Business & Professional Ethics
for Directors, Executives &
Accountants, 8e
Leonard J. Brooks and Paul Dunn
South-Western, Cengage Learning, Boston, MA, 2018
Chapter 7 – Managing Ethics Risks & Opportunities
Chapter Questions and Case Solutions
Chapter Questions…………………………………………………………2
Case Solutions……………………………………………………………….5
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Chapter Questions
1. In what ways do ethics risk and opportunity management as described in this chapter go beyond the
scope of traditional risk management?
Risk management is currently usually narrowly focussed on financial matters. Even where the more
2. If a corporation’s governance process does not involve ethics risk management, what unfortunate
consequences might befall a corporation?
3. How will the U.S. external auditor’s mindset change in order to discharge the duties contemplated by SAS
99 on finding fraud?
Statement of Auditing Standards (SAS) 99 requires the U.S. external auditor to focus more on finding
4. How could a corporation utilize stakeholder analysis to formulate strategies?
Stakeholder interest assessment and impact analysis, and the utilization of frameworks such as that
5. Descriptive commentary about corporate social performance is sometimes included in annual reports. Is
this indicative of good performance, or is it just window dressing? How can the credibility of such
commentary be enhanced?
Sometimes such disclosures are window-dressing, but continued disclosures often become more
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6. Why should a corporation make use of a comprehensive framework for considering, managing and
reporting corporate social performance? How should they do so?
Corporate social reporting (CSR) is growing in importance since it has become expected, particularly
of larger companies. This means that there is greater vulnerability now for oversights and mistakes,
7. Do professional accountants have the expertise to audit corporate social performance reports?
Absolutely! They possess skills at seeking out relevant evidence, avoiding measurement faults,
8. What would you list as the five most important ethical guidelines for dealing with North American
employees?
9. Is trust really important – can’t employees work effectively for someone they are afraid of, or at least
where there is some “creative tension”?
Yes, but if they have an opportunity to leave, they may view the “grass to be greener” elsewhere
and take the opportunity. They may also look for another opportunity. It is better to fulfil or meet
10. Should a North American corporation operating abroad respect each foreign culture encountered, or
insist that all employees and agents follow only one corporate culture?
This is currently being researched, so there isn’t a correct answer yet, but the trend is toward a
unified culture. The best approach is for a company to articulate its values in a code of conduct
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for its employees to follow, and be prepared to abandon an opportunity where these values
11. What should a North American company do in a foreign country where women are regarded as secondary
to men, and are not allowed to negotiate contracts or undertake senior corporate positions?
The answer to question 10 is also relevant here. If possible, the company may be able to
promote women from that country to positions in other countries where traditions are more
12. How would you advise your company’s personnel to act with regard to expectations of guanxi in
China?
The advice should be to act in accordance with company policy having in mind that the new
13. What would you advise that corporations do to recognize the new worldwide reach of antibribery
enforcement related to the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act?
14. Why should ethical decision making be incorporated into crisis management?
The decisions taken during crises usually shape the ongoing operations of a corporation to a
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Case Solutions
Corporate Social Responsibility Cases – Environmental Issues
1. Harry Potter and the Green Brigade (Chapter 7, pages 556-558)
What this case has to offer
This case examines how Harry Potter books came to be printed on recycled paper and identifies the
significant environmental savings resulting from this decision. This case discusses the roles of the books’
Teaching suggestions
I start this case asking students what factors may motivate a company to switch to more
environmentally-friendly products and technologies. Following, I ask students what factors may deter a
Discussion of ethical issues
1. If the cost of printing Harry Potter books on recycled paper added 3% to the cost, was the publishing
company really serving the interest of its shareholders, given that the demand for Potter books was
so high that all copies would probably have been sold in spite of any boycott? Explain why and why
not, and come to a conclusion?
If the publisher only cared about the one-off profits from the sale of the new edition of the
Harry Potter books, it would be value-destroying to increase costs while expected revenues
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2. There is the possibility of huge environmental savings by shifting to recycled paper. Would the
savings would be even greater if books were published in digital format? Should publishers move to
the 100% digital mode immediately? Why and why not?
Going 100% digital is a complex business decision, not only driven by potential environmental
savings, but also by consumer preferences. The shift may take time and is more likely to happen
gradually instead of being an immediate shift. The following reasons may motivate a publisher
to go 100% digital:
• Relatively new technologies, such as portable tablets and hand-held devices, are
However, there are some negative aspects that a publisher should consider before going 100%
digital:
• There are additional costs of setting up the infrastructure needed to go digital;
• Printing and distributing books is a different business than producing and distributing
digital content;
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3. What do you think would be a reasonable environmental strategy to recommend to authors and
publishers for books to be published in the next five years?
A reasonable environmental strategy may include the following aspects:
• Increase the percentage of recycled material in printed books;
Business & Professional Ethics for Directors, Executives & Accountants, 8e
2. The Carbon Footprint of British Airways (Chapter 7, pages 558–559)
What this case has to offer
This case discusses the actions taken by British Airways (BA) to be a more responsible company, focusing
on reducing emissions by modernizing its airplane fleet and increasing efficiency, as well as other
Teaching suggestions
I start this case by discussing the actions taken by BA to be a more responsible company, and I ask
students whether or not the company’s actions were motivated by business reasons. Following, I ask
Discussion of ethical issues
1. Do you think that British Airways is being hypocritical?
Arguably, the new business class flight between London and New York is against the company’s
goals regarding the reduction of its overall carbon emissions. This seems hypocritical. But, BA
Business & Professional Ethics for Directors, Executives & Accountants, 8e
2. British Airways is attempting to reduce its carbon footprint by flying more fuel efficient airplanes,
such as the A318. The carbon footprint per passenger is lower if 100 people occupy the A318 rather
than only 32 people. Does the airline also have a responsibility to reduce each passenger’s carbon
footprint?
In general, the company is responsible for reducing the overall emissions for a given level of
activity. This means that if the company grows in size and the number of flights, then total
3. The passengers who fly on the Club World London City flight pay a substantial premium for the
luxury accommodation. Do you think that the increased premium they pay offsets the increased
carbon footprint of having only 32 passengers in the airplane?
In simple terms, the additional emissions would be covered by the increased premium under
two conditions:
4. Is it socially responsible for British Airways to fly 32 passengers in an aircraft that can normally hold
100 passengers?
Not from the point of view of the carbon emissions; however, the company also has a
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Useful Articles, Links, and Videos
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3. Pollution Caused by Cruise Ships (Chapter 7, pages 559-561)
What this case has to offer
This case examines whether cruise ships that sail through two countries should dump their ‘grey water’
Teaching suggestions
I start this case by asking students how a company would behave if there are two different
environmental standards with different compliance costs. Moreover, I remind students that barely
Discussion of ethical issues
1. If the laws are strict in one country, but lax in another country, do cruise ship companies have an
ethical obligation to follow the stricter laws even when they are temporarily sailing through the
waters of a country with more lax regulations?
Cruise ships companies have an ethical obligation beyond complying with existing laws and
2. Many cruise ships travel outside the 200-mile limits set by the United States and Canada. Do these
ships have any environmental responsibilities when they are sailing in international waters?
The answer to this question is related to the answer of the previous one, it is not ethical to
3. How much should port cities compromise on pollution standards in order to generate tourism?
It is shortsighted to allow cruise ships to pollute the air and water of a port city based on short-
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Workplace Ethics Cases – Discrimination & Abusive Behavior
4. Texaco’s Jelly Beans (Chapter 7, pages 561-564)
What this case has to offer
This case examines the role of corporate culture in fostering racial discrimination against people of
color. It was apparently common for top management to depreciate and hold back employees from
promotion and pay raises based on their color. This treatment became evident when a whistleblower
Teaching suggestions/Discussion of ethical issues
Following a brief introduction to the case that stresses the frequency the events of the case are
repeated, I ask for discussion on:
1. In a company as progressive as Texaco, what permitted such discrimination to occur?
Question 1 which brings up a discussion of the role of several elements of Texaco’s corporate
2. How could such discrimination have been prevented?
Question 2 about prevention is then asked. Of course there are the issues raised in the terms of
settlement of the Texaco lawsuit. In addition, I am looking for a discussion of the role of top
Business & Professional Ethics for Directors, Executives & Accountants, 8e
3. Is whistleblowing ethical?
Question 3 is a good one because condoning or encouraging whistle blowing is counter to the
norm in many cultures, including those in North America. We are just not raised to “snitch, rat,
or tell on” our friends or enemies. However, if the executives of a company want their
4. Could a protected whistleblowing mechanism or conscientious ombudsperson have helped?
Question 4 is aimed at getting across to the students that companies must encourage whistle
I then discuss the following:
Loss of stakeholder support results in even larger losses
Normally executives do not appreciate the fact that fiascos like the Texaco discrimination case
Legal ethics
Destruction of documents is a questionable practice if they are accurate. It could make the
lawyer liable for aiding in a felony. Expecting these documents to stay secret is naive.
Executive duty to shareholders/derivative actions
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Ethics of the press
Was the initial transcription of the tape recording erroneous. If so, the press is guilty of
unethical behavior leading to defamation of character. If not, and they can prove it,…
Useful Articles, Links, and Videos
Singer, A. W. 1992. “The Whistle–Blower: Patriot or Bounty Hunter?” Across the Board, 16–22. [See also
text, Chapter 1, pages 64-71.]
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5. Gender Discrimination at Dell Inc. (Chapter 7, pages 565-566)
What this case has to offer
This case describes a $9.1 million class-action settlement after Dell incurred in a systemic pattern of
gender discrimination. The company was accused of compensating female employees less than their
male counterparts; segregating female employees into lower paying grade levels than their male
Teaching suggestions
I start this case by asking students what constitutes sexual discrimination, and how a company’s top
management and/or directors may uncover cases of sexual discrimination. While discussing the solution
to the case’s questions, I make sure that the students focus on the causes and consequences of sexual
discrimination, as well as on the potential controls that could be put in place to avoid this problem
Discussion of ethical issues
1. What factors contribute to a firm engaging in sexual discrimination?
As explained in Chapter 7, in regard to hiring and firing decisions, the key principle is that
decisions must be based upon a person’s ability to do the job. Providing different working
2. What factors should the board of directors consider if there is an internal complaint of sex
discrimination on the basis of pay and promotion?
A complaint of sexual discrimination should be taken very seriously. The following factors may
be important in addressing a complaint:
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3. What other costs might Dell incur because of its practice of discrimination?
There are other costs that may follow this lawsuit:
• Additional lawsuits by other affected individuals;
4. How can a firm ensure that it does not engage in sexual discrimination?
There are several actions that may help a company to avoid engaging in sexual and other forms
of discrimination.
• Management should have an intolerant attitude towards all forms of discrimination
(tone at the top). Management should be aware of the possible repercussions and
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• The company should establish internal controls avoiding discrimination, for example:
o Managers should make new employees aware of the policies prohibiting
discrimination when joining the company and this should be noted in all
employee contracts;
o Develop monitoring controls to keep track of hiring, promoting and firing
decisions by gender, race, religion, age, etc. Conduct pay audits to uncover and
address unexplained pay disparities;
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6. Novartis $250+ Million Gender Discrimination Case (Chapter 7, pages 566-568)
What this case has to offer
Novartis, a Swiss-headquartered drug company, was found guilty of discriminating against women, and
in May 2010, the jury awarded total punitive damages of $250 million: about $44,000 for each of the
5,600 women represented in the class action. This was the largest award of punitive damages for any
Teaching suggestions
I start this case by asking students what constitutes sexual discrimination and how a company’s top
management and directors may uncover cases of sexual discrimination. While discussing the solution to
the case’s questions, I make sure that the students focus on the very high costs of sexual discrimination,
as well as on the potential controls that could be put in place to avoid this problem. In addition, this case
raises awareness about the way punitive damages are determined, and about the large legal fees
involved in class-action lawsuits.
Discussion of ethical issues
1. Was the verdict fair?
It is very difficult to determine what constitutes a fair verdict in a case were pervasive actions
have a general impact over a large number of people; however, the verdict should send a clear
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2. Will this verdict cause other companies to review for and remedy any systematic discrimination
uncovered?
3. How should systemic discrimination be prevented?
There are several actions that may help a company to avoid engaging in sexual discrimination,
including:
• Management should have the right attitude towards sexual discrimination (tone at the
top), and not underplay the importance of this issue;
• The company should establish internal controls avoiding discrimination, for example:
o Managers should make new employees aware of the policies prohibiting
discrimination when joining the company and this should be noted in all
employee contracts;