978-1285428710 Section 3 SECTION 3C

subject Type Homework Help
subject Pages 14
subject Words 11404
subject Authors Marianne M. Jennings

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Business Ethics, 8e Jennings
This section discusses the relationship between and among, ethics, stakeholders, moral responsibility,
social responsibility, and sustainability. There is also discussion about various economic systems, such
as capitalism, and ethics. The section explores whether the attitude of “What’s good for GM or Razorfish
is good for the country” is the proper role of business in an ethical and social responsibility sense.
Milton Friedman
Use PowerPoint Slide 92.
Answers and Key Discussion Items
1. Mr. Friedman compares the discussions about social responsibility of business to the story of the
Frenchman who was surprised to learn he had been speaking “prose” all of his life. Mr. Friedman
feels that such discussions are simply socialism for they attempt to hold businesses accountable to
more than just their owners. Mr. Friedman is also dismayed at the lack of rigor in the discussions.
2. The corporate executive is selected by the shareholders (or, more accurately, the shareholders elect
a board and the board is in charge of the officers) as an agent of the shareholders and as such, the
executive is accountable to those shareholders. He is an employee of those shareholders and has
direct accountability to them. To the extent he wishes to become involved in social issues and
causes, he should do so with his own money and not the money of the corporation. If he involves the
corporation’s money in such causes, he is using the money without shareholder consent and is, then,
in effect, imposing a tax upon the shareholders to accomplish a public project that can otherwise not
be done because citizens have decided otherwise.
3. When unions engage in restraining wages in the name of the social good, the likely result is wildcat
strikes, revolts and the emergence of a new work force.
Compare & Contrast
Yes, Mr. Friedman does support voluntary actions on the part of the corporation if the corporation can
show that there will be benefits that workers, shareholders or customers can gain through the voluntary
conduct. For example, if a town where a business plant is located has become so contaminated with
pollution that the company can’t attract and keep long-term employees, then voluntary action in order to
clean up is something Mr. Friedman would support despite no legal requirement to do so. Dr. Friedman
did support business involvement in changing the education system (he was a proponent of voucher
systems that allow students to choose which schools to attend) because if the education system is a
failure then businesses must absorb the cost of training workers in basic skills. As for philanthropic
donations, Dr. Friedman would have to see a direct connection between the donation and business –
cheaper advertising might be a reason. Eliminating boycotts for not making donations might also be a
reason. However, Dr. Friedman’s view would be that the company should make money, return that
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Business Ethics, 8e Jennings
money to shareholders in the form of dividends, and then allow the shareholders to make their own
decisions about donations. The latter policy is the one Warren Buffett has followed with his companies
and thereby avoiding the often contentious areas of politically charged donations.
Use PowerPoint Slides 93 and 94.
Answers and Key Discussion Items
1. Stakeholders include customers, suppliers, vendors, contractors, employees, members of the
communities where they do business, and some theorists include competitors as stakeholders.
2. Management’s role in the stakeholder model is to play the role of King Solomon in balancing the
interests that often conflict while preserving the corporation. King Solomon is used to show the
wisdom management must exercise in slicing up rights and property among stakeholders. Kant is
used as a foundation for the notion that corporations should treat customers as an end unto
themselves. How would businesses want to be treated? Is the standard to be applied to customers?
3. Use the example of Yucca Mountain and spent nuclear fuel to cover the diagram of stakeholders:
a. The homeowners near the facility
b. Owners and shareholders in companies that own nuclear plants
c. Businesses that could expand with continuing growth
d. Those who live around existing nuclear plants where the spent fuel is currently being stored
e. Surface traffic in the area because of additional congestion
f. Landowners in the area – value of their land may increase or decrease
g. Adjoining communities
h. Government agencies because of their collection of taxes – revenues would increase
i. Employment opportunities for the area mean local residents are stakeholders
j. Environment – safety issues
k. Transportation companies that would transport the fuel
In short, have the students go up and down the economic chain.
City (more revenues) Landowners (safety)
Nuclear industry Anti-nuclear groups
Employees of power plants Other utilities – they can sell more power if nuclear
plants are shut down
Construction firms Antigrowth groups/environmental
Landowners around Yucca Mountain
Businesses in the area
Ground transportation firms
Other states who want a facility elsewhere
Use the example of the proposal to build a mosque at Ground Zero – where the WTC towers were
once located. The stakeholders in the mosque at Ground Zero are:
a. Families of the victims of 9-11
b. Members of the religious group that seeks to build the mosque
c. The Muslim faith
d. Local contractors – work available
e. Local citizens – those who need work
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Business Ethics, 8e Jennings
f. Local businesses in the area – concerned about safety and security
g. First Amendment advocates who want the right to speak via religious structures
h. Religious freedom proponents
i. Local officials – zoning and other issues
j. Other churches that have been denied to rebuild near Ground Zero
k. Law enforcement officials – security issues
l. State Department – impact of decision on foreign relations
m. U.S. military – possible retaliation
n. Other U.S. businesses because of boycott threats
The example illustrates one of the flaws of stakeholder theory – in emotionally charged issues such
as this one – who takes priority on the decision process?
John Entine and Marianne M. Jennings
Use PowerPoint Slides 95 and 96.
Answers and Key Discussion Items
1. The authors grapple with the simplicity of the social responsibility movement and that it is difficult to
put “white hats” and “black hats” on companies. The authors also propose a way to evaluate
companies that is a compromise between the Freeman all stakeholders approach and the Friedman
position of largely focusing on shareholders.
2. The traditional measures of social responsibility can be addressed on the surface in a superficial
manner – the screens are very simple. However, the questions require a deeper and harder look at
the companies and it is more of a 360-degree perspective that examines all aspects of their
3. Yes, tobacco companies could be labeled an honest company, provided they did not behave as they
did initially by withholding information about the harmful effects of the product. The questions require
firms to be honest about their products without making judgments about the product itself – if the
product is legal. However, the list includes honesty in claims.
Robert Halfon
Use PowerPoint Slide 97.
Answers and Key Discussion Items
1. Halfon sees risk management, in advance of decisions, as the proper means for corporations to
handle stakeholder groups and issues and concerns. Businesses should review the political risk of
an activity and respond and plan for such in advance.
Once businesses have seen and evaluated the risk, it is incumbent upon them to develop a public
relations campaign to address the issues that result from the perceived political risk.
Halfon says businesses need to be proactive, not reactive, in dealing with these issues. Halfon also
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Business Ethics, 8e Jennings
notes that businesses need to band together and take general steps to halt the undemocratic
activities of stakeholders.
2. The downside to the Halfon approach consists of several factors: (1) the failure to anticipate all of the
objections; (2) the failure to accurately assess the strength and resolve of stakeholder groups; (3) the
likelihood that any PR campaign will be seen as self-serving. For example, the WTO meetings in
Seattle resulted in violence erupting because the parties involved had not anticipated the strength of
the resolve and the nature of activity they would use to object to the generic intergovernmental trade
Be sure to contrast the views of Kelly and Friedman for the students in the discussion of this reading –
use PowerPoint Slides 98 and 99.
Answers and Key Discussion Items
1. Mr. Mackey believes that most entrepreneurs do not start businesses for profit – they start businesses
because they have an idea, because they think they can make society better with a product or
service, or because they want the flexibility of being their own bosses. In short, he believes that other
motivations are responsible for the drive to be in business and stay in business.
2. Mr. Mackey believes that you don’t have customers unless you have good products and good
services. Likewise, you won’t have employees if you don’t treat them well and allow them to provide
the service that you need for retaining and getting customers. He sees it all as a logical flow running
together – you make money because you satisfy all the stakeholders’ needs. However, he knows that
if the customer is not happy, the rest collapses – he focuses on good products and good service and
the rest falls into place.
Compare & Contrast
Mr. Mackey is between the two he believes that one cannot operate successfully by ignoring
constituencies, but he is not anti-profit. Rather, he believes that profits come because of a sensitivity to
the needs of all the constituencies.
Kelly provides the contrast for Friedman and Novak. But, point out to the students that she is also
different in her philosophies of stakeholder theories – use PowerPoint Slide 99.
Answers and Key Discussion Items
1. Kelly believes that the wealth of corporations comes from the employees, but because they don’t
have an ownership stake, others benefit from their work. Kelly would shift the rewards from running a
corporation from a return to investors to the employees.
Kelly believes that corporations are governments of the property class and that they exercise power
over Americans, more power than kings ever did. She feels that corporations take away rights that
need to be restored. She believes that shareholder primacy thwarts corporate movement to wider
economic distributions.
She believes that only a small group of wealthy people are happy (the shareholders) and the rest are
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Business Ethics, 8e Jennings
serving the wealthy people. She believes that if corporate returns were redistributed, with
shareholder primacy taking priority, that there would be happier people.
2. Kelly wants economic democracy through the elimination of economic aristocracy. Employees would
be on the same level as shareholders/owners of corporations. Wealth belongs to those who create
the wealth. She would also permit those who create the corporation and its wealth to abolish the
corporation when it does not follow the principles of economic democracy.
Use PowerPoint Slide 100.
Answers and Key Discussion Items
1. Yes. Dr. Friedman is a bit of a blend. He believes managers should manage the business and
society will benefit. He also believes, however, that it is in the business's and society's best interests
to think about long-term costs and impact on the ability to do business, recruit talent, and continue
with lower costs. Across inherence and enlightened self-interest and invisible hand, Friedman would
support voluntary environmental protections if the manager could show that the business benefits.
He would not, however, cross into the social responsibility school.
2. The voluntary change in the wood might not satisfy the customers, who are stakeholders. However,
there are other stakeholders – the countries from which the wood is harvested and the impact of the
continual harvesting on their ecosystems. Some might say that if the wood is not to be used, then
those who are stakeholders should step up and get the necessary laws in place to protect it. The
company is simply meeting a need for a certain type of wood in pianos. Others would say that the
company has a duty to serve society by protecting its resources and if it can protect the resources by
switching to another wood, it should do so. Enlightened self-interest and social responsibility would
make the change. Inherence and invisible hand would say if society wants the use of wood changed,
it will do so. Until then, the company should produce the product that meets customer needs.
Use PowerPoint Slide 101.
Answers and Key Discussion Items
1. Have the students discuss the line between allowing a social movement to progress and capitalizing
on that movement, that is grounded in tragedy. The company here may have taken the best
approach – don’t get involved and issue a simple statement. The company has sales increases
because of a tragedy – that’s a delicate balance to address in any way other than acknowledging the
tragedy. No matter which way they turn in taking a position would result in stakeholders being
2. The issue of donations is another question – perhaps Wrigley just chose to stay out of the issue all
together because of its emotion and so many raw feelings, but a donation to certain groups that are
widely respected for their interracial outreach could help calm the situation that was evolving.
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Business Ethics, 8e Jennings
Answers and Key Discussion Items
1. While the manufacturers and sellers of the Saturday night special weapons may not be legally
responsible or liable for the injuries or deaths caused by their weapons, there could be moral
accountability. Ease of availability and relatively low prices make guns readily available. Some slip
into the illegal weapons market and are sold without registration. There is no question that the cheap
products’ availability increases the likelihood that there will be more guns, purchased by those for use
in areas that enjoy the least amount of protection.
The trend has been not to hold those who manufacture and sell liable for the illegal acts committed
with guns, however, moral culpability arises particularly in those cases in which the seller has not
been discerning in screening the applicants or when the ease of availability makes the market
2. The successful market niche of the Jennings’ weapon is one part of the ethical analysis. A second
portion would be to examine other stakeholders. Doesn’t ease of availability make it better for those
who seek to buy guns for protection, but cannot generally afford them? Will price make any
difference to the criminal element, for won’t they pursue the weapons illegally if they must? Is the
company providing a service by making the weapons more widely available? Also, incorporate the
reading on the Second Amendment here to provide a discussion of the emotional rights issue that
surrounds all of these battles against guns. In short, students should not abandon stakeholder
analysis simply because of their personal views on gun point.
3. The Second Amendment adds a legal angle to the production and sale of guns. It also adds an
emotional element because of its origins and our longstanding understanding of its importance in the
resistance to tyranny. An ethical question is whether this right is so important that it trumps other
concerns and whether it is an “unalienable” right or whether one that we are willing to compromise. It
presents a classic conflict in the schools of ethical thought – rights vs. utilitarianism vs. natural law.
4. The Smith & Wesson dilemma is a good one to use to show the students how the failure to consider
all stakeholders is a dilemma that can be very costly to the company. In this situation, and perhaps
for many different reasons, Smith & Wesson assumed that it was doing the “right thing,” because it
was removing guns from the safety equation. However, the company did not understand its customer
base, nor did it understand that there were others who felt a moral issue with regard to the right to
keep and bear arms.
The case is a good one to also illustrate that there are times when a business cannot possible please all
of its constituencies and then what? What seems socially responsible can actually end up costing jobs,
as it did here.
Answers and Key Discussion Items
1. Generally, we do not hold those who run ads responsible for what happens as a result of those ads –
connections are made and, in the case of Soldier of Fortune magazine, in one situation, a mercenary
was hired through a bodyguard ad placed there and killed someone’s wife for money. The wife’s
estate filed suit against the magazine. However, the court held that we cannot expect a newspaper or
magazine (or in this situation, Internet site) to check every ad placed with it – liability results when the
magazine, newspaper, or site becomes aware of problems with ads or advertisers and takes no
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Business Ethics, 8e Jennings
action to remove the ads or refuse to run them.
2. The stakeholders are the users of the site, their friends and family, law enforcement agencies in the
areas where ad placers and responders live, buyers, sellers, and other advertisers. The decisions
made by Craigslist on how to react to these issues will affect other Internet sites and other methods of
Answers and Key Discussion Items
1. In cases such as this, with highly emotionally charged issues, the companies cannot win. They have
encountered issues in which public opinion differs and public outcry on both sides is strong. Also, they
are involved in issues about which the public rarely changes its minds. There are entrenched and
highly committed views on topics such as abortion.
On issues this sensitive, tying marketing to contributions is a fatal mistake. Under Friedman's notion,
the company's voluntary giving is costing it customers and should be avoided.
If the contributions are consistent with the firms' values, they may not be consistent with a group of
customers' values. These donations are lose/lose propositions and need to be avoided. The
downside is the impact on organizations that rely on corporate funding for survival.
The ethics of the situation are that attacks be answered or the firm loses customers and money; a
violation of its duties to its investors. From an economic perspective, giving in may save shareholders
money and removes the company from the social issue debate. Friedman suggests that managers
should not impose their personal beliefs and causes on their companies.
2. The stakeholders are the cancer patients, their families, the research funding, and other contributors
to the fund. The boycott proved to be destructive for the Komen Foundation with donations lost.
Perhaps the question is whether it was worth affecting a good cause for a stance on an issue about
which people could disagree. Abortion is an emotional issue, and most people do not readily change
their positions regarding it. However, we can all agree that finding a cure for cancer is a good cause
perhaps those involved should have weighed the effect of their boycott, including all the
3. Yes, Merck’s dilemma is not as easily solved as Dayton-Hudson’s philanthropy and contributions.
This is a product line that has profit potential. The issue is directly related to the business and is not
peripheral. Discuss with the students late-2007 developments that have found ways to do research
without killing the embryos. Why is this solution, outside the either/or conundrum of killing embryos
vs. saving lives, so important? What lessons do we learn for company policies based on this
experience of an evolved solution that avoids the controversy?
4. These companies (Walmart is one) have made a decision not to draw controversy by simply not
dealing with the product. There are lost revenues, but the data indicates the loss is not significant in
comparison to boycotts that would have occurred. The decisions vary because the customer base
may be different for certain companies. Many pharmacists have objected on moral grounds. In large
population areas, it is possible to accommodate the pharmacists and adjust schedules and
dispensing so that the pharmacists can avoid the moral dilemma (note for students that the
pharmacists have drawn a line as part of their professional lives/credo). In small, rural pharmacies,
the accommodation is not possible. Because of logistics, some companies have not been able to
accommodate, or they have avoided the issue altogether by not carrying the product.
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Business Ethics, 8e Jennings
Use PowerPoint Slides 102 and 103 – “Social/Regulatory/Litigation Cycle”.
Answers and Key Discussion Items
1. Some examples of issues that are currently in the latency stage of the regulatory cycle:
a. Cell phones – safety issues with driving and some regulations and prohibitions on their use.
Some states prohibit use while driving. The issue continues to evolve.
b. ATM fees – amounts, double-charging.
c. Credit card payments – must arrive by 9 AM on due date to avoid late fee charges and mail is not
delivered by 9 AM.
d. Late fee charges on credit cards and excessive amounts.
Last edition these three issues were evolving and now these are all areas that have been
resolved through regulation or are being resolved through civil actions by regulators
Dodd-Frank Wall Street Reform and Consumer Protection Act – payments cannot be due until the
close of business and banks are reeling from settlements related to excessive ATM and
debit-card fees. New regulations are pending on these charges. Wells Fargo lost a suit in which
customers demanded refunds for the overdraft fees charged on their debit cards.
e. Prescription drug advertising on TV, in magazines, etc., and whether consumers are using more
drugs as a result.
f. Tattoo – regulation, licensing, and minors.
g. Cosmetology – permanent cosmetics and regulation there.
h. Tanning beds and skin cancer.
i. The subprime lending market is one that has percolated along for years and is now in full blown
regulation because of the foreclosures and economic fall-out from those loans. Dodd-Frank
Financial Reform Act now regulates these loans, in everything from determining creditworthiness
to disclosures about the types of terms.
2. Businesses could limit fees, control cell phone use – any action that is voluntary and addresses an
evolving issue is action that may stave off regulation and save money in the long run. It is also action
that provides the business with tremendous goodwill and reputational capital because of the voluntary
nature of the action taken.
Regulation and litigation mean more cost, more details, and more time, but not necessarily a
resolution. Use PowerPoint Slide 103 to show the relationships of these factors by graph.
Use PowerPoint Slides 104 and 105.
Note: The Fannie Mae case has been in the text for several editions. The case initially appeared in the
book because the company had been named by Business Ethics magazine (Marjorie Kelly, editor) as the
most ethical company in America. However, in 2005, one of the years in which the honor was bestowed,
Fannie Mae had to issue a restatement of $7 billion. With the exception of Franklin Raines, the
leadership of the company remained and Fannie began its amazing expansion into the acquisition of
home mortgages, including a significant number of subprime mortgages, particularly from Countrywide
Mortgage. This new case takes up the story after the restatement in 2005 to the 2008 meltdown and
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Business Ethics, 8e Jennings
eventual government takeover of Fannie because of the drop in real estate values, the resulting mortgage
defaults, and a portfolio so large that there could not be sufficient guarantees without federal intervention.
Answers and Key Discussion Items
1. Point out to the students that the external evaluation process has not been effective in detecting
fraudulent or weak company structures and ineffectual boards. This case is yet another illustration
that one cannot equate social responsibility with the basic virtue ethics. A company can be socially
responsible in its community and still engage in earnings manipulation that eventually rises to the
level of fraud. Virtue/Aristotelian ethics are different from the caring/community ethics of social
responsibility. There also does not appear to be a connection between corporate governance and
social responsibility. A company can be socially responsible and still have a weak board and poor
processes. In fact, note for the students that they will be studying a few cases in which weak boards
allowed excessive social responsibility that then brought attention to the officers of the company for
their noblesse oblige.
2. The signals at Fannie Mae that were missed included phenomenal earnings performance that just
kept going; an officer team completely focused on the share price and numbers because their
bonuses and compensation were tied to that performance; promised continuing double-digit growth;
flexible accounting treatment for assets and loan quality; bonus plans tied to EPS with a specific
number in mind; off-the-books losses; amortization policy flexibility; and creative accounting terms
such as “arbitrary volatility.” Mr. Barnes tried to raise the red flag on all of these practices but he was
rebuffed within the culture of Fannie Mae because of the focus on EPS, the high success of the
company, etc.
3. Incentive plans and bonuses should be encased in a set of values, a credo if you will. And those who
are responsible for the administration of internal controls who are covered under bonus plans seems
to be conflicted and cannot be counted on to maintain those controls or even respond to questions
and concerns raised by employees about the plans.
4. Dealing with volatility was not the issue. Those at Fannie Mae were using volatility formulas to
manage earnings so as to meet goals for incentive plans. The changes were not necessary from a
true financial picture perspective; they were made to suit the needs for earnings figures at the time.
5. The pep talk was strictly numbers based. And the executive presented the goal as a “no excuses”
proposition. The 6.46 EPS became, in the words of the office, “a moral obligation.” That talk coupled
with the “no more surprises” philosophy almost guaranteed that employees would remain silent about
issues and concerns. And the way Barnes was treated also sent a powerful signal to the culture that
dissent and questions were not appropriate. There are some lessons for students about constantly
talking about numbers with no parameters on achieving those numbers or even a philosophy of no
excuses for not achieving those numbers. Also, there was little discussion of ethics, values, lines not
to cross in reaching goals. The culture was consumed with meeting the earnings figure.
The promise of “too big to fail” was one that indicated institutions such as Fannie Mae, AIG, and
Goldman could not be allowed to fail because of the impact their failures would have on the markets
and, as a result, on the economic system. If there is a known risk in investment, those who are held
accountable for that risk are more measured and careful, according to the moral hazard theory. The
moral hazard theory could have helped Fannie in its rapid expansion. If it knew that it was on the line
in the event the mortgages failed, its expansion may not have been as rapid. For Countrywide, its
expansion into riskier home mortgages and the writing of mortgages without income verification or
sufficient down payment would have been more measured because the company would have been
on the line. Instead, it was passing the risk along to Fannie and Fannie perceived that the federal
government would rescue it. Finally, if individuals understand that they are responsible for the risk of
a decline in property values or a decline in their income or loss of job and that such circumstances
may make it difficult to continue with their house payments, they are more measured in the decisions
they make about their type of mortgage, the size of the mortgage, the down payment, and other
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Business Ethics, 8e Jennings
factors that serve to reduce that risk.
6. There are economists who say the walk-away is the smart thing to do because business does it all
the time. “Everybody does it” precludes ethical analysis. Ethical analysis looks at the impact our
choices and conduct have on others, including neighborhoods, communities, and the economic
system. In lieu of, “Hey, I’m just getting what I can just like everyone else,” ponder, “What if everyone
behaved as you are?” What would things look like if everyone just walked away? Well, the economic
collapse and resulting defaults and foreclosures that we have lived through is what happens. The
market was glutted with homes and prices, even for the above-water mortgage folks, fell further.
Everyone was affected in the values of their homes by the behavior of lenders and borrowers. Without
consequence for default, default became easy for so many. The real issue is what will happen in the
future if there is another crisis in the economy or land values – has the door been opened for there
being no moral hazard to failure to pay.
Use PowerPoint Slide 106.
Answers and Key Discussion Items
1. The ethical issues include:
a. Safety of the passengers
b. Medical care for passengers
c. Fairness of contracts with passengers
d. Labor and employees on the ships
e. Crime rates and investigation of crimes
f. Environmental issues
g. Problems with drinking and ship captains
h. Passenger injuries
i. Lack of country affiliation and payment of taxes
2. The benefits are that they are not subject to U.S. court jurisdiction (for the most part) and that they
are not required to pay income taxes.
3. Their overhead is reduced because they do not have as much regulatory compliance, their wages are
much lower than resort wages would be.
4. Marjorie Kelly’s theories were put forward in response to wage disparity situations such as this – she
would allow them to earn a higher wage because the ships can’t function without them.
5. ICCL is trying to stay ahead of the regulatory curve by taking voluntary actions.
6. Controls on ocean dumping, greater number of health-care professionals on board the ships, prompt
investigation of crimes and cooperation with authorities, more access for the disabled, willingness to
arbitrate contract disputes.
Legal Issues
The First Amendment protections are against government abridgement or interference with our right to
speak, not because individuals are offended and react with a boycott or protest. Individuals can respond
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Business Ethics, 8e Jennings
with actions that do harm us, but they have not abridged our rights – only the government can abridge
those rights.
Further, clarify for the students that First Amendment protections apply to GOVERNMENT control of
speech, not private decisions on what to publish, produce, or broadcast. This is private action and not
technically a First Amendment dilemma.
Answers and Key Discussion Items
1. It is artistic freedom, but the sensationalism of it all does make money. Freedoms also bring
responsibilities – some discretion must be used to enjoy the First Amendment protections we have.
2. Discuss with the students how they would have gone about making the decision. Remind them that
the head of Time Warner’s record division was terminated in June 1995. Levin should have been
more sensitive to public backlash and to institutional investors’ concerns. He should have thought
through some of the long-term implications.
3. Time Warner does not want to be seen as a censor. Remind the students that the First Amendment
prohibits governments from censoring speech. Private individuals do not have to support, sponsor, or
produce speech they find offensive or against their best interests. The artist can always sing. He or
she is not entitled to a record producer or air time.
4. Shareholder objections should influence corporate conduct. As Milton Friedman phrases it,
managers of the corporation are simply agents of the company and are accountable to them. If you
can’t sell shares, there is no financing for the company. Also, if a large fund such as the pension plan
for the police officers sells shares, there will be market impact on the price of the shares.
5. The termination of the executives associated with the decisions for this product demonstrates, at least
indirectly, Time Warner’s message that the company cannot have these types of controversies.
Although Time Warner may have stood on a soapbox and preached First Amendment rights, its
bottom line dictated different conduct. Those who cause these types of difficulties with products
cannot remain with the company. There was no protection for the executives responsible for the
public and shareholder outcry.
6. There is great irony in Ice-T’s new found success in his role as a police officer.
7. Ironically, the Rolling Stones are exercising the rights they have under intellectual property protections
to prevent the use of their music in a way that they find offensive. There is no abridgment of rights
here because they are not a government entity. They are placing limits on artistic expression that
uses their copyrighted material. Lil Wayne is free to express himself as he wants and use whatever
language he wants but he cannot use the Rolling Stones’ materials as the foundation for his style of
music. In this case, the artists were offended by the use of their material. Time Warner was
defending the artist’s rights. The Rolling Stones were drawing a line with their rights in the intellectual
property. They Rolling Stones reached a different decision from Time Warner about the quality of the
Compare & Contrast
Why was Reebok's position with Ross so different from Time Warner's position with Ice-T? Reebok
reacted quickly, but Reebok was also not coping with the artistic issue – it was dealing with a product
endorsement and it had more flexibility.
It is always difficult for companies to imagine the kinds of issues that celebrities and sports figures can get
involved in. Morals clauses could be based on headlines or Internet coverage. Clause could include
anything that would tend to affect the brand or reputation of the hiring organization. Any criminal charges,
any termination of contracts with other organizations, give them the right to terminate. There are creative
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Business Ethics, 8e Jennings
ways to get morals clauses into a contract as measured by external metrics. There could be general
coverage such as “any conduct that causes the company to be reflected in any form of media in a
negative light or brings ridicule to the company or damage to its brand.”
The values in conflict are our respect for the right of expression vs. the accountability to shareholders,
stakeholders, and the moral ecology of our communities. There is money to be made from such CDs.
Indeed, the publicity from the controversy may well generate sales. On the other hand, there is outcry
from a large group of shareholders about the property of such a CD and its lyrics. The case is one that
deals squarely with the Novak responsibilities of a corporation, such as dealing with the moral ecology of
the community. The CD presents an issue of whether the problem is exposed for purposes of being
addressed or whether the problem is exacerbated through glorification in a song. Executives differed
because some saw the exposure of social blight as important, along with the notion of artistic expression.
Others saw the issue as one in which, regardless of those values, a line was crossed that stepped on the
toes of police officers as well as shareholders. These are emotionally charged issues upon which people
disagree. Point out to the students that this may well be one of those issues that makes Friedman’s point:
stay away from social issues as a business. No matter which way the company turned on the issue, there
would be backlash.
This case, changed from last edition, shifts from a focus on the baseball steroids scandals (which are
ongoing) to a way to understand the various levels of ethical issues and how some levels of ethical issues
cannot be fixed unless and until there are organizational and industry changes. Use PowerPoint Slides
107 and 108.
Answers and Key Discussion Items
1. MLB was not involved in the supplying of steroids to the players, so there is no legal or criminal issue
involved. The dilemma is one of, “Well, you could continue to see the player usage and not be legally
responsible, but should you?” Just using a Nash model question, “Who could your decision impact or
affect?” In the case of steroid use, it is obviously the players themselves, but there are young people
who look up to the players and might be influenced by their choices on steroids. There are those who
play the game without performance enhancing drugs and they are affected, as are those players who
have come before and held records.
However, the long-term implications need to be considered. This type of below-the-radar activity
does have an influence on organizational culture and the activities of the players can influence the
quality of the ball clubs and the ability for the sport to continue without all players participating in the
use of performance enhancing drugs.
MLB cannot wash its hands of responsibility if, for no other reason, than that the usage does affect all
players, all teams, and the sport itself, including those young people who play the sport and idolize its
2. The rationalizations that occurred included: “Everybody does it.” “This is the way it has always been
done.” “It doesn’t really hurt anyone.” “If I don’t do it, another player will and another club benefits.”
“We’ll wait until the lawyers tell us there is a problem.” This is the club and industry level of the issue
of PEDs. The use became so pervasive that if you did not use PEDs, you simply could not compete
in the game, at least that was the feeling of most players who took the PEDs, The game becomes
corrupted when it does not follow its own rules and those who play by the rules are harmed as a
By turning a blind eye, the clubs hurt themselves because some used and some didn’t and only
certain teams were able to benefit from the use of steroids. Ignoring a social issue that affects your
business is not something any of the schools of social responsibility in business advocate. When a
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Business Ethics, 8e Jennings
social issue impacts directly your business, you must become part of the social issue’s resolution.
The MLB’s steps taken with regard to Palmeiro demonstrate a commitment to begin solving the
problem, with testing and sanctions. Enforcement is a key part of culture. Each enforcement action
by MLB works toward elimination or reduction of the steroid problem. And the sanctions are at least
something more than “turning a blind eye.”
The Commissioner is explaining that those who abide by the rules are at a disadvantage when the
rules are not enforced and players are permitted to get away with steroid use. The players who abide
by the rules cannot be as strong or large as those who use steroids. They are placed at a competitive
disadvantage for obeying the rules. The same is true with academic dishonesty. Good students are
hurt competitively by students who cheat because their records look the same even though the
cheating students have not worked as hard nor mastered the material effectively as the good students
have. Yet, they are subject to the same competitive standards. You can no longer distinguish
between talent and skill and fake or enhanced performance.
3. Sandberg has a very clear personal credo about the way to play the game. In fact, he is a purist
when it comes to ethical thought because it is important to him to not only abide by the rules because
there will be rewards, but to abide by the rules because it is the right thing to do. Sandberg is a moral
absolutist who has honored the rules despite the potential for finishing behind those who don’t.
Sandberg would be a case study for Albert Carr because although he sees what the competition is
doing, he will play by the rules.
The sagas of McGwire and Bonds are the results of what happens when rules are not enforced over
a longer period of time. These two players have been allowed to achieve certain goals while violating
the rules. Now, the result is (good Laura Nash observation – how did they get into the position of the
Hall of Fame question? By not taking action on steroids earlier). The debate on the Hall of Fame
rages on. Some feel Bonds will make it because he was not like Rose in terms of betting on the
game. Others feels that the records are not real, cannot be established as real, and that these
players should not be ranked with those players who abided by the rules of the game.
There are many lessons here. One is that the truth percolates. Everyone danced around the issue of
steroid use for a long time, but eventually the Mitchell report revealed that steroid use was in all clubs
and that inaction had exacerbated the problem. The Mitchell Report, released in December 2007 was
not kind to the clubs or the players. The Report names names and encourages swift action on the
part of MLB. The long-term abuses have resulted in extensive enforcement and self-regulation.
Regardless of whether the players such as Bonds and McGwire are inducted, and regardless of
whether there is an asterisk by their names, they will always be known for their steroid use and not
their baseball skill.
The lessons for a credo are fairly straightforward. I would never engage in illegal activity in order to
get a job, to keep a job. I would never lie when confronted with the truth about my behavior. There
are so many fundamental lessons that might have benefited Mr. Clemens. For Mr. McNamee, the
credo is one of never helping someone to break the law in order to keep my job, stay in the big
leagues, etc. There are some basic credo principles of “Never break the law for personal gain” (we
want to leave some room for conscientious objection on the philosophical side of the ethics coin).
4. The layers addressed here are the clubs and the industry. Use PowerPoint Slides 109 and 110 to
illustrate the pressure the players were experiencing, as well as their trainers, and how widespread
the behavior was. The union can have a role in affecting the industry by dealing with the issue
head-on and using union power to demand testing and enforcement. The union is a stakeholder – to
the extent the game is profitable, they can negotiate more for their players. However, to the extent
the public reacts negatively to behaviors of players, the revenues decline and there is resulting impact
on player contracts.
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Business Ethics, 8e Jennings
Legal Issues
So, to some extent, prescient thinking was present here, but such advance warnings exacerbate hindsight
bias. At the time, the compounding companies may have been acting in good faith by challenging the
increased federal regulation in an area traditionally under the states’ authority.
With hindsight bias, the lobbying efforts are depicted as the evil acts of business owners trying to hide
shoddy practices. And the question, because of what has happened becomes, “If you were so safe, why
were you so worried about additional regulation or inspections?” In hindsight, even benign acts
undertaken within our rights can seem diabolical.
Its operations are under the microscopic scrutiny that hindsight bias brings. On the one hand you have
many former employees and customers who express shock at the events because they felt the company
was meticulous about safety. On the other hand, there are employees who have offered information about
the company’s culture and the signals they received as they worked in production.
Oh, what wisdom from that simple sentence, “That won’t fly here.” That sentence is the key to avoiding
the grueling punishment of hindsight investigations. Hindsight investigations are only grueling when you
have those rounded corners, those little day-to-day meanderings away from the rules. We meander and
allow employees to meander because there is no immediate consequence when we slip off the mark just
a bit. For example, those who fly know that flight attendant enforcement of “turn off all electronic devices”
is spotty at best. Airplane mode is good enough for many passengers. And some passengers are able to
continue watching their DVD right through take-off and landing. Some flight attendants surrender after
passengers fail to heed the first three requests. The lax enforcement is probably due to varying opinions
on the effect of such devices on the plane’s equipment. No one sees any immediate harm from being lax.
However, one airline incident will find the FAA, passengers, and relatives lined up with magnifying
glasses, explaining the lack of enforcement on electronic devices. We often cannot see the
consequences of not following the rules until hindsight teaches us, or, at a minimum, punishes us for lax
“That won’t fly here” takes on new meaning with this illustration. All employees have the right and the
responsibility to speak up when they see any slip, however slight the rounded corner, in compliance. In
fact, there are teaching moments when someone proposes a little bend of the rule for expediency’s sake.
The clear signal should be a simple, “That doesn’t fly here.”
Answers and Key Discussion Items
1. The compounding labs were permitted to operate without much regulation as long as they kept their
operations clean. However, once this incident occurred, a wave of state regulations came about
because of the concern that the labs could not be trusted to operate within appropriate safety
standards. One bad actor can change the regulatory atmosphere of an industry. The pressure in the
lab on employees was tremendous. Use PowerPoint Slide 111.
2. The good labs are lumped in with the one that caused the problems. Those in an unregulated
industry are prisoners of each other – their bad and good behavior paints them all with the same
3. In an industry, those businesses that take the lead in eliminating bad actors will benefit because the
regulation will not be necessary and they can continue with lower costs. But, if the bad actor
influences the rest of the industry, then the regulation is inevitable because of the failure to
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Business Ethics, 8e Jennings
Richard MacLean and Marianne M. Jennings
Answers and Key Discussion Items
1. According to the authors, the CEO should take a leadership role on environmental issues in a
company. The recommendation is consistent with the “tone at the top” ideal. Employees watch what
the CEO does and take their signal from that behavior, attitude, and dedication.
2. Thirty years ago the environmental issues were responses to existing problems. Today’s
environmental issues are not as obvious as the polluted air or water – they are evolving and not as
noticeable, but still require action if further harm is to be prevented. There is also a complacency that
has set in because of compliance with environmental laws. However, true to the regulatory cycle,
more issues are evolving.
3. The authors cite EMF as an example of an issue that was managed effectively for the benefit of all
and the silicone implants as one in which the companies did not handle the issue well in terms of
disclosure. The result was one industry has moved beyond EMF and the other industry continues to
wallow with minimal sales despite government approval of the product following the debunking of the
original studies. The business benefits of survival are obvious.
The examples illustrate that many perceive the battle of environmentalism vs. companies to be war
and that all is fair in love and war. The polar opposites approach fails to take into account the mutual
benefits that could come from working together for the mutual goals of safety and preservation.
Answers and Key Discussion Items
1. Stakeholders include the government, the buyers, the suppliers for the car’s parts, the electric car
industry, environmentalists, and communities with an interest in the car’s production, where the
factories are located, and also in communities who desire electric vehicles.
2. No matter what stakeholders want, their desires cannot be satisfied if you cannot sell the car. The
idea is a theory – businesses cannot survive on theory and need sales.
3. GM shareholders lose money if the car does not sell – a business cannot survive without sales and
the Volt did not prove to be a real customer preference or choice.
Discuss that the best of intentions in sustainability and buying local can have significant costs if all issues,
including the food safety, are not considered.
Answers and Key Discussion Items
1. The stakeholders are the local farmers, the local communities, and the residents of those
communities. The environment and the issues of sustainability are causes with many supporters who
would also be stakeholders in the issue of the farmers’ market.
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Business Ethics, 8e Jennings
2. Voluntary compliance could be a good idea given the evolution of the regulatory cycle and given the
risk if there is an incident with the locally grown food – all local markets would be regulated with one
serious incident.
3. The effect will not be great on the really small producers, which is where an incident may be most
likely to occur. There will be additional costs for larger farmers who are subject to the rules. Their
food standards will also be higher. It is possible that lower prices may benefit the small farms, but as
the reality of risk kicks in, consumers may turn to the larger producers and their products. This is an
excellent industry in need of imposing its own voluntary standards in order to protect itself and allow
for expansion of the idea across the country.
Not every movement that seems to be benign and benefits the environment is without impact on others –
there are always stakeholders who are harmed, even when we have the best of intentions.
Answers and Key Discussion Items
1. The intention was to create a cleaner fuel supply. However, these decisions are not made in isolation.
By creating a demand for biofuels, the results were increased food prices, greater demand for land for
growing more food for fuel, and the impact on the poor in terms of food prices as well as on the
availability of land for them to grow their food. Those who could least afford it were affected the most
by an environmental movement with good intentions. Economies don’t operate in isolation – there is
an interconnectivity between supply and demand, regardless of why the demand exists, and however
good-intentioned it may have been.
2. Stakeholders are farmers, individual landowners, countries with farmland, environmentalists, oil
producers, anyone who needs corn (corn syrup) for their products (such as ice cream makers and
others who require corn syrup for sweetener). The reality is that focusing on biofuels and
sustainability has resulted in increased poverty in those countries where the growth and sale of crops
has been redirected toward fuel. The demand has increased food prices and reduced the availability
of farming land for those individuals who grew their own food. So, yes, there is an increase in
poverty, certainly in Guatemala, that is traced directly to the biofuels movement.
Answers and Key Discussion Items
1. Stakeholders included readers, publishers, suppliers who publish the magazine, stores that sell the
magazine, but also those in Syria and other countries who have been imprisoned, tortured, or harmed
by the hebiors of dictators such as Basha al-Asad.
2. That may have been the intention, but sometimes business needs to just stay out of international
diplomacy issues – undertaking a diplomatic role is a tall order for a fashion magazine – the end
result was that the magazine and the United States seemed to have a tin ear when it came to the
interests of the Syrian people – the rebellion was worst than in the past and more Syrians were
slaughtered than in the past.
3. In hindsight, as all the stakeholders weighed in on the issue and in the aftermath of the harm to the
Syrians, the decision seemed to be an embarrassment for the magazine, its editors, and even the
author. That is one of the key benefits of stakeholder analysis – it helps businesses to see the impact
of their decisions.
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Business Ethics, 8e Jennings
Answers and Key Discussion Items
1. The woods used for Miller's traditional Eames chair were part of the chair's distinction. The woods
were also part of what Miller's carpenters were used to working with. However, Miller and Foley were
looking at the environmental impact of the use of those woods and behaving in a socially responsible
manner. Further, Foley may have been ahead of his time. It is likely that there would be future
restrictions on imports of the woods and Miller would be forced to make changes at that point. Foley
may also be hopeful that the voluntary change is something that helps the company in a public
relations and marketing sense.
2. It was troublesome to the board of directors that Foley made his "environmental" decisions with costs
attached at a time when the company's earnings were off. However, the board was looking at the
short-term profit picture and Foley was anticipating Miller being around for a long time and coping with
environmental concerns before being forced to do so by regulation. Further, Foley's actions did pay
off as sales increased and Miller gained national recognition for its responsible positions.
3. Albert Carr, a business ethicist (Reading 2.3), maintains that businesses take socially responsible and
ethical actions only when it is in their best interests to do so. The appearance of the decision may be
noble, as in this case, an environmentalist company, but the bottom line in the decisions is the bottom
line. Carr would support the decisions because they brought the company financial results.
4. Miller made the decision to do all that was technologically possible and not just comply with the law.
Positive law as a standard for ethical behavior is not always sufficient. Miller did as much as it could
and probably earned the respect of local and national regulators as well as its customers and
potential customers. The issue here is: Is it wrong to publicize the fact that you are doing the right
thing? Is such publicity in the interest of the shareholders, employees, creditors, etc.? Yes. The
advantage of behaving as a responsible company is being able to tell about it. There is nothing
wrong with detailing the program. The company made ethical choices and has the right to let it be
5. The company’s strategy appears to have paid off – it has developed a brand name that is known
internationally and the result has been increased sales despite a floundering U.S. economy. Sticking
to its strategic presence and goal of sustainability, Herman Miller has developed a company presence
that allows it to profit from its focus on sustainability. It has developed a loyal customer base for its
strategy and attracted new customers through new markets that are opened because of the Herman
Miller brand.
Answers and Key Discussion Items
1. There was the failure to disclose the presidential donations. There was the failure of the DOE official
to recuse himself from the loan guarantee process despite his wife’s conflict as a partner in the law
firm handling the company’s legal affairs. There was the membership of the investor on the Navy
panel and, although the conflict was disclosed, the material information he had about the company’s
teetering financial position was not disclosed to the Navy. The Navy did uncover the financial
weaknesses prior to awarding the contract, however.
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Business Ethics, 8e Jennings
2. The consequences may have been as simple as the company not using its resources wisely because
there was no bottom-line accountability. The company was receiving infusions of funds when it
needed to improve its product, its production, and truly compete to sell the product. The government
cannot increase demand and the government cannot make people buy a product. Its good intentions
on sustainability do not translate to the market place. Likewise, the government cannot assess
competition or production capability – it was investing money for a cause, not because of potential.
3. Stakeholders here were other companies in alternative fuel industries that truly have a good product
and potential. They are painted with the same brush as Solyndra and cannot sell their products,
obtain investors, etc. Also, the corruption that surrounded the granting of Solyndra funding has
caused government agencies to revisit their contracting procedures, thus slowing down funding and
opportunities. Everyone is painted with the same brush when one company in an industry engages in
unethical behavior.
Use PowerPoint Slides 112 - 119 to follow the sequence of events in this case. Also, this is another PR
training case for how not to handle an ethical breach.
Answers and Key Discussion Items
1. Mr. Kennedy's attitude did evolve as the case evolved. His initial statements conclude that whatever
was done was insignificant and, therefore, justified. His last statement (March 23, 1991) is one that
recognizes that while the accounting practices may have been legal, they were not necessarily
ethical. From a PR perspective, the March 23rd statement should have been the first statement.
Some have argued that his attitude did not evolve, as the 2000 interview indicates, but, rather, he was
doing what was necessary to survive the crisis.
Mr. Kennedy also resigned as a result of the Stanford problem. He became so identified with the
problem that he needed to leave to restore Stanford's credibility. Mr. Kennedy's initial reaction to the
accounting issues and his attitude of "little amounts not being issues" cost him deeply in the crisis. It
became more than just unethical booking of costs; it became the unethical booking of costs and
justification of it by a president who saw little wrong in a scenario that outraged others.
2. This case is an illustration of practices that were legal. It is also an illustration of practices that had
"always been done this way" by Stanford and other universities. Accounting overhead was a
nebulous concept that was used to maximize the government funds to the university.
3. Casper has set an ethical tone for Stanford by saying that everyone must observe, question, and
evaluate what is being done. He is suggesting that “the way things have always been done” be
questioned. He is suggesting an open, honest, and above-board atmosphere.
4. The researchers, the federal government, taxpayers, alums, other universities with research programs,
the faculty affected by the research rules and programs and their loss of reputation, students who are
funded by the research, university staff and faculty who will be affected by the reduction and loss in
funds, the university and its reputation, the university community because of the economic impact.
5. The rationalizations in Kennedy’s statement:
"Everybody else was doing it."
"That’s the way it has always been done."
"It doesn’t really hurt anyone."
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Business Ethics, 8e Jennings
"Others did worse."
"We deserve more."
Answers and Key Discussion Items
1. The conduct is perfectly legal – in fact, these programs are created by the government.
The ethical issues lie in the differing approaches the schools of philosophical thought take. Rights
advocates could come out either way on this. Justice advocates could see the programs as a means
of achieving equality or could be seen as depriving some of justice in terms of awarding contracts on
a basis other than the merits. Friedman would see these types of programs as antithetical to
competition. The conduct of those who list a spouse or minority employee in order to qualify have
complied in a toes-to-the-line way, but they are not honoring the intent of the program. The problem
lies in trying to create such a program with definitions and without loopholes. Some would argue it
cannot be done and the merits remain the best way of addressing the issue.
2. Those affected by the programs include all contractors, those intended to benefit from the programs,
the citizens of the area the government agency/authority is in because of problems with costs and
3. The purpose of the special bidding was to provide opportunities for those who may have been
excluded in the past from government contracts because of discrimination.
4. The ways around the bidding priorities exist because of poor definitions and also because the
competition instinct is powerful.
5. Some would argue that the merits find a way. Friedman would argue that the market finds a way to
get to competitive levels.
Answers and Key Discussion Items – Senator Stevens and the Remodeling
1. Lawyers are to represent clients zealously within the bounds of the law. Prosecutors are to take cases
forward to trial only when there is a reasonable likelihood of conviction. Both are officers of the court
and, as such, have a responsibility of forthrightness with the court (the privilege does entitle them to
withhold client confessions, however). In other words, there are clear ethical codes that outlines both
sides’ ethical obligations.
2. For civil cases, the rules are full disclosure. In criminal cases there can be variations on disclosure.
However, withholding evidence from a case is a violation of the lawyer’s code of ethics, particularly
when that evidence would be of a nature of exoneration for the other side.
3. Yes, the credo is a straightforward one: I would never withhold evidence in a case, no matter how
high-profile the case, no matter how much pressure from my office or client, and no matter what the
consequences of its revelation.
This credo is tied to the ethical school of justice and ensuring that it exists for all.
4. The ethical issues in having the prosecutors continue to work there is that you can engage in
misconduct, get a slap on the hand, and then sally forth with your career. Enforcement is to
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Business Ethics, 8e Jennings
organizations what integrity is to individuals – you hold fast to the organization’s values when the
organization honors and enforces them.
The problem with no enforcement is that the message is not sent that the conduct is improper or that
there are any consequences for behavior that so seriously affected the life of an individual who was
wrongfully accused. The message on wins in high-profile cases at any cost is what gets through if
there is no enforcement. There were so many stakeholders in the case and the misconduct harmed
almost all of them from the reputation of the Justice Department and the other lawyers there, to Mr.
Stevens’ family and position in the community, including the voters he had represented.
Answers and Key Discussion Items – The Duke Lacrosse Team and the Prosecutor
1. Mr. Nifong, although a government employee, was feeling the pressure. The case, if it played out as
a racial one, would carry great weight for him with African-American voters. The case was a way to
gain free publicity and a way to ensure a block of votes. His judgment may have been clouded by the
fact that he did have a tough election coming up and he had an issue that could salvage that election.
2. The duty for prosecutors is even higher than the duties of lawyers in general. They represent the
public and everyone must be given an equal opportunity to construct a defense. That defense
includes being able to understand the case that the prosecution will present. Understanding that
requires the forthright production of evidence to defense lawyers and no withholding of information,
especially mitigating information.
3. What happened to the Duke players was unconscionable, but if we are looking at personal
responsibility and accountability, the reality is that not much good comes from after-hour parties
involving large groups of students. Sometimes there are unintended consequences from poor
choices on social activities.
Compare & Contrast
The lessons are that fairness requires understanding both sides of the story – the faculty lacked the
360-degree perspective that is an important tool in ethical analysis. Sometimes there is an emotional
reaction to facts without really thinking through the questions, the issues, and the facts.
Another lesson in ethics is the breach. If you have made a mistake, say that you have made a mistake,
apologize, and then, as with the Laura Nash model – look back and see how you got into the situation in
the first place.
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