interest?
Teaching Tip: Stages of Moral Development
Popular television shows or movies can be used to illustrate the stages
of moral development. Some scholars have researched and published
papers describing a moral reasoning analysis of M*A*S*H characters
and The Simpson’s. Most children’s movies are classic battles
between good and evil and higher stages of reasoning can be seen in
the reasoning processes for the “good characters” and lower stages in
the “bad characters.”
Page 5-4
prior written consent of McGraw-Hill Education.
B. Utility: Comparing Benefits and Costs
C. Rights: Determining and Protecting Entitlements
D. Justice: Is It Fair?
E. Applying Ethical Reasoning to Business Activities
GETTING STARTED
KEY LEARNING OBJECTIVES
LO 5-1: Defining ethics and business ethics.
ethical ideas to business behavior.
LO 5-2: Evaluating why businesses should be ethical.
LO 5-3: Knowing why ethical problems occur in business.
Teaching Tip: What Is a Virtuous Person?
Student may be assigned to create their own list of virtues or good
values to see how their ideas compare to those lists presented in the
textbook. They also may want to discuss if “a virtuous person can be a
successful business person?” and try to discover examples of good
business managers or employees.
Teaching Tip: Do Patients Have the Right to Try?
After reading Exhibit 5.B, should patients be given the right to try
therapy or experimental drugs that are still in the testing phase in the
hope of stopping the spread of their disease or possibly saving their
lives? Using each of the ethical theories presented in the chapter, how
would one answer this question?
Page 5-5
prior written consent of McGraw-Hill Education.
LO 5-4: Identifying managerial values as influencing ethical decision-making.
LO 5-5: Recognizing how people’s spirituality influences their ethical behavior.
LO 5-6: Understanding stages of moral reasoning.
LO 5-7: Analyzing ethical problems using generally accepted ethics theories.
KEY TERMS
business ethics
conflict of interest
ethical egoist
Page 5-6
prior written consent of McGraw-Hill Education.
INTERNET RESOURCES
www.ethics.org Ethics Resource Center
www.charactercounts.org Josephson Institute
DISCUSSION CASE
CHIQUITA BRANDS: ETHICAL RESPONSIBILITY OR ILLEGAL ACTION?
Discussion Questions
1. Do you agree with the 11th US Court of Appeals ruling that cleared Chiquita of any
liability for the victims killed by the paramilitary group that Chiquita funded?
Construct an ethical argument that supports your view.
This case is intended to evoke a heated debate among students as to whether Chiquita acted
ethically or not. Various ethical principles are relevant here: the demand by Chiquita’s
Page 5-7
prior written consent of McGraw-Hill Education.
do.
2. Using each of the four methods of ethical reasoning, see Figure 5.6, was it ethical or not
for Chiquita to pay the terrorist organization when payments were demanded in the
early 2000s?
Like most ethical dilemmas, there may not be a single ethically defensible answer. When
avoid extremes. This ethical perspective led senior executives at Chiquita to make the
decision to pay the terrorist groups in an effort to protect the lives of the company’s
imposed for disobeying U.S. law by paying the terrorist’s demands versus consequences
analyzing this case, since many of the benefits and harms are unknown. For example, it
have to pay the money demanded by the terrorist groups or is it fair to risk the lives of
3. Should the U.S. ban against supporting terrorist groups, imposed after the September
11, 2001 attacks in the United States, be applied in this situation? Why or why not?
Page 5-8
prior written consent of McGraw-Hill Education.
acting consistently and following the law.
4. Is there anything that Chiquita could have done to protect its employees adequately
without paying the terrorists?
complying with the law and not paying the terrorists’ demands. Others felt that the company
should have spent money to protect the lives of their employees from the terrorists – a cost of
executives at Chiquita did not see many options at their disposal when trying to resolve this
ethical dilemma.
5. Should Chiquita be assessed a penalty that puts the firm out of business for their
actions?
similar to the financial sanctions previously imposed by the U.S. government on Chiquita.