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Chapter 40
Ethics & Business
Decision Making
§1: Nature of Business Ethics
Ethics is the study of right and wrong
behavior in the world of business; the
fairness, rightness or justness of a course
of conduct.
In business, ethical decisions are the
application of moral and ethical
principles to the marketplace and
workplace.
Defining Business Ethics
Morals are universal guidelines or
“revealed” truths. Ethics is a reasoned set
of principals of conduct derived from
morals.
Ethical Reasoning - the process by which
an individual links her moral and ethical
convictions to the choice of actions to be
taken in a particular situation.
Conflicting Duties
Directors and Officers owe a complex set
of ethical duties to the company,
shareholders, customers, community,
employees, and suppliers.
When these duties conflict, ethical
dilemmas are created.
Internet and Ethics
A company’s actions come under quick
scrutiny with the power of email and the
internet.
When a corporation embarks on a course of
business deemed “unethical” by a special
interest group, the news will spread around the
world in a matter of minutes.
1 in 9 investors have “socially responsible”
investments. Gallup Poll.com
§ 2: Approaches to
Ethical Reasoning
Duty Based Ethics - derived from
religious and philosophical principles.
Religious Ethical Standards.
Kantian Ethics.
Rights Principles.
Outcome-Based Ethics - seek to ensure a
given outcome.
Utilitarianism.
Religious Ethical Standards
The rightness or wrongness of an action is
usually judged according to its conformity to
an absolute rule that commands a particular
form of behavior.
The motive of the actor is irrelevant in judging
the rightness or the wrongness of the action.
These rules often involve an element of
compassion.
Kantian Ethics
Premised on the belief that general
guiding principles for moral behavior can
be derived from human nature.
The categorical imperative is a central
postulate of Kantian ethics.
The rightness or wrongness of an action is
judged by estimating the consequences that
would follow if everyone in a society
performed the act under consideration.
Rights Principle
This principle derives from the belief that every
duty gives rise to a corresponding right.
The belief in fundamental rights is a deeply
embedded feature of Western culture.
The ethicality of an action is judged by how the
consequences of the action will affect the rights
of others.
Utilitarianism
An action is ethical based on whether it
produces the greatest good for the greatest
number of people upon which it has an effect.
A cost-benefit analysis must be performed to
determine the effects of competing alternatives
on the persons affected.
The best alternative is the one that produces
the greatest good for the greatest number.
§3: Ethical Decision Making
A sound ethical decision-making model
will include consideration of:
The legality of the contemplated action.
The ethicality of the contemplated action, as
determined by reference to the relevant code of
ethics, established ethical priorities, and public
opinion.
Corporate Compliance
A number of contexts, within the employeremployee relationship, are fraught with ethical
considerations, such as:
Having a system in place to detect, prevent, eliminate,
and punish behavior of a harassing nature toward
employees.
Avoiding wrongful discharge, either actual or
constructive.
Adhering to ethical principles during corporate
restructuring and downsizing.
Codes Of Ethics
Adopted by business entities as a way to:
Provide standard guidance to executives and
managers.
Take into account the duties owed by the
business to its various stakeholders.
Ethical “Gray Areas”
Sometimes whether an action is legal or
ethical depends on how a court or
administrative agency interprets a
statute. What if different courts disagree?
If managers, in good faith, believe they
are complying with a statute and later are
ruled against, was their action unethical?
§4: Maximum vs.
Optimum Profits
Ethical priorities of the executive’s institution
will have an effect on whether she chooses
maximum profits versus “optimum profits.”
The sacrifice of some profitability resulting
from adherence to an institution’s ethical and
legal priorities produces what business ethicists
refer to as optimum profits.
§5: The Ever-Changing
Ethical Landscape
What causes a societies’ ethics to change?
Seventy-five years ago a corporation’s ethical
duty was only to its shareholders and maximize
profits. Only two questions were asked: Is it
legal? Is it profitable?
The globalization of business impacts US
companies, suppliers, wages of foreign workers,
consumers.
Case 40.1: Varity v. Howe
(Conflicting Duties)
FACTS:
Varity Corporation set up a subsidiary, Massey
Combines Corporation (MCC), to sell certain lowselling products.
Varity convinced employees to transfer their jobs
and retirement benefit plans to MCC
Varity did not tell them it expected MCC to fail,
which, within two years, it did. Some retirees
stopped receiving benefits.
Employees sued Varity under the Employee
Retirement Income Security Act of 1974 (ERISA).
Case 40.1: Varity v. Howe
(Conflicting Duties)
HELD:
The U.S. Supreme Court held that under ERISA, a
fiduciary is required to “discharge his [or her]
duties with respect to a [retirement]plan solely in
the interest of the participants and beneficiaries.”
“To participate knowingly and significantly in
deceiving a plan’s beneficiaries in order to save
the employer money at the beneficiaries’ expense,
is not to act “solely in the interest of the
participants and beneficiaries.”
The Court stated that “[l]ying is inconsistent with
the duty of loyalty owed by all fiduciaries.”
Case 40.2: NY CPA’s v. Eric Louis Assoc.
(Ethical Decision-Making)
FACTS:
The NY CPA society has more than 30,000 members.
The Society’s service mark is “NYSSCPA”. The
Society operates a Web site at the Internet address
“www.nysscpa.org.”
ELA a small firm engaged in the job placement of
accountants and other professionals, began operating
a Web site using the address “nysscpa.com”, using
“NYSSCPA” as a meta tag, hyperlinking to the
Society’s site, and framing that site within ELA’s site.
The CPA’s asked ELA to stop. ELA asked for $20,000.
CPA’s sued alleging trademark infringment.
Case 40.2: NY CPA’s v. Eric Louis Assoc.
(Ethical Decision-Making)
HELD: FOR THE NY CPA’s.
ELA’s conduct was willful and in bad faith
because, on learning that it may not have had any
rights to the Society’s service mark, ELA did not
stop its use of the mark or seek the advice of
counsel.
The Society’s March 25th demand put ELA “on
notice that ELA’s use of the ‘nysscpa.com’ domain
name and the ‘NYSSCPA’ meta-tag was
potentially illegal,” but it only attempted to sell the
domain name to the Society.
Case 40.3: Blakey v. Continental Airlines
(Ethical Decision Making)
FACTS:
Blakey, a female pilot for Continental, complained
about pornographic photos and vulgar genderbased comments directed at her in her plane’s
cockpit and other work areas by her male coemployees.
Continental pilots published a series of harassing,
gender-based, defamatory messages about
Blakey on the Forum.
Blakey sued when management did nothing.
Case 40.3: Blakey v. Continental Airlines
(Ethical Decision Making)
HELD: FOR BLAKEY.
Remanded the case to determine, among
other things, which messages were
harassing, whether Continental had notice
of those messages, and the severity or
pervasiveness of the harassing conduct.
The court compared the on-line forum to
an old fashioned cork bulletin board at the
employer’s place of business.