978-1305575080 Chapter 3 Solution Manual

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Chapter 3

BUSINESS ETHICS, SOCIAL FORCES, AND THE LAW

RESTATEMENT

This chapter provides the students, first, with a look at business ethics: What is business ethics? Why is business

ethics important? How do I resolve ethical dilemmas? The concepts of positive law and natural law are covered

along with notions of moral relativism and stakeholder theory. The importance of trust and reputation in business

ethics and business financial performance is highlighted through examples and studies. Issues of business and

social responsibility are also covered with discussions of Milton Friedman’s views as an economist on social

responsibility in comparison to those of Body Shop International founder and philanthropist, Anita Roddick.

The correlation between and among ethics, public policy and law is highlighted in this chapter with examples of

consumer movements and laws passed in response to social forces. This discussion then facilitates further

discussion of the purposes of law including protection of rights and preserving both stability and flexibility.

Following a discussion of the categories of ethical breaches, simple models for analyzing ethical dilemmas are

included to help the students resolve issues presented in the chapter. The models include the simple

Blanchard/Peale three-question model (Is it legal? Is it balanced? How does it make me feel?), the

front-page-of-the-newspaper-test, and Laura Nash’s model of breaking down the dilemma in order to confront cause,

intention and disclosure.

STUDENT LEARNING OUTCOMES

LO.1: Define business ethics.

LO.2: Discuss why ethics are important in business.

LO.3: Describe how to recognize and resolve ethical dilemmas.

INSTRUCTOR’S INSIGHTS

Break the chapter down into three components – related Learning Outcomes are indicated in ( ):

1. What is business ethics? (LO.1)

Explain what business ethics is

Discuss the various ethical standards and schools of thought

Describe the business stakeholder theory and stakeholder analysis

Explain Milton Friedman’s view on social responsibility

2. Why is business ethics important? (LO.2)

Trust

Financial performance

Reputation

Business ethics and business regulation: public policy, law and ethics

3. How to recognize and resolve ethical dilemmas. (LO.3)

Categories of ethical behavior

Resolving ethical dilemmas

CHAPTER OUTLINE

I. What is Business Ethics?

A. Business ethics is balancing goal of profits with values of individuals and society

B. The standard of positive law or law as the standard for business ethics

1. Compliance with the law is all that ethics requires

2. Reliance on codified or positive law

C. The standard of natural law or the notion of universal standards

1. Principles of behavior exist universally and should be honored regardless of positive law

2. Civil disobedience is justified if a law violates natural law

D. Ethical theories and standards

1. Categorical imperative and Immanual Kant

a. Act only in those ways you would find acceptable to you

b. When someone hits you car in a parking lot

2. The Contractarians and justice

a. We have a social contract

b. John Rawls and the theory of justice

c. Everyone has some rights – we need to develop universal principles

3. Rights theory

a. Entitlement theory

b. Nozick – governments protect rights

4. Ethical egoism – Ayn Rand

a. Everyone should act in their own self-interest

b. Guilt should not be part of self-interest

c. The Fountainhead and Atlas Shrugged

5. Utilitarians – Bentham and Mill

a. Do the most good for the most people

b. Rationed health care

6. Moral relativists

a. Decisions based on circumstances

b. E.g., Google in China with restrictions

7. Plato and Aristotle

a. Virtue ethics

b. Honesty, fairness, etc.

DISCUSSION POINTS: Thinking Things Through

Corrupt Climates: Good or Bad for Business?

The students should see that the countries listed in the most corrupt side are third-world nations, having great

difficulty with economic development. Many economists have concluded that with corruption economic development

is not possible because free markets cannot take hold. Former secretary of the treasury, Robert Rubin, cautioned

federal employees when he left for the private sector to treat all citizens equally and not grant favors. “Corruption

benefits the few at the expense of many,” was his admonition.

E. The business stakeholder standard of behavior (See Figure 3-1 in text)

1. Stakeholder analysis – who is affected by your decision?

2. Friedman view: a corporate executive’s responsibility is to make as much money for the shareholders

as possible

3. In-between views: businesses work within their communities to improve quality of life – Habitat for

Humanity

4. Businesses should examine the impact of their decisions on customers, employees, investors, and

community to determine standards of behavior

5. Consider impact on customers, employees, communities

DISCUSSION POINTS: Ethics & the Law

Edward Snowden: Contractor with a Cause

Mr. Snowden places a strong emphasis on rights – the right to privacy. When those rights are breached, he believed

that civil disobedience was in order and so he violated the law by leaking the classified materials. Although he

probably realized that he was doing harm his thinking was that he was doing society a greater good by exposing the

widespread surveillance. Finally, there is moral relativism – weighing his options in the situation, he felt that the end

justified his means – drawing attention caused changes in the surveillance policies. However, many people were put

at risk because of the disclosures.

II. Why is Business Ethics Important?

A. The importance of trust – economic interdependence of investor, customer and governments

B. Business ethics and financial performance

1. The importance of trust

2. Business ethics and financial performance

a. Columbia Health Care and costs of lapses

b. New Century Financial subprime loans and resulting costs

3. Cost of ethical breaches: Marsh & McLennon and $850 million fine; AIG and bailout – see Footnote 4;

Baucus studies

DISCUSSION POINTS: Ethics & the Law

The Veterans Affairs (VA) and the Queues

Discuss with the students why incentives can have such an impact on employee behavior and the importance of

monitoring paperwork and numbers for goals. When wages and salary are on the line, employees can be talked into

falsifying data if someone in authority authorizes it.

C. The importance of a good reputation

Peanut Corporation of America and salmonella poisonings

D. Business ethics and business regulation: public policy, law, and ethics (See Figure 3-2 in text)

1. Cycle of social forces and changes in law – problems bring changes: credit disclosures; securities

regulations; antidiscrimination laws

2. Examples of antidiscrimination laws

3. Purposes of law

a. Protection of the state: tax laws; USA Patriot Act

b. Protection of the person: privacy protections

c. Protection of public health, safety and moral: food-labeling regs

d. Protection of property: its use and title

e. Protection of personal rights

f. Enforcement of individual intent: contracts

g. Protection from exploitation, fraud, and oppression: securities, minors, food labeling

h. Furtherance of trade: banking laws – Federal Reserve

i. Protection of creditors and rehabilitation of debtors: surety law; collections laws

j. Stability and flexibility: rent controls

DISCUSSION POINTS: Ethics & the Law

Ethics, Trust, and Markets

Discuss with the students that the analysts had a conflict: they could not be independent when they were trying to

bring in business. They could not be negative on clients of their companies. Their lack of independence and failure

to disclose cost them business.

III. How to Recognize and Resolve Ethical Dilemmas

A. The categories of ethical behavior (See Figure 3-3 in text)

1. Integrity and truthfulness

DISCUSSION POINTS: Ethics & the Law

Lying to Get Into a Top School

Discuss with the students the short and long term consequences of lying on an admissions application.

2. Promise-keeping

DISCUSSION POINTS: Sports & Entertainment Law

The Bounty Program and the New Orleans Saints

Like so many of the ethical situations faced in any business, the desire to win trumped the ability to evaluate the issue

for what it was – hurting players is not a game object in the NFL and the deliberate hits after the quarterbacks

had thrown the ball were just motivated by the desire for the extra payments. The costs to the team, the

careers, and the players were tremendous – far greater than any money they made. It is interesting to note that

one of the years that the bounty program was in effect was the year that the Saints went to the Super Bowl.

3. Loyalty – avoiding conflicts of interest

4. Fairness

5. Doing no harm – Ford Pinto case

6. Maintain confidentiality

DISCUSSION POINTS: E-Commerce & Cyberlaw

Piggybacking on Wireless Networks

The issue is one that has developed because of technology – the wifi access presents issues of ownership, trespass

and whether there is damage done. There are no legal violations, but basic issues of fairness arise – should others

be able to use a system someone else pays for? A classic ethical issue.

B. Resolving ethical dilemmas

1. Blanchard/Peale test

a. Is it legal?

b. Is it balanced?

c. How does it make me feel?

2. The Front-Page-of-the-Newspaper test

Am I willing to see my conduct described on the front page of the newspaper?

3. The Laura Nash Model

a. Have you defined the problem accurately?

b. How would you define the problem if you stood on the other side of the fence?

c. How did this situation occur in the first place?

d. What is your intention in making this decision?

e. How does the intention compare with the probable results?

f. Whom could your decision or action injure?

g. Can you discuss your decision with the affected parties?

h. Are you confident that your position will be as valid over a long period of time as it seems now?

i. Could you discuss your decision with your supervisor, co-workers, officers, board, friends, and

family?

DISCUSSION POINTS: Ethics & the Law

Pumping Up the SAT Scores for a Good Ranking

Discuss the following key points with the students:

1. SAT numbers were important to ranking.

2. Ranking was important to the school.

3. They lost their standing by not being truthful.

4. Notice comments by Franek about, “It’s not that bad.” Claremont McKenna was not honest, and students who

rely on reviews when such an obvious flaw is on the table deserve whatever fate awaits them at an institution

that would pull a statistical stunt (however, it may have impacted the rankings/ratings). Actually, it would be all

schools, not just “so many,” and the reporting of correct data is not just a “clear obligation,” it is an ethical

responsibility.

ANSWERS TO QUESTIONS AND CASE PROBLEMS

1. Categories of ethical breaches. The parties have engaged in conduct that constitutes a conflict of interest. The

2. Categories of ethical dilemmas. Yes, there is the issue of a false impression. The audience was not aware of

the issues and assumed a live performance. However, it was a non-paying audience, so there are no contractual

3. Categories of ethical breaches. The method by which Fred packs fruit is unfair and deceitful. The method takes

advantage of customers. Newspaper exposure of Fred’s packing and selling practices could be very harmful to

4. Categories of ethical breaches. Alan should not take the offer. It would be a conflict of interest. The public

disclosure of Alan’s conduct if he accepted the condo would be a breach and loss of public trust. Alan’s career

5. Consequences of ethical breaches. Discuss with the students the economic ripple effects – damaged/used

Those who buy items intending to use and then return them use someone else’s property without any form of

Another good question is, “What if it were my store?” “How would I feel about borrowers then?”

6. Resolving ethical dilemmas; ethical standards. Smith initially touts the idea of propriety as important and then

7. Legal standards; ethical standards. The use of a consultant is legal, but whether it is ethical is a different

question. There are no specific prohbitions against such assistance, but their use boils down to unfair advantage

and misrepresentation of the applicant’s abilities and skills. The real question is whether the package that is put

8. Categories of ethical behavior; taking something that doesn’t belong to you. A simple test would be, what if you

were on the other side – how would you want to be treated. Those who purchased the gas were taking

Who is affected? The owner of the gas station. Somehow that revenue has to be made up – she may have to

charge more. If she is unable to recoup the losses, then her creditors are affected – they will not be paid. She

9. Conflicts; bribery. Discuss with the students why the employees took and demanded the money. Discuss how a

10. Ethical breaches; enforcement of ethical standards. Have the students discuss whether amount is the issue or a

11. Fairness and disclosure. The runners did not really run the race. They did not tell officials of their shortcut. No,

There are always consequences to short-cut behaviors such as those taken by the subway rider/runners. Those

who run the race will have to add additional checks, monitors, and procedures to make sure there is not

cheating. Those who run the race honestly and suffer through the physical consequences lose some of their

12. False impression and fairness. The conduct of the author resulted in an impact on the market, i.e., the market

for the book moved with the resulting rankings, but the sales were not real. The purchases were made with the

13. Ethical theories and standards. Mr. Fastow’s initial conduct was classic moral relativist. He used deceitful

means to keep the company going and save employees’ jobs. However, in hindsight, he followed Aristotle or

Kant in that he misrepresented the earnings of the company and he would not want companies in which he held

14. Honesty. Putting paragraphs of material in term papers without attribution is dishonest. The students had been

NOTE: Ms. Pelton received 23 job offers but turned them down to run a day care out of her home. Property

15. Categories of ethical dilemmas. Using the Heinz name for off-brand ketchup gives a false impression. Also, the

restaurant owners are capitalizing on the Heinz brand and image without having to pay for that image – they are

taking something that does not belong to them. Very often what seems to be a clever way of keeping costs down

LAWFLIX

Breaking Away (1979) (PG)

In this story about “cutters” (a nickname for natives of Bloomington, Indiana), a recent high school graduate trains to

be a first-class bike rider. He idolizes the Italian world racing team and enters an Indiana race to have the opportunity

Jaws (1975) (PG 13)

The movie that shot Steven Spielberg to directorial legend brings us the classic business dilemma of what to do when

Hoosiers (1986) (PG)

Often called the “greatest sports movie ever made,” this story of a coach with a history and a small-town team

presents several life-defining ethical moments. In one, with advancement to the finals on the table, Coach Norman

Dale grapples with whether he should allow one of his injured players to continue when he has no depth on his

The Family Man (2000) (PG-13)

Nicolas Cage plays a Wall Street billionaire who is suddenly given a suburban life in New Jersey with all of its family

management system for classroom use.