BA 242 Exam 2
Note: Orange passages refer to case studies presented in the readings, purple = in class
During my test, there were very few questions relating to the case studies, especially those in the
readings, but they can help you to understand the fundamentals (that are tested) better.
Key rule of thumb: Ethical behavior is both morally good AND profitable
Manager’s Values
Managers serve as models, “the tone at the top is critical”
Ethical lapses are results of culture, not necessarily rogues
Managers have an opportunity to shape ethics
Studies: Managers value comfortable, exciting life, intellectual, responsible / New CEOs focus on shortterm profits / only 25% emphasize moral values
Trend: MBA’s (future CEOs) 80% now value ethics
Why the sudden ethics boom?
Media focus, government pressure, and maturity of business institutions
Virtue Ethics
Focus on possessing character traits  these will naturally guide towards ethical decisions.
Focus on way of being, habits rather than rules.
Personal Spirituality
Trend: Work integrating spirituality more
Corporate chaplains exist
Study: Embracing spirituality  productivity up, turnover down, less fearful, more ethical, more
committed to work.
Controversy: Business is secular / whose spirituality promoted? / agnostics?
Manager’s Moral Development
Decisions affected by: personal values, character, spirituality
Stage 1: Childhood: Punishment avoidance = Ego-centered
Stage 2: Adolescence: Reciprocity, self-interest = Ego-centered
Stage 3: Early adulthood: Social groups = Group-centered
Stage 4: Adulthood: Society, customs, traditions = Society- and Law-centered
Stage 5: Mature Adult: Moral beliefs = Principle-centered
Stage 6: Mature Adult: Universal principles of justice, fairness, rights = Principle-centered
Most managers at stage 2 or 3 (dangerous!)
2002 - Tyco – CEO Kozlowski steals $170 million
Common in 2002, many scandals
US. Treasury Secretary O’Neill – “people who have abused our trust…ought to
hang…from the very highest branches.”
Ego-centered: benefits self, family without considering others
Corporate Culture
Ideas, customs, traditional practices, company values
“How we do things around here”
Holt Company – (Caterpillar equipment dealership)
Core values in descending importance: ethical, success, excellence, commitment, dynamic
Integrated by meeting quarterly to discuss five core values
Ethical Climate
Unspoken understanding of what is/isn’t acceptable
Three ethical yardsticks:
Egoism (self-centered): Economic efficiency for company’s sake
Benevolence (concern-for-others): Team interest for social responsibility
Principle (integrity approach): Morality focus
Sub-climates exist within companies among different functional areas
Climates can encourage good or bad behavior
Analyzing Ethical Problems in Business
Guidelines should…
1. Identify and analyze the nature of an ethical problem
2. Decide how to produce an ethical result
Use ALL of these guidelines
All yes - 
Mixed – Moral Free Space: Make a tough call
Assign priorities: what is most important TO YOUR COMPANY?
This is influenced by culture and climate
Company climate  Utilitarian
Benevolence climate  Justice, rights = earns respect
All no -
1. Utilitarian – Cost/Benfit Analysis
Types of costs: economic, social (on society), human (emotional)
Considers ALL stakeholders
Focus: greatest good for greatest number
Flaw: difficult to measure accurately
Flaw: majority can override minority
Flaw: focus on end results not means
2. Rights – Respecting entitlements
Types
A. Positive - Do This
B. Negative – Don’t Do This
Rights: life, safety, free speech, freedom, to be informed, due process, property
Individuals are valuable inherently just because they are human beings
Cannot use others while denying them their goals and purposes
Flaw: conflicting rights – ex: privacy vs protection
3. Justice – Benefits/Costs are fairly distributed
Fair NOT NECESSARILY equal distribution
Consider: needs, abilities, efforts, contributions
What is fair according to society’s rules?
Scales of justice must be balanced – ex: close a factory, contribute to community
Flaw: fair is a subjective concept
Passes veil of ignorance? (putting myself in everyone’s positions, would they all be okay
with it?)
4. Categorical Imperative (“Common-Good Approach”) – What if everyone did it, would it be
okay?
5. Newspaper Test (“Virtue Approach”) – Is this the person I want to be?
Virtues: honesty, courage, compassion, generosity, fidelity, integrity, fairnesss, selfcontrol, prudence.
Virtuous behavior is a habit
Deontological – What’s right (all but #1 follow this)
Desperate Air Corporation – Williams CEO, Nash ordered: Selling land to Fledgling with
hazardous material buried
MBA Hackers – Hack to see admissions status, denied admission. “Slippery slope” concept
Kids and Carpet – suppliers likely using child labor
VIDEO – Child labor rugs
US did not sign child labor prevention law
Bonded children sold by their parents, work off payment
Rugmark – boycott child labor made rugs
Fair and care – it happens, support these kids, educate them
Classic Container – African supplier, Etopia requires bribe. More doesn’t want to, Taylor orders
him to do it
This is actually illegal
Iceland, Northern Europe, Singapore best
US is 17th, (7.6/10)
VIDEO - Unum Provident (medical insurance) – pressured claims analysts, financial rewards for
targets, doctors pressured
Medtronic – employees motivated by benefitting society not stockholders, employers <3
medtronic for ethics, proud of their company
Malden Mills - $300 million in insurance, $25 million to employees 2 months salary, does not
relocate, goes out of business
Maria Elena – Illegal immigrant house cleaner, sick mother at home, needs money to return
Whistle-Blowing
External – speak to media or government organization
Enron, Worldcom, FBI whistleblowers are Time’s 2002 Persons of the Year
There is legislation worldwide to attempt to protect whistle-blowers
Nosiy withdrawl – Lawyer must quit and report violation to SEC, SEC investigates
Problems of Whistle-Blowing
1. Divided loyalties – Asian countries treat employees as family
2. History – German hates Gestapo tactics
3. Logistics – Global companies face language barriers/time zone problems
4. Fear of retribution – Unemployment, legal fees, murder
Mattel’s Christine Casey loses suit, becomes unemployable, pays legal costs
Making Ethics Work in Corporations
Institutionalizing – integrating ethical safeguards into everyday activity
Compliance-Based Approach (lawyer-driven)
Goal: Avoid legal sanctions - “deterrence theory”
Emphasizes: Risk of detection, punishment
Result: Less observed unethical conduct, willingness to seek ethical advice, awareness of ethical
issues
Integrity-Based Approach (leader-driven)
Goal: Integrity
Emphasizes: Employee responsibility of ethics, honesty, fairness
Result: Same + commitment to organization, willingness to deliver bad news, perception that
better decisions were made through integrity-based approach
Comparison of the Two – Integrity is…
1. Broader: seeks responsible conduct
2. Deeper: focuses on ethos, patterns of thought
3. More demanding: focus on attitudes not action
Integrity  Good Attitudes  Good Action  
Compliance programs do not fix underlying problems like integrity-based do
Integrity – ethics policies are not a constraint but an attitude, governing ethos
Social Outreach Approach
Social Accounting
Legally required only in France
Competency-based Social Responsibility
Using company’s competency (abilities) rather than cash to benefit society
Ethics Policies or Codes
Provide explicit, detailed guidance to navigate dilemmas
Makes clear when judgment is needed
US and Latin America – Instrumental policies (rules and procedures to follow)
Japan, Europe, Canada – legal compliance, statement of company values/mission
Cover topics like: gifts, conflicts of interest, confidentiality, discrimination, environment
Integration
More effective with employee participation
If not integrated, credibility loss
Needs…
1. Values that make sense and are clear
2. Personally committed leaders
3. Espoused values reflected in management decision making
Measurements for Hypocrite Management?
1. How you spend time? SW Airlines CEO loads bags on busy days
2. How you spend money?
3. Reaction to critical incidents?
4. What you reward, punishment?
5. Questions you ask?
6. Things you measure?
Ethics officer/ombudsperson – First line of liability defense for companies
Shell Oil – Satisfied call for ethical behavior with ethics office
Ethics assist line – Anonymous hotline
1. Interpret
2. Report
3. Generally inform
Waste Management – 13% used it annually, 630 calls  action
Ethics Training Programs – Needed or it’s just words
Coors employees refused to sign off on policy without explanation
Ethics Audits – Find violations, force managers to correct, report how they inform
employees
Comprehensive Ethics Programs
33% are comprehensive – integrating policy, training, assist line
Trend: Though almost all have codes… 1992: 25% offer training, 2000: 55% offer training
Martin Marietta Corporation - US aerospace defense contractor
Attack for fraud, improper travel billing
Implements comprehensive ethics program  turns company around
NovaCare – Nursing Home Rehab Services
Customers, therapists leaving because managers care about profits at expense of care
Implements comprehensive ethics program  turns company around
Wetherill Associates – small, private, electric part supplier
No code but “Quality Assurance Manual”
Strong history of self-sustaining ethics – employees selected on ethics, immersive
culture of ethical behavior. Focus on teamwork, customer service, honesty, courtesy,
respect
PPG Industries – coatings, glass, fiberglass, chemicals
Integrate ethics policy that are “stricter than the law” through aforementioned
programs
Global Ethics Committee too because it is a global company
Corporate Ethics Awards
“Bussiness Ethics Awards” for
We need an economy based on fair profits not maximum profits
Liability Reductions for Ethical Behavior
Reduced if programs are in place  everyone is rushing to have compliance programs
1. Management cooperation in reporting/investigating
2. Implementation of compliance program to detect/prevent
3. Acceptance of responsibility
4. High-level management involved (increased sanctions)
5. Culture of ethical behavior
Sears Auto sells customers unnecessary parts because culture of sales quota
requirements
Beech-Nut Nutrition has less than pure juice, silences internal whistleblowers  gets hit
HARD legally
Salomon Brothers – executives learn of unlawful behavior, stay quiet  no leniency,
confidence/trust crisis
Johnson & Johnson recalls ALL Tylenol when some are poisoned  because of ethical
culture this was cohesive 
Acme Corporation commits mail fraud – gets leniency for repaying customers before
sentencing
What about profits?
Competitive Advantage for ethical companies – they establish trustworthiness
Getting caught  can be even worse for reputation than fines
Ethics problems mean MORE regulations - inefficient!
Ethics Abroad
Cultural Relativism – No culture’s ethics are best
No international rights and wrongs
“When in Rome, do as the Romans do”
Flaw: Always? What if there are SERIOUS side effects? Morally blind
European tanneries – dump waste cheap in Nigeria
Toxic waste by unprotected Nigerian villages near villages
SS United States – restored by Ukranians, unsafe asbestos removal
Ethical Imperialism – Our way is right
Absolutist - three problematic principles
1. Single list of truths – but cultural traditions must be respected
2. Can only be expressed by one set of concepts – but local ethics shaped by that
context
3. Same behavior worldwide – no room for context
Saudi Arabia gets same sexual harassment course as US – ridiculous, offensive
Union Carbide underestimates supervision needed in low-tech foreign site = lethal gas
leak
Extremes are wrong – somewhere between
Make decisions in moral free space using 3 guiding principles as boundaries:
1. Core Human Values
Include: dignity, basic rights, good citizenship
Consider: How does your business policy safeguard core human values?
Also, PROTECT: essential social institutions (economic, educational), envrnmt.
2. Local Traditions
3. Context
May be ethical if no to both…
1. Can I do business without this?
2. Does it violate basic human rights?
More guidelines
1. Corporate values, formal standards are absolutes
2. Make conditions of engagement for suppliers, customers
3. Allow foreign input on these conditions
4. Support efforts to decrease foreign host country corruption
Single companies often ineffective, form coalitions
5. Exercise moral imagination
Levi Strauss accepts child labor but pays for education
Types of cultural conflicts
1. Conflict of relative development – would this be okay in my culture at a similar stage of
development?
2. Conflict of cultural tradition – unlikely to change with development
EDB (fungicide) is banned in US, but harmless in warmer climates  OKAY! Because
even though it’s bad here, it’s harmless over there so as long as it’s there, it’s fine.
Indian companies ensure positions for employees’ children, cultural difference
unacceptable in US, but okay considering Indian unemployment
US-banned dysentery drug okay in India – side effects insignificant there in terms of
their cultural standards
Saudi Arabia does not allow women managers (religious, cultural beliefs); this is
acceptable under different cultural norms even though it seems barbaric to the US