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12 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
CASE SYNOPSIS—
Case 5.2: Al–Dabagh v. Case Western Reserve University
The curriculum at Case Western Reserve University School of Medicine identifies nine “core
competencies.” At the top of the list is professionalism, which includes “ethical, honest, responsible and
reliable behavior.” Amir Al–Dabagh enrolled at the medical school and did well academically. He even
The U.S. Court of Appeals for the Sixth Circuit reversed. “Nothing in the record suggests that the
university had impermissible motives or acted in bad faith.”
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Notes and Questions
In this case, Case Western Reserve University School of Medicine decided that Al–Dabagh lacked
professionalism and refused to give him a diploma. Is it appropriate to assess professionalism so
early in a person’s career? Yes. As the U.S. Court of Appeals for the Sixth Circuit observed in the Al-
ADDITIONAL CASES ADDRESSING THIS ISSUE—
Enforcing University Ethics Codes
Cases involving the enforcement of ethics codes in universities include the following.
• Halpern v. Wake Forest University Health Sciences, 669 F.3d 454 (4th Cir. 2012) (dismissing a medical
student for lack of professionalism is “academic”).
• Brown v. Li, 308 F.3d 939 (8th Cir. 2002) (refusing to approve a Ph.D. thesis because its
acknowledgement section was unprofessional is “academic”).
1. Attitude of Top Management
Employees take their cues from management. Ethical conduct can be furthered by not tolerating
unethical behavior, setting realistic employee goals, and periodic employee review.
14 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
2. Behavior of Owners and Managers
Those who actively foster unethical or illegal conduct encourage it in others.
CASE SYNOPSIS—
Case 5.3: Moseley v. Pepco Energy Services, Inc.
Moseley had worked for Pepco Energy Services, Inc. (PES), a subsidiary of Pepco Holdings, Inc. (PHI), in
New Jersey for over twenty years when, in response to PHI’s annual “Ethics Survey,” he revealed what he
believed to be violations of company policy by Thomas Herzog, a supervisor. After an investigation, Herzog
was “escorted out of the building.” Subsequently, Moseley received his first negative performance review and
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Notes and Questions
How does the behavior in this case betray a lack of ethics? Herzog’s violations of company policy are
Regardless of who wins this case in trial, in performing Step 5 (Evaluation) of the Business
Process Pragmatism™ procedure, what changes should the company take with regard to the
complaint process? Because this case did make it to trial, there is evidence that something was not right in
How can business leaders encourage their companies to act ethically? Ethical leadership is
CHAPTER 5: BUSINESS ETHICS 15
tolerating illegal or unethical behavior.
Does an organization have an ethical obligation to secure a safe and harassment-free workplace
for its employees? Why or why not? Yes, employers have a both legal ethical obligations to maintain a
3. The Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002 requires firms to set up confidential systems for employees to
report suspected illegal or unethical financial practices.
V. Global Business Ethics
There are important ethical differences among, and within, nations.
ENHANCING YOUR LECTURE—
GOOGLE CHINA
Doing business on a global level can sometimes involve serious ethical challenges. Consider the ethical
firestorm that erupted when Google, Inc., decided to market “Google China.” This version of Google’s widely
used search engine was especially tailored to the Chinese government’s censorship requirements. To date,
the Chinese government has maintained strict control over the flow of information in that country. The
government’s goal is to stop the flow of "harmful information." Web sites that offer pornography, government
criticism, or information on other sensitive topics, such as the Tiananmen Square massacre in 1989, are
16 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
GOOGLE’S RESPONSE
Google defends its actions by pointing out that its Chinese search engine at least lets users know which
THE CHINESE GOVERNMENT’S DEFENSE
The Chinese government emphasizes that its censorship of the Internet is no different from the controls
FOR CRITICAL ANALYSIS
Do you agree with the assumption made by Google that technological advances and the desire of
the Chinese people to embrace liberty will overcome, in time, the current limitations imposed by the
Chinese government?
A. THE MONITORING OF EMPLOYMENT PRACTICES OF FOREIGN SUPPLIERS
Concerns include the rights and the treatment of foreign workers who make goods imported and sold in
B. THE FOREIGN CORRUPT PRACTICES ACT
Side payments to government officials in exchange for favorable business contracts are not unusual in
some countries, nor are they considered to be unethical.
1. Prohibition against the Bribery of Foreign Officials
2. Bribery by Foreign Companies
3. Accounting Requirements
CHAPTER 5: BUSINESS ETHICS 17
4. Penalties for Violations
Business firms may be fined up to $2 million. Individuals can be fined up to $100,000 (the firm
cannot pay the fine) and imprisoned up to five years.
ENHANCING YOUR LECTURE—
BRIBERY AND THE FOREIGN CORRUPT PRACTICES ACT
Many countries have followed in the footsteps of the United States by passing their own anti-corruption
laws, sometimes similar to our Foreign Corrupt Practices Act. But, other countries are often not as diligent in
weeding out corruption of government officials, for instance.
MEXICO FACES A CORRUPTION ISSUE
Recently, Mexico passed an anti-corruption law that prevents hospital administrators from approving
THE BRIBING PROCESS
Orthofix’s Mexican subsidiary, Promeca, regularly paid cash and gifts, such as vacation packages,
televisions, and laptops, to hospital employees in order to secure sales contracts. These employees then
NO PREVENTION TRAINING OR COMPLIANCE POLICY
It turns out that Orthofix did not have Foreign Corrupt Practices Act prevention training or a compliance
THE U.S. GOVERNMENT INVESTIGATES
Well after Orthofix learned of the payments, it self-reported them to the Securities and Exchange
18 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
CRITICAL THINKING
Because managers are potentially responsible for all actions of their foreign subsidiaries whether
or not they knew of the illegal conduct, what actions should Orthofix’s upper management have taken
before this corruption scandal came to light? All anti-corruption prevention training materials and
TEACHING SUGGESTIONS
1. To emphasize the relation between law and ethics, emphasize their distinction by discussing the theory of
civil disobedience. Ethics are created by moral values. Whether to obey the law is itself an ethical question.
2. Ethical standards are subjective. They are derived from personal religious beliefs or philosophical as-
3. There are a number of hypotheticals that could be used to introduce this chapter’s subject matter. Have
students imagine that they own a company at which there is an opening at a beginning level. There are two
applicants—one, the students’ personal friend and the other, a member of the opposite sex (or of a minority).
The latter individual is more qualified for the job than the friend. Ask the students to suppose that in spite of
4. To introduce social responsibility, a hypothetical involving a violation of the law could be given, but a vio-
lation as to which there is no risk of being caught. For example, have students suppose that as businessper-
sons they will have an opportunity to make more money by meeting with competitors and fixing prices, con-
CHAPTER 5: BUSINESS ETHICS 19
duct which is illegal. For this hypothetical, tell them that the authorities will not discover that the prices have
5. It might be pointed out that in a capitalist system it is essential that accurate information be disseminated
6. Suggest that students apply the same type of analytical reasoning to ethical problems that they apply to
considering and deciding legal issues.
Cyberlaw Link
Should ethical standards be adapted to deal with the new forms of social disruption made
possible by the Internet (for example, data theft, hacking, virus implanting, and invasion of privacy)?
What new ethical standards, if any, are needed to resolve problems online?
DISCUSSION QUESTIONS
1. How does a law come to be an expression of an ethical principle? A law is what society deems proper be-
2. What are reasons for unethical business behavior?
• Employers or owners who condone it.
3. In negotiating a business deal, is “strategic misrepresentation” permissible? From a duty-based ethics
viewpoint, in an absolute sense, it would unethical not to disclose information on which the negotiator knows the other
20 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
4. Why would a corporation prefer to be seen as ethical? Consumers may be less willing to buy products of
5. Does a company have a duty to act in socially or politically beneficial ways? There is no agreement as to
6. How does a corporation’s investment in a political or social agenda affect its duty to its shareholders?
People invest in business to make a profit, and a company’s shareholders may have such a variety of political and
7. To whom might a corporation owe a duty? A corporation may owe a duty to its shareholders, its employees
conflicting duties? There is no law that says which of these duties comes first or how much weight should be given
8. Because business controls so much wealth and power, what duty does it arguably have to society? It
9. Do businesses have an ethical duty to use enhanced security measures to protect confidential customer
information? Why or why not? For example, if an employer allowed its employee to store customers’
unencrypted personal information on a laptop outside of the office, would this violate any ethical duty? Yes,
because the information has been entrusted to their care and the theft of such information is well known. Also, form
10. What is the difference between legal and ethical standards? How are legal standards affected by ethical
standards? Legal standards are greatly affected by ethical standards, and there are areas common to both. Killing
CHAPTER 5: BUSINESS ETHICS 21
ACTIVITY AND RESEARCH ASSIGNMENTS
2. Have students research the conflict that seems to exist between the Judeo-Christian and Islamic ethics, between
4. Have students choose an employer and discover as much as they can about the people who work for the
5. Some business firms publish annual reports concerning their socially responsible activities. Critics of these
reports call them advertising ploys. Suggest that students obtain and read one or more of the reports. What
EXPLANATION OF A SELECTED FOOTNOTE IN THE TEXT
Footnote 3: Johnson Construction Co. took a leaky truck for repair to Shaffer’s Auto and Diesel Repair,
LLC. Shaffer gave a verbal estimate of $1,000 for the work, but after the repair invoiced Johnson for $5,863.49.
In Johnson Construction Co. v. Shaffer, a state intermediate appellate court affirmed. Johnson’s owner
had testified that he agreed to the $1,000 estimate but not more. A Shaffer mechanic corroborated this testimony. As
Suppose that Shaffer had invoiced Johnson for only $1,500. Would the outcome have been different?
Even if the court had been convinced that Johnson had agreed to spend only $1,000 on the third repair of his truck,
22 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
Would it have been ethical for Shaffer’s mechanic to lie to support his employer’s case? Discuss. No,
