Chapter 5 Legal and Ethical Responsibilities Test Review
Chapter 4 Ethics and Social Responsibility
Learning Objectives
- Define business ethics and explicate what it means to act ethically in business.
- Explicate why we study business organisation ethics.
- Place ethical issues that you lot might confront in business, such as insider trading, conflicts of interest, and bribery, and explain rationalizations for unethical behavior.
- Identify steps you can take to maintain your honesty and integrity in a business concern environment.
- Define corporate social responsibility and explain how organizations are responsible to their stakeholders, including owners, employees, customers, and the community.
- Discuss how you can identify an ethical arrangement, and how organizations tin can prevent behavior like sexual harassment.
- Larn how to avoid an ethical lapse, and why y'all should not rationalize when making decisions.
Introduction
"Mommy, Why Do You Have to Go to Jail?"
The one question Betty Vinson would accept preferred to avoid is "Mommy, why practise you take to go to jail?" [1] Vinson graduated with an accounting caste from Mississippi Land and married her higher sweetheart. After a series of jobs at modest banks, she landed a mid-level bookkeeping chore at WorldCom, at the time still a small long-altitude provider. Sparked by the telecom boom, yet, WorldCom shortly became a darling of Wall Street, and its stock cost soared. Now working for a wildly successful company, Vinson rounded out her life by reading legal thrillers and watching her daughter play soccer.
Her moment of truth came in mid-2000, when company executives learned that profits had plummeted. They asked Vinson to make some accounting adjustments to boost income by $828 meg. Vinson knew that the scheme was unethical (at the very to the lowest degree) but she gave in and fabricated the adjustments. Near immediately, she felt guilty and told her boss that she was quitting. When news of her decision came to the attention of CEO Bernard Ebbers and CFO Scott Sullivan, they hastened to clinch Vinson that she'd never be asked to cook whatsoever more books. Sullivan explained it this way: "We accept planes in the air. Permit's get the planes landed. In one case they've landed, if you lot still want to leave, so leave. Only not while the planes are in the air." [2] Besides, she'd done nothing illegal, and if anyone asked, he'd take total responsibility. And then Vinson decided to stay. After all, Sullivan was one of the top CFOs in the country; at age 37, he was already making $19 one thousand thousand a year. [iii] Who was she to question his judgment? [4]
Half dozen months afterward, Ebbers and Sullivan needed another aligning—this fourth dimension for $771 one thousand thousand. This scheme was even more than unethical than the get-go: it entailed forging dates to hibernate the adjustment. Pretty soon, Vinson was making adjustments on a quarterly basis—outset for $560 million, then for $743 million, and yet again for $941 1000000. Eventually, Vinson had juggled almost $4 billion, and presently, the stress started to get to her: she had trouble sleeping, lost weight, and withdrew from people at work. She decided to hang on when she got a promotion and a $thirty,000 raise.
By spring 2002, however, it was obvious that adjusting the books was concern as usual at WorldCom. Vinson finally decided that information technology was fourth dimension to move on, but, unfortunately, an internal accountant had already put two and two together and blown the whistle. The Securities and Exchange Commission charged WorldCom with fraud amounting to $11 billion—the largest in U.s. history. Seeing herself as a valuable witness, Vinson was eager to tell what she knew. The government, however, regarded her as more than than a mere witness. When she was named a co-conspirator, she agreed to cooperate fully and pleaded guilty to criminal conspiracy and securities fraud. But she won't exist the only one doing time: Scott Sullivan volition be in jail for five years, and Bernie Ebbers will be locked up for 25 years. Both maintain that they are innocent. [v]
And so where did Betty Vinson, mild-mannered midlevel executive and mother, go wrong? How did she manage to get involved in a scheme that not only bilked investors out of billions just too cost 17,000 people their jobs? [half dozen] Ultimately, of course, we tin just guess. Perhaps she couldn't say no to her bosses; mayhap she believed that they'd take total responsibleness for her accounting "adjustments." Possibly she was afraid of losing her task or didn't fully sympathize the ramifications of what she was doing. What we do know is that she disgraced herself and went to jail. [7]
The WorldCom situation is not an isolated incident. Perhaps you accept heard of Bernie Madoff, founder of Bernard L. Madoff Investment Securities and former chairman of the NASDAQ stock exchange. [8] Madoff is alleged to have run a giant Ponzi scheme [9] that cheated investors of up to $65 billion. His wrongdoings won him a spot at the top of Fourth dimension Magazine's Top 10 Crooked CEOs. Co-ordinate to the SEC charges, Madoff convinced investors to give him large sums of coin. In return, he gave them an impressive viii–12 per centum return a year. But Madoff never really invested their money. Instead, he kept it for himself. He got funds to pay the outset investors their return (or their money back if they asked for information technology) by bringing in new investors. Everything was going smoothly until the fall of 2008, when the stock market plummeted and many of his investors asked for their money. As he no longer had it, the game was over and he had to admit that the whole matter was only one big lie. Thousands of investors, including many of his wealthy friends, not-so-rich retirees who trusted him with their life savings, and charitable foundations, were financially ruined. Those harmed by Madoff either directly or indirectly were likely pleased when he was sentenced to jail for 150 years.
Headlines from more than corporate scandals since 2015:
- In 2015, Volkswagen admitted cheating the United States emissions tests for diesel fuel engines.
- In 2016, then Wells-Fargo CEO John Stumpf was fired for a scandal that included the creation of 1.5 million fake eolith accounts and more than than 500,000 fake credit cards, all in customers' names and without their permission. This was just the beginning of more scandals to exist uncovered at one of the Pinnacle five largest banks in the United States. [10]
- In 2019, Facebook agrees to pay $5 billion to settle with the US Federal Trade Commission over privacy and data concerns. [eleven]
What can regime, business and/or society do to reduce these types of ethical scandals?
Business Ethics
The Idea of Business Ideals
Information technology'due south in the best interest of a company to operate ethically. Trustworthy companies are better at attracting and keeping customers, talented employees, and capital. Those tainted by questionable ethics suffer from dwindling customer bases, employee turnover, and investor mistrust.
Permit'south brainstorm this department by addressing this question: What can individuals, organizations, and government agencies practise to foster an surround of ethical behavior in business? First, of class, we need to define the term.
What Is Ethics?
You probably already know what it means to be ethical: to know right from wrong and to know when you're practicing one instead of the other. We can say that business concern ideals is the application of ethical behavior in a concern context. Acting ethically in concern means more than but obeying applicable laws and regulations: It as well means beingness honest, doing no harm to others, competing adequately, and failing to put your ain interests above those of your visitor, its owners, and its workers. If you lot're in business yous obviously need a potent sense of what'southward right and incorrect. You demand the personal conviction to do what's right, even if it means doing something that'due south hard or personally disadvantageous.
Why Study Ideals?
Ideally, prison terms, heavy fines, and civil suits would discourage corporate misconduct, but, unfortunately, many experts suspect that this assumption is a bit optimistic. Whatever the condition of the ethical environment in the near futurity, one thing seems clear: the next generation inbound business organisation—which includes well-nigh of you—will find a world much dissimilar than the one that waited for the previous generation. For case, cyberethics and how user behavior and programmed computers might impact people and society. Recent history tells us in no uncertain terms that today'south business students, many of whom are tomorrow'southward business leaders, need a much sharper understanding of the difference between what is and isn't ethically acceptable. Every bit a business organisation student, ane of your cardinal tasks is learning how to recognize and deal with the upstanding challenges that volition confront you. Asked what he looked for in a new hire, Warren Buffett, CEO of Berkshire Hathaway and one of the world'south most successful investor, replied: "I look for three things. The first is personal integrity, the second is intelligence, and the third is a loftier energy level." He paused and and so added, "But if you don't accept the beginning, the second two don't thing." [12]
Identifying Ethical Issues and Dilemmas
Upstanding issues are the difficult social questions that involve some level of controversy over what is the right matter to exercise. Ecology protection is an instance of a commonly discussed ethical event, considering there can be trade offs between environmental and economic factors.
Ethical dilemmas are situations in which it is difficult for an individual to make decisions either because the right course of action is unclear or carries some potential negative consequences for the person or people involved.
Brand no fault nigh it: when you enter the business world, you lot'll notice yourself in situations in which you'll have to choose the appropriate behavior. How, for example, would you reply questions like the following?
- Is it OK to accept a pair of sports tickets from a supplier?
- Can I buy part supplies from my brother-in-law?
- Is information technology appropriate to donate company funds to a local charity?
- If I discover out that a friend is about to be fired, can I warn her?
Obviously, the types of situations are numerous and varied. Fortunately, we can break them downwardly into a few bones categories: issues of honesty and integrity, conflicts of interest and loyalty, bribes versus gifts, and whistle-blowing. Allow'south look a little more closely at each of these categories.
Issues of Honesty and Integrity
Chief investor Warren Buffet once told a group of business organization students the following: "I cannot tell yous that honesty is the all-time policy. I can't tell you lot that if y'all carry with perfect honesty and integrity somebody somewhere won't comport the other way and make more money. But honesty is a good policy. You'll do fine, yous'll sleep well at night and you lot'll experience practiced about the example you are setting for your coworkers and the other people who intendance about you." [13]
If you work for a company that settles for its employees' simply obeying the police force and post-obit a few internal regulations, yous might think about moving on. If you lot're being asked to deceive customers about the quality or value of your product, you're in an ethically unhealthy surroundings.
Think Virtually This Story:
"A chef put 2 frogs in a pot of warm soup h2o. The first frog smelled the onions, recognized the danger, and immediately jumped out. The second frog hesitated: The water felt good, and he decided to stay and relax for a minute. After all, he could always jump out when things got too hot (then to speak). Equally the h2o got hotter, however, the frog adjusted to it, hardly noticing the alter. Before long, of course, he was the main ingredient in frog-leg soup." [14]
So, what's the moral of the story? Don't sit around in an ethically toxic surround and lose your integrity a little at a fourth dimension; get out earlier the water gets too hot and your options accept evaporated. Fortunately, a few rules of pollex can guide yous.
We've summed them up in Effigy four.2.
Conflicts of Interest
Conflicts of involvement occur when individuals must cull between taking actions that promote their personal interests over the interests of others or taking deportment that don't. A conflict can exist, for example, when an employee's own interests interfere with, or accept the potential to interfere with, the best interests of the company'due south stakeholders (management, customers, and owners). Permit'southward say that you work for a company with a contract to cater events at your college and that your uncle owns a local bakery. Manifestly, this state of affairs could create a conflict of interest (or at least give the appearance of one—which is a trouble in itself). When you're chosen on to replenish desserts for a tiffin, you might be tempted to send some business organization your uncle's way even if it's not in the all-time involvement of your employer. What should you do? You should disclose the connection to your boss, who can so arrange things so that your personal interests don't conflict with the company's.
The same principle holds that an employee shouldn't use private data near an employer for personal financial benefit. Say that y'all learn from a coworker at your pharmaceutical visitor that one of its well-nigh assisting drugs will be pulled off the market because of unsafe side effects. The remember volition severely hurt the company's financial operation and crusade its stock price to collapse. Earlier the news becomes public, you sell all the stock you own in the company. What you've done is called insider trading—acting on information that is not available to the general public, either by trading on it or providing it to others who trade on it. Insider trading is illegal, and you could go to jail for it.
Conflicts of Loyalty
You lot may one twenty-four hours find yourself in a bind between beingness loyal either to your employer or to a friend or family member. Perhaps you only learned that a coworker, a friend of yours, is well-nigh to be downsized out of his task. You also happen to know that he and his wife are getting prepare to brand a deposit on a house most the company headquarters. From a work standpoint, you know that you shouldn't divulge the data. From a friendship standpoint, though, you experience it's your duty to tell your friend. Wouldn't he tell you if the situation were reversed? Then what do you lot do? Every bit tempting as it is to be loyal to your friend, you shouldn't tell. As an employee, your primary responsibility is to your employer. You might be able to soften your dilemma by convincing a manager with the advisable say-so to tell your friend the bad news before he puts downwards his deposit.
Bribes vs. Gifts
Information technology's not uncommon in business to give and receive small gifts of appreciation, just when is a gift unacceptable? When is it really a bribe?
There's oftentimes a fine line betwixt a souvenir and a bribe. The post-obit information may help in drawing information technology, because it raises key bug in determining how a gesture should be interpreted: the price of the particular, the timing of the souvenir, the type of gift, and the connectedness betwixt the giver and the receiver. If yous're on the receiving stop, it'southward a good thought to refuse whatever item that's overly generous or given for the purpose of influencing a conclusion. Because accepting even small gifts may violate visitor rules, always check on company policy.
Google'southward "Code of Conduct," for instance, has an entire department on avoiding conflicts of involvement. They outline where these conflicts might occur, such as accepting gifts, personal investments, and exterior employment, and provide guidelines: "In each of these situations, the rule is the aforementioned—if y'all are considering entering into a business concern state of affairs that creates a conflict of interest, don't. If you lot are in a business state of affairs that may create a conflict of interest, or the appearance of a conflict of interest, review the situation with your manager and Ethics & Compliance." [15]
Whistle-Blowing
As we've seen, the misdeeds of Betty Vinson and her accomplices at WorldCom didn't go undetected. They caught the center of Cynthia Cooper, the company'southward managing director of internal auditing. Cooper, of course, could have looked the other fashion, merely instead she summoned up the courage to be a whistle-blower—an individual who exposes illegal or unethical behavior in an organization. Similar Vinson, Cooper had majored in accounting at Mississippi Land and was a hard-working, dedicated employee. Unlike Vinson, however, she refused to exist bullied past her dominate, CFO Scott Sullivan. In fact, she had tried to tell not only Sullivan but besides auditors from the Arthur Andersen accounting house that at that place was a trouble with WorldCom's books. The auditors dismissed her warnings, and when Sullivan angrily told her to drop the matter, she started cleaning out her function. But she didn't relent. She and her squad worked belatedly each dark, conducting an extensive, surreptitious investigation. Two months later, Cooper had evidence to accept to Sullivan, who told her again to dorsum off. Again, withal, she stood up to him, and though she regretted the consequences for her WorldCom coworkers, she reported the scheme to the company'south board of directors. Within days, Sullivan was fired and the largest accounting fraud in history became public. [16]
As a event of Cooper'due south actions, executives came clean about the company'southward financial situation. The conspiracy of fraud was brought to an end, and though public disclosure of WorldCom's problems resulted in massive stock-price declines and employee layoffs, investor and employee losses would accept been greater without Cooper's intervention. Even though Cooper did the right thing, and landed on the encompass of Time magazine for it, the feel wasn't exactly gratifying.
A lot of people applauded her action, but many coworkers shunned her; some even blamed her for the visitor's troubles. [17]
Whistle-bravado is sometimes career suicide. A survey of 200 whistle-blowers conducted by the National Whistleblower Middle found that half were fired for blowing the whistle. [18] Even those who keep their jobs can feel repercussions. As long as they stay, some will treat them (as one whistle-blower put it) "like skunks at a picnic"; if they leave, they may be blackballed in the industry. [19] On a positive annotation, new Federal laws take been passed which are intended to protect whistle-blowers.
For her own role, Cynthia Cooper doesn't regret what she did. As she told a group of students at Mississippi State: "Strive to be persons of honor and integrity. Do not allow yourself to be pressured. Do what you know is right even if there may be a price to be paid." [twenty] If your company tells employees to do whatever it takes, push button the envelope, look the other fashion, and "exist sure that we make our numbers," y'all take three choices: go along with the policy, try to change things, or exit. If your personal integrity is part of the equation, you're probably down to the final two choices. [21]
Corporate Social Responsibility
Corporate social responsibility refers to the arroyo that an arrangement takes in balancing its responsibilities toward different stakeholders when making legal, economic, ethical, and social decisions. Remember that we previously divers stakeholders equally those with a legitimate interest in the success or failure of the business and the policies information technology adopts. The term social responsibility refers to the arroyo that an organization takes in balancing its responsibilities toward their various stakeholders.
What motivates companies to be "socially responsible"? We hope it's because they desire to practice the correct affair, and for many companies, "doing the correct thing" is a central motivator. The fact is, information technology's oftentimes hard to figure out what the "right affair" is: what'south "correct" for i group of stakeholders isn't necessarily just as "correct" for some other. One matter, however, is certain: companies today are held to higher standards than ever before. Consumers and other groups consider non simply the quality and price of a company's products just also its character. If too many groups see a company every bit a poor corporate citizen, information technology volition have a harder fourth dimension attracting qualified employees, finding investors, and selling its products. Good corporate citizens, by dissimilarity, are more than successful in all these areas.
Figure 4.3 presents a model of corporate responsibleness based on a company's relationships with its stakeholders. In this model, the focus is on managers—non owners—every bit the principals involved in these relationships. Owners or shareholders are the stakeholders who invest adventure majuscule in the firm in expectation of a financial render. Other stakeholders include employees, suppliers, and the communities in which the business firm does business organisation. Proponents of this model hold that customers, who provide the firm with acquirement, accept a special claim on managers' attention. The arrows indicate the two-way nature of corporation-stakeholder relationships: All stakeholders accept some claim on the firm's resources and returns, and direction's task is to make decisions that balance these claims. [22]
Let'south wait at some of the ways in which companies can be "socially responsible" in considering the claims of diverse stakeholders.
Owners
Owners or shareholders invest money in companies. In return, the people who run a company have a responsibility to increase the value of owners' investments through assisting operations. Managers also have a responsibility to provide owners (too as other stakeholders having fiscal interests, such equally creditors and suppliers) with authentic, reliable information about the performance of the business. Clearly, this is one of the areas in which WorldCom managers fell down on the chore. Upper-level direction purposely deceived shareholders past presenting them with fraudulent financial statements
Managers
Managers accept what is known as a fiduciary responsibility to owners: they're responsible for safeguarding the visitor'southward assets and handling its funds in a trustworthy manner. Yet managers experience what is called the agency problem; a situation in which their all-time interests practice not align with those of the owners who utilize them. To enforce managers' fiduciary responsibilities for a firm's financial statements and accounting records, the Sarbanes-Oxley Human action of 2002 requires CEOs and CFOs to attest to their accuracy. The constabulary also imposes penalties on corporate officers, auditors, board members, and whatsoever others who commit fraud. Y'all'll learn more about this law in your accounting and business constabulary courses.
Employees
Companies are responsible for providing employees with safe, good for you places to piece of work—every bit well every bit environments that are free from sexual harassment and all types of discrimination. They should also offer appropriate wages and benefits. In the following sections, we'll take a closer look at these areas of corporate responsibility.
Wages and Benefits
At the very least, employers must obey laws governing minimum wage and overtime pay. A minimum wage is set by the federal government, though states can set their own rates as long as they are higher. The current federal charge per unit, for case, is $seven.25, while the rate in many states is far higher. By law, employers must also provide sure benefits—social security (retirement funds), unemployment insurance (protects against loss of income in case of chore loss), and workers' compensation (covers lost wages and medical costs in example of on-the-job injury). Nearly large companies pay most of their workers more than minimum wage and offer broader benefits, including medical, dental, and vision care, as well as savings programs, in order to compete for talent. Companies may also pay a living wage, which is a sufficient wage that covers the basic cost of living for a specific location. [23]
Prophylactic and Health
Though it seems obvious that companies should guard workers' safe and health, some simply don't. For over four decades, for example, executives at Johns Manville suppressed evidence that one of its products, asbestos, was responsible for the deadly lung disease developed by many of its workers. [24] The company concealed chest X-rays from stricken workers, and executives decided that it was merely cheaper to pay workers' compensation claims than to create a safer work environment. A New Bailiwick of jersey court was quite blunt in its judgment: Johns Manville, it held, had made a deliberate, cold-blooded decision to practise nothing to protect at-adventure workers, in blatant condone of their rights. [25]
Almost 4 in 100,000 US workers dice in workplace "incidents" each year. The Section of Labor categorizes deaths caused by conditions like those at Johns Manville as "exposure to harmful substances or environments." How prevalent is this condition as a cause of workplace deaths? See Effigy 4.4, "Workplace Deaths by Event or Exposure (2018)," which breaks down workplace fatalities by crusade. Some jobs are more than dangerous than others. For a comparative overview based on workplace deaths by occupation, see Figure 4.5.
| Occupation | % of Total Workplace Deaths* |
|---|---|
| Transportation and material moving | 28% |
| Construction and extraction | 19% |
| Installation, maintenance, and repair | viii% |
| Management | 7% |
| Edifice and grounds cleaning/maintenance | 7% |
| Protective service | 5% |
| Farming, line-fishing, and forestry | 5% |
| Sales | 5% |
| Production | 4% |
| Nutrient grooming and serving | ii% |
For example, the LEGO Group consistently ranks as a pinnacle system globally because of their commitment to Corporate Social Responsibility. According to their website in 2020, the LEGO Group has their commitment to sustainability cleaved into iii categories: Children, Environs and People. Hither are some examples of their specific CSR initiatives:
| Children | Environment | People |
| LEGO is partnered with Unicef to provide safeguards for children and support their wellbeing. | Pledged to implement sustainable packaging by 2025 | Through their local customs engagement partnerships, LEGO provides opportunities for their employees to volunteer |
| Support children afflicted by crisis (eastward.thousand. natural disasters, armed conflict) | Pledged to make all core products from sustainable materials by 2030 | Pledged to build a diverse and inclusive organization |
Upstanding Organizations
How Can You Recognize an Ethical Organization?
Ane goal of anyone engaged in business should be to foster upstanding beliefs in the organizational environs. How do we know when an organization is behaving ethically? About lists of upstanding organizational activities include the post-obit criteria:
- Treat employees, customers, investors, and the public adequately.
- Concur every member personally answerable for his or her action.
- Communicate core values and principles to all members.
- Demand and advantage integrity from all members in all situations. [30]
Employees at companies that consistently make CR magazine's list of the "100 Best Corporate Citizens" regard the items on the previous listing as business organisation as usual in the workplace. Companies at the top of the 2019 list include Owens Corning, Intel, General Mills, HP, and Microsoft. [31]
By dissimilarity, employees with the following attitudes tend to suspect that their employers aren't every bit ethical as they should be:
- They consistently feel uneasy about the piece of work they practise.
- They object to the way they're treated.
- They're uncomfortable almost the style coworkers are treated.
- They question the appropriateness of management directives and policies. [32]
Sexual Harassment
Sexual harassment occurs when an employee makes "unwelcome sexual advances, requests for sexual favors, and other verbal or concrete deport of a sexual nature" to some other employee. It'south besides considered sexual harassment when "submission to or rejection of this bear explicitly or implicitly affects an individual's employment, unreasonably interferes with an individual's work performance or creates an intimidating, hostile or offensive work environment." [33]
To prevent sexual harassment—or at to the lowest degree minimize its likelihood—a company should prefer a formal anti-harassment policy describing prohibited conduct, asserting its objections to the beliefs, and detailing penalties for violating the policy. [34] Employers also have an obligation to investigate harassment complaints. Failure to enforce anti-harassment policies can be very costly. In 1998, for example, Mitsubishi paid $34 million to more 350 female employees of its Normal, Illinois, plant to settle a sexual harassment example supported past the Equal Employment Opportunity Commission. The EEOC reprimanded the company for permitting an temper of verbal and physical abuse against women, charging that female workers had been subjected to various forms of harassment, ranging from exposure to obscene graffiti and vulgar jokes to fondling and groping. [35] Since the "#MeToo" move gained traction in tardily 2017, there has been widespread discussion regarding the best ways to forbid sexual harassment. [36]
Workforce Diversity
In addition to complying with equal employment opportunity laws, many companies brand special efforts to recruit employees who are underrepresented in the workforce according to sex, race, or some other feature. In helping to build more than diverse workforces, such initiatives contribute to competitive advantage for two reasons:
- People from diverse backgrounds bring new talents and fresh perspectives to an organisation, typically enhancing inventiveness in the development of new products.
- By more accurately reflecting the demographics of the marketplace, a diverse workforce improves a company's power to serve an ethnically diverse population.
The Individual Approach to Ideals
Betty Vinson didn't start out at WorldCom with the intention of going to jail. She undoubtedly knew what the right behavior was, but the lesser line is that she didn't do it. How can yous make sure that y'all do the right thing in the business organization world? How should you reply to the kinds of challenges that you'll be facing? Considering your actions in the business world will exist strongly influenced by your moral character, let's brainstorm by assessing your electric current moral condition. Which of the following best applies to you (select one)?
- I'one thousand e'er ethical.
- I'm mostly ethical.
- I'm somewhat ethical.
- I'thou seldom upstanding.
- I'thou never ethical.
Now that y'all've placed yourself in one of these categories, here are some general observations. Few people put themselves below the 2nd category. Most of us are ethical nearly of the time, and most people assign themselves to category number two—"I'm mostly upstanding." Why don't more people claim that they're e'er ethical?
Apparently, virtually people realize that beingness ethical all the time takes a great deal of moral free energy. If you lot placed yourself in category number two, ask yourself this question: How tin can I alter my behavior so that I can movement up a notch? The answer to this question may be simple. Just ask yourself an easier question: How would I similar to be treated in a given situation? [37]
Unfortunately, practicing this philosophy might be easier in your personal life than in the business globe. Ethical challenges arise in business because companies, especially large ones, have multiple stakeholders who sometimes brand competing demands. Making decisions that affect multiple stakeholders isn't piece of cake even for seasoned managers; and for new entrants to the concern world, the task tin can be extremely daunting. You tin can, however, get a head start in learning how to brand ethical decisions by looking at two types of challenges that you'll run across in the business world: ethical dilemmas and ethical decisions.
Addressing Ethical Dilemmas
An ethical dilemma is a morally problematic situation: yous must choose between two or more than acceptable just oft opposing alternatives that are of import to different groups. Experts oftentimes frame this blazon of situation as a "right-versus-correct" decision. It's the sort of decision that Johnson & Johnson (known as J&J) CEO James Burke had to make in 1982. [38] On September thirty, twelve-year-erstwhile Mary Kellerman of Chicago died afterwards her parents gave her Extra-Force Tylenol. That same morning, 27-year-erstwhile Adam Janus, also of Chicago, died later on taking Tylenol for minor chest hurting. That dark, when family members came to console his parents, Adam'south brother and his wife took Tylenol from the same bottle and died within 48 hours. Over the adjacent ii weeks, four more people in Chicago died subsequently taking Tylenol. The actual connection between Tylenol and the serial of deaths wasn't made until an off-duty fireman realized from news reports that every victim had taken Tylenol. As consumers panicked, J&J pulled Tylenol off Chicago-surface area retail shelves. Researchers discovered Tylenol capsules containing large amounts of deadly cyanide. Considering the poisoned bottles came from batches originating at different J&J plants, investigators determined that the tampering had occurred after the product had been shipped. [39]
And then J&J wasn't at fault. But CEO Shush was still faced with an extremely serious dilemma: Was it possible to reply to the tampering cases without destroying the reputation of a highly profitable brand?
Burke had two options:
- He could remember only the lots of Actress-Strength Tylenol that were found to be tainted with cyanide. In 1991, Perrier executives recalled merely tainted production when they discovered that cases of their bottled water had been poisoned with benzine. This selection favored J&J financially but perhaps put more people at take a chance.
- Burke could order a nationwide recall—of all bottles of Actress-Forcefulness Tylenol. This option would reverse the priority of the stakeholders, putting the safety of the public in a higher place stakeholders' financial interests.
Shush opted to call back all 31 million bottles of Actress-Strength Tylenol on the market. The toll to J&J was $100 million, merely public reaction was quite positive. Less than six weeks afterwards the crisis began, Tylenol capsules were reintroduced in new tamper-resistant bottles, and by responding quickly and accordingly, J&J was eventually able to restore the Tylenol make to its previous marketplace position. When Burke was applauded for moral courage, he replied that he'd simply adhered to the long-standing J&J ideology that put the interests of customers above those of other stakeholders. His only regret was that the perpetrator was never defenseless. [40]
If you're wondering what your thought process should exist if yous're confronted with an ethical dilemma, you might wish to remember the mental steps listed hither—which happen to exist the steps that James Burke took in addressing the Tylenol crisis:
- Define the problem: How to respond to the tampering example without destroying the reputation of the Tylenol brand.
- Identify feasible options: (1) Recall only the lots of Tylenol that were found to be tainted or (ii) order a nationwide recall of all bottles of Extra-Strength Tylenol.
- Assess the outcome of each option on stakeholders: Option 1 (recalling only the tainted lots of Tylenol) is cheaper but puts more people at risk. Choice ii (recalling all bottles of Extra-Strength Tylenol) puts the prophylactic of the public above stakeholders' financial interests.
- Establish criteria for determining the most appropriate action: Adhere to the J&J credo, which puts the interests of customers in a higher place those of other stakeholders.
- Select the best choice based on the established criteria: In 1982, Option 2 was selected, and a nationwide call back of all bottles of Actress-Strength Tylenol was conducted.
Making Ethical Decisions
In dissimilarity to the "right-versus-correct" problem posed past an ethical dilemma, an ethical conclusion entails a "right-versus-wrong" decision—i in which at that place is clearly a correct (ethical) option and a wrong (unethical or illegal) choice. When you lot brand a conclusion that's unmistakably unethical or illegal, yous've committed an ethical lapse. If you lot're presented with this type of selection, asking yourself the questions in Figure 4.6 "How to Avert an Upstanding Lapse" will increment your odds of making an ethical determination.
To examination the validity of this approach, let'south take a point-by-point look at Betty Vinson's decisions:
- Her actions were clearly illegal.
- They were unfair to the workers who lost their jobs and to the investors who suffered fiscal losses (and also to her family, who shared her public embarrassment).
- She definitely felt badly most what she'd washed.
- She was embarrassed to tell other people what she had done.
- Reports of her actions appeared in her local newspaper (and just about every other newspaper in the state).
And then Vinson could have answered "yes" to all five of our exam questions. To simplify matters, remember the following rule of thumb: If you lot answer yeah to any one of these five questions, odds are that you're about to do something you shouldn't.
Revisiting Johnson & Johnson
As discussed earlier, Johnson & Johnson received tremendous praise for the actions taken past its CEO, James Burke, in response to the 1982 Tylenol catastrophe. Even so, things change. To larn how a company can destroy its skilful reputation, let's fast forward to 2008 and revisit J&J and its credo, which states, "We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything nosotros practice must be of loftier quality." [41] How could a company whose employees believed and so strongly in its credo find itself nether criminal and congressional investigation for a series of recalls due to defective products? [42] In a three-twelvemonth period, the company recalled 24 products, including Children's, Infants' and Adults' Tylenol, Motrin, and Benadryl; [43] 1-Solar day Acuvue TruEye contact lenses sold outside the United states of america; [44] and hip replacements. [45]
Unlike the Tylenol retrieve, no one had died from the defective products, simply customers were certainly upset to find they had purchased over-the-counter medicines for themselves and their children that were potentially contaminated with nighttime particles or tiny specks of metallic; [46] contact lenses that contained a type of acid that caused stinging or hurting when inserted in the eye; [47] and defective hip implants that required patients to undergo a 2nd hip replacement. [48]
Who bears the responsibility for these paradigm-damaging blunders? Two individuals who were at least partially responsible were William Weldon, CEO, and Colleen Goggins, Worldwide Chairman of J&J's Consumer Grouping. Weldon has been criticized for being largely invisible and publicly absent during the recalls. [49] Additionally, he admitted that he did non understand the consumer partition where many of the quality control problems originated. [fifty] Goggins was in charge of the factories that produced many of the recalled products. She was heavily criticized by fellow employees for her excessive cost-cutting measures and her propensity to supersede experienced scientists with new hires. [51] In addition, she was implicated in scheme to avoid publicly disclosing another J&J remember of a defective product.
After learning that J&J had released packets of Motrin that did not dissolve correctly, the company hired contractors to go into convenience stores and secretly buy upward every pack of Motrin on the shelves. The instructions given to the contractors were the following: "You should merely 'act' similar a regular customer while making these purchases. There MUST Exist NO MENTION OF THIS Existence A Call up OF THE PRODUCT!" [52] In May 2010, when Goggins appeared before a congressional commission investigating the "phantom recollect," she testified that she was not aware of the beliefs of the contractors [53] and that she had "no knowledge of instructions to contractors involved in the phantom remember to not tell shop employees what they were doing." In her September 2010 testimony to the House Committee on Oversight and Government Reform, she best-selling that the company in fact wrote those very instructions. In 2020, Johnson & Johnson is discontinuing their baby powder, i of their flagship products, because of the cancer-related issues establish from the talc, an ingredient in the powder. This fourth dimension, they are existence proactive. [54]
Refusing to Rationalize
Despite all the good arguments in favor of doing the right thing, why do many reasonable people deed unethically (at least at times)? Why exercise good people make bad choices? According to one report, there are iv common rationalizations (excuses) for justifying misconduct: [55]
- My behavior isn't really illegal or immoral. Rationalizers endeavor to convince themselves that an activity is OK if it isn't downright illegal or blatantly immoral. They tend to operate in a gray surface area where at that place's no clear evidence that the action is incorrect.
- My activeness is in everyone'south best interests. Some rationalizers tell themselves: "I know I lied to make the deal, merely it'll bring in a lot of business and pay a lot of bills." They convince themselves that they're expected to deed in a certain way. [56]
- No ane will find out what I've washed. Hither, the self-questioning comes down to "If I didn't get defenseless, did I really do it?" The answer is yeah. There's a unproblematic way to avert succumbing to this rationalization: Always act equally if you're being watched.
- The visitor will condone my activeness and protect me. This justification rests on a fallacy. Betty Vinson may honestly accept believed that her deportment were for the good of the company and that her boss would, therefore, accept full responsibility (every bit he promised). When she goes to jail, nevertheless, she'll go on her ain.
Hither's some other rule of pollex: If you find yourself having to rationalize a decision, information technology's probably a bad one.
What to Do When the Calorie-free Turns Yellow
Similar our five questions, some ethical problems are fairly straightforward. Others, unfortunately, are more complicated, just information technology volition help to think of our v-question test as a set up of signals that will warn you that you're facing a particularly tough decision—that you should think advisedly about it and perhaps consult someone else. The situation is similar approaching a traffic low-cal. Red and greenish lights are easy; you know what they mean and exactly what to do. Yellow lights are trickier. Earlier you lot decide which pedal to hit, endeavour posing our five questions. If y'all get a single yeah, you lot'll almost surely be improve off hitting the brake. [57]
Chapter Video
Foxconn is a major supplier to Apple. All of its factories are in Mainland china and Taiwan, although it recently appear building a new one in the U.s.. Working weather are much unlike than in a typical United states of america factory. As yous watch the video, call back nigh what responsibilities Apple tree has in this state of affairs. They don't own Foxconn or its factories, yet their reputation can be nonetheless impacted.
To view this video, visit: https://www.youtube.com/lookout man?v=Jk-xqPKOxl4&=&t=39s
(Copyrighted material)
Central Takeaways
- Business ethics is the application of upstanding behavior in a business concern context. Ethical (trustworthy) companies are meliorate able to concenter and keep customers, talented employees, and uppercase.
- Acting ethically in business ways more just obeying laws and regulations. It besides means beingness honest, doing no harm to others, competing fairly, and declining to put your own interests higher up those of your employer and coworkers.
- In the business world, you'll encounter conflicts of interest: situations in which you'll have to cull between taking action that promotes your personal interest and action that favors the interest of others.
- Corporate social responsibility refers to the approach that an organisation takes in balancing its responsibilities toward unlike stakeholders (owners, employees, customers, and the communities in which they conduct business) when making legal, economical, ethical, and social decisions.
- Managers have several responsibilities: to increase the value of owners' investments through profitable operations, to provide owners and other stakeholders with accurate, reliable financial data, and to safeguard the company'due south avails and handle its funds in a trustworthy style.
- Companies have a responsibility to pay appropriate wages and benefits, care for all workers fairly, and provide equal opportunities for all employees. In improver, the must guard workers' safety and health and to provide them with a work surroundings that's complimentary from sexual harassment.
- Consumers take certain legal rights: to use safe products, to be informed nigh products, to choose what to buy, and to exist heard. Sellers must comply with these requirements.
- Businesspeople confront two types of ethical challenges: upstanding dilemmas and ethical decisions.
- An ethical dilemma is a morally problematic situation in which you lot must choose competing and often conflicting options which do not satisfy all stakeholders.
- An ethical determination is one in which at that place'southward a right (upstanding) choice and a wrong (unethical or downright illegal) pick.
Image Credits: Affiliate 4
Figure 4.1: US Section of Justice (2009). "Bernie Madoff's Mugshot." Wikipedia. Public Domain. Retrieved from: https://en.wikipedia.org/wiki/Bernard_Madoff#/media/File:BernardMadoff.jpg
Effigy 4.3: Alex Muravev. "Firm." Noun Project Inc. Retrieved from: https://thenounproject.com/search/?q=house&i=983462; Graphiqu. "City Building." Substantive Projection Inc. Retrieved from: https://thenounproject.com/search/?q=city building&i=2579723; Kitzsingmaniiz. "People." Noun Project Inc. Retrieved from: https://thenounproject.com/search/?q=boss&i=1778786; Timothy Miller. "Businesswoman." Noun Project Inc. Retrieved from: https://thenounproject.com/search/?q=boss&i=1941869
Figure iv.4: The states Agency of Labor Statistics. "Workplace deaths by event (2018)." Retrieved from: https://world wide web.bls.gov/news.release/pdf/cfoi.pdf
Figure 4.5: Usa Bureau of Labor Statistics. "Workplace deaths past occupation (2018)." Retrieved from: https://www.bls.gov/news.release/pdf/cfoi.pdf
Figure 4.7: Sir James (2009). "Traffic light modern version Ireland Dublin." Wikimedia Commons. CC By-SA iii.0. Retrieved from: https://commons.wikimedia.org/wiki/File:Traffic_light_modern_version_Ireland_Dublin_2_yellow_2009-09-27.jpg
Video Credits: Chapter iv
ABC News (2012, February 21). "Foxconn: An Exclusive Inside Look." YouTube. Retrieved from: https://www.youtube.com/picket?v=Jk-xqPKOxl4&=&t=39s
Source: https://pressbooks.lib.vt.edu/fundamentalsofbusiness3e/chapter/chapter-4-ethics-and-social-responsibility/