978-1285428710 Section 3 SECTION 3C

Business Ethics, 8e Jennings

UNIT THREE – BUSINESS, STAKEHOLDERS, SOCIAL

RESPONSIBILITY, AND SUSTAINABILITY

SECTION 3A – BUSINESS AND SOCIETY: THE TOUGH ISSUES OF

ECONOMICS, SOCIAL RESPONSIBILITY, AND BUSINESS

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.

READING 3.1 – THE SOCIAL RESPONSIBILITY OF BUSINESS IS TO INCREASE

ITS PROFITS

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

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.

READING 3.2 – A LOOK AT STAKEHOLDER THEORY

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.

GROUPS FOR EXPANSION GROUPS AGAINST EXPANSION

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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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?

READING 3.3 – BUSINESS WITH A SOUL: A REEXAMINATION OF WHAT COUNTS

IN BUSINESS ETHICS

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

operations.

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.

READING 3.4 – APPEASING STAKEHOLDERS WITH PUBLIC RELATIONS

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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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

treaty.

READING 3.5 – CONSCIOUS CAPITALISM: CREATING A NEW PARADIGM FOR

BUSINESS

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.

READING 3.6 – MARJORIE KELLY AND THE DIVINE RIGHT OF CAPITAL

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

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.

READING 3.7 – SCHOOLS OF THOUGHT ON SOCIAL RESPONSIBILITY

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.

SECTION 3B – APPLYING SOCIAL RESPONSIBILITY AND

STAKEHOLDER THEORY

CASE 3.8 – SKITTLES, TRAYVON MARTIN, AND SOCIAL RESPONSIBILITY

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

affected.

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.

Business Ethics, 8e Jennings

CASE 3.9 – GUNS, STOCK PRICES, SAFETY, LIABLITY, AND SOCIAL

RESPONSIBILITY

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

wide-open.

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.

CASE 3.10 – THE CRAIGSLIST CONNECTIONS: FACILITATING CRIME

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

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

advertising.

CASE 3.11 – PLANNED PARENTHOOD BACKLASH AT COMPANIES AND

CHARITIES

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

stakeholders.

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.

Business Ethics, 8e Jennings

READING 3.12 – THE REGULATORY CYCLE, SOCIAL RESPONSIBILITY,

BUSINESS STRATEGY, AND EQUILIBRIUM

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.

CASE 3.13 – FANNIE, FREDDIE, WALL STREET, MAIN STREET, AND THE

SUBPRIME MORTGAGE MARKET: OF MORAL HAZARDS

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

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

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.

CASE 3.14 – CRUISES, COMFORT, AND COSTS

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.

CASE 3.15 – ICE-T, THE BODY COUNT ALBUM, AND SHAREHOLDER UPRISINGS

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

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

music.

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

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.

CASE 3.16 – ATHLETES AND DOPING: COSTS, CONSEQUENCES, AND PROFITS

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

achievers.

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

result.

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

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.

Business Ethics, 8e Jennings

CASE 3.17 – BACK TREATMENTS AND MENINGITIS IN AN UNDER-THE-RADAR

INDUSTRY

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

effort.

“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

brush.

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

self-regulate.

SECTION 3C – SOCIAL RESPONSIBILITY AND SUSTAINABILITY

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READING 3.18 – THE NEW ENVIRONMENTALISM

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.

CASE 3.19 – GM, THE VOLT, AND HALTED SALES AND PRODUCTION

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.

CASE 3.20 – BUYING LOCAL: THE SAFETY ISSUES IN FARMERS’ MARKETS

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.

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.

CASE 3.21 – BIOFUELS AND FOOD SHORTGAGES IN GUATEMALA

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.

CASE 3.22 – THE DICTATOR’S WIFE IN LOUBOUTIN SHOES FEATURED IN

VOGUE MAGAZINE

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.

Business Ethics, 8e Jennings

CASE 3.23 – HERMAN MILLER AND ITS RAIN FOREST CHAIRS

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

known.

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.

SECTION 3D – GOVERNMENT AS A STAKEHOLDER

CASE 3.24 – SOLYNDRA: BANKRUPTCY OF SOLAR RESOURCES

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.

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.

CASE 3.25 – STANFORD UNIVERSITY AND GOVERNMENT PAYMENT FOR

RESEARCH

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.”

Business Ethics, 8e Jennings

“Others did worse.”

“We deserve more.”

CASE 3.26 – MINORITY-OWNED BUSINESSES AND REALITY

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

inefficiencies.

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.

CASE 3.27 – PROSECUTORIAL MISCONDUCT: ENDS JUSTIFYING MEANS?

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

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.