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C H A P T E R 2
ETHICS AND THE LAW
This chapter explains the basic concepts and dilemmas of the application of business
ethics and social responsibility in business. The goal of the chapter is to provide the
manager with an ethical framework to evaluate business decisions in the global legal
environment.
I. THE RELATIONSHIP BETWEEN LAW AND ETHICS.
Of course ethics and law are interrelated. Creating a “good” organizational
culture that strives to have the highest ethical standards will ultimately make it
more financial healthy. But the law does not—indeed cannot—prohibit all
“bad” behavior.
CASE 2.1 Bammert v. Don’s Super Valu, Inc., 646 N.W.2d 365 (Wisc.
2002). Plaintiff, an at-will employee, was terminated in
II. THE ETHICAL TONE IS SET AT THE TOP.
The chief officer has the most important role in instilling ethics in the
organization. Pay disparities and the wealth gap between corporate executives
compared to average workers and public scandals reduce public faith in the
business community.
III. ETHICAL BUSINESS LEADER‘S DECISION TREE.
To ensure success, managers must create a culture of socially responsibility by
asking a series of questions:
BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 7TH ED. —INSTRUCTOR’S MANUAL
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A. Is the Action Legal?
B. Would it Maximize Shareholder Value? Maximization of shareholder
C. Is the Action Ethical? What is Ethical? The three main ethical
1. A teleological view of ethics is concerned about the
consequences of decisions. Morality is measured by the effect
a decision has on others.
2. A deontological view of ethics emphasizes the motivation and
E. Historical Perspective: Aquinas on Law and Ethics. Thomas Aquinas
believed that human laws were just only if they: (1) are consonant with
F. Actions That Might Maximize Shareholder Value But Would Be
Unethical. Most shareholders would not want their managers to act
unethically, even if it meant increasing shareholder value.
G. Actions that Neither Maximize Shareholder Value Nor are Ethically
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shareholder returns. If an action does not maximize shareholder value
and the firm has no ethical reason to act, the action should not be
taken. Otherwise, the action might result in liability for waste of
corporate assets.
H. Actions that Do Not Maximize Shareholder Value but Are
Nonetheless Ethically Required. Failure to meet social expectations
of ethical behavior can tarnish a firm’s reputation and impact corporate
I. Finding the “Sweet Spot.” Ideal courses of action are ethically sound
J. Approaches to Resolving the Tension Between Short-Term Results
and Long-Term Value. Managers can take affirmative steps to resolve
tensions between the short-term and long-term:
1. Soften the Edges. Hiring and wage freezes, shortening
workweeks, eliminating bonuses, buyout packages.
K. Individual Responsibility. Ethics is always an individual choice. If
the employee is asked to engage in a legal, but unethical action, she
BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 7TH ED. —INSTRUCTOR’S MANUAL
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IV. FAILING TO MEET SOCIETAL EXPECTATIONS.
Public perception of a company’s socially irresponsible or unethical behavior
might result in severe financial setbacks. Corporate social responsibility
extends to many areas.
A. Customers and Clients.
1. General Motors and Chevrolet Malibu’s Exploding Fuel Tank.
2. Conflicts of Interest: Goldman Sachs.
B. Employees. Public investigation reveals that clothing companies and
retailers have used child labor, impose harsh work conditions, and pay
C. Investors: Managed Earnings. Companies must consider the desires of
stockholders yet follow ethical and legal guidelines. Consider the
D. The Environment. Petroleum and electronics industries must balance
costs of environmental clean-up with profits.
E. Communities. Companies must negotiate relations with foreign
governments and local peoples, e.g., Union Carbide and Bhopal and
VI. POSITIVE ACTION.
Despite examples of corporate misconduct, many companies have undertaken
socially responsible moves on customer and product safety, in treating
employees fairly, for the environment and certain communities.
A. Customers and Product Safety: Johnson & Johnson and Tylenol.
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B. Employees: Auditing of Supplier Work Conditions.
C. The Environment: Socially Responsible Investment. The Coalition
VII. PROMOTING ETHICAL BEHAVIOR.
Managers set the ethical tone of the corporation and play the most important
role in creating an ethical environment. Companies need mission statements,
a code of ethics and ethics training, regular channels of oversight to review
company behavior and should make it easier for employees to blow the
whistle.
A. Craft a Mission Statement.
B. Adopt a Code of Ethics.
VIII. HONOR OF THE MORALS OF THE MARKETPLACE?
Law imposes a fiduciary duty on officers and partners to act in the best
interests of the other party. What duties does a finder owe its client?
CASE 2.2 Northeast General Corp. v. Wellington Advertising, Inc., 624
N.E.2D 129 (N.Y. 1993). Wellington hired Northeast to “find”
BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 7TH ED. —INSTRUCTOR’S MANUAL
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introduced Sternau to Wellington but did not disclose Sternau’s
reputation for ‘raiding’ the assets of the purchased company.
TEACHING SUGGESTIONS: THE RESPONSIBLE MANAGER.
A. Research Martin Luther King’s view of law and theory of civil disobedience.
What part can civil disobedience play in today’s corporate world? Analyze
B. Have student-teams create a one page code of ethics for their own fictional
company, along with the means to enforce and evaluate complaints.