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Chapter 7
Ethics, Social Responsibility, and the Business
Manager
Introduction
Chapter Seven addresses the following questions:
• What is business ethics?
• What does social responsibility mean?
• What are some recognized theories of ethical thought and their application to business
problems?
• What purposes do codes of ethics serve?
• Do people have different perspectives on what a business should do if it wants to be
socially responsible?
• What are the global dimensions of ethics and social responsibility?
Chapter Seven is significant because issues related to ethics and social responsibility affect
Achieving Teaching Excellence
“Ethics and Me” Exercise
If instructors teach students who are employed, then it might be interesting to hear the kinds
of ethical dilemmas they face at work. Here’s how to find out in a structured way that allows
everyone in the class to participate.
At the beginning of class time that the instructor plans to devote to this chapter, ask students
to write down the answer to these questions:
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ethics.
2. Write for five minutes, answering these questions: What was happening at this moment
when you discovered that the word ethics had something to do with your working life?
Who was there? How did you feel about this moment?
Then, after students have written for five minutes, engage in serial testimony.
Instructors should go around the room and ask each student to read some of what they wrote,
all of what they wrote, or to pass if they do not want to speak. Give each student a three minute
Chapter Overview, Topic Outline, and Discussion Questions
Chapter Overview
This chapter presents material on business ethics in a neutral way. Readers are left to make
their own choices about what part ethics should play in business decision making and about
whether the business community, the trade groups that represent it, and individual managers
should act in a “socially responsible” manner. This chapter includes (1) a broad definition of
This chapter falls in a good place in the book. Just as students are getting the hang of
figuring out what ethical norms underlie judicial opinions, they get more information about
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Topic Outline
I. Definition of Business Ethics and the Social Responsibility of Business
A. Business Ethics
B. The Social Responsibility of Business
1. In re Exxon Valdez
II. Theories of Ethical Thought
A. Consequential Theories
III. Codes of Ethics
A. Individual Codes of Ethics
B. Corporate Codes of Ethics
1. Corporate Ethics
1. Accounting
3. Law
IV. Schools of Social Responsibility
A. Profit-Oriented School
B. Managerial School
C. Institutional School
D. Professional Obligation School
E. Regulation School
1. Johnson Construction Co. v. Shaffer
V. Global Dimensions of Ethics and Social Responsibility
VI. Summary
Discussion Questions for Chapter Seven
1. How does ethics as presented in Chapter Seven relate the four primary ethical norms the text
authors presented in Chapter One?
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2. Why do some people call utilitarian thought the “philosophy of business”?
3. Ask students to research the case Pavlik v. Lane Ltd./Tobacco Exporters Intern. 135 F.3d
876 (3d Cir. 1998). Ask them how a utilitarian thinker would respond to the Pavlik case.
4. How would a Kantian thinker respond to the Pavlik case?
A Kantian thinker might focus on the behavior of the manufacturers of Zeus (and similar
products); say the manufacturer had a duty to follow the moral law. What would the moral
law tell us in this case with warning labels? What if all manufacturers used equally weak
5. Think of all the reasons you can that corporations enact codes of conduct.
Companies want to make it clear to their employees what they can and cannot do in the
6. Why do accountants, lawyers, and life underwriters have codes of ethics, but managers do
not?
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7. List and explain the five schools of social responsibility.
Following are the five schools of social responsibility:
• Profit-oriented school—the sole purpose of business is to maximize profits for
shareholders.
Answers to Critical Thinking about the Law, Case Summaries, and Answers to
Review Questions, Review Problems, and Case Problems
Suggested Answers to Critical Thinking about the Law
1. Several different definitions of responsibility exist. To be responsible could mean to take the
2. If security mattered to a person, it would be important to want to stay in business a long
time. If you acted in a callous manner toward the Bhopal victims, the public would react
3. Immediately, one would ask, “Which kind of responsibility do you mean”? One would want
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Case Summary—In re Exxon Valdez
This case is part of the aftermath of the Exxon Valdez oil spill. When taken to trial, the
company was found guilty and among other penalties, had to pay $5 billion in punitive damages.
Case Summary—Cooper Industries v. Leatherman Tool Group, Inc.
This case is in the book to make clear to students the purpose of punitive damage awards.
Case Summary—Johnson Construction Co. v. Shaffer
In this case, a truck owned by Johnson Construction Company needed repairs. John Robert
Johnson, Jr., the company’s president, took the truck with its attached fifteen-ton trailer to Bubba
Shaffer, doing business as Shaffer’s Auto and Diesel Repair. The truck was supposedly fixed,
and Johnson paid the bill. The truck continued to leak oil and water. Johnson returned the truck
to Shaffer, who again claimed to have fixed the problem. Johnson paid the second bill. The
Answers to Review Questions
7-1. The deontological theory of ethics claims that actions can be judged as ethically good or
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7-2. Milton Friedman adheres to the profit-oriented theory of social responsibility. He
believes the one responsibility of business is to maximize profits for the shareholders,
while staying within the rules of the game. Holders of this theory argue that business
entities are distinct organizations in our society and that their sole purpose is to increase
profits for shareholders. Businesses are to be judged solely on criteria of economic
efficiency and how well they contribute to growth in productivity and technology.
7-3. Individual codes of ethics are codes individual managers develop to guide their behavior
in the business world. Professional codes of ethics guide the behavior of not one
7-4. Following are the characteristics expected of an individual and his or her profession:
• Mandatory university educational training before licensing, as well as continuing
education requirements
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7-5. The institutional school of social responsibility contends that business entities have a
responsibility to act in a manner that benefits all of society, just as churches, unions,
courts, universities, and governments have. Whether it is a sole proprietorship, a
Answers to Review Problems
7-6. Reasonable minds might differ in terms of whether the United States has been successful
in preventing corruption through legislation such as the Foreign Corrupt Practices Act
and through executive orders. Although there certainly are examples of individuals and
7-7. The conference attended by Wu was sponsored by the company he works for. On
winning the prize, Wu should have informed his supervisor. It could become a problem if
7-8. C should apply a Kantian standard and engage in behavior that would make a good
universal standard. Can there be a universal standard that allows everyone to cheat
7-9. The answers to this question would vary depending on the ethical standard applied. In
both situations, the person is lying. Using a Kantian standard, it would be prudent to
refrain from hiring anyone who lies. Although you might be missing out on a good hire
overall, you would want someone who follows the moral law at all times. A utilitarian
standard would be more forgiving, and would probably allow you to hire the manager
who lies about his or her prior salary. Lying about the MBA degree seems significant,
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7-10. The various schools of ethical thought will influence a person’s answer to this question.
Ask students to run through all the possible responses. Realistically, it is hard to imagine
someone in business reporting the incident to the salesperson’s superior, especially when
7-11. Ideally, the lab technician will engage in an ethical decision-making process that
considers more than one ethical standard. What decision will benefit the community as a
whole? What would the moral law tell the lab technician? How would the lab technician
feel if his or her behavior were detailed in a newspaper, such as The New York Times?
Answers to Case Problems
7-12. Howard did act unethically as he indulged in a bogus sale that showed an increase in
7-13. The court held that the defendant companies were not making fair use of the copyrighted
motion pictures. The court considered Section 107 of the Copyright Act, which sets forth
the fair use factors, including: a) the purpose and character of the use; b) the nature of the
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Because the copies were non-transformative, in contrast to the creative nature of the
7-14. A manager’s attitudes and actions have a significant impact on the workplace
environment. Managers serve as liaisons between higher management and the non-
7-15. In July 2009, after a six-week jury trial in the Southern District of New York, Frederic
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knew of a plot by Viktor Kozeny to bribe Azerbaijani officials to let Kozeny’s investment
7-16. Zanford was maximizing his self-interest at the expense of a weak, elderly man. The SEC
looks out for people such as Wood (the weak, elderly man), using a duty-based ethics
Thinking Critically about Relevant Legal Issues
Disbarment of Lawyers and Debarment of Officers and Directors of Corporations
1. The court is very protective of the professional code of ethics that governs the actions of
2. The fact that when an attorney commits a felony he or she is automatically disbarred is
basically the whole argument the court gives for disbarment.
3. The court wants to uphold the image of the profession and stay true to principles that govern
4. Basically, because he was under the direction of the president, he was obligated to follow his
orders. One does not easily refuse the president. He also outlines his impeccable record and
Potential Debarment of Officers and Directors
1. Arguably a plea agreement does not achieve justice, since a prosecutor invariably agrees to
lesser punishment in return for the defendant’s consent to plead guilty. However, plea
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agreements are a frequently-used method for resolving cases in the criminal justice system
2. Despite the possibility of negative externalities, there is widespread public support for
holding corporate directors and officers liable for corporate criminal conduct, particularly if