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Chapter 03 - Organizational Ethics
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Auditing Function: The certification of an organization’s financial statements, or “books,” as
being accurate by an impartial third-party professional. An organization can be large enough to
have internal auditors on staff as well as using external professionals—typically certified
professional accountants and/or auditing specialists.
Conflict of Interest: A situation in which one relationship or obligation places you in direct
conflict with an existing relationship or obligation.
GAAP: The generally accepted accounting principles that govern the accounting profession—not
a set of laws and established legal precedents but a set of standard operating procedures within
the profession.
Organizational Culture: The values, beliefs, and norms that all the employees of that
organization share.
Universal Ethics: Actions that are taken out of duty and obligation to a purely moral ideal,
rather than based on the needs of the situation, since the universal principles are seen to apply to
everyone, everywhere, all the time.
Utilitarianism: Ethical choices that offer the greatest good for the greatest number of people.
Value Chain: The key functional inputs that an organization provides in the transformation of
raw materials into a delivered product or service.
Review Questions
NOTE: Some questions allow for a number of different answers. Below are some suggestions.
1. Consider the functional departments we have reviewed in this chapter. Which department do
you think faces the greatest number of ethical challenges? Why?
Students’ responses will vary. Students should recall at least one of the functional areas of
2. Provide three examples of unethical behavior that you have observed at the company you
work for (or a company you have worked for in the past). What were the outcomes of this
behavior?
Chapter 03 - Organizational Ethics
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Students’ responses will vary. Some examples of unethical behavior that students may have
observed include, but are not limited to bullying or intimidating behavior, employee theft, or
any other example that illustrates unethical behavior they observed at the company. They
should also discuss the outcome of that behavior.
3. Philip Kotler argues that professional marketers “should have the same ambivalence as
nuclear scientists who help build nuclear bombs.” Is that a valid argument? Why or why
not?
Students’ responses will vary. Students should discuss Kotler’s argument and express their
4. Should the HR department be the ethics champion in the organization? Why or why not?
Students’ responses will vary. Most of the students may say that the HR department should
5. What are “creative bookkeeping techniques”? Provide three examples.
Students’ responses will vary. Accountants face ethical challenges when requests are made
Chapter 03 - Organizational Ethics
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practices? Why or why not? What factors would you consider in making that decision?
Review Exercises
1. Is this unethical marketing? Explain why or why not.
2. Critics argue that such campaigns “blur the lines between consumerism and con artistry.” Is
that a fair assessment? Why or why not?
3. How would you feel if you were involved in such an ambush?
4. If the majority of consumers are already skeptical about most advertising they are exposed
to, how do you think the general public would feel about such marketing campaigns?
5. Supporters of these campaigns argue that our economy is built on consumerism and that if
you don’t find more effective ways to reach consumers, the entire economy will suffer. Does
Chapter 03 - Organizational Ethics
that make the practice OK? Should we just accept it as a nuisance and a necessary evil like
solicitation calls during dinner?
6. Would your opinion change if the advertisers were more obvious in their campaigns—such
as admitting after each skit that the raving fans were really actors?
Internet Exercises
1. Visit the U.S. government recall website www.recalls.gov, select a product recall event from
the past three years and answer the following questions:
a. What information would you consider to be evidence of an ethical transgression in this
product recall?
b. Other than recalling the product, what other actions did the company take to address
the situation?
c. What steps would you suggest that the company should have taken to restore that
reputation?
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2. Locate the websites for the American Marketing Association (AMA) and the
American Institute of Certified Public Accountants (AICPA). One has a “Professional
Code of Conduct”, and the other has a “Statement of Ethics.” Does the terminology
make a difference? Why or why not?
Students’ responses will vary. They should note that the AICPA has a Professional
a. Compare and contrast the components of each approach.
Students’ responses will vary. The AICPA and the AMA both contribute to
b. Since the AMA offers certification as a “Professional Certified Marketer,” would
the organization benefit from promoting a professional code of conduct like the
AICPA? Why or why not?
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Team Exercises
1. Is it ethical to ambush?
Divide into two teams. One team must prepare a presentation advocating the use of the
ambush marketing tactics described in the Review Exercise. The other team must prepare a
presentation explaining the ethical dilemmas those tactics present.
Students’ responses will vary. The advocates of ambush marketing tactics can argue that the
2. In search of an ethical department.
Divide into groups of three or four. Each group must select one of the organizational
departments featured in this chapter (HR, R&D, marketing, sales, and finance) and
document the potential areas for unethical behavior in that department. Prepare a
presentation outlining an example of an ethical dilemma in that department and proposing a
solution for resolving it.
Students’ responses will vary. Following are some of the examples of ethical dilemma for
• Manufacturing:
o “Built fast, or built right?”
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o Payroll issues
o Conflict of interest with internal auditors or external third-party auditors
3. An isolated incident?
Divide into two groups and prepare arguments for and against the following behavior:
You are the regional production manager for a tire company that has invested many
millions of dollars in a new retreading process that will allow you to purchase used tires,
replace the tread, and sell them at a significantly lower cost (with a very healthy profit
margin for your company). Initial product testing has gone well and expectations for this
very lucrative new project are very high. Promotion prospects for those managers
associated with the project are also very good. The company chose to go with a “soft”
launch of the new tires, introducing them into the Malaysian market with little marketing
or advertising to draw attention to the new product line. Once demand and supply are
thoroughly tested, the plan is to launch the new line worldwide with a big media blitz.
Sales so far have been very strong based on the low price. However, this morning, your
local contact in Malaysia sent news of a bus accident in which two schoolchildren were
killed. The cause of the accident was the front left tire on the bus, which lost its tread at
high speed and caused the bus to roll over. You are only three days away from your next
progress report meeting and only two weeks from the big worldwide launch. You decide
to categorize the accident as an isolated incident and move forward with your plans for
the introduction of your discount retread tires to the world market.
Students’ responses will vary. Advocates for moving forward with the introduction may
4. The sole remaining supplier.
Divide into two groups and prepare arguments for and against the following behavior:
Back in the mid-1970s heart pacemakers ran on transistors before advances in
technology replaced them with the silicon computer chips we are all familiar with today.
Your company has found itself in a situation where it is the last remaining supplier of a
particular transistor for the current models of heart pacemakers on the market. Your
Chapter 03 - Organizational Ethics
competitors have all chosen to get out of the business, claiming that the risks of lawsuits
related to malfunctioning pacemakers was simply too great to make the business
worthwhile. Your management team has now arrived at the same conclusion. The chief
executive officer defends the decision by arguing that as a business-to-business supplier
to other manufacturers, you have no say in how the transistors are used, so why should
the fact that they are used in life-saving equipment factor into the decision? Your
responsibility is to your shareholders, not to the patients who depend on these
pacemakers. You are not responsible for all the other manufacturers getting out of the
business.
Students’ responses will vary. Advocates of continuing to sell the transistors can argue that
Thinking Critically
3.1 – Boosting Your Résumé
1. Does the competitive pressure to get hired justify the decision to boost your résumé? Why?
Students’ responses will vary. Most of the students may say that competitive pressure to get
2. Do you think the board of directors of Bausch & Lomb made the right decision in choosing
not to fire Zarrella? Why or why not?
Students’ responses will vary. Zarrella has now placed a negative image on his and the
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3. What steps should companies take during the hiring process to insure that such bad hires do
not happen?
4. Can you polish you résumé without resorting to little white lies? Provide some examples of
how you might do that.
5. Your friend has been unemployed for two years. She decides to boost her résumé by
claiming to have been a consultant for those two years in order to compete in a very tough
job market. She explains that a colleague of hers did the same thing to cover a six-month
period of unemployment. Does the longer period of unemployment make the decision any
less unethical? Why or why not?
6. If you discovered that a colleague at work had lied on her résumé, what would you do?
3.2 – A Loss of Privacy
1. Why would newspaper journalists resort to such methods in order to deliver “breaking
news”?
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Education.
to such methods.
2. If the alleged phone hacking and bribery took place as far back as 2003, how is it possible
that the story was not made public until 2009?
Students’ responses will vary. The story was not made public until July 2009 because it was
3. Why would Andy Coulson feel pressure to resign as head of the government’s media
operations only eight months after being appointed to the position?
4. Do you think that the closure of The News of The World represents an appropriate resolution
of this scandal? Why or why not?
Students’ responses will vary. Rupert Murdoch was were facing increasing pressure to shut
5. If the phone hacking had been restricted just to the cell phones of celebrities, would the
public outcry have been so large? Why or why not?
6. What could Rupert Murdoch have done differently here?
Chapter 03 - Organizational Ethics
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
know every detail of every company, is not justified. Probably he could have seen to it that
his News Corporation had a written and clearly communicated code of conduct and ethics.
His employees should have been warned that anyone breaking this code would be fired and
also subject to legal proceedings. This might have worked as a deterrent.
3.3 – Johnson & Johnson and the Tylenol Poisonings
1. Although Johnson & Johnson took a massive short-term loss as a result of its actions, it was
cushioned by the relative wealth of the company. Should it have acted the same way if the
survival of the firm were at stake?
Students’ responses will vary. Majority of them may say that Johnson & Johnson acted in a
2. James E. Burke reportedly said that he felt that there was no other decision he could have
made. Do you agree? Could he, for example, have recalled Tylenol only in the Midwest?
Was there a moral imperative to recall all Tylenol?
3. What was the moral minimum required of the company in this case? Would it favor some
stakeholders more than others? How would you defend balancing the interests of some
stakeholders more than others?
Students’ responses will vary. Some of them may argue that the moral minimum required of
4. Imagine that a third-world country volunteers to take the recalled product. Its representatives
make assurances that all the tablets will be visually inspected and random samples taken
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before distribution. Would that be appropriate in these circumstances? Would it have been a
better solution than destroying all remaining Tylenol capsules?
Students’ responses will vary. Some of them may point out the fact that random samples
5. Apparently no relatives of any of the victims sued Johnson & Johnson. Would they have had
a moral case if they had? Should the company have foreseen a risk and done something
about it?
6. How well do you think a general credo works in guiding action? Would you prefer a typical
mission statement or a clear set of policy outlines, for example? Do you see any way in
which the Johnson & Johnson Credo could be improved or modified?
