Name: _____________________________________________
Week 2 Study Guide: Chapter 2 and
Chapter 7
Instructor’s Note: Please utilize and complete this Study Guide as you read. Viewing the
supplemental PowerPoint for Chapter 2 will be helpful in order to enhance your
understanding of the material. I would strongly recommend using my PowerPoint
presentation for Chapter 7; please use it instead of the book. The questions are listed in the
order in which the material appears in the text. You can type your answers directly into this Study
Guide or type them into a separate Word document. If you would prefer to handwrite it, you may
handwrite it and scan and email your handwritten answers to me. Once you have completed it, I
would encourage you to use it when completing weekly Quiz that covers the week’s material!
Additionally, please email me a copy of your Week 2 Study Guide by 11:59PM on June 7,
2015. The subject line of the email containing your Study Guide MUST read as follows: Your
Name – Business Law – Study Guide Week 2. You will earn 40 points for successful
completion of this week’s Study Guide!
Chapter 2: Ethics and Business Decision-Making
What are ethics? What are business ethics?
Ethics is the study and interpretation of behavior that can be perceived as right or wrong.
Business ethics focuses on what is right and wrong behavior and what is moral or immoral
in a business setting.
TRUE or FALSE: Because business ethics is derived from religion, you must be a religious
individual in order to be an ethical individual and ethical business leader.
False. Moral principles in a business setting more often than not do not have religious
implications.
Please name three bad things that would not have happened if the individuals on Page 45 had acted
ethically:
-The companies would not have suffered such a major loss of revenue and available capital.
-They would have not been forced into bankruptcy by unethical conduct and a series of
losses.
-Thousands of workers would not have lost their jobs and would still be providing their
services to the company.
What is the “moral minimum” with regards to ethics?
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The moral minimum is compliance with the law, but no other moral guidelines applied on
top of it.
TRUE or FALSE: Just because an action is legal does not necessarily make it ethical.
False. There are many grey areas of the legality of business decisions especially within ecommerce, and businesses have no way of knowing how a court will apply a particular law
to a specific situation.
What is an example of a business action that is legal but that is not necessarily ethical?
-Selling a dramatically marked up used car with nearly unsustainable high interest loan
-Strip mining third world countries for precious metals for hybrid car batteries
-Selling munitions to individuals that could promote regional political instability
-Implementing automatic check out kiosks to lower labor costs
-Relentless persecution of introverts in the retail and hospitality sectors
-The entire hateful predatory business model of the textbook industry
What do some people say that the only goal of a business should be?
Some believe that the only goal of a business should be to make the highest profit possible
to maximize the company’s value on the market.
What is the most common reason why ethical problems occur in business?
A near total focus on short term profit maximization, at higher risk of unethical conduct.
Please do not read the “Costco Code of Ethics” insert in your textbook – we will return to this later
in the Study Guide.
Is Kirklandian Ethics trademarked by Costco yet?
What is a business’s defense when dealing with “grey areas” in the law?
Many laws involve the determination of what is “Forseeable” or “Reasonable”, and in the
case of something like an unsustainable adjustable rate mortgages or potentially lethal
ignition switches on a mass scale, it is difficult to prove that a business knew a negative
outcome ahead of time. They also have no way of knowing how a court will apply a
particular law to a particular situation beforehand.
TRUE or FALSE: Simply promoting ethical conduct is sufficient to build an ethical culture within a
workplace.
False. The actions and personal attitudes of Top Management must lead by example.
What can top management do in order to create, promote, and maintain an ethical workplace?
-Create an ethical code of conduct in a similar fashion as the Costco example
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-Provide accessible ethical conduct training to employees
-Evaluate ethical behavior outside the workplace such as the supply chain
-Online reporting tools such as Ethicspoint
-Come up with clever acronyms for all future HR and workplace conduct policies
What are some ways in which an unethical culture can be created within a company?
-The attitudes or unethical conduct of top management within the company, and employees
subsequently taking all their behavioral cues from the same source
-The unethical behavior of business owners and managers
-Unrealistic or unsustainable performance targets that fodder unethical behavior
What is the effect of creating a well-written code of ethics?
-If a business is accused of an ethics violation the court will consider the presence of an
ethics code
-Many legal disputes over ethical violations will be prevented with a written code of ethics
-Employees should feel safe from reprisals if they file a complaint
After you have read the two paragraphs under the heading “Creating Ethical Codes of Conduct”,
please turn back to the fold-out “Costco Code of Ethics” insert that is in your textbook between
Pages 46-47. This is an example of a real-life code of ethics that is created and distributed in the 21st
Century business marketplace. Please use this document to answer the next few questions.
Please list at least 3 ways in which Costco shows that they “Obey the Law”:
-Comply with all applicable anti-trust laws
-Comply with safety and security standards for all products sold
-Comply with all disclosure and reporting requirements
Please list at least 3 ways in which Costco shows that they “Take Care of Our Members”:
-Provide top quality products at the best price in the market
-Provide a safe shopping environment in our warehouses
-Assure our members that every product we sell is authentic in make and representation of
performance
Please list at least 3 ways in which Costco shows that they “Take Care of Our Employees”:
-Pay a fair wage
-Consider the loss of any employee as a failure on the part of the company and a loss to the
organization
-Teach our people how to do their jobs and how to improve personally and professionally
Please list at least 3 ways in which Costco shows that they “Respect Our Vendors”:
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-Honor all commitments
-Always be thoughtful and candid in negotiations
-Do not accept gratuities of any kind from a vendor
Please list at least 5 of the consequences that are detailed on the Code of Ethics that can result if
Costco engages in unethical and\or illegal conduct:
Accepting “gratuities” from a vendor might be interpreted as accepting a bribe. This can be
a crime in an international context.
If the company did not provide products that comply with safety and health standards, it
could be held liable in civil suits on legal grounds that are classified as torts.
If the company fails to honor one of its commitments, it may be sued for breach of contract.
Disclosure of inside information that constitutes trade secrets could subject an employee to
civil liability or criminal prosecution.
Failure to comply with ecological could be a violation of environmental laws and runs the
risk of inducing eco-guilt.
Promotions and other benefits of employment cannot be granted or withheld on the basis of
discrimination.
Please return to Page 49 and begin with the section titled “Providing Ethics Training to
Employees”.
What are some practical steps that can be taken in order to implement a well-written code of ethics?
Make sure there are specific steps outlined an employee can follow if they have questions or
complaints, show examples in context to clarify what is appropriate and what is not. Hold
meetings with employees to discuss the code. Introduce the code to your supply chain.
What is the purpose of the Sarbanes-Oxley Act?
To reduce corporate fraud and unethical business decisions through a confidential system
that allows employees inform others or the authorities of suspected illegal or unethical
behavior.
In what circumstances can a stock buyback be unethical?
They can be used inappropriately if management is using them only to increase the stock
value in the short term without adequately considering the long term needs of the company.
What was unethical about the way in which taxpayer-provided “bailout money” was used by
companies such as AIG and Lehman Brothers?
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Well where to begin. Within the first few months in the banking sector it was used to buy
other smaller banks. The level of executive pay reached dramatic new heights in the mid to
late 2000s because of the profit from selling risky assets, but ultimately leading to severe
losses. The stock buybacks performed were under abusive conditions by many of which had
an interest in their own personal stock options and a focus on short term profit. While
almost simultaneously receiving large amounts of taxpayer money, AIG executives spent
money on themselves at a California resort.
What is ethical reasoning?
The process where an individual examines a situation at hand and assesses the outcome
based on his or her moral convictions or ethical standards.
Please describe the two general approaches that can be taken with regards to ethical reasoning in the
business context.
TRUE or FALSE: Duty-based ethics only come from religious texts.
What does an individual who ascribes to the Principle of Rights look at and consider when
evaluating a business decision?
Please paraphrase the idea of utilitarianism.
What is Corporate Social Responsibility?
Please describe the two ways through which Corporate Social Responsibility can be exhibited in the
modern business world.
When is corporate responsibility most successful?
What is one business-related advantage of practicing corporate social responsibility?
Please list the six guidelines that employees should consider when evaluating if their decisions are
ethical. Please consider how you would apply these to a hypothetical scenario as well.
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Please list the five steps that Leonard Bucklin believes should be followed in order to ensure that a
business decision is ethical. Please consider how you would apply these to a hypothetical scenario in
the future.
What are two ways in which American businesses run into ethical problems when dealing with other
countries?
What does the Foreign Corrupt Practices Act prohibit?
Please open the supplemental Week 2 PowerPoint on ethics that is posted on Blackboard.
This PowerPoint was created to summarize, recap, and supplement the material presented
in the textbook. Please use the information on this PowerPoint to answer the remainder of
the questions for this chapter on this Study Guide.
TRUE or FALSE: Unethical conduct in the business world is a phenomenon that is limited to the
late 20th Century and the 21st Century.
What are some of the arguments in favor of corporate social responsibility?
What are some of the arguments against corporate social responsibility? (I realize that some of you
may not be familiar with the idea of a publicly held corporation or a publicly held company. The vast
majority of large for-profit companies in America—such as Wal-Mart, Target, Google, Microsoft,
etc—are “publicly held” companies. Anyone can buy an ownership interest in a “publicly held”
company by purchasing shares of stock in the company. Most people buy stocks in a company
because they believe that the value of the company’s shares will increase in the future as the
company’s performance improves and that they will be able to make a profit and achieve a good
return on their investment by selling their shares when they are worth more in the future. This
means that places such as Target are owned by shareholders, not by the founders or by the
executives. Consequently, all of the assets of the company are owned by shareholders. Please contact
me via e-mail or post a message on the Discussion Board if you would like additional explanation or
clarification about the definition of a publicly held company.)
Please list and summarize some of the practical ways in which corporate social responsibility can
help a business increase their profits:
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Chapter 7 – Contracts (Nature, Classification, etc)
While our textbook is very good in many respects, I found the materials on contract law to be very
confusing, poorly organized, and full of extraneous material.
Because of this, I decided to go through the chapters myself, reorganize the material into a logical
manner, and create a PowerPoint slideshow that draws upon material from my other classes in order
to create a cohesive and logically flowing presentation of the material that we need to cover. The
good news is that this makes your reading load for the next two weeks much easier! The Study
Guide corresponds with the order of the material in the slideshow.
Essentially, you'll want to view the PowerPoint and answer the Study Guide questions as you go. As
you answer the questions on the Study Guide, please refrain from cutting-and-pasting the
material directly from the slides onto the PowerPoint. Please put the material into your own
words. I know that this may take a bit longer to do, but you will be grateful that you did this in the
future because doing so will facilitate long-term understanding and retention of the material!
You'll use this PowerPoint for Weeks 2 and 3. Of course, you are welcome and encouraged to
use this PowerPoint on your Quizzes during Weeks 2 and 3.
Please remember that this material is complex, so please don't hesitate to let me know if
you have any questions!
What is a contract?
A set of promises that gives two parties a legal duty to each other, as well as the right to a
remedy in the event of a breach of contract.
In your own words, please list and describe the three purposes of contract law in American society:
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People naturally focus on their own interests first, and contract law prevents any
party from being taken advantage of with no way to remedy.
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It allows businesses and commerce to develop with enforceable agreements and
promotes marketplace stability.
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It permits the settlement of disputes in a controlled lawful manner, avoiding the
undesirable in terms of “settlement” of disputes.
Which types of contracts are governed by the Uniform Commercial Code?
Tangible items, such as consumer goods that one can see, touch and move (as opposed to
“paper” -- securities or financial investments, and “real property” – land and
improvements).
Which types of contracts are governed by common law?
All contracts that do not involve tangible goods.
What is a bilateral contract?
A promise from one party (I will deliver the refrigerator) based on the promise of another
party (and for that you agree to pay me $700); involves the accepted exchange of
promises/agreements as consideration between the parties.
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What is a unilateral contract?
A promise from one party (I will pay you $400 to change my snow tires) is dependent on an
action taken by another party (actual changing of the tires); execution of the action
represents the second party’s acceptance of the offer.
What are the five requirements that MUST be met in order for a valid contract to exist?
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The offer
Acceptance of the offer
Consideration must be offered
Mutual capacity to execute the agreement
The legality of the contract
What is an offer?
A proposal made by one party to another with the intention of it being legally binding if the
proposal is accepted.
What role is played by the offeror?
The person that initiates the contract by making an offer that meets the five requirements
noted.
What role is played by the offeree?
The person receiving the offer.
In your own words, please list and describe the three requirements that need to be satisfied for an
offer to be a valid offer:
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The offeror must be capable and willing to meet the contract terms if the offer is
accepted (if I offer to sell you my child’s blue and white scooter, we must own that scooter,
and my wife and children will knowingly permit me to sell it to you).
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The terms of the offer must be specific and well defined ($50 in discount gasoline
coupons, for the subject blue and white scooter, paid on delivery in decent shape, both
wheels working); ambiguity will reduce the validity of the offer (“a scooter”, etc.).
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The person in the role of offeree must have actually received the offer (in writing or
verbally).
In your own words, please list and describe three types of communications that are NOT offers:
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“Offers” that cannot be characterized as serious – in context.
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The offer is vague, non-specific; the proposed contract does not meet the five
requirements for a valid contract.
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Statements that are just opinion (you should buy my wife’s Humvee) or vague in
timing or content (one day I might have to sell you my wife’s Humvee).
In your own words, please list and describe three situations in which an offer CANNOT be
revoked:
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When the offer has already been accepted by the offeree.
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When an “option” contract has been accepted that promises -- for consideration
(from offeree) -- not to revoke the offer for a stated period of time (i.e. this offer is open as
made for 15 full calendar days; $4000 for this option).
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When an offer for a unilateral contract has been made, and offeree has at least
initiated consideration (delivery of bricks for patio, lawn mowing).
When does an offeror’s revocation become effective?
Only when the offeree actually receives provable notice from the offeror that the offer has
been revoked.
What is acceptance?
Demonstration of intent and willingness of offeree to accept the original offer terms, timing,
required consideration, etc. Typically signing documents that contain the proposed
contract provisions, providing required consideration.
In your own words, please list and describe the three things that a court examines when determining
whether acceptance has taken place:
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Is it clear that the person making the offer had real intentions of entering a contract?
Is it clear that the offeree accepted the offer?
Is it evident that the offeror received notice of acceptance from the offeree?
What happens if an offeree’s acceptance contains different terms than the terms of an offeror’s
offer?
Such an acceptance presenting different than original terms voids the original offer and
would be considered a counter offer; this now open to the original offeror’s acceptance.
In your own words, please describe the Mirror Image Rule.
The terms and conditions agreed to by the offeree must be identical to the terms and
conditions contained in the original offer.
In your own words, please explain when an acceptance becomes valid:
The moment the offeree notifies the offeror of acceptance. Technology has opened the
door to varying methods of this communication (special delivery, regular mail, digital
transmission, telecomm); all are still under the “mailbox rule”. This sets the date and time
of the offeree’s acceptance to that effective in the act of communication (drop letter in
mailbox, send email message) – not the actual receipt by the offeror.
What is consideration?
Money, goods, services, performance of an action promised; something of value offered in
exchange for an action or a promise.
In your own words, please list and describe the three things that do NOT constitute valid
consideration:
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Anything so represented that does not actually require an action by the offeror or
offeree; vague language that does not relate to anything measureable.
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Promise of action already required by the party involved; “preexisting duty” through
another contract that would restrain a party from providing the subject consideration.
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Proposed consideration consisting of past actions, or items of value provided, since
these do not relate to the current proposed agreement, and do not satisfy the definition.
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TRUE\FALSE: Consideration is needed in every circumstance in order for a valid, legal contract to
be formed.
False. It is not required in needed in cases involving “promissory estoppel”. This theory
holds that an offeree’s reliance on the offeror’s proposal then creates the contract.,
enforceable without prior consideration. It requires provable evidence that the offeree did
in fact exhibit reasonable reliance on the offeror’s ability to execute.
What is the name of the theory that is used by courts to say that a legally binding contract actually
was created between two parties when an offeree relies on an offeror’s communication and the
offeree’s reliance was foreseeable?
Promissory estoppel theory.
Example: Homeowner has the option to complete a new room addition with or without his
dream of a custom audio visual installation. It is considerably cost effective to do the A/V
work as the room is constructed. DudeXYZ is an A/V “consultant/contractor” and makes
a verbal promise to the homeowner on a site visit to complete the A/V plan and actual
installation prior to certain construction deadlines. Homeowner, DudeXYZ and the room
building contractor discuss timing. DudeXYZ then takes a trip to Thailand, disappearing
for 2 months. The homeowner reluctantly moves ahead with the scheduled room
construction sans A/V installation, knowing he faces $$$$$ in the future to realize his true
improvement dream. “Promissory estoppel” is a possible avenue for remedy from
DudeXYZ.
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