June 16, 2005
Ethics and Professional Responsibility
Topics
Presented below is a list of topics in Ethics and Professional Responsibility that attempts to span the full range of ethical dilemmas faced by managers in business firms. Ethical issues in each topic area manifest themselves in a wide variety of specific case settings. Questions and case examples mentioned below are meant simply to illustrate the types of ethical issues that have arisen in practice in each topic area – not to define the boundaries of each topic.
1. Market failures and professional dilemmas
Why do we need to study ethics as business professionals? According to economic theory, resources in our economy will be allocated fairly and efficiently by markets – so long as those markets function properly. Under what conditions do “markets fail”? Principle causes of market failure include the following:
a. Monopoly power
b. “Public goods,” i.e., people can’t be excluded from enjoying (or consuming) the good even though they may contribute nothing to its production, and/or when a good has zero marginal cost of production. National defense is the classic example of pure public good.
c. External effects – i.e., when the private and social marginal costs (or benefits) of production (or consumption) diverge. Factory pollution of local air or water supplies is a classic example of external effects
d. Information asymmetry – i.e., when a buyer or seller has superior information compared to the other
e. Positive transaction costs in confronting market failure – e.g., the social/legal cost of local residents banning together to force a firm to solve the problems caused by its pollution.
f. Cost of monitoring behavior under conditions of “moral hazard” – i.e., when there are benefits to one party from not complying fully with the behavioral assumptions underlying a contract.
When markets fail, managers still have to make decisions about how to use the resources of their companies. To insure that those decisions are made in the best interest of the larger society, sometimes laws are passed that guide management decisions. In the absence of such laws, managers can attempt to apply ethical analysis to guide their decision-making toward the best interests of the larger society, while pursuing company interests.
2. Ethical analysis
a. Approaches to ethical dilemmas
i. ethical relativism
ii. normative ethics
iii. metaethics
b. Normative ethical theories
i. Teleological
- ethical egoism
- Utilitarianism
ii. Deontological
- Kantianism
- Contractarianism
- Neutral, omni-partial rule-making (NORM)
3. Truth and disclosure
Is business bluffing ethical? Are financial analysts working for investment banking firms really double agents in the financial system? When, if ever, is less than full disclosure both good business and good ethics? How much can we believe published financial figures given Wall Street pressure to meet earnings expectations? When should pharmaceutical companies publish clinical reports on the incidence of serious side effects from use of products recently introduced to the market?
4. Gifts, side deals and conflicts of interest
When is a bribe a bribe? What’s wrong with bribes? Why are bribes outlawed by the Foreign Corrupt Practices Act? Are expensive dinners, tickets to sporting events, or golf outings offered by a salesman to current and/or prospective customers aides to effective communication with customers, or are they bribes? Are their good business reasons to give customers gifts at Christmas?
5. Agency and fiduciary duty
What are the duties of agents to principals? Can principals hire agents to break the law on their behalf? For the manager of a company pension fund, who is the principal – the shareholders of the company, or the employees participating in the fund? It has long been up-held in the courts that managers of publicly held companies are agents of the shareholders of those companies. Why do shareholders receive principal status, while other stakeholders in the firm do not?
6. Sales and marketing
Is it ethical to imply (but not state directly) benefits to your company’s products or services that you know do not really exist for the majority of its potential users? Is it ethical for financial service providers to communicate that the best interests of their customers “comes first” (e.g., implying that the financial service providers operate as though they have fiduciary duties to their customers)? If not, why do many financial firms at least imply this is the case? The concept of “caveat emptor” was for years widely supported in the courts in cases charging that customers were harmed by products they bought as a result of being misled by the producer’s marketing and or sales messages. What are the ethical arguments in support of the concept of “caveat emptor”? Against it? What alternative concepts should be considered from both a business practice and an ethical perspective?
7. Whistleblowing and loyalty
From the perspective of ad hoc case evidence, whistleblowing almost always results in punishment for the whistleblower. Overwhelmingly, whistleblowers lose their jobs, and many are “blackballed” in their industry community. Why has this been the case? Should something be done about it? Would qui tam provisions at the state and company levels help? Do whistleblowers cause more problems than they solve? Why, if at all, should they be protected and rewarded? Why has the legal system overwhelmingly supported the right of managers to fire, or punish, whomever they please? Examine whistleblowing from the perspective of personal “expected value.” Under what conditions would a person be rational from an expected value perspective to “blow the whistle?” Examine whistleblowing from the perspective of societal and corporate expected value. In what ways can the expected personal value from whistleblowing be aligned with the expected corporate and societal expected value?
8. Trade secrets
Patents are protected by patent law. Trade secrets, however, are not specifically protected by federal law, and only a few states have attempted to draft laws that attempt to protect trade secrets. Are the customer records developed by stockbrokers over years of cold calling potential customers trade secrets belonging to the company or to the stockbroker? Can brokerage firms prevent brokers from leaving the firm and taking such customer records with them? Other than by non-compete clauses in employment contracts, can companies protect themselves from the theft of trade secrets when employees leave the firm? Is industrial espionage targeted at uncovering trade secrets ethical? Are espionage techniques involving use of false identities ethical (e.g., “I am a student at Stevens doing a report on X. Could you tell me ------?)
9. Insider trading
Is insider trading “bad”? Who or what does it harm? Can a case in favor of insider trading be made – under what circumstances? What problems does the lack of a statutory definition of insider trading create for investors, and for the SEC? Was Martha Stewart a criminal until she completed the sentence imposed on her for lying about why she sold the stock in question? Consider the range of techniques used by the SEC to uncover insider trading events. What subjective probability would you put on being caught if you engaged in insider trading practices?
10. Control by law
How do the revised corporate sentencing guidelines impact punishment for violation of laws against corrupt practices, such as money laundering and insider trading? How might they be used by prosecutors to pressure suspects to testify against one another? Some argue that embodied in these revised sentencing guidelines are substantial incentives for companies to collect evidence with which to charge employees for infractions of legal rules in an effort to show that the companies are actively attempting to eliminate such refractions. Is it ethical for companies to become “cops” in relation to their employees, especially since the corporate hierarchy implies that the corporation is always actively involved in telling employees what to do and how to do it?
11. Social responsibility to stakeholders
What responsibilities does the corporate have to stakeholders other than shareholders in the corporation? Should managers be allowed to close plants in small towns where limited alternative opportunities exist for employment? - where limited or no alternatives to the plant are available to the town to contribute to its tax revenues? Should managers be allowed to export attractive jobs to people in foreign countries? Should the corporation be held responsible for misuse of its products causing harm to others? Should Wal-Mart be allowed to open its discount stores in communities in which it will clearly drive many of the small businesses that had thrived there out of business? What downside limits, if any, should be set on severance packages for long term employees terminated for reasons of downsizing?
12. Moral standards across borders
Not all countries confer rights to their citizens comparable to those granted by the U.S. Bill of Rights. Should U.S. based firms be allowed to do business in those countries that fall considerably short in the rights granted to their citizens? Should firms in those countries be allowed to do business in the U.S.? Is it ethical for firms in the U.S. to produce products in countries where employees have few to no human rights (e.g., China)? Should U.S. firms operating in foreign countries intervene between local governments and employees in attempting to protect employee human rights as defined in the U.S.? Is nepotism good or bad in a country with very poorly developed human resource markets? Are bad jobs at bad wages better than no jobs at all in developing economies? What role, if any, should a country’s stage of economic development play in specifying minimum acceptable moral standards for foreign companies in such areas as employee safety and living conditions, and environmental pollution?
13. Product liability
What are the differences between “strict product liability” and simple “product liability” as reflected in various court decisions addressing claims of harm resulting from use of various products? Was McDonald’s “strictly liable” for selling “unreasonably dangerous” coffee in the famous “hot coffee” case? In the Dow Corning breast implant scandal, did the company’s actions reflect any real concern for the welfare of its customers? Did the company have any fiduciary duties to its customers to protect their health and well-being? What if duties to customers conflict with duties to shareholders? Apply the various ethical theories to this dilemma. How do the answers differ depending on the ethical theory used?
14. Workplace rights: non-discrimination
Review the EEOC Guidelines. Is sexual harassment against men a legitimate concern? Is the recent allegation of harassment by several males at Jenny Craig comparable to the many cases of harassment that have been brought by females at numerous companies over the years since the EEOC Guidelines were adopted? Should the cases be judged by the same standards? If a group such as white males is over-represented in terms of demographic proportions within certain executive job categories, should a firm actively favor women or non-whites in filling future vacancies? Use ethical reasoning to justify doing so – to not doing so. Which do you believe is the stronger case? Is discrimination because of sexual orientation different from discrimination because of sex? What about discrimination based upon age? Should similar laws and regulations be applied to all of these classes of discrimination?
15. Privacy
Should firms face any restrictions on the internal use of data gathered from their own employees? For example, should managers be able to access health information from company “wellness” programs to help make compensation and promotion decisions? Why or why not (use ethical theories to justify your position)? What aspects of an employee’s life should be considered private by business firms? What safeguards should firms put in place to protect the “private” aspects of employee lives? Should American Express, as an example, be able sell information about your purchasing patterns as a customer using their cards to other companies? When firms contact you to tell you about their privacy policies aimed at limiting the use of information they get from you, do you believe they will be effective in protecting your privacy? What “market failures” surround the issue of privacy? How does the right to privacy interact with economic efficiency? Should all human beings have the right to privacy?