978-1285428710 Section 2 SECTION 2C

subject Type Homework Help
subject Pages 11
subject Words 10288
subject Authors Marianne M. Jennings

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Business Ethics, 8e Jennings
A. The Application of Moral Standards to Business Dilemmas
B. Moral Standards are Canons of Behavior that are Neither Legislated nor Changed by Legislation
1. Conflicts between law and moral issues: child labor
2. Moral accountability for business conduct
C. Some Firms Adopt Just the Law as Their Standard for Ethics
D. Ethics Asks that We Go Beyond the Minimum Requirements of the Law
E. Businesses Have Organizational Factors in Addition to Individual Decisions
Answers and Key Discussion Items
1. Use PowerPoint Slides 45 - 47 for examples of categories for classification and the types of issues
that are occurring in the workplace. Notice how those who offered these examples to me
(anonymously) understood that they were involved in an ethical issue but did it anyway. And, the
result is, they continue to think back on it. Students will explore the psychology behind these
decisions – pressures and psychology.
2. These examples illustrate the desire to avoid pain (bad relatives!) or avoid cost – these examples are
on the slides along with others. We are always trying to avoid something when we cross these lines,
even though we see the possible harms and then continue to feel guilty about it.
3. Students should discuss that business ethics issues are often made to seem more complex in an
effort to rationalize through the complexity or through an overarching rationalization that “Business is
different.” Issues are the same and motivation to avoid pain is there, but the underlying categories of
honesty, false impression, etc., are still there.
Peter Drucker
Use PowerPoint Slide 48 – Drucker elaborates on his ethics position here.
Answers and Key Discussion Items
1. Dr. Drucker believes that ethics are ethics, whether in business or as an individual. The problem is
that people don’t change simply because they become vice president. They simply continue doing all
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Business Ethics, 8e Jennings
the things they do personally. If they lie and cheat in their personal lives, they will lie and steal in their
business lives. Stiff punishments serve in personal and business lives to deter unwanted behaviors.
2. Dr. Drucker’s test for ethics is “above all do no harm” (primum non nocere). He also believes that
where much is given (as with business executives) we have a right to expect more – higher standards
of behavior (as with the Eton graduate).
Albert Z. Carr
This piece generally finds students with strong feelings, both ways, about Mr. Carr’s theories and
approach to ethics. Encourage them, once again, to begin thinking about their values and whether
they would be comfortable with Mr. Carr’s approach. Use PowerPoint Slides 49 - 50 to discuss
some questions based on the Carr article.
Answers and Key Discussion Items
1. Have the students discuss the implications of lying during business negotiations in order to answer
this question and offer their views on Carr’s premise that we are all bluffing in business and so lying is
acceptable. For example, what if you relied on a seller’s representation that his price was the lowest
and he guaranteed that price as lowest. To save yourself some time in checking around, you rely on
the seller’s representation. Soon you discover another seller with the same product at a lower price.
What are the implications for your relationship with that seller? What is the level of trust you have
with the seller? Would you continue to do business with that seller?
Also have the students discuss the implications of not knowing what is just a bluff and therefore part
of the big business game and what goes too far. How do we know where to draw the line on what is
part of the game and what is fraud?
Have the students note that even Friedman believes fraud must not be part of business in order for
the free market to function effectively. Does Carr introduce fraud into the marketplace as an
acceptable part of business?
2. Review with the students the difficulties in having individuals decide what is acceptable vs.
unacceptable bluffing. What is bluffing and what is misrepresentation? If bluffing is acceptable, what
will happen to legal standards misrepresentation and fraud?
3. Carr characterizes the statement as “self-serving calculation in disguise”. He explains that the goal is
to make more money and the statement just gives a surface explanation for what is really a strong
drive for success.
Compare & Contrast
Carr, with his analysis of espionage relies on the measure of “Everybody does it.” Use PowerPoint Slide
50 again and discuss with the students the NFL issue involving the Patriots and their conduct. “I think all
the teams do that. That’s been going on forever.” Even though all the teams “were doing it,” “it” was still
misconduct and the public reacted strongly to the conduct.
Drucker feels that there are absolutes in business ethics and that businesses have choices despite the
pressures. Carr feels that people must succumb to pressures in business or they will never survive.
Novak also rises above the either/or conundrum that Carr uses (either we bluff or we will not be
successful) and calls businesses to a higher order that is not mutually exclusive with success. Carr feels
you have to leave personal principles and feelings out of business. Carr proposes a sort of amoral
technician mentality for business.
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Business Ethics, 8e Jennings
Dr. Drucker demands a higher standard as well – we should not hurt anyone. Carr feels that sometimes
we have to hurt people if we are to stay in business. Carr advocates a sort of detached approach to
business whereas Drucker asks that we have the same ethics in business as we do in our personal lives.
Drucker demands more caring and feeling as a way to ensure that business survives and thrives. Carr
deals with his perception of the reality of doing business – do or die.
Use PowerPoint Slides 51 and 52.
Answers and Key Discussion Items
1. The credo keeps you grounded. Andersen’s credo was that he would never certify statements that
were not accurate and yet the firm lost its way by being willing to sign off on Enron because they were
willing to do so in order to keep the consulting train going. Also, the credo is a self-imposed set of
rules that keeps leaders from ignoring the rules. They are willing to comply with their own rules even
if they perceive others’ rules to be not very important or valuable to their leadership.
2. Things that would help – get feedback from front-line employees and allow it to be anonymous so that
employees can speak candidly. A focus on things outside of work can distract from the materialism
that consumes leaders who do not keep values with them. They should also work on developing
leaders within the organization in order to keep the purpose of leadership clear. Leaders should also
think back to the last time they admitted they made a mistake in order to get around invincibility. They
could do the exercise with speeding from Unit One – are there areas in their business lives in which
they have shifted the norm but are really pushing the envelope in terms of legality.
3. Mr. McCoy lost his way when the goal and achievement became the sole means of measuring his
success and whether his experience was worthwhile. When he stepped back he realized that he had
memorable experiences that had more staying power when he did not climb than when he did. Mr.
McCoy also discounted the very basic value of respect for human life in the name of a numbers goal.
Compare & Contrast
There are some obvious differences. Mr. Wilberforce’s grounding came from his involvement in things
other than just Parliament. That power was not the end-all to his existence. He had a purpose for his
position and political power – he had a moral goal that he wanted to accomplish and he pursued that, not
political power. Indeed, his career shows that he was willing to give up the trappings if he could
accomplish his goal. Those around him knew him as principled and were willing to work with him
because they also understood the purpose of his leadership.
Use PowerPoint Slide 53.
Discuss with the students the dangers of framing an issue by “Either I do this or
________________________” with the “or” spelling out some awful fate.
Answers and Key Discussion Items
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Business Ethics, 8e Jennings
1. Students often fall into, "Either I get the homework from someone else or my grade is ruined.” “Either
I get this job interview or my life is over.” “Either I get this GPA or I can’t get into law school.” We
define the issue in such a way that we get the answer we want because we have predicted the
outcome, regardless of whether it will actually come to pass.
2. One of the lessons from Ikea’s experience is that there are some countries in which you do business
that the corruption is so rampant that you have to face the reality that doing business there will be a
constant battle with the government as well as with employees who can be led astray by the
atmosphere of corruption.
Use PowerPoint Slide 54.
Discuss the research that shows a company’s vulnerability to ethical missteps if the company has been
on an earnings roll.
High aspirations, high expectations, and prominence are indicators of illegality.
Discuss the U-Haul truck and the eaves example.
Answers and Key Discussion Items
1. You could draw on the example of J.P. Hayes from Unit One Use PowerPoint Slide 16. John
Adams, second U.S. president noted, “When conscience claps, let the world hiss.” Other examples
include pointing out damage on a rental car. Telling a clerk that you have been given too much
change. Pointing out to the hotel desk clerk that you were not billed for your extra charges on your
bill. Disclosing on a mortgage application when you are about to experience a salary reduction at
2. Tourre felt the pressure of his salary/compensation. He was paid $2,000,0000 per year so he was
unwilling to rock the boat. He had been designated to handle an important client and a large offering
– he needed to be a client pleaser. If Tourre did not perform up to expectations, then the firm might
not advance him to partner. He was trying to attain a partnership.
3. Your credo helps you determine in advance what you would or would not do in a particular situation.
Because you have thought about it in advance, you are not as vulnerable when the pressure hits.
You are better able to resist the pressure because you have already thought through all the potential
risks and that it is “so not worth it.”
Use PowerPoint Slides 55 - 58.
There are two pieces of good news in MF Global’s collapse. The first is that MF Global was a small
enough firm that its demise was not the stuff of market destruction. The second is that a financial firm was
allowed to collapse based on its high-risk, misguided investment strategy. There is some small comfort in
knowing that the market is, on occasion, permitted to discipline those who do not perform well through
consequences, including failure.
However, there is also bad news in the MF Global collapse. Despite all the post-2008 market collapse
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Business Ethics, 8e Jennings
regulation, there are neither rules nor regulatory oversight in place to catch these behaviors before the
The behaviors at MF Global reflect an unwillingness to internalize the lessons of 2008. The highly
leveraged, risky strategies of Wall Street have continued despite the pain of 2008 and amidst the
ever-growing body of evidence.
The qualitative tool that remains untapped by investors in evaluating companies, portfolios, and
developing problems is the ethical culture of companies. The culture of a company is as determinative of
returns (indeed, perhaps more so) than anything an Excel spreadsheet can produce for pro forma
optimism. Quantitative optimism should be tempered by qualitative ethical culture factors whenever we
evaluate a company, an investment firm, or the leadership skills of those running either.
The MF Global collapse reflects a pattern similar to that of other collapsed companies on Wall Street. The
pattern has repeated yet again and another company has collapsed as it attempted to defy logic, reason,
and the inevitability that its failure to disclose bad news would be its downfall. However, the bright spot is
that we can learn from MF Global the same lessons that we should have learnt from the era of the
savings and loans collapses, the dot-com fraud, the Enron period, and the 2008 collapses.
1. If the numbers sound too good to be true, indeed if they defy market reasoning, they are too good to
be true. Knowing the numbers is not enough – how did they get those numbers and what patterns are
emerging in the reporting of those numbers are two critical pieces of information in assessing
2. Always question the icon. Past performance and recognition are never good determinants of success
going forward.
3. Watch the philanthropy. Remember the adage of Ralph Waldo Emerson, “The louder he spoke of his
honor, the faster we counted our spoons.”
4. Follow board meetings, board agendas, board activity, and board involvement. Be certain the board is
questioning the icon.
5. Check relationships between and among board members and regulators the closer the
relationships and the more relationships there are, the more slack the company may have. MF Global
helps us to realize that regulatory slack does not always serve investors or customers well in terms of
risk and protection of funds. Conflicts matter because they affect judgment.
6. How are we performing at a level so much better than others? Why do we pursue aggressive
accounting practices? Do we fancy ourselves different from others? Above the fray? Not subject to
the ordinary requirements and rules of business?
As a result, MF Global customers are left in limbo, unable to withdraw their funds and unclear about
whether they even have any funds to withdraw.
When there are conflicts of interest present between and among those responsible for regulation or
oversight of a company (whether board member or public official), the result is less scrutiny, favoritism,
and a diagnosis bias that prevents an objective look at what is really happening at the company and
examination of vulnerabilities. Conflicts of interest do not always produce the eye-popping
self-enrichment. Often the more damaging conflicts of interest are those in which regulators and board
members choose to think the best, despite signals to the contrary. Those charged with oversight simply
conclude, “Oh, Jon is a friend. He would never do such a thing.” That conclusion ends the inquiries that
are needed, particularly with high-risk companies.
Take a gander at the money management skills at former Senator Jon Corzine’s MF Global firm and you
witness activities that give a whole new meaning to the term “shell game.” What has emerged about the
frantic transfers of funds during MF Global’s final days before bankruptcy is disturbing on so many levels,
but there are two shining exemplars amongst the rubble and now emerging ruffian tactics of the firm
taking money from Peter to pay Paul, even as Peter was clueless about the use of his funds. Oh, what
backbone was demonstrated amongst the desperation!
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Business Ethics, 8e Jennings
As MF Global tried to transfer funds to settle accounts with trading partners, the folks at JPMorgan Chase
put out a big, “Whoa, partner!” and questioned the source of the funds being used. The bank with a
backbone inquired as to whether MF Global was using customer account funds in violation of CFTC rules.
JPMorgan wouldn’t even take the assurances of a backroom flunky that MF Global responded with; it
wanted Mr. Corzine to provide a written guarantee that the funds were not coming from customer
accounts. That wily chairman Corzine handed the request for a written guarantee off to MF Global’s
general counsel, Laurie Ferber. Ms. Ferber refused such assurances on the grounds that MF Global did
not provide such special assurances.
Now, the author realizes that Ms. Ferber’s response was both code and protective language because no
lawyer with an IQ over 30 would have signed his or her name to such an assurance when said counsel
had probably figured out that MF Global’s books and records would have finished first over Berford’s Gas
and Guzzle in a contest for seat-of-the-pants efforts on cash-flow accuracy and internal controls. MF
Global filed for bankruptcy two days after the Ferber refusal. Be that as it may, when an elephant flies,
you don’t fault it for not staying up in the air long enough.
The bottom line is that both JPMorgan Chase and Ms. Ferber did the right thing they refused to allow
transactions to go through that might be in violation of the law transactions that would result in the
depletion of customer accounts. They both showed backbone and stood up to Mr. Corzine, a powerful
political and Wall Street figure. Through their actions they threw down the penalty flag and stopped the
game. When we are treated to a witness of backbone, hope springs eternal for market trust. Next time,
just throw down the flag a bit earlier so that Peter doesn’t lose so much.
Answers and Key Discussion Items
1. The decision points and conduct:
a. Corzine overriding the risk officer and his input.
b. The risk officer being fired for raising questions.
c. The new risk officer being relegated to being quiet.
d. The weakness of the board in responding to Corzine.
e. Lobbying the government for changes to increase risk.
f Putting pressure on employees to cover the source of the funds.
g. The rapid decision process on the use of funds.
h. The willingness to cover up what was done.
i. In a way, Corzine’s conduct at Goldman was a decision point for how he would conduct business
in the future.
j. The failure of a conflicted regulator to step in and step up and ask questions.
k. The compensation system being tied to the stock resulted in some of the behaviors that crossed
ethical lines.
l. Gary Gensler the chairman of the CFTC did not take a strong position against the kinds of
activities that Corzine and MF Global were engaged in – his conflict and relationship with Corzine
found him restrained as a regulator.
m. The board – they did not provide oversight for Mr. Corzine and let him do what he wanted – the
board is there to rein in CEOs. The board did not follow the changes in debt levels.
2. Michael Roseman, risk officer who raised issues to the board and left the company when no one
would heed his warnings about risk. Laurie Ferber, MF Global's general counsel who would not
certify the sources of the cash in writing because she knew that would be falsification. Edith O'Brien
was willing to break the rules to cover the cash needed, but did sound the warning of illegality through
her e-mails. Regulators who were trying to pass risk limits and change practices.
3. When there appears to be no methods in place to stop the misuse of customer funds.
4. With Mr. Corzine he was following a strategy and trading practices that others were warning him
against, but he could not bring himself to heed their advice. In fact, he did the opposite and got rid of
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Business Ethics, 8e Jennings
those who were dissenters. Or he threatened the board when members asked questions about his
strategy. His career and track record led him to believe that he was invincible and he lost touch with
Apple’s position is that health is a private matter. Analysts’ position is that if Jobs leaves then Apple’s
stock drops 25%. The SEC’s position is that companies must disclose material information. And so we
swirl. “None of your business,” is not the stuff that puts rumors to rest. Maybe a firm, “You can’t handle the
truth,” would be less controversial. Or maybe Apple needs to escape the either/or conundrum. The
either/or conundrum arises when we have two good values in conflicts. Here, one value is telling the truth
about the health of a CEO. Another good value is preserving shareholder value. Apple assumes that by
keeping mum about the health issue that it can walk a fine line and honor both conflicting values. But
“mumness” can be deceptive. And Apple has been blinded by assumptions as well as by its failure to think
along the lines of succession planning. If all Apple now has is tied directly to Jobs, the company has not
done its work in terms of creating a culture founded on the Jobs’ principles. Jobs’ departure, for whatever
reason, will be a death knell if all Apple has is Jobs. Perhaps, though, Apple could use a little
self-confidence. Perhaps it could also begin communicating that part of the story to shareholders and the
market, to wit We really can sally forth without Jobs. Maybe Jobs could even lend his voice to
acknowledge that Apple can and will go on, post-Jobs.
Rather than mucking about in the “health is a private matter and not material” arguments about its
close-to-the-vest approach, Apple might try the release of information that is not private but is material.
That information would be that the company has a succession plan in place, that its culture is strong, and
that it will go on to preserve the Jobs’ legacy. The stock drop assumption exists not because Jobs would
leave a void but, rather, because investors, shareholders, and analysts believe there is no “Carry on!” in
place. Dispelling that rumor is the heart of the issue, not the “to disclose or not disclose” whether Jobs is
ill. When we fall into the either/or conundrum, it is almost always because we have not addressed an
underlying problem. The either/or conundrum is the symptom of being caught between a rock and a hard
place, or, trying to preserve two good values by breaching another.
Answers and Key Discussion Items
1. In the cases listed, the reasons given for departure gave a false impression because the conduct of
the departing officers after the departure belied the reason. The family reason does eliminate
questions about what was really happening at the company and may preserve the value of the stock.
However, have the students think through the consequences for the company, if only from the
perspective that the company is not really facing up to the issues it faces. Also, there is an impact on
the culture when the company makes statements employees know not to be true about the reasons
for the executive’s departure. The reasons save face for the executive and the company. The share
price does not drop if there is a “soft” reason as opposed to weak management or perhaps some
evolving financial concerns and issues.
Yes, the family-time statements do preserve dignity, but there’s that emotion getting in the way of
what really is a clear test: Is this information true? Is it misleading? Why are you using a different
reason? Why are you using a partial explanation? There is deception or false impression being used
to preserve dignity – the classic either/or conundrum is at work here.
2. The legal issue here is whether the statement is intentionally false. If the executive agrees to the
statement, it would be difficult to establish fraud because there was, at the time, at least some truth to
the statement. However, in the classic ethical sense, shareholders and markets are misled about the
true reasons as well as the true condition of the management structure and success at the company.
However, SEC rules do not specify instructions on content of press releases. The key portion of the
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Business Ethics, 8e Jennings
law is disclosure of an executive’s departure. The statements perhaps violated the spirit of the
securities law disclosure requirements.
3. Those who occupy high political office or high business positions or are famous athletes or actors or
singers are watched for their examples. This reality may not be popular, but it is a reality
nonetheless. Personal lives are inextricably intertwined. They want to believe that information can be
managed, but too many people are watching; too many photographers are out and about; and their
personal conduct matters to those who have lionized them.
4. The belief is that the reasons given save face for those involved as well as their companies or
sponsors. However, as noted in all of these situations, the truth does eventually percolate and then
the lionized figure is faced with two problems: the conduct and the dissipation of trust that results
from having not been forthcoming.
Compare & Contrast
In comparing his conduct with the CEOs, there are remarkable similarities both are trying to keep
negative information from becoming public. Both are facing some issues that is embarrassing for them or
could affect their future earnings. Both are also powerful and been used to a great deal of adulation. They
assume they can continue with whatever.
Use PowerPoint Slide 59 – “Steps in Ethical Analysis.”
1. Do your numbers – figure out costs of doing something and not doing something – including longer
term impacts. Be sure to consider the impact on those not specifically mentioned in the case. For
example, product safety issues don’t involve just engineers’ careers and company profits,
shareholders, customers, customers’ families and even communities supported by the business are
affected by a business decision on what to do about a product and its safety issue.
2. Recall the categories and apply the categories to be sure you have spotted the issues.
3. Apply all the questions to see what you might have missed in analyzing.
4. Check for those warm language labels and rationalizations that may find you overlooking an issue as
you find comfort in avoiding real analysis.
5. Be sure to consider other cases you have or will study and whether those historical precedents might
be of help in analyzing your present situation and dilemma.
6. Bring in other areas of business to be sure you are looking at the ethical issue fully. For example,
consider any strategic advantages in your decision. Be sure to apply economic principles to
proposed actions. Think through the organizational behavior implications of your decision. In other
words, integrate what you know about business as you analyze from an ethical perspective.
7. Watch the framing of the issue. Make sure that you are zeroing in on the issue itself and not what
you see as consequences for public disclosure of the issue.
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Business Ethics, 8e Jennings
Legal Issues
The legal issue here is whether these so-called “expert networks” were really a form of insider trading. In
this case, most were convicted or entered guilty pleas, so they did cross that line into obtaining non-public
information from company insiders.
Answers and Key Discussion Items
1. The Raj, as he was known, had trouble seeing the difference between acquiring inside/proprietary
information and information he could get from the financial press. Leaks are still inside information
and his quote indicates that he could not see the distinction. In addition, he tried to cultivate insiders
and could not see that such a strategy was a dangerous one in terms of crossing legal lines. If he had
considered the long-term consequences of his behavior – 26 indictments and the end of his company
are high prices to pay for crossing some ethical lines. What is most interesting is that no one
disagrees that they all crossed legal and ethical lines. In other words, there were no close calls here
yet he remained, through his sentencing reports, somewhat stunned that he was charged.
2. The employee went to get legal advice and asked a very simple question – Was what he was doing
legal? – if the answer was “no,” and the lawyer told him that at best he was “bending the ethics bar,”
then you have your answer.
3. The Lululemon story indicates how intimidated employees were that they would participate in such an
activity and be willing to subject themselves to such humiliation. The CFO had strength to resist
group think and did not fall victim to the bystander effect – he was willing to end the meeting because
the conduct was so unprofessional and bizarre and humiliating for those involved.
Use PowerPoint Slides 60 - 90.
Legal Issues
Sophisticated investor: Goldman used the area of sophisticated investor the definition to escape full
disclosure to its client. Their offerings were made to “sophisticated investors” and Goldman did not
disclose the full extent of its position in the investment or market. The Dodd-Frank Wall Street Reform Act
has clarified the definition of “sophisticated investor” so that firms are less able to withhold information
from investors.
Analysts and two opinions: Goldman did not follow the rules on consistency between the analysts’ internal
discussions and communications and external recommendations as the SEC rules require because it
referred to a certain group as strategists. If they were not analysts in name then the rules did not apply to
Auction rate securities: Interestingly, on the auction rate securities issue, it took state law to result in a
settlement of these issues. The SEC struggled with applying laws and regs to this practice of bidding up
the price and then not buying. The nondisclosure to clients was that Goldman was bidding on the
securities, but Goldman’s and others’ position was that there are always investment houses bidding in
such auctions.
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Business Ethics, 8e Jennings
IPO allocation and structure of the market: The IPO structure was also eventually settled, but for relatively
small fines with new rules on IPO allocations and agreements between clients on second-wave
arrangements to buy more.
IPO profitability changes prior to IPO: The change in the profitability standard to one quarter was an
interesting legal issue because the information on these dot-coms was always disclosed – the financials
were there for investors to see. However, Goldman did not disclose its gradual drift from three years of
profit to one year to one quarter. Investors assumed the vetting that had existed in the past.
Partnership to corporation structure: The change at Goldman from partnership structure, where the
principals put everything they owned on the line, to corporation, by which they were shielded from liability,
was one that allowed for greater risk with little downside for the principals. The new legal structure with
limited liability resulted in the riskier strategies that the firm took.
Answers and Key Discussion Items
1. See the legal issues listed above under "Legal Issues" and discuss how Goldman fell into the gray.
Also discuss how folks were misled.
2. Most of the issues involved nondisclosure of facts that an investor would have deemed important in
making their investment decisions. The category, for the most part, was false impression because the
investors were not aware of Goldman’s positions in the market or that it had found a way around
candor about its internal discussions on risk and the quality of instruments as well as the direction of
the market. There is also a good point to discuss “moral hazard” and how allowing AIG to be bailed
out provided cover for Goldman on its activities. The “too big to fail” issue arises in this discussion
because investors lost money, but Goldman was protected. The front-page-of-the-newspaper test is
a good one here because the headlines were not flattering to Goldman. The questions of the
senators reflect the struggle with people trying to understand how what Goldman did could comply
with the law but still seem so deceptive. The law is but one part of ethical analysis. Over the long
term, Goldman failed to think through the consequences of additional regulations, the fines, and the
loss of clients because of the perception that Goldman could not be trusted and may not always be
acting in its clients’ best interests.
3. Those affected by Goldman strategies and gray areas: investors, the market, the U.S. economy and
the global economy, AIG, AIG investors, employees of AIG and other companies and investment
banks that had to be dissolved or acquired or reduced in size, employees of dot-coms, beneficiaries
of donations by companies and investment bankers (nonprofits) (also affected because they had their
endowment funds invested), real estate market because of the impact in value, all those affected by a
downturn in the real estate market including real estate agents and brokers, contractors, furniture and
window covering companies, decorators, landscapers, etc. Students can create flow charts to show
the ripple effect of these behaviors.
4. The factors that influenced their decisions were the management mantras of “Filthy rich by 40,” and
the incentive structures that produced so many millionaires so early in their lives. Goldman was also
a “toes to the line” culture finding the next big loophole to use. The culture was also, “If it’s legal,
then it’s ethical.”
5. The Goldman behaviors are a classic illustration of Carr’s theories. Was it just bluffing for Goldman to
not disclose its positions or was it a card up the sleeve? Not everyone knew the rules of the Wall
Street game the large investment bankers clearly did from their involvement in IPOs to auction
securities to their structuring of the CDOs. However, these investments made their way to the retail
level where the knowledge base was just not there. Goldman and others believed them to be
sophisticated investors by definition and it was not necessary to disclose. However, that definition is
now changed and more disclosure will be required because they clearly did not understand the
double positions.
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Business Ethics, 8e Jennings
6. The translation of these two sentences is that the culture that existed at Goldman before will remain,
with all the drive to success and that Goldman does not feel that its client base will be affected. In
other words, Goldman emerges with a fine but little contrition and a plan to go forward with the status
quo. The lessons learned do not seem to be there.
7. Fabrice was using a complex form of rationalization – he believed that what he was doing improved
the world because high finance allowed everyone in the U.S. to improve his or her lot in life through
investments. This mantra was something that was repeated throughout the Goldman culture Mr.
Blankfein believed that he was doing God’s work. This assurance allows them to continue with the
gray area activities because the cause has been defined as noble.
Compare & Contrast
Senator Collins has pointed out that there was no legal fiduciary duty but she was asking whether
Goldman needed to act in its clients’ best interests as a matter of good business practice. As the
discussion indicates, Goldman struggled with that answer and could only conclude that it was “an
interesting idea.” Goldman has a sort of survival-of-the-fittest mentality about the markets. However, it is
not factoring in the new regulations, the changes in the market so that it can no longer occupy those
legally gray areas and will be required to compete on a different basis other than loopholes. This is a
good example for discussing self-interest vs. selfishness – the Ayn Rand model.
Answers and Key Discussion Items
1. This question on immorality is loaded the European girlfriend feels that because the underlying
activity is immoral then those who support that activity are accomplices. The alibi clubs cover up
something we are doing that we don’t want others to know about. There is a simple element of the
Nash test here. If we can’t disclose what we’re doing, we have a problem. If you want to cover up
your conduct, the clubs will work, but the bigger ethical issue is what you are doing that requires the
cover-up. You may want to add a discussion of Ashley Madison here – the online dating service that
matches married people who want to have affairs.
2. This is a credo moment for discussion. If you knew you could make a great deal of money with a
business like this, would you have a business such as this?
There is money to be made here. This case is an introduction to their introspection for drawing their
lines – the lines they would never cross to be successful or to make money. The decision models that
help are the newspaper test and the “how would you feel if you were on the other side” test. And,
there are also the systemic effects of a society that supports infidelity.
Compare & Contrast
The European girlfriend is a moral absolutist who believes that it is wrong to lie and also believes that cell
phones should not be used to facilitate unfaithfulness. She sees the alibi system as a support group for
infidelity. Be sure to ask the students how they would feel if these services were used by someone they
trusted and how they would feel (part of the decision analysis models they have studied). Many students
argue for privacy but would themselves be outraged by a loved one cheating on them and that others
would be complicit in that activity. Credo moment: I would never sell a product that was used for
deception of others. I would never sell a product that would be used for misleading others.
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Business Ethics, 8e Jennings
Legal Issues
From the time of TV quiz shows in the 1950s (See Robert Redford’s film “Quiz Show” for background), the
problem of seemingly real TV shows not really being real has haunted us. The FCC can take action
against networks and producers who deceive the public about the content of TV shows that are touted as
real-time or reality.
We want to believe that it is all real; if it is not, then we are disappointed.
Answers and Key Discussion Items
1. There is a common thread in all of the actions taken – the viewing public is deceived about the timing,
the facts, or the actual outcome of a situation that they are led to believe is occurring as is, in real
time. In some situations, the deception is greater because of the staging quality such as using
actors instead of the real buyers. In the case of storage wars, the deception relates to the underlying
theme of the program which is that there is valuable stuff in storage lockers, when, in reality, there
may not be and “stuff” is just planted there.
2. There are indeed viewers who are watching to see the homes. However, the question is the
responsibility of those showing the home – they have created a premise, which is not truthful, about
the drama behind the show. Perhaps, a new show theme with just looky-loos – allow people to view
homes and then vote on which one they would buy.
3. The issue in the Amish show is really not different the set-up is not correct because they have
already left the farm long before the show documenting them leaving the farm appears. They have
already bought the house before the film crews show up to film them looking. The bottom line in all of
the shows is that what is being shown as reality TV is not reality, but is a creation.
Answers and Key Discussion Items
1. The phrases the employees use when confronted with excessive and unauthorized travel expenses
are the classic rationalizations for taking things that don’t belong to you. The travel expenses that are
not actually travel are a form of stealing.
2. Employees risk claiming extra expenses with the hope of making a little extra money, because they
feel they won’t be caught, and they feel entitled to it when raises have not been forthcoming.
3. Employees who are honest are harmed in that they are not trusted; the company is harmed in that it
has additional expenses and investors and customers are affected by those higher costs and possibly
declining sales. The extra expenses also create lower taxes based upon fraudulent expenditures. Up
and down the chain with respect to the company, there are many affected when travel claims are
inflated and created.
NOTE: Bring out the similarities between this case and the more complex Goldman case – when we
engage in false impressions or offering misleading information there are always those down the chain
– at the retail level – who are affected by our conduct and decisions. At Goldman investors who were
not all that sophisticated, but relied on the trustworthiness of the investment banks and the markets
were affected. Here, companies rely on honesty of employees, but if it is not there they pay in the
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Business Ethics, 8e Jennings
form of higher expenses, which translates into higher product prices, which affects those at the retail
level. The idea is to help students understand that no ethical breach is ever isolated in effects or
consequences and the classic, "It doesn’t hurt anyone” rationalization can be debunked through
either the complex Goldman case or this simple case of travel expense reimbursement.
4. The rationalization is “For all I do around here....“ Employee X feels that others are compensated
more than he is and that extra travel expenses are a means for him to get what’s coming to him.
Employee X has also done it for so long, beginning with little things, that he does not even
acknowledge that the conduct is taking something that does not belong to him. He has justified it for
so long that the amounts keep growing and he is comfortable both because of the rationalizations and
also because he can no longer see the bright line of “This is mine,” and “This is my employer’s.”
Answers and Key Discussion Items
1. No, the suggestions involve many ethical breaches from taking things that don’t belong to you, to
saying things you know are not true, to taking unfair advantage.
2. The publication of a book with methods for cheating demonstrates enormous “chutzpah.” That the
author did so under an anonymous name is indicative of the embarrassment the author would feel if
these tips and suggestions were attributed to him. Also, he might not be able to rent a car again!
3. The suggestions cost the businesses involved money, but there is also a trickle-down effect in that
those costs must be absorbed somewhere. Perhaps employees are not given a raise, perhaps
insurance rates run higher for the fake claims, or perhaps product costs increase. There are always
“retail-level” impacts when individuals cheat businesses.
Legal Issues
It is fraud to submit false claims to an insurance company?
There are always those who will want you to do something with which you are not comfortable. Craig has
a very clear credo – he will not cross that line into false representations in order to win business. He has
made the determination upfront so that he does not succumb to pressure if such an opportunity presents
itself. Craig lost the work on that house, but he avoids the issues that would come with an insurance
investigation and the resulting blackballing of him as a contractor for home repairs.
Answers and Key Discussion Items
1. The homeowner is submitting false information to his or her insurance company. The goal is to get
something paid for that is not something that is covered by the terms of the insurance contract. If the
homeowner owned the insurance company, he or she would see the situation differently because the
homeowner is not honoring the terms of the contract.
2. Craig is simply following the law – it is fraud to submit a claim to an insurance company that is false.
Craig could lose his license there are implications that are long term that he is considering that
others are not – they see short-term reimbursement and he see the long-term effects on his business.
For example, insurers could refuse to deal with him or caution customers against using him as a
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business Ethics, 8e Jennings
Legal Issues
Penn State has already settled a number of cases related to the conduct of the former assistant coach.
There are other claims that will go to trial or be settled because there is liability for injury that results from
the failure to fulfill your duties.
Use PowerPoint Slide 91 to keep the identity of so many people involved in the situation clear.
Organizations that experience ethical lapses that bring them front-page/Huffington Post headlines have
common practices and issues. Penn State is now grappling with the departures of its president, athletic
director, longstanding head football coach, Joe Paterno, and a vice president following criminal charges of
child sexual abuse against a former assistant football coach. Penn State lost so many leaders because
two of them face criminal charges related to their alleged failure to take action to stop the child sexual
abuse, some of which may have occurred on the campus.
MF Global’s bankruptcy trustee is hard at work trying to find $1.2 billion in missing client funds. MF Global
collapsed after the firm’s former chairman, Jon Corzine, bet wrong on Greek government debt. Oddly, Mr.
Corzine bet the funds would increase in value. Mr. Corzine has resigned, and it would be easier to list the
federal agencies not investigating MF Global as opposed to listing those that are. From the SEC to the
FBI to Congress, MF Global is under the microscope.
What do a hedge fund and a university have in common? Well, both are facing the clean-up from
accusations that destroy reputations and, in MF Global’s case, the ability to move forward. However, both
may well be in their pickles because of decisions made as their ethical collapse lurched forward. One
clear common factor and a certain precursor to headline ethical issues is the termination of dissenters.
Silence those who raise issues within your organization and, well, you end dissent. Organizations with
monolithic views are organizations that are vulnerable to ethical lapses.
Mr. Corzine fired his chief risk officer because, well, that chief risk officer had the temerity to disagree with
Mr. Corzine on the Greek bet. Penn State’s standards and conduct officer clashed repeatedly with Coach
Paterno over the level of discipline that was appropriate for student-athletes who violated the university’s
code of conduct (and worse). At one point, Dr. Vicky Triponey wrote to the now-departed university
president about her concerns following assaults by football players on other students, “I would respectfully
ask that you do something to stop this atrocious behavior before this team and an entire generation of
Penn State students leave here believing that this is appropriate and acceptable behavior within a civil
university community.” Dr. Triponey would then resign, citing “philosophical differences.”
The resignation or termination of dissenters, of course, ends dissent from the departed ones. However,
their departure also puts a big damper on remaining employees’ willingness to raise concerns. In short,
get rid of those who disagree and disagreement ends. When disagreement ends, perspective departs.
And when perspective departs, well, you find yourself betting on a failing Greece and failing to report
conduct that makes us shudder.
Don’t drive out the dissenters – let ‘em speak, early and often.
Answers and Key Discussion Items
1. The blog quote is not unusual. The comment to the blog has expressed what I hear from many
employees who find themselves coping with their organizations’ ethical and/or legal lapses that make
their way to the front page of the newspaper or become the first story on The Huffington Post. Quite
simply, these employees are saying, “Hey, I didn’t do it!” “We’re not all like them!” and “Other than
this, we are an honorable [company][hospital][university]. . . !”
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Business Ethics, 8e Jennings
The employees are quite correct. Fully 99.94% of the folks who work at Penn State were nowhere
near the showers, the athletic department, or the non-profit the assistant coach founded that allegedly
became his source for these young boys. Penn State employees who did nothing wrong are painted
with the same broad brush. They simply did not have and could not have access to people and
information that would have allowed them to realize the awful things that were going on at an
organization they valued as they toiled under leaders they respected. Stop! No more!
Therein lies the problem. The hard truth is that you can never know everything that any one of tens or
hundreds of thousands of employees is doing. Look at the difficulty pharmaceutical firms have in
reining in sales forces. Read the newspaper on any given day and you will find another company
admitting to FCPA violations because of bribery by employees that somehow got away from them. As
this goes to press, a former senator, governor, and head of Goldman Sachs is trying to explain how
$1.2 billion in customer funds invested at MF Global has gone missing. That missing part is where we
need to channel innocent employees’ frustration.
My response to employees who are outraged about very public missteps by isolated employees and
defensive about their organizations’ reputation is simple, “I could talk myself blue defending you and
nothing would take. The way to prove that this was indeed an isolated incident, thereby re-earning
that reputation is to try a little soul-searching, “’How did this happen?’ “’What did we miss?’” If we fail
to explore this question, “Could this have been prevented?”, we continue to chase the tiger by the tail,
chalking up the incident to a black-swan type of event that no one could have prevented. We are
usually wrong when we try to depict ethical and legal missteps as black-swan events that no one saw
Another hard truth is that we can always learn by finding missteps and then proceed to fix the
processes and procedures. What is traveling as a wave across the nation’s colleges and universities
is this question, “Do we have a Penn State problem?” Colleges and universities are sending around
e-mails to all hands advising, “If you see something, speak up.” Oh, and, “Here’s the person to whom
you speak up!” Colleges and universities are raising money to help child sexual abuse victims. Such
an approach is far too narrowly focused. The end result of these efforts will be higher reporting of
sexual abuse crimes and activities. There is nothing wrong with addressing child sexual abuse, and
emphasize the obligation to report such abuse. However, if we are to escape the next great scandal,
we are already behind if we are looking for child sexual abuse. Another hard truth is that you never
know what the next ethical or legal issue will be. What we need are the systemic fixes that can catch
any sort of misstep.
Penn State’s experience provides a classic case study in answering, “What Did We Miss?” A cursory
view of the Penn State case finds the following:
The former general counsel for Penn State University served as the attorney for The Second
Mile, the charity the former assistant coach founded and with which the young alleged victims
were associated. He was general counsel for both Penn State and the charity when he reviewed
the Penn State police report in 1998 on the assistant coach’s behavior with these young boys.
A janitor witnessed the alleged sexual contact of the former assistant coach with a young boy in
the campus athletic department showers and was visibly shaken by what he had seen, but there
was no follow-up on his concerns.
Other staff members who witnessed behaviors by the assistant coach explained that fear of
termination prevented them from reporting the incident further.
The young graduate assistant who told Mr. Paterno that he saw “severe sexual acts” between the
young boy and the assistant football coach explained that he could use certain terms in talking
with the coach and that he only reported it to Mr. Paterno despite being disturbed that the
assistant coach was still on the campus.
Students at Penn State rioted following the announcement of Mr. Paterno’s termination.
Penn State’s former standards and conduct officer clashed repeatedly with Mr. Paterno over the
level of discipline that was appropriate for student-athletes who violated the university’s code of
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business Ethics, 8e Jennings
conduct (and worse). Vicky Triponey wrote in an e-mail that Mr. Paterno had, "no interest, (or
business) holding our football players accountable to our community standards. The Coach is
insistent he knows best how to discipline his players…and their status as a student when they
commit violations of our standards should NOT be our concern…and I think he was saying we
should treat football players different from other students in this regard." Dr. Triponey resigned in
2007, citing “philosophical differences.” The investigation resulted in the release of e-mails, one of
which Dr. Triponey wrote to the former Penn State president expressing her concern about the
culture, “I would respectfully ask that you do something to stop this atrocious behavior before this
team and an entire generation of Penn State students leave here believing that this is appropriate
and acceptable behavior within a civil university community.” She was addressing the conduct of
six football players in beating other students in their apartment. Mr. Paterno’s lawyer responded
by indicating there was context for these issues and that the coach had produced many
successful student-athletes.
There it is again – that rationalization! "Why let one thing outweigh so much good? So there were a
few beatings. Look at the good Coach Paterno has done.” To offer this type of a response is to
sentence ourselves to future missteps.
As we glance down this list, the systemic issues are obvious. At the top of the organization there was
a tin ear when it comes to conflicts. The general counsel for a foundation founded by the suspect in a
university police report should not be reviewing that report.
There was a lack of follow-up on employee concerns that were reported. There was a culture of fear
and silence that left frontline employees (those who are most likely to have the information we need to
stop and/or correct behaviors) unwilling to disclose even the most deviant behaviors. The university
official responsible for the enforcement of standards expressed frustration and concerns over at least
a two-year period and resigned in the midst of a controversial case citing “philosophical differences.”
Perhaps the riots following Mr. Paterno’s termination provide the greatest systemic insight.
Information had surfaced that alleged horrific acts against children had occurred on the Penn State
campus and that, despite knowledge, no meaningful action was taken to stop abuse that would
continue elsewhere. The riots should have been about the harm to the victims. Instead the riots were
over the loss of a football coach. Here was a culture that was overpowered by the star power of Mr.
Paterno as well as the lure of the pedestal and funds that a successful college football team brings to
a university. A university community, at best, turned a blind eye to conduct that made those who
allegedly witnessed it physically sick. And, at worst, this university and a few of its employees may
have enabled such conduct. Indeed, the conduct was allowed to continue for years following the
university’s inaction.
“Yes, but we are a good organization with a great reputation,” goes the outrage from employees who
were not directly involved. One final hard truth is that no organization is perfect. Those organizations
that avoid top-fold, front page scandals are those that respond when a janitor raises a concern, when
a graduate student reports graphically on the conduct of an assistant coach, when the general
counsel has dual roles in a matter under review, or when the chief compliance officer resigns. Saying,
“But we didn’t do it!” will not prevent the next misstep. The key is for good employees to backtrack
with a singular focus, “What did we miss that resulted in this scandal?”
There is always a path. There were always precursors. There is always work to do in making sure
that employees are comfortable raising issues and that someone addresses those issues. Cultures
are tricky things; they can get away from us and when we lose them, as Penn State did, we open the
door for that one employee to hurl us onto the front page. You cannot know what every employee is
doing every minute, but you can have the systems and culture in place to allow that information to get
to where it needs to be addressed and, hopefully, stopped.
2. The cultural issues in the case are fascinating Why was a report not filed when the first incident
came to the attention of the administrators? Why were they so “humane” with Sandusky? Why didn’t
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Business Ethics, 8e Jennings
the local people, the social worker and others, take action? Why wasn’t the board informed? Why
did administrators frame the issue in terms of protecting Penn State instead of protecting the young
boys? The culture was protection of the players and the football program, regardless of harms to
others and signals sent through inaction. Other issues, such as those raised by Dr. Vicky Triponey,
were warnings about the ethical priorities on the campus and its culture that should have been a
sign of things to come.
3. Giving or allowing false impressions, saying things that you know are not true, interpersonal abuse,
organizational abuse, conflicts of interest, failure to balance ethical dilemmas by considering the
impact on all involved, personal decadence, failure to speak up when you see an ethical issue – this
case has virtually all the categories of ethical dilemmas.
4. The stakeholders are the boys, their families, members of the community, businesses in the
community, students, current players, prospective players, the NCAA, taxpayers who support
state-funded universities, law enforcement agencies, elected officials.
5. The case teaches us that we not only have an obligation to speak up that we need to keep
speaking up until a problem is resolved. The damage that was done after several incidents might not
have occurred had those involved raised the issue and continued to raise it until it was resolved.
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