Managing the Digital Firm, Seventh Canadian Edition
CHAPTER 4
Social, Ethical, and Legal Issues
in the Digital Firm
LEARNING OBJECTIVES
After reading this chapter, you will be able to answer the following questions:
1. What social, ethical, and legal issues are raised by information systems?
2. What specific principles for conduct can be used to guide ethical decisions?
3. Why do contemporary information systems, technology, and the Internet pose
challenges to the protection of individual privacy and intellectual property?
4. How have information systems affected everyday life?
Teaching Suggestions
This is an interesting, stimulating chapter to present in class with the opportunity to
create dynamic discussions. Your students will have a variety of opinions about the
ethical issues presented in this chapter. You may want to open the discussion by asking if
any students have had first-hand experiences with personal data compromises. You may
also ask students how they defend themselves against misuse of information systems and
data. Most of them probably don’t.
The opening case, “Behavioural Targeting: Your Privacy Is the Target” shows that
technology can be a double-edged sword. It can be the source of many benefits. It can
also create new opportunities for breaking the law or taking benefits away from others.
The Web has created new opportunities and challenges regarding privacy issues. It has
also created struggles between businesses and users regarding the vast amounts of data
that are collected from Web surfing. The misuse and abuse of data also creates moral and
ethical dilemmas that students are likely to face in the workplace. You might ask students
two questions: Which is more important to you from an individual standpoint: the
monetary interests of online advertisers and search engines or protecting personal data as
much as possible? Or, which is more important to you from a business standpoint if you
were paying for Web advertising placements: the monetary interests of online advertisers
and search engines or protecting personal data as much as possible?
Managing the Digital Firm, Seventh Canadian Edition
Section 4.1, “Understanding Ethical and Social Issues Related to Systems”
Many people do not want to discuss or even think about technology-related ethical and
social issues, at least not until a large scandal takes place such as data compromises that
occur from time-to-time (e.g., both Sony and Citi Group in 2011). However, the use of
new technology presents these kinds of problems. Throughout this chapter it is imperative
that you discuss these issues so that students can see both the positive and negative sides
of technology. It’s important for students to understand that almost every technology
improvement opens the door to potential misuse and abuse. Table 4-2 discusses
technology trends that have helped create some of the ethical issues facing society.
Section 4.2, “Ethics in an Information Society”
This section provides the basic concepts of responsibility, accountability and liability as they
apply to information system issues. It’s easy to blame problems on a computer system but
you should remind students that behind every computer is a human being. People have the
responsibility to make wise decisions about how information systems are used and how data
are protected against abuse and misuse. Using the five-step process outlined in the
subsection “Ethical Analysis” leads the way to abiding by the ethical principles. You may
want to review how codes of conduct apply to each information system user and manager.
Managing the Digital Firm, Seventh Canadian Edition
Ethical issues for analysis:
a) Should companies be allowed to read employees’ e-mails, especially if they are
personal? Should employees be allowed to send personal e-mails? Should e-mails be
used against a person or company in a court of law? If so, how? An example of this
issue was the Microsoft versus Department of Justice antitrust trial. Much e-mail
written by Microsoft’s executives was used against them.
Ask students to discuss what is right? Is it okay for an employee to download the latest
picture from any Web site (copyright issues? Appropriate content?) and use it as a
screensaver? Is it okay to run a personal commercial Web site from your workplace
computer using the company’s computer resources? Is it okay to e-mail jokes over the
company’s network? Is it okay for the company to use technology to monitor your
computer usage every minute you’re on the job? Is it okay for the company to use
technology to monitor your keystrokes so they can determine how much work you’re
doing? Is it okay for employees to use the company’s computers and networks to access
eBay during their lunch break? Should a company be allowed to remove Solitaire from
employee computers?
What is the best way for companies and employees to handle these situations? What is
the right thing to do?
b) Another issue is the impact of technology on jobs. Ask students whether a company
should go out of business instead of increasing its automation and use of information
systems. Ask students if they are willing to pay two to three times more for goods so
workers will not lose their jobs. At this point, students are ready to see that it is
competitive pressure caused by consumer unwillingness to pay higher prices that is
driving the reengineering process. At this point, you can lead a discussion about the
ethical ways of reengineering and using information systems.
c) Also ask students to consider how much information they give away. Then ask your
students if giving away so much personal information is necessary. Help your
students to see the relationship between the technology they want to use and the loss
Section 4.3, “The Moral Dimensions of Information Systems”
This section is designed to teach students how they should protect information systems and
data. Although most people immediately think of their own data, students should understand
they will have a responsibility to protect other people’s data once they enter the workforce.
Managing the Digital Firm, Seventh Canadian Edition
Compare the opt-in privacy policies practiced in Canadian and European Union (EU)
countries versus the opt-out privacy practices of U.S. companies. Have students give
examples of how U.S. companies would have to change their business processes to
accommodate EU rules. Also, introduce the safe-harbour policy enacted by the U.S.
Department of Commerce.
Since most students probably have a Facebook account, it’s a good way to discuss how
involved they should be in determining a company’s privacy policies. Facebook has had
thousands of customers complain about its lack of concern for users’ privacy; in fact,
Students can be asked if they are concerned about the amount of data being collected
about them. Data from multiple sources can be collected and profiles can be created on an
individual. Although students may not be concerned about this per se, they sometimes
react when you point out how this profile can be used and the impact it could have on
This section provides more detail about the five moral dimensions mentioned in the first
section. Information technology makes it very easy to violate each of the dimensions. It’s
important for students to understand that intellectual property rights extend to most of the
WINDOW ON TECHNOLOGY: LIFE ON THE GRID: IPHONE
BECOMES ITRACK
Case Study Questions:
1. Why do mobile phone manufacturers (Apple, Google, and BlackBerry) want to
track where their customers go?
There is a great deal of money to be made knowing where people are at any given
2. Do you think mobile phone customers should be able to turn tracking off?
Should customers be informed when they are being tracked? Why or why not?
3. Do you think mobile phone tracking is a violation of a person’s privacy? Why or
why not?
Privacy concerns are growing with the proliferation of location-based services like
WINDOW ON ORGANIZATIONS: WASTING TIME: THE NEW
DIGITAL DIVIDE
Case Study Questions:
1. How does information technology affect socioeconomic disparities? Explain your
answer.
The largest increase in the amount of time that young people spend with
entertainment media has occurred among minority youth. The increase has been
2. Why is access to technology insufficient to eliminate the digital divide?
Simply having a mobile device does not improve one’s socio-economic disparity.
3. How serious a problem is the “new” digital divide? Explain your answer.
Some studies have suggested that technologies are fundamentally changing the way we
4. Why is the digital divide problem an ethical dilemma?
5. Do you think that the U.S. study that showed that minority children spend more
time with media than “white” children is also true in Canada between minority
children (e.g., those identified as Aboriginal Peoples) and their “majority”
counterparts?
One might suspect that the same situation occurs, especially as it relates to the use of
Review Summary
1. What ethical, social, and legal issues are raised by information systems?
2. What specific principles for conduct can be used to guide ethical decisions?
3. Why do contemporary information systems technology and the Internet pose
challenges to the protection of individual privacy and intellectual property?
4. How have information systems affected everyday life?
Managing the Digital Firm, Seventh Canadian Edition
Key Terms
The following alphabetical list identifies the key terms discussed in this chapter. The
page number for each key term is provided.
Accountability 106
Carpal tunnel syndrome (CTS) 125
Digital Millennium Copyright Act
(DMCA) 118
Due process 106
Ethical “no free lunch” rule 108
Intellectual property 113
Liability 106
Repetitive stress injury (RSI) 124
Responsibility 106
Risk Aversion Principle 108
Safe harbour 110
Review Questions
1. What ethical, social, and legal issues are raised by information systems?
Explain how ethical, social, and legal issues are connected and give some
examples.
Figure 4-1 can be used to answer this question. Information technology has raised
new possibilities for behaviour for which laws and rules of acceptable conduct have
not yet been developed. The introduction of new information technology has a ripple
Managing the Digital Firm, Seventh Canadian Edition
List and describe the key technological trends that heighten ethical concerns.
Table 4-2 summarizes the four key technological trends responsible for heightening
ethical concerns. These trends include:
• Computing power doubles every 18 months
Differentiate between responsibility, accountability, and liability.
Responsibility is a key element of ethical actions. Responsibility means that you
2. What specific principles for conduct can be used to guide ethical decisions?
List and describe the five steps in an ethical analysis.
The five steps in ethical analysis include:
• Identify and describe clearly the facts.
Managing the Digital Firm, Seventh Canadian Edition
Identify and describe six ethical principles.
Six ethical principles are available to judge conduct. These principles are derived
independently from several cultural, religious, and intellectual traditions and include:
• Golden Rule—Do unto others as you would have them do unto you.
• Immanuel Kant’s Categorical Imperative—If an action is not right for everyone to
3. Why do contemporary information systems technology and the Internet pose
challenges to the protection of individual privacy and intellectual property?
Define privacy, and discuss the principles of PIPEDA.
Privacy is the claim of individuals to be left alone, free from surveillance or
interference from other individuals or organizations, including the state. Claims of
privacy are also involved at the workplace.
PIPEDA (The Personal Information Protection and Electronic Documents Act) “sets
out ground rules for how private sector organizations may collect, use or disclose
Managing the Digital Firm, Seventh Canadian Edition
Explain how the Internet challenges the protection of individual privacy and
intellectual property.
Contemporary information systems technology, including Internet technologies,
challenges traditional regimens for protecting individual privacy and intellectual
property. Data storage and data analysis technology enables companies to easily
Explain how informed consent, legislation, industry self-regulation, and
technology tools help protect the individual privacy of Internet users.
Informed consent means that the Web site visitor knowingly permits the collection of
his/her data during his/her visit to the company’s Web site. In Canada, individuals
must opt-in to allow their information to be shared by organizations (legislated by
PIPEDA). The federal legislation that applies to private sector organizations is
List and define three different regimes that protect intellectual property rights?
Intellectual property is subject to a variety of protections under three different legal
traditions:
• Trade secrets
4. How have information systems affected everyday life?
Explain why it is so difficult to hold software services liable for failure or injury.
In general, insofar as computer software is part of a machine, and the machine injures
someone physically or economically, the producer of the software and the operator can
be held liable for damages. Insofar as the software acts like a book, storing and displaying
information, courts have been reluctant to hold authors, publishers, and booksellers liable
List and describe the principal causes of system quality problems?
Three principle sources of poor system performance are:
• Software bugs and errors
• Hardware or facility failures caused by natural or other causes
• Poor input data quality
Zero defects in software code of any complexity cannot be achieved and the
seriousness of remaining bugs cannot be estimated. Hence, there is a technological
Name and describe four quality-of-life impacts of computers and information
systems.
Four quality of life impacts of computers and information systems include:
• Jobs can be lost when computers replace workers or tasks become unnecessary in
reengineered business processes.
Managing the Digital Firm, Seventh Canadian Edition
• Ability to own and use a computer may be exacerbating socioeconomic disparities
among different racial groups and social classes.
Define and describe technostress and RSI and explain their relationship to
information technology.
Technostress is defined as stress induced by computer use; symptoms include
aggravation, hostility toward humans, impatience, and fatigue.
Repetitive stress injury (RSI) is avoidable. Three management actions that could
reduce RSI injuries include:
• Designing workstations for a neutral wrist position, using proper monitor stands,
Discussion Questions
1. Should producers of software-based services, such as ATMs, be held liable for
economic injuries suffered when their systems fail?
If a system fails, it is foreseeable that the producers of the software-based services
could potentially be held liable for economic injuries. This could even extend to
systems that have been managed poorly and implemented unsuccessfully. They, too,
have the potential to impact the company’s bottom line and subject producers of
software-based services to liability. While the general rule is that they cannot be held
2. Should companies be responsible for unemployment caused by their information
systems? Why or why not?
Answers for this question will vary, as will student discussions of the ethics of
various issues in information systems, including social responsibility, environmental
protection, privacy, individual rights, occupational safety and health, product liability,
3. Discuss the pros and cons of allowing companies to amass personal data for
behavioural targeting.
The pros of this issue include:
• The FTC is trying to extend the principles of fair information practices to
behavioural targeting through voluntary industry participation.
• The Network Advertising Initiative has published its own self-regulating
principles.
The cons of this issue include:
• Most Internet businesses do very little to protect individual user privacy.
Managing the Digital Firm, Seventh Canadian Edition
Hands-on MIS Projects
Management Decision Problems
1. USAData’s Web site: This Web site sells personal data on millions of people
without much prior vetting. That is, just about anyone can purchase the data in
whatever organized way they want. Do data brokers such as USAData raise privacy
issues? Why or why not? If your name and other personal information were in this
database, what limitations on access would you want in order to preserve your
privacy? Consider the following data users: government agencies, your employer,
private business firms and other individuals.
To answer these questions, students should be clear on what constitutes an ethical
dilemma. As such, a dilemma is described as two diametrically opposed courses of action
that support worthwhile values. There are a number of valid reasons why data is being
2. Small insurance company: Examines the options businesses have for monitoring
employee usage of the Internet. What kind of ethical dilemmas are created for
Managing the Digital Firm, Seventh Canadian Edition
employers and employees when a business monitors the activities of its employees?
Calculate the amount of time each employee spends on the Web and then rank the
employees in the order of the amount of time each spent online. Do the students’
Total minutes
Legitimate minutes
Suspect
minutes
248
96
152
127
44
83
40
260
35
225
15
23
Although it appears that most of the employees are using the Internet for non-business
reasons, managers must be cautious about making accusations based on raw data. For
instance, while Talbot may clearly be visiting personal, non-business Web sites like
Nordstrom and eBay, perhaps she was asked by her supervisor to find a gift for another
The point is that managers may be creating not just an ethical problem but relationship
problems with employees if raw data is used to make unfounded accusations.
The following ethical principles may apply to the managers and employees:
• The Golden Rule: If you don’t want other people using the Internet for personal
use, then you shouldn’t either.
• Immanuel Kant’s Categorical Imperative: If it’s not right for everyone to use the
Internet for personal use, then it shouldn’t be right for anyone. If everyone did it,
would it affect the workplace?
Achieving Operational Excellence: Creating a Simple Blog
Software skills: Blog creation
Business skills: Blog and Web page design
Managing the Digital Firm, Seventh Canadian Edition
This exercise will not turn students into professional bloggers (although it might), but it
will give them a feel for its basic functions. Students are asked to create a simple blog using
software available at Blogger.com. Here are the elements they should include in their blog:
• Pick a sport, hobby, or topic of interest
• Name the blog, give it a title, and choose a template
Improving Decision Making: Using Internet Newsgroups for Online Market Research
Software skills: Web browser software and Internet newsgroups
Business skills: Using Internet newsgroups to identify potential customers
Students are asked to explore the use of newsgroups to help sell products. By completing
this exercise, students should understand that newsgroups are just another outlet that
businesses can use to reach potential customers.
CASE STUDY: FACEBOOK: IT’S ABOUT THE MONEY
1. Perform an ethical analysis of Facebook. What is the ethical dilemma presented
by this case?
Managing the Digital Firm, Seventh Canadian Edition
picture of their lives. It gathers personal information about users, both with and
without their consent, which can be used against them in other ways. Facebook’s goal
2. What is the relationship of privacy to Facebook’s business model?
3. Describe the weaknesses of Facebook’s privacy policies and features. What
management, organization, and technology factors have contributed to those
weaknesses?
Management: Ninety-three percent of people polled believe that Internet companies
should be forced to ask for permission before using their personal information.
Seventy-two percent want the ability to opt out of online tracking. Executives and
Managing the Digital Firm, Seventh Canadian Edition
Technology: Facebook does not have a good history when it comes to privacy
violations and missteps that raise doubts about whether it should be responsible for the
4. Will Facebook be able to have a successful business model without invading
privacy? Explain your answer. Are there any measures Facebook could take to
make this possible?
Opinions will vary on this question. Certainly, Facebook’s ability to leverage as much
as possible from advertisers may be diminished if it cannot collect every nugget of