Business ethics, where do we stand? Towards a new
inquiry
Mark de Rond
Lecturer in Management and Economics, Newbold College, Binfield, UK
Reviews ten criticisms concerning business ethics: six
of which question the development of the field in general;
and four which challenge
common teaching methods.
By doing so, attempts to
understand progress and
aims to articulate the urgent
need for a goal structure
which can become the basis
for assigning success or
failure. Also calls for a new
inquiry in which individual
integrity, rather than corporate ethics is paramount.
The author would like to
express his thanks to
Charles J. Stokes for his
encouragement and
continued support.
A version of this paper
was first presented at the
15th annual, international
conference of the Strategic
Management Society in
Mexico City, 18 October
1995.
Management Decision
34/4 [1996] 54–61
© MCB University Press
[ISSN 0025-1747]
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The title of this paper is somewhat ambiguous. It could suggest either of two things.
First, it implies that any progress in business ethics can be measured. And, second, it
calls for a viable concept of ethics in business. The former is hardly possible without
the latter. For how can one judge progress in
the absence of a standard or set of
objectives? At best we can attempt a conceptual understanding of progress in the field
by looking at legitimate criticisms levied
against its partisans.
This exploratory research reviews ten such
criticisms: the first six question the development of the field in general; the final four
challenge common teaching methods. Besides
being a speculative attempt to understand
progress, it aims to articulate the urgent need
for a goal structure which can become the
basis for assessing success or failure. It also
calls for a new inquiry in which individual
integrity, rather than corporate ethics, is
paramount. In so doing, it hopes to contribute
to a new research agenda in this somewhat
controversial field.
Legitimate criticisms
1 Too theoretical
Where has business ethics “failed”? First, it
has remained far too theoretical [1, p. 44].
Many academics have been too preoccupied
with philosophical concepts and, as a result,
find themselves removed from the real-world
concerns of the vast majority of business
professionals. In fact, leading academies in
business ethics appear to be grounded in
either moral philosophy (e.g. DeGeorge), or
theology (e.g. Mahoney). Not surprising then
that much of the counsel provided by the
world of academe has tended towards moral
absolutism, doing the “right” thing regardless of circumstance or consequence, and has
become somewhat of a source of agitation for
practising managers.
Its subsequent lack of usefulness is further
demonstrated by suggestions from academics
(e.g. DeGeorge) that ethical actions should
willingly be taken even if it ruins the firm
financially. Rather than providing a workable
solution to a problem, this approach appears
to replace the original problem with an
equally pressing one. In reality, an entrepreneur who would sacrifice his or her company
for a purely moral imperative may be hard to
find. What is desired, however, is practical
guidance in day-to-day balancing acts of
stakeholder interests, including those of
society at large.
2 Overly ambitious
Second, business ethics has emerged as more
interested in ambitious proposals for overhauling economic systems than providing
the business professional with something
tangible to use in day-to-day decisions [1,
p. 44]. Consider, Stark[1] convincingly argues,
the impracticality of the following line of
questioning by a leading business ethicist:
“Is capitalism ethically justifiable? If so,
how? If not, why not? Is socialism ethically ...
preferable?” Stark goes on to cite a second
scholar who recently suggested that “utilitarian and situation ethics, not deontological or
Kantian ethics … should be used in a
regional code of conduct for multinational
companies”. No wonder, argues one critic in
The Economist justifiably, that most managers see business ethics as a “soft” subject,
inappropriate to the hard-core nature of
business[2].
3 Lack of directives
Third, as suggested in the introduction, the
study of business ethics seems to move about
in the absence of a viable and widely agreed
on understanding of the issue. Despite worthy
endeavours such as the Caux Round Table,
who recently drew up a statement of principles for the conduct of business worldwide,
the concept of ethics in business seems insufficiently underwritten and articulated, and
lacks workability. In fact, the roots of this
apparent failure lie in the domain of a fourth
challenge.
4 Unresolved dichotomy
Is a transnational business ethics code realistically attainable? Is rightness and wrongness merely a matter of personal preference
and cultural circumstance or based on
Mark de Rond
Business ethics, where do we
stand? Towards a new inquiry
Management Decision
34/4 [1996] 54–61
definite moral directives? This dichotomy
between moral absolutism and relativism is
anything but novel, yet it remains a challenge. For it appears difficult for people with
different moral viewpoints to talk about
ethics.
Sternberg[3, p. 144] makes a case for rejecting relativism and articulating universal
truths of business ethics instead. Business
ethics, she argues, is simply the application of
general moral principles, such as justice,
fairness and honesty, to business situations.
If they are universal, then so is business
ethics. The giving of “bribes”, for example,
will not be bribery if it does not violate distributive justice, when local principles are
observed and the rewards are allocated in
accordance with local rules.
Perhaps the core issue at stake is a problem
of definition. It certainly highlights the difficulty of recognizing and articulating ethical
dilemmas. Many predicaments faced by
those who operate in the world of business
may not necessarily be moral dilemmas.
Stark, for instance, highlights two “ethical”
challenges with which most managers would
welcome concrete assistance: first, identifying ethical courses of action not with “issues
of right versus wrong, but conflicts of right
versus right” and, second, “navigating those
situations where the right course is clear, but
real-world competitive and institutional
pressures lead even well-intentioned managers astray”[1, p. 38]. Are these difficulties,
however, really ethical challenges? In the
first instance, either decision would appear
harmless to any stakeholder, including society. In the second case, the difficulty lies not
in articulating the ethical dilemma but in
finding the courage to take the “right” course
of action.
5 Philosophical objections
From a philosophical viewpoint a fifth criticism may be levied. If our concern with business ethics is rooted largely in improving
profitability, is it still an ethical activity?
Consider the well-documented Tylenol incident. Was Johnson & Johnson’s decision for
a total recall motivated by sustaining or
enhancing a competitive edge (i.e. selfinterest), or prompted by a true concern for
the consumer? Their response suggests the
latter. In the Tylenol case a reasonable argument could have been made, from an economic and marketing standpoint, for keeping the product on the shelves – bar those in
the Chicago area. Apparently, the contamination did not originate from a Johnson &
Johnson facility; the incident appeared
isolated; and the benefit of the product to
the majority of the public would likely outweigh the few potential injuries that might
occur[4, p. 39].
Johnson & Johnson’s response to the crisis
seems to suggest a genuine concern for their
customers. However, do all corporate
(re)actions enjoy such noble motives? Do they
have to? Or can one argue that the results
justify the means and join forces with Adam
Smith and Milton Friedman to suggest that
self-interest serves as a guide to good and just
decision making? Nash, among others, convincingly undermines the legitimacy of this
self-interest argument asserting that such an
approach is dysfunctional, in that “it fails to
motivate others to the complex ethical values
it claims to represent”; and unpragmatic, in
that “the priorities it defines are not the first
building blocks of competitive excellence”[4,
p. 64]. Means appear important. But exactly
how important are they vis-à-vis the results
they aim to achieve?
6 Lack of sustainable motive
Such reasoning points to a sixth, and crucial
issue in the study of business ethics, which
seems to have not yet attracted the attention
it deserves: namely the quest for a sustainable motive. Provided that we can reason our
way to a morality, what will constitute the
motivation necessary to fulfil it consistently?
In other words, why act ethically? And why
continue to do so? A few options come to
mind: fear of legal implications, pursuit of
profit, sustaining or increasing market share,
maintaining reputation, and commitment to
creating value. This list is by no means
exhaustive and the motives certainly not
mutually exclusive – on the contrary. But they
illustrate corporate priorities. Legislation set
aside, neither profit nor market share nor
mere reputation seems capable of providing
the kind of substance that can fuel a morality
over the long term. Profit and market share
may not be unimportant, but perhaps should
be subordinate to a deep-rooted loyalty to
creating value.
7 Ineffective teaching methods
As for the teaching of business ethics, an
additional four challenges emerge. First,
some teaching methods appear ineffective.
Traditionally, textbook cases are pitched at
too high a level to be of much use to potential
middle management and, particularly, entrylevel employees. Ethical issues thus appear
isolated to the exclusive domain of top
management.
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Mark de Rond
Business ethics, where do we
stand? Towards a new inquiry
Management Decision
34/4 [1996] 54–61
8 Too much classroom preaching
Second, a recent study by Solberg et al.[5,
p. 73] suggests that reinforcing ethical standards within the classroom environment is
probably a rather ineffective way of teaching
ethics. College students, even in my experience, appear unlikely to be receptive to
pedantic teaching methods and classroom
preaching. Relevant cases, that “hit close to
home”, however, provide students with an
opportunity for exploration and discovery
and ultimately a sense of ownership over the
learning experience, rather than “textbook”
solutions to moral problems (see, for example,[6].
9 Obsession with problem solving
A third, related, criticism is that the current
teaching of business ethics has been too
absorbed with solving moral dilemmas as
opposed to cultivating moral character[7,
p. 7]. This episodic, issue-oriented method
must give way to a more holistic, integrated
approach to teaching ethics which fosters the
cultivation of character, courage and selfrespect.
By the same token, the traditional single
course in business ethics may well possess an
inherent danger: namely that of feeding dualistic thinking as opposed to allowing for the
build-up of a holistic world view. In fact, this
approach seems far removed from real-life
situations which clearly demonstrate that
ethical dilemmas do not present themselves
in isolation but appear in every aspect and at
each level of the workplace. Yet, initiatives to
integrate ethics into the curriculum have not
proved entirely successful[5, p. 74]. Empirical
evidence suggests that it can lead to a decline
in moral reasoning abilities and give the
appearance of being hypocritical, as the
dichotomy between profit maximization – the
underlying assumption of most business
courses – and doing the “right” thing
remains[8]. A compromise has been put forward by Trevino et al.[9, p. 406], suggesting
the development of honourable business
school communities which offer students a
“meta-learning” environment.
10 Business bashing
A fourth and final criticism emerges from an
emotional, yet insightful, response by Tibor
Machan to a Newsweek column by university
professor Amitai Etzioni[10]. Etzioni
laments the meagre receptiveness of MBA
students to exploring life’s values which lie
beyond money, power, fame and self-interest.
In fact, Etzioni appears rather perturbed by
the fondness with which his students
[ 56 ]
embrace business. Machan, however, blames
the teacher, not the students, for entering
into a depressingly typical mode of “business bashing”. Instead of providing students
with cases which will encourage them to
articulate their individual moral frameworks, the message that is conveyed to them
is that their chosen profession is no good.
Would it not be more helpful to show them
how to climb the corporate ladder while
gaining that much-needed sense of pride in
what they do?
Why do we bother?
Translating such feedback into an understanding of progress, albeit speculative,
requires us to re-examine the reasons
justifying our concern with business ethics.
Why do we bother? The typical answer will
often be based on either one or a combination
of the following four observations. First, the
sheer publicity on unethical behaviour has
burdened business schools with a certain
stigma to which they have had to respond[5,
p. 72]. Why are our schools not doing more to
create morally sensitive and reflective business professionals? Also, abiding by legal
and political systems is grounds for ethical
behaviour and sadly the sole motives for
some corporations, Moreover, consumers,
environmentalists, and other interest groups
increasingly demand that corporations
assume moral responsibility. Thus, we bother
with ethics because we cannot afford not to.
Besides, we probably cannot avoid not to
bother with ethics, for even if we were to try
we would still find ourselves operating within
some ethical framework which determines
the nature of the things we do.
Towards a new inquiry
With the exception of this latter observation,
which is fundamental to the argument that
follows, these motives may provide some
direction for the firm as a whole, yet fail to
give much guidance to individuals in the
workplace. We may be forced to re-examine
our approach to teaching business ethics and
move towards a new inquiry.
An anecdote, shared by Carr, of a successful executive of a large corporation serves as
an appropriate and inspiring illustration.
Speaking quite seriously about his envy for
his associates, he noted that their
consciences had never developed beyond the
Neanderthal stage and that they had little
difficulty in accepting things as they ere[11,
p. 29]. Surviving within a potentially
Mark de Rond
Business ethics, where do we
stand? Towards a new inquiry
Management Decision
34/4 [1996] 54–61
uncaring, dog-eat-dog world demands a set of
skills with which many professionals are
apparently insufficiently equipped. As a
matter of fact, the importance of a strong,
personal sense of ethics emerges as the most
desirable characteristic for the ideal chief
executive officer in the year 2000, according
to a Korn/Ferry and Columbia University
survey of over 1,500 executives from 20 countries[12].
It follows that the teaching of business
ethics should not concentrate solely on protecting the consumer or the environment,
nor isolate itself to the role of the executive,
but should focus on developing the integrity
of each individual in the workplace who, by
virtue of the competitive environment in
which she or he operates, must face up to
moral dilemmas which demand prompt solutions. Intrinsic to this approach is the realization that integrity is expressed more
clearly in relatively minor or immaterial
decisions than in major corporate moves,
which brings us to an interesting paradox. In
past publications (e.g. [13, p. 75]) a familiar,
even Biblical, notion has been voiced:
namely, that individuals seeking to avoid
major crime must begin by eliminating the
seemingly insignificant violations of trust
from their lives. In other words, if we cannot
be ethical in small things how can we act
morally when larger issues are at stake? Yet,
these significant corporate decisions, such as
the recall by Procter & Gamble of their “Oil
of Ulay Discovery” beauty cream, frequently
enjoy a far greater visibility within and outside the corporation, and help to craft the
competitive environment, which makes acting ethically more lucrative for obvious reasons.
Under this new paradigm our focus will be
on developing the business professional as a
moral, reflective and self-respecting individual, capable of identifying and articulating
the ethics of an issue, courageous enough to
do something about it, wise enough to explore
politically acceptable solutions, and perceptive of alternative viewpoints. Our task is to
facilitate the development of a framework
within which moral judgements can be evaluated for pertinence and consistency and consequently give future professionals little
cause for shame and ample space for selfrealization. A similar approach has recently
been alluded to by Solberg et al.[5] in their
plea for “living” ethics rather than “learning” ethics. Ultimately, this new paradigm
may well answer the charges of our critics,
many of whom, paradoxically, are the very
people we claim to serve.
This alternative focus must lead us to
rethink our teaching method towards an
effective pedagogy which serves to encourage
the development of moral character, pride
and courage, and is based on two important
premisses: first, many students appear to be
morally immature and seek guidance in their
moral development, yet will resist “classroom
preaching”; second, all students are already
equipped with a moral framework which
determines the nature of their actions, yet
they may not consciously be aware of its existence. We must help these students to articulate and reflect on their own moral framework and in particular its consistency of
application.
Innovative teaching
Following are a number of innovative learning tools that appear to have enjoyed some
degree of success.
Fiction
At the beginning of his acclaimed business
ethics module, Harvard professor Robert
Coles customarily hands out to his students a
list of paperback novels and a collection of
short stories. These become the object of
reflection and subsequent discussion. He
aims to trigger moral and social inquiry
through reading selected works of fiction: “to
reach the mind, the heart, the soul of his
readers” and prod an emotional as well as an
intellectual response[14, p. 4]. On his reading
list are, among others, F. Scott Fitzgerald’s
The Great Gatsby and The Last Tycoon;
Walker Percy’s The Moviegoer, and Tolstoy’s
classic Master and Man.
FiIms and autobiographies
Films, such as The Great Gatsby, The Displaced Person and Wall Street, provide for
reflection, as well as autobiographies (e.g.
Lee Iacocca, Donald Trump). In more conservative educational environments, these provide useful ways of reflecting the darker side
of the world of business as script writers do
not shy away from exposing corruption,
betrayal, promiscuity, and the use of bad
language.
Short, interactive seminars
Short, thought-provoking seminars
conducted by business professionals are usually very popular with students, although
they can be difficult to organize given the
sensitive nature of the information involved.
In my experience, former students can prove
supportive.
[ 57 ]
Mark de Rond
Business ethics, where do we
stand? Towards a new inquiry
Management Decision
34/4 [1996] 54–61
Cases which hit “close to home”
The case method has been a popular teaching
tool for some time and offers a breeding
ground for confrontation and discussion.
These cases, however, should direct themselves to dilemmas that middle-management
and entry-level employees are likely to face.
Where these are not readily available business school alumni, once again, can prove a
rich resource from which cases can be developed (see the Appendix for examples of short
cases).
Mentoring communities
It is crucial for any business school desiring
to provide a breeding ground for moral development, to be a community that not only
welcomes and affirms the competence and
promise of its students, but also renders them
a vision, and provides them with the means
to live and work in harmony with this
vision[15, p. 51]. An environment of this kind
should be set up to deal with success as well
as failure. Education, then, moves beyond
mere training to developing the “whole”
person, as a moral, reflective, intelligent and
purposeful human being.
In conclusion
Returning to our quest: where do we
stand? Have we anything to show for 30 or
more years of academic endeavour? One
could speculate that our efforts have not
been entirely fruitful given the legitimate
criticisms discussed in this research.
Yet, to suggest we have “failed” is too impulsive a response. Even though it may appear
appropriate intuitively, that claim cannot be
substantiated for we do not yet agree on how
to measure progress. An acceptable goal
structure must first be developed. This
paper suggests that such a goal structure
must not focus solely on eradicating the
occasional John Manville Corporation.
Rather, it should seek to encourage the
exploration of a challenging, new inquiry,
based on the sad observation that too many
of our graduates find that the perks of the
world of business barely measure up against
the discomfort of not knowing how to cope
in a morally demanding, competitive
environment.
References
1 Stark, A., “What’s the matter with business
ethics?”, Harvard Business Review, May-June,
1993.
2 “How to be ethical, and still come top”,
The Economist, 5 June 1993, p. 71.
[ 58 ]
3 Sternberg, E., “Relativism rejected: the
possibility of transnational business ethics”,
in Hoffman, W.M., Kamm, J.B., Frederick,
R.E. and Petry, E.S. Jr (Eds), National Conference on Business Ethics. Proceedings from the
9th Conference on Business Ethics Sponsored
by the Centre for Business Ethics at Bentley
College, Quorum Books, New York, NY, 1994,
pp. 143-50.
4 Nash, L.L., Good Intentions Aside. A Manager’s
Guide to Resolving Ethical Problems, Harvard
Business School Press, Boston, MA, 1990.
5 Solberg, J., Strong, K.C. and McGuire, C. Jr,
“Living (not learning) ethics”, Journal of
Business Ethics, Vol. 14, 1995, pp. 71-81.
6 Barnes, L.B., Christensen, C.R. and Hansen,
A.J., Teaching and the Case Method, 3rd ed.,
Harvard Business School Press, Boston, MA,
1994.
7 Freeman, R.E., Business Ethics, The State
of the Art, Oxford University Press, Oxford,
1991.
8 Jones, T.M., “Can business ethics be taught?
Empirical evidence”, Business & Professional
Ethics Journal, Vol. 8, 1989, pp. 73-88.
9 Trevino, L.K. and McCabe, D., “Meta – learning about business ethics: building honorable
business school communities”, Journal of
Business Ethics, Vol. 13, pp. 405-16.
10 Etzioni, A., “Money, power and fame”,
Newsweek, 18 September 1989.
11 Andrews, K.R., Ethics in Practice. Managing
the Moral Corporation, Harvard Business
School Press, Boston, MA, 1989.
12 Korn/Ferry International and Columbia
University Graduate School of Business,
21st Century Report: Reinventing the CEO,
Los Angeles, CA, 1989, p. 41.
13 Edmonds, C.K., “The missing link in ethical
training programs”, Management Accounting,
April 1994, p. 75.
14. Coles, R., “Storytellers’ ethics”, Harvard Business Review, March-April 1987, pp. 4-8.
15 Piper, T.R., Gentile, M.C. and Parks, S.D.,
Can Ethics Be Taught? Perspectives,
Challenges, and Approaches at Harvard
Business School, Harvard Business School
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Further reading
Avishai, B., “What is business’s social compact?”,
Harvard Business Review, January-February
1994, pp. 38-48.
Barker, J.A., Paradigms. The Business of Discovering the Future, HarperCollins, London,
1992.
Bishop, J.D., “Adam Smith’s invisible hand
argument”, Journal of Business Ethics, Vol. 14,
1995, pp. 165-80.
Brown, K.M., “Using role play to integrate ethics
into the business curriculum: a financial
management example”, Journal of Business
Ethics, Vol. 13, 1994, pp. 105-10.
Mark de Rond
Business ethics, where do we
stand? Towards a new inquiry
Management Decision
34/4 [1996] 54–61
Carlin, W.B. and Strong, K.C., “A critique of western philosophical ethics: multidisciplinary
alternatives for framing ethical dilemmas”,
Journal of Business Ethics, Vol. 14, 1995,
pp. 387-96.
Carr, A.Z., “Can an executive afford a
conscience?”, reprinted in Andrews, K.R.,
Ethics in Practice. Managing the Moral Corporation, Harvard Business School Press,
Boston, MA, 1989.
Caux Round Table, Principles for Business,
“The Caux Roundtable Secretariat”, The
Netherlands, 1994.
Cowton, C.J. and Dunfee, T.W., “Internationalizing the business ethics curriculum: a survey”,
Journal of Business Ethics, Vol. 14, 1995,
pp. 331-8.
Donaldson, J., Key Issues in Business Ethics,
Harcourt Brace Jovanovich, San Diego, CA,
1989.
Donaldson, T. and Werhane, P.H., Ethical Issues in
Business. A Philosophical Approach, PrenticeHall, Inc., Englewood Cliffs, NJ, 1983.
Gould, S.J., “The Buddhist perspective on business ethics: experiential exercises for exploration and practice”, Journal of Business
Ethics, Vol. 14, 1995, pp. 63-70.
Handy, C., “Trust and the virtual organization”,
Harvard Business Review, May-June, 1995,
pp. 40-50.
Hill, J., “Can we talk about ethics anymore?”,
Journal of Business Ethics, Vol. 14, 1995,
pp. 585-92.
Hoffman, W.M., Kamm, J.B., Frederick, R.E.
and Petry, E.S. Jr, National Conference on
Business Ethics. Proceedings from the 9th
Conference on Business Ethics Sponsored by
the Centre for Business Ethics at Bentley
College, Quorum Books, New York, NY,
1994.
Hosmer, L.T., “Strategic planning as if ethics
mattered”, Strategic Management Journal,
Vol. 15, 1994, pp. 17-34.
Kavathatzopoulos, I., “Development of a cognitive
skill in solving business ethics problems:
the effect of instruction”, Journal of Business
Ethics, Vol. 12, 1993, pp. 379-86.
Kuhn, T.S., The Structure of Scientific Revolutions,
2nd ed., University of Chicago Press, Chicago,
IL, 1970.
L’Etang, J., “Ethical corporate social responsibility: a framework for managers”,
Journal of Business Ethics, Vol. 14, 1995,
pp. 125-32.
McDonald, G.M. and Donleavy, G.D.,
“Objections to the teaching of business
ethics”, Journal of Business Ethics, Vol. 14,
1995, pp. 839-53.
McGee, R.W. (Ed.), Business Ethics anf Common
Sense, Quorum Books, New York, NY,
1992.
MacIntyre, A., A Short History of Ethics. A History
of Moral Philosophy from the Homeric Age to
the Twentieth Century, Routledge, London,
1993.
Mahoney, J., Teaching Business Ethics in the UK,
Europe and the USA. A Comparative Study,
Athlone Press, London, 1990.
Michalos, A.C., A Pragmatic Approach to Business
Ethics, Sage Publications, Beverly Hills, CA,
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Murphy, P.E., “Corporate ethics statements:
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Journal of Business Ethics, Vol. 14, 1995,
pp. 727-40.
Nelson, J., “Business ethics in a competitive
market”, Journal of Business Ethics, Vol. 13,
1994, pp. 663-6.
Nichols, M., “Does New Age business have a
message for managers?”, Harvard Business
Review, March-April 1994, pp. 52-60.
Nicholson, N., “Ethics in organizations:
a framework for theory and research”,
Journal of Business Ethics, Vol. 13, 1994,
pp. 581-96.
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Brown Communications, Dubuque, IA, 1994.
Paine, L.S., “Managing for organizational
integrity”, Harvard Business Review, MarchApril, 1994, pp. 106-17.
Popcorn, F., The Popcorn Report. Faith Popcorn on
the Future of Your Company, Your World, Your
Life, 1992, pp. 69-77.
Roddick, A., “Anita Roddick speaks out on
corporate responsibility”, based on a presentation by Anita Roddick at the 31st Congress
of the International Chamber of Commerce,
Mexico, The Body Shop plc., London,
1994.
Rossouw, G.J., “Business ethics: where have all
the Christians gone?”, Journal of Business
Ethics, Vol. 13, 1994, pp. 557-70.
Sells, B., “What asbestos taught me about managing risk”, Harvard Business Review, MarchApril 1994, pp. 76-90.
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Sethi, S.P., “Imperfect markets: business ethics as
an easy virtue”, Journal of Business Ethics,
Vol. 13, 1994, pp. 803-15.
Singer, A.E., “Strategy as moral philosophy”,
Strategic Management Journal, Vol. 15, 1994,
pp. 191-213.
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Appendix: The Newbold Business Alumni
Cases in Business Integrity Series
The following were prepared by Mark de Rond
with the kind help of Newbold College Business
Department alumni who provided the information
on which the cases are based. Although the case is
factually correct, names have been altered owing
to the sensitivity of the information. These cases
serve as the basis for class discussion rather than
[ 59 ]
Mark de Rond
Business ethics, where do we
stand? Towards a new inquiry
to illustrate either effective or ineffective handling
of an administrative situation.
Management Decision
34/4 [1996] 54–61
No. 1: “Accruing expenses”
Karen is a financial planner with a multinational,
Fortune 500 company which has traditionally
catered largely to the IT industry. She entered the
firm nearly two years ago, on receipt of her MBA
degree, from a well-recognized US-based business
school. That was in 1989. Before that she attended
Newbold College where she obtained her BBA
degree in management.
At the year-end, on preparing the expense
reports and evaluating actual performance versus
budgeted performance, it appears that the
Finance division is significantly under budget.
The implications of being under budget are as
follows. First, the manager’s efforts to save money
are being applauded and s/he is awarded a bonus.
On the other hand, however, next year’s budget is
expected to be cut as apparently the group was
over-funded. Karen is instructed by her manager
to put in an extra accrued expense to account for
the difference and, in so doing, increase actual
expenses to equal budgeted expenses. The explanation given by her manager is that in the current
year certain events which were planned to take
place never got off the ground, yet they have been
postponed until next year. By virtue of the
“matching principle” these expenditures belong
to this year’s income statement, and can therefore
be categorized as accrued expenses. Karen is of
the opinion that this action is probably not illegal,
yet unethical, as inflating expenses may well
affect profits – and thus shareholders – and the
“planned” event will probably never take place, as
usual.
The implications of “padding” actual expense to
almost match budgeted expenses are as follows:
• the budget is “preserved” and secured, as it is
unlikely to be cut significantly for the next
period;
• the managers still come out as “hero” as they
have been able to operate within the allocated
budget – despite it being far less than what it
could have been with the “extra” accruals – and
will receive the annual, performance-related
bonus; and
• by accruing these expenses a credit has been
created on the balance sheet which can be used
the next period in addition to the fund allocated
according to next period’s budget.
Karen has tried hard to find any actual accruals
to make up the difference between actual and
budgeted expenses, but, with a bit of luck, could
only come up with about half the amount
required. Karen informed her group manager
who subsequently sought advice with the division manager. Although the division manager
was supposedly not made aware who had been
asked to expense the extra accrual, Karen was
called into his office. On asking why the actual
expenses could not be matched to budgeted
expenses, Karen explained that she could not find
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any more accruals beyond those already
reported. The division manager remarked that
this was “not a right answer”, and began listing a
number of “postponed” events that were to take
place during the next accounting period, yet had
to be expanses as accruals in the current period
according to the matching principle.
Karen strongly suspects that the division manager is lying. She also realizes that any of her
peers would have probably entered the accruals.
What should she do?
No. 2: “Am I my brother’s keeper?”
Jack is a senior financial planner with the
Finance division of a large multinational,
“Acme”. He has been with the firm for about
four years and hopes to be promoted to a managerial position within a year. Besides a company car, the promotion will mean a substantial
increase in salary. Jack wants the promotion
and needs the extra money as he has just become
a father and has been looking into buying a
house.
Recently, as part of a major restructuring effort,
Acme has been shedding employees and outsourcing several of its operations. One of the most
successful divisions the firm disposed of was the
property section. This newly independent property division was established under a new name,
as a separate firm, of which the shedding parent
retained a 49 per cent equity interest. As part of
the deal, Acme provided the property company
with a ten-year maintenance contract to take care
of its buildings and other properties. This particular spin-off proved immensely profitable for the
newly created property management company
and its managers. Its share price multiplied many
times over. In fact, some insiders estimate that
this deal may have turned several of its managers
into millionaires.
Because of its financial success, the spin-off of
this property section became a source of inspiration for other divisions. The overall corporate
strategy of Acme, at that time, allowed for outsourcing of certain divisions. Decisions of this
kind were usually made at country level, rather
than worldwide. Several divisions started developing proposals which would help them become
independent companies. Jack’s boss, attracted by
the potential of making a lot of money, arranged
for a “secret” meeting at an unknown location
with his managers. Apparently, at that meeting it
was recognized that in order to become profitable as a newly created company, the Finance
division had to be downsized and automated.
However, this downsizing could only take place
after the spin-off and not beforehand for one good
reason. As the spun-off division would be
awarded a five-year contract by Acme (much like
the property division) and Acme traditionally
priced the contract on the number of employees
involved, more employees would result in a
higher price. Improving efficiency and downsizing before the spin-off was out of question and
Mark de Rond
Business ethics, where do we
stand? Towards a new inquiry
Management Decision
34/4 [1996] 54–61
made no financial sense. However, as soon as the
five-year deal had been arranged the division
was free to do whatever was needed to increase
its profitability. The management had agreed
that six of the eight division employees were to
be dismissed.
The day after the meeting, Jack was called into
his manager’s office and informed of the idea
and its implications. Of the eight people within
the group only two would remain, one of whom
was Jack. Jack was told to remain silent about
the ordeal to the others in his division and
ordered to work out the financial details of the
proposal.
Although Jack’s position seemed secure it
bothered him that six of his colleagues were at
risk of losing their jobs, and he was not to tell
them of their fate. Jack knew very well that if
only these employees could be informed of the
management decision prior to the spin-off, they
could “jump ship” and apply for an internal
transfer within Acme. After the spin-off the
chances of transferring would be minimal. Jack
perceived the situation as an “act of greed” of
the management, enticed by the financial successes of the managers of the property division.
Place yourself in Jack’s shoes. What would you
do?
No. 3: “A jerk or a Jack Daniels?”
This particular case does not serve to either encourage or discourage the use of alcohol, but to illustrate what may be a moral issue.
On his graduation from Newbold College, Yuri
enrolled in a UK-based management college to
obtain an MBA in marketing. Twelve months (and
a master’s degree) later, Yuri decided to return to
his homeland to take up a position with one of his
nation’s largest commercial banks. Within three
years he had worked himself up to become the
manager of his own local branch. Despite the
obvious autonomy he gained as a branch manager, Yuri became accountable to a regional manager. Unfortunately, some friction had developed
between Yuri and his manager owing to philosophical differences.
Yuri’s manager firmly believed that any personal problem could be solved most effectively
behind a glass of strong drink (i.e. alcoholic). To
prove his point, the regional manager would
bring along a bottle of Bordeaux for every
employee whenever he visited Yuri’s branch.
Very often, having addressed a series of problems, he would take his glass and throw it against
the wall, inviting branch personnel, including
Yuri, to do the same. This practice of work-related
drinking was very uncommon and strongly
encouraged by the regional manager, despite the
fact that the bank’s headquarters had recently
put out a brochure on dealing with alcoholrelated problems at work. In addition, the practice of drinking had increasingly become associated with inner-strength; the more one could
drink the stronger one was perceived to be.
Drinking had become essential for socializing
and the recommended remedy for solving personnel-related problems.
Yuri did not believe in the virtue of drinking,
yet experienced increasing pressure by his manager and his employees to compromise on this
principle. Instead of gaining respect from his
manager and colleagues, he found himself
increasingly unpopular. In fact, the situation had
culminated to the point at which the work situation became almost unbearable. What should Yuri
do?
No. 4: “When HQ calls…”
As the manager of a local branch of a well-known
investments firm, Beatrice was responsible for
about 12 employees and thousands of accounts. As
part of her job, she frequently interacted with her
regional manager to whom she was immediately
accountable.
Every local branch is required to bring out a
profit-and-loss statement and balance sheet on a
regular basis. These statements are compiled by
the branch and played on to the regional manager
who will eventually send them through to the
firm’s head office. One common item on the balance sheet is “bad debts”, which must be
accounted for and will be written off. When
Beatrice presented her branch’s bad debts figure
to the regional manager, she was informed that
her manager would only report two-thirds (67 per
cent) of this figure to the head office. Not only
that, but Beatrice was instructed to support her
manager and endorse this figure, “just in case the
head office calls”. Beatrice knows the figure her
regional manager is about to report is far below
what her branch has calculated to be realistic and
feels uncomfortable endorsing it. What should she
do?
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