Chapter Ten:
Moral Choices Facing
Employees
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Overview
 Chapter Ten examines the following topics:
(1) Employees’ obligations to the firm, company
loyalty, and the problem of conflicts of interest.
(2) Insider trading or use of proprietary data.
(3) Domestic and foreign bribery, gifts, kickbacks.
(4) Obligations to third parties and the problem of
conflict of duties and divided loyalties.
(5) Whistle-blowing and its morality.
(6) Self-interest in situations of tough moral choices.
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Introduction
 Whistle-blowing has become a significant part of
the American workplace.
 It is based on an employee’s right to blow the
whistle on a company’s wrongdoings.
 Questions regarding the employee’s moral duty
and possible negative consequences are always
involved.
 What rights do whistle-blowers have?
 What responsibilities do companies have
regarding whistle-blowing?
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Obligations to the Firm
 Loyalty to the firm: The employment contract
governs employer-employee relationships and
provides a framework for respective obligations of
employer and employee.
 The notion of company loyalty is commonplace,
considered a coherent and legitimate concept.
 Loyalty requires reciprocity, and workers
commonly believe that it is up to the company to
earn and retain their loyalty.
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Obligations to the Firm
 Conflicts of interest arise when employees have a
personal connection to a transaction – one
substantial enough that it might affect their
judgment or lead them to act against the interests
of the organization.
 They are morally worrisome even if the person
doesn’t act to the detriment of the employer.
 Employees should promptly extricate themselves
from such conflicts or avoid them from the start.
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Obligations to the Firm
 Financial investments: Conflicts of interest may
exist when employees have financial investments
in suppliers, customers, or distributors with whom
their organizations do business.
 There is no simple answer as to how much of a
financial investment it takes to create a conflict of
interest.
 Company policy usually determines the
permissible limits of such financial interests.
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Abuse of Official Position
 Using one’s official position for personal gain is
likely to violate one’s obligations to the
organization.
 Example: Using corporate funds for private
purposes such health club memberships,
extravagant parties, vacation travel, etc.
 Insider trading: The buying or selling of stocks on
the basis of nonpublic information that is likely to
affect their price.
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Abuse of Official Position
 Inside traders defend their actions by claiming
that they don’t injure anyone.
 It’s true that trading by insiders on the basis of
nonpublic information seldom directly harms
anyone.
 But moral concerns arise from both indirect
injury and direct injury.
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Abuse of Official Position
 Insiders and “Misappropriation”: The Securities
and Exchange Commission (SEC) has recently
argued that people who trade on confidential
information, but are not traditional company
insiders, are still guilty of insider trading if they
have “misappropriated” sensitive information.
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Abuse of Official Position
 Critics of insider trading argue that:
(a) It is unfair.
(b) It can injure other investors.
(c) It undermines public confidence in the stock
market.
 Defenders say that it performs a necessary and
desirable economic function.
 But executives who do this put their own interests
before those of the company and its shareholders.
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Abuse of Official Position
 Proprietary data: Companies zealously guard
information that may affect competitive standing.
 Patented or copyrighted information: Novel
information that it is legally protected but not
secret – others may access it but are forbidden to
use it (without permission) for the life of the
patent or copyright.
 Trade secrets: Any information that is not
generally known, is valuable to its possessor, and
is treated confidentially.
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Abuse of Official Position
 There are at least three arguments for legally
protecting trade secrets:
(1) Trade secrets are the intellectual property of the
company.
(2) The theft of trade secrets represents unfair
competition.
(3) Employees who disclose trade secrets violate the
confidentiality owed to their employers.
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Abuse of Official Position
 Employees who join a competitor: An especially
troublesome problem for high-tech firms, where
employees are often privy to sensitive information
and are also prone to job-hopping.
 Two factors conspire to make this a morally
complicated problem:
(1) Individual’s right to seek new employment.
(2) Difficulty of separating trade secrets from the
technical know-how, experience, and skills that
comprise the employee’s own intellect and talents.
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Bribes and Kickbacks
 Bribe: a remuneration for the performance of an
act that is inconsistent with the work contract or
the nature of assigned task – can be money,
entertainment, gifts, or preferential treatment.
 Kickback: a form of bribery that involves a
percentage payment to a person who is able to
influence or control a source of income.
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Bribes and Kickbacks
 The Foreign Corrupt Practices Act (FCPA) of
1977 made it illegal for American companies to
engage in bribery overseas.
 It dictates stiff fines and prison sentences for
corporate officials engaging in bribery overseas.
 It requires that corporations establish strict
accounting and auditing controls to guard against
the creation of slush funds from which bribes can
be paid.
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Bribes and Kickbacks
 Limits of the FCPA: It does not prohibit grease
payments to employees of foreign governments
who have clerical or ministerial duties.
 The case against FCPA restrictions: Critics say
the FCPA puts U.S. firms at a disadvantage and
imposes U.S. standards on foreign countries.
 The case for FCPA restrictions: Defenders say
that bribery can injure individuals, competitors,
and political institutions while hurting economic
growth and damaging the free market system.
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Bribes and Kickbacks
 Bribery and payoffs are common business
practices in other nations – but this does not imply
that they are morally acceptable in those nations.
 Permitting U.S. companies to engage in foreign
bribery encourages something in other countries
that we consider too harmful to tolerate at home.
 So to allow bribery overseas is to apply a double
moral standard.
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Gifts and Entertainment
 Gifts and entertainment are familiar in business
practices and customer relations worldwide.
 But they can raise conflict-of-interest problems
and can border on bribery.
 Knowing where to draw the line is not always
easy.
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Gifts and Entertainment
 Seven factors that a conscientious businessperson
should consider:
(1) The value of the gift (or entertainment).
(2) Its purpose.
(3) The circumstances under which it is given.
(4) The position and sensitivity to influence of the
person receiving the gift.
(5) Accepted business practices in the industry.
(6) Company policy.
(7) What the law says.
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Conflicting Obligations
 Balancing obligations to employer or
organization, friends and coworkers, and outside
parties can create conflicts and divided loyalties.
 To resolve such moral conflicts, we must identify
the relevant obligations, ideals, and effects – then
decide which area to prioritize.
 To reduce rationalization in decision making:
(1) Be willing to publicly defend our moral choice.
(2) Discuss with others to avoid bias.
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Whistle-Blowing
 Definition: An employee’s informing the public
about the illegal or immoral behavior of an
employer or an organization.
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Whistle-Blowing
 One expert’s definition: A practice in which
employees inform the public or a governmental
agency about certain organization activities that:
 (a) Cause unnecessary harm.
 (b) Are in violation of human rights.
 (c) Are illegal.
 (d) Run counter to the defined purpose of the
institution.
 (e) Are otherwise immoral.
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Whistle-Blowing
 What motivates whistle-blowers?: They believe
that the public interest morally outweighs their
loyalty to colleagues and their duties to the
organization.
 Often, whistle-blowers are motivated by a sense of
professional responsibility.
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Whistle-Blowing
 When is it justified? Norman Bowie says it is
morally justified if and only if the whistle-blower:
(1) Is operating from an appropriate moral motive.
(2) Has exhausted all internal channels for dissent
before going public, is possible.
(3) Has found compelling evidence of wrongdoing.
(4) Has carefully analyzed the dangers.
(5) Has some chance of success.
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Self-Interest and Moral Obligation
 Concern with self-interest when loyalty and duty
conflicts is understandable and even warranted.
 What weight should self-interest be given in
resolving cases of conflicting obligations?
Some theorists believe that prudential
considerations outweigh moral ones.
Others say that nothing can outweigh morality
but morality itself does not require us to make
large sacrifices to right small wrongs.
Moral Issues in Business
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Self-Interest and Moral Obligation
 Two points about the relationship between
prudential and moral considerations:
(1) Exaggerating the costs to ourselves allows us to
rationalize away the damage we are doing to
others.
(2) We have a collective interest in protecting the
welfare of society by encouraging people to act in
non-self-interested ways.
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Self-Interest and Moral Obligation
 The Sarbanes-Oxley Act (2002) legally protects
those who report possible securities fraud.
 The act makes it unlawful for companies to
“discharge, demote, suspend, threaten, harass, or
in any other manner discriminate against” them.
 Companies need to develop explicit, proactive
whistle-blower policies.
 In the long run, companies benefit from openness
and a receptive attitude to moral questioning.
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