Bcor/3010 Week 1 Business Ethics Quiz

FOCUS QUESTIONS!!

BCOR 3010
Course Outlines

Name: ___________________________

Part One: Values
I: Some Initial Thoughts on Business Behavior
Values – desirable principles/qualities
Ethics – beliefs about what is right or wrong, good or bad in actions that affect others
Business ethics – need for compliance, aware of contributions it can make, consequences inside and out of company * Aware of what you are doing, its consequences/ and complications. * Take into account, and willingness to be responsible for them.
Ethical Dilemmas – concerning right or wrong in which values are in conflict. EX individuality vs. community, justices vs. mercy, truth vs. loyalty

II. The Relevance of Values
The new rigor practice decision
making where the “right” answer is not derived from a spreadsheet. Summon courage and master the tactics for giving voice to your values. – Judith Samuelson “The New Rigor”

III. What are Our Values? An Exercise
Global survey * Honesty * Respect * Fairness * Responsibility * Compassion
Undergraduate survey * Honesty * Respect * Fairness * Equality * Responsibility
IV. Why Do We Need to Know Our Values? The Process of Ethical Decision Making

1. Know your own values
2. Be guided by your values
3. Spot the red flags
4. Decide what is right
5. Take action to do
V. A Glimpse Into Ethical Decision Making

A. Consequentialist Theories: Utilitarianism * Ideas * focus on consequences – ends * maximum benefit to society * the greatest good for the greatest number – an ethical math problem * net balance of good vs. bad * Negatives * Difficult to gauge net effects * Rights of minorities/y sacrificed * Immoral actions to produce good

B. Nonconsequentialist or Deontological Theories * Ideas * Focus on principles over consequences * Moral principles are binding regardless/no matter what the consequences are * How to determine which principles take precedence * Negatives * May result in unacceptable/horrific outcomes or conflict with consequentialist reasoning
C. Virtue Ethics: The role of character. * Ideas * Focus is on WHY * Motivations and intentions are important * Integrity and character * Good habits – virtues * ACTIONS
VI. Why Theories Aren’t the Final Word (DesJardins) * They are ambiguous * All different and backed up * Limited
VII. The Relativist Trap Right/wrong depends on the situation TRAP = no absolute answer to what’s right/wrong
VIII. Do the Right Thing * What values are in conflict? * Who will be affected by my decision and how? * To whom do I owe any obligations? * What does my character and integrity tell me to do? * Think CREATIVELY about potential actions! * Defining Moments – BADAROCCO * Defines us in a deeper way by asking us to choose between two or more ideals in which we deeply believe * Form character in * Taken cumulatively over many years, they form the basis of an individual’s character. * Reaching a decision * Influenced by our values, and the role of business in society * Exs from readings * Individual Steve Lewis, asked to go to client meeting due to skin color – eventually said yes as long as he could participate in decisions and project * Manager Peter Adario * Moral myopia * CEO Edward Sakiz, “Abortion Pill/Morning After Pill”
XI. Make it Real! A Case to Show Us How We Think about Things: Merck and River Blindness
Merck could develop medicine to cure/prevent River Blindness.
Incredibly expensive, but benefits immense
Stake/shareholder vs. those who could benefit
End up doing it, and get healthcare/transportation of medication systems in very rural areas.
Virtue Ethics : Aristotle’s Four Basic Virtues
Self Discipline (not pursuing a good excessively)
Courage (overcome obstacles to do what is necessary to achieve a goal)
Justice (the regular and constant disposition to give another his due)
Prudence (recognize a goal and determine a strategy to achieve it)
Part Two: The Wonderful World of Adam Smith 1. Historical Context: What Was the Justification of Exchange Relationships? * Free Market Concepts – Evolution of the “exchange relationship” * Middle Ages – Religion * Mercantilism * Trade/exchange sailing, double entry bookkeeping * Industrial Revolution * Adam Smith

2. Enter Mr. Smith * 1723-1790 * Scottish political economist * “The Wealth of Nations” 1776 * Father of free trade and capitalism – “freedom” * “Moral Sentiments” 1759 * Justification of the free market * Self-regulating * Efficient * Rewarded for work * Innovation * Freedom * Fair/impersonal

a. The Wealth of Nations: Smith’s Context and Selected Parts * Self interest * Pursue self interest for benefit of you and those around * “not to their humanity, but to their self-love” * Invisible hand * If pursue self interest as guided by “invisible hand” * Greatest good/wealth * Division of labor * Increase productivity if each person does one task * Efficiency with time passing one function to the next * Dexterity increases * Automation investment in machinery * Labor * Human nature to truck/exchange/trade/barter serves self interest * Components of price * 3 factors of production – Land/Labor/Capital * 3 forms of return – rent/wages/profit * Price * Natural Price * Covers rents/wages/profits * Minimal sustainable price * Approximates the price under perfect competition * Actual / Market Price Fluctuates * Supply and demand (“signaling”) * Sustaining High Prices * Trade secret * Monopolies * Restraint of trade * Prices below the natural price are unsustainable * Ethanol * Anti-government? * Gov. out of international trade * For it if trade secrets/monopolies * Pro-Business? * If some person has advantage wants leveled

b. A Jump into Modern Times: Defending Walmart * Walmart * Low price * Efficient * Free – trade * Variety * Convenience * Freedom/free choice * Walmart gets * Tax breaks * Subsidies * Adam Smith – The Worker * Can be severely dumbed down * Incapable of just judgment and interaction in private life and thus defending nation in war

c. Some Concluding Thoughts: Smith as a Moral Philosopher and then some * Critics * Karl Marx (1888) * Non-owning class (proletariat) vs. owning class (bourgeoisie) * Labor theory of value * “If self-interest, guided as though by an invisible hand, inadvertently serves the public good, it is easy to see why society can prosper even if people are not always driven by benevolence.” current endorsement
Adam Smith, Wealth of Nations. (Prometheus, 1991).
On the Division of Labour…
One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations…(10).

Chapter II: Of the Principle which Gives Rise to the Division of Labour…
This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which occasion. It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature which has as its view no such extensive utility; the propensity to truck, barter and exchange one thing for another (19).

Chapter VII: Of the Natural and Market Prices of Commodities
Labour…it appears evidently, is the only universal, as well as the only accurate measure of value, or the only standard by which we can compare the values of different commodities at all times and all places (43).
In exchanging the complete manufacture either for money, or labour, or for other goods, over and above what may be sufficient to pay the price of materials, and the wages of the workmen, some must be given for the profits of the undertaker of the work who hazards his stock in the adventure (51).

As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce (52).

Chapter VII: Of the Natural and Market Prices of Commodities
…in every society or neighbourhood are ordinary or average rate both of wages and profit in every different employment of labour and stock (58).
The classical view of the role of business “when men act according to the rules of morality, society flourishes and is happy” * Self Interest * Justice – do no harm * Free to pursue your own interests * Greatest benefit for society * Role of government
II. Part Two: Discussion of Milton Friedman * Background * Milton Friedman 1912-2006 * 1962 Capitalism and Freedom * 1976 Nobel Prize – Economics * Ideas alter civilization – Alan Greenspan * On self interest/greed and the power of the market * Greed * The pencil * The power of the market and the magic of the price system fosters harmony and peace A. What is the essence of the free market/free enterprise? * Both parties benefit – bi laterally voluntary and informed * Free market the coordination of econ. Activities of large number of people through voluntary exchange

B. What are its values? * Checks government power * Separate politics and economics * Facilitates innovation * Preserves Freedom * Protection from coercion * Reduces societal strains * If lots of choices, not disagreements/argue * No discrimination

C. What is the government’s role? * Should act as a referee * The Rule maker and means to modify rules * Arbiter (Umpire) * Enforcer * What the Gov. SHOULD do * Enforce anti-monopoly policies * Overcome neighborhood effects * Externalities (Internalize Costs) * Public Goods (Taxes) * Define/enforce property rights * Guard monetary system * Protect children and mentally ill * Gov. SHOULD NOT do * Tarrifs and quotas * Draft * National parks * License doctors * Mail * Social security * Public housing * Minimum wage * Publicly owned toll roads

D. What is the social responsibility of business? * Purpose * Owners have right to profit and managers have right to deliver profit to owners * Not max profit at all costs within rules and without fraud or deception * Fundamentally subversive doctrine

E. You Got a Problem with This? * Think about arguments * Freedom deontological * Virtue not part of view * Smith vs. Friedman * Amount of gov. * Smith (more) – Friedman (less) * Virtue Smith a lot * Critiques of Friedman * Not always voluntary exchanges * Not always full information * Discrimination exists * Political and economic power checks and balances not always applicable * Can essentially buy power * Gov. sometimes…When? * Not much guidance * Freedom is the only goal above all else? * DeJardins * Does economic efficiency = happiness? * Okun * Equality vs. Efficiency * Fair * Certain things not allocated on economic basis * Tanning Salons * Individualism vs. paternalism * Gov. involvement * Enron ex. Of free market * Stopped fraud/deception, but time and what occurred
Reflections on the Classic View * “Wal-Mart Shifts Strategy to Promote Healthy Foods” * Are the conditions for the FM present? * Working? * FM self correcting?
Case #1 Merck and Vioxx * Vioxx a new arthritis medication without the painful side effects of its competition, however there is an increased risk of heart attack. * Key Issues * Information Disclosure * Politics – Office of New Drugs / FDA / Office of Drug Safety * Regulations – 95% proof effective * Bribes * Values * Transparency * Integrity * Respect * Mission Statement * Safety and Honesty
Part Three: “Market Failures”-Looking to the Government to Alter the Outcomes of Pure Self-Interest 1. Income Distribution: That Equality Thing Again * John Gray free market corrodes/impacts character * …it depends * Does not always reward patience/long term view * But then maybe no economic stimulus * RATIONAL AND ENLIGHTENED SELF-INTEREST ADVANCES THE PUBLIC GOOD * Okun’s view of the market * Efficiency vs. Equality * The double standard of capitalists * The pursuit of efficiency necessarily creates inequalities * FM creates uneven distribution of wealth * Universal Entitlements/Rights free and nontransferable * Vote * Equal justice * Free speech, religion, etc. * Procreation * Emigration * Immunity from enslavement * To have public services * Minimum decent standard of living * Believes FM is most successful economic organization * Minimum standard of living * Universal and equal rights to earn unequal income

2. The Traditional “Market Failures:” A Short Return to our Friends at Wal-Mart * Walmart Again * Benefits issue – states often have to pay healthcare because Walmart has figured how not too – Medicare/Medicaid * Extra time out of employees for sympathy, no extra pay, and possible fear of job loss * Honesty – telling people there was an immense shortage of jobs (employees), but really a huge amount of applicants
Market Failures * Intolerable/unacceptable outcomes of FM in pursuit of self interest * “We don’t all start the race in the same place” * “We can’t have our cake of market efficiency and equality too” * Gov. to the rescue gov. involvement * Things to consider… * Any problems with unregulated markets? * Why regulate? * Ways to regulate non-market failures * WHEN PRIVATE INTENTION NOT LEAD TO EFFICIENT USE OF SOCIETY’S GOODS – Gov. step in

a. Monopolies i. Monopoly (vs. Monopsony (Oligopolies)-1 buyer many sellers) 1. 1 seller, many buyers 2. Set prices – removes competition

b. Externalities and the Tragedy of the Commons ii. Externalities 3. Things not allocated efficiently – costs bared by others 4. Total/Social Costs=externalities + private costs 5. Options to Address Externalities a. Reward or Punish b. Regulations or Laws c. Permits d. Incentives or Fines e. Other? 6. Environmental externalities iii. Tragedy of the commons c. Public Goods iv. Can’t make money off of (no incentive to keep?) v. Free rider d. Information Limitations vi. Lack of information 7. For to be efficient information must be provided 8. Gov. steps in to force information f. Nutritional labels – FDA g. SEC h. Cigarettes 3. A Summary of the Arguments in Favor of Government Involvement in the Free Market: A Look Back at Merk and Vioxx * Market Failures? * Monopoly no * Externalities heart attack/death * Information and Choice definitely choice, but not full information * Biggest market failure * Gov. Role * Transfer of responsibility * Rozeff “Why Market Failure Fails” * Thinks MF is an excuse for socialism * Only intervene if Gov. can do better, or it is unanimously voted that they should intervene * Economic Theories * Rhetorical or Real? * Justification for government involvement * Only if Gov. can do better and all unanimous * Only excuse * Zerbe and McCurdy and transaction costs * Transaction costs of government involvement – cost or benefit involved is greater * Is the cure worse than the disease?
Part Three: “Non-Market Failures” – The Heavy and Visible Hand of the Government 1. Wolf: Non Market Failures a. Defined i. When the market’s invisible hand doesn’t turn private vices into pubic virtues – likely to have a difficult time constructing visible hands to turn non-market vices into public virtues ii. When no invisible hand, where find visible one. iii. Sources of funding come from somewhere else besides prices in market ex. Taxes, donation, other non-price source 1. Unique supply/demand 2. Gov./Public Schools/Church/Charity b. Why Do They Occur? iv. Supply Issues 3. Products hard to define – regulations/public goods/administer 4. Output quality difficult to measure 5. No competition 6. No bottom line goal 7. No way to terminate existing agency v. Demand Issues 8. Increased calls for Gov. Intervention (Wolf 1979) 9. Reward structure for legislators who propose solutions 10. Short term focus of Gov. c. Relevance? vi. Not much incentive to keep going vii. Very short term goals – Moral Myopia viii. Have to do it? ix. Others don’t so Gov. must 2. Wolf’s Non-Market Failures -- Reasons Occur x. Internalities 11. Develop agency for something, but start to develop life/goals of its own 12. Lack of communication (FBI – CIA) xi. Redundant and rising costs 13. Unrealistic goals 14. Continual rising costs xii. Derived externalities 15. Unintended consequences a. Ostriches/llamas – tax break b. Concord – noise control – US/France relations down c. KY Elk – brought in 1500, now 15000 – all allowed to hunt – public and private d. Corn Subsidy i. Fertilizer – nitrogen, not very efficient runs off into Gulf of Mexico where there is a huge dead zone – IA/IL xiii. Distributional inequities 16. Uneven power distribution 17. People influenced by industries 18. Inevitable
Part Four: Self Interest Constrained-Interest Groups (Stakeholders) Assert Power Over Business
Interest Groups – lobbys/stakeholders/unions/charity/environmental groups A. An Overview a. Wal-mart Clip 1. Chandler AZ – pop. 230,000 1. A victory for the people 2. 187 Volunteers 3. 4000 Petition Signatures <2% of population 4. City Council Denies Walmart b. The return of “Enlightened Self-Interest” 2. Forces companies to broaden their definition of ‘private interests’ 5. Reaction 6. Anticipation 3. Change if impact if they do not use 4. Friedman say OK, but help self first c. Pepsi Article 5. Pepsi wants to bring healthier baked chips into inner city 6. Changing food patterns/care for consumers 7. Ahead of Gov. involvement if to come 8. More $? 9. Health Police 7. How change food, but still taste good 10. Invite public to do good – Refresh Project d. Saipan Clip 11. Part of USA – US citizens 8. Exempt from all Federal Laws 9. No tariff allowed to say “Made In USA” even though made in “work camps”

B. The Conceptual: Options All Groups Have For Power over Business: Hirschman e. Quality how were laborers who made it (product) /where raw materials come from / deception / etc. f. Exit 12. Consumer switch, quit, invest elsewhere 13. Information and mobility needed 14. Influence of demand elasticity g. Voice 15. Complain, protest, strike, negative press, word of mouth 16. NEED 10. Won’t work if can’t exit 11. Not just one person 12. Low exit barriers 13. Loyalty 14. Few barriers 17. Boycott voice w/ threat of exit 18. Loyalty 15. Keeps exit at bay, activates voice h. Loyalty 19. Keeps exit at bay, activates voice C. Class Action Suits i. Class Action Requirements 20. Size 21. Similarity 22. Same Event 23. Fair and adequate representation D. The Limitations of Interest Group Pressure j. Hirschman’s Limitations 24. Alternatives 25. Demand inelastic 26. Organization not care impact k. Zadek’s Message 27.
Civil Regulators non-gov. sort of intervention 16. Reputation of companies can be damaged by civil action to a degree that will affect business performance a. Ex. Nike/ Neslte/ Monsanto/ Union Carbide/Shell/Exxon/McDonalds 17. Significance of the cut and thrust (name and shame) demand 18. 2/3 of consumers want companies to go beyond historical role of making a profit l. Olsen’s Limitations 28. Goyder Effect 19. Companies are better at prediciting long-term performance 29. Korten Effect 20. Companies over estimate the financial impact of reputational losses m. Sheer force of people’s stated concerns is not in itself sufficient to drive companies to better practices

n. Our Model: The Effectiveness of Stakeholder or Interest Group Pressure on Business Behavior is a function of…………….

Part Five (A): Different Conceptions of the Role of Business A. The Modern Debate About the Meaning of Corporate Social Responsibility (CSR) 1. Growth of the CSR Movement and Issues with the Term “CSR” i. A new industry ii. Range of meanings iii. ‘Corporate’ vs.
Business iv. Anti – market v. Business vs. Society 2. A Review of Different Conceptions of CSR:
Student Presentations on: vi. The Classical View 1. Purpose of Business max profit to give to owners –free/open competitions 2. Purpose of Gov. very little – rulemaker/referee – no deception or fraud 3. Equality and Efficiency Tradeoff – shareholder only stakeholders 4. “Subversive Doctrine” – CSR a. Friedman not for at all 5. Categorical Imperative b. Act as if you action is right c. Act as if treat others as ends, not means to an end d. Act as if establishing a universal law for others to act as you did vii. The Civil Corporation 6. Businesses have a huge footprint and use all resources of society, thus have responsibility to give back to it 7. Build environmental and social objectives into core of business 8. Even if company is put at an economic disadvantage viii. The Public Policy Generator 9. Public Policy would set the bottom line for CSR e. Everyone approve - Lobby, Gov. limit 10. Raise compliance standards and go beyond compliance 11. Heavy Gov. Involvement 12. Strengthen civil society 13. No one at econ. disadvantage ix. The Creator of Long Term Wealth 14. Creation of value to benefit society even after corporation gone 15. Profits must not be made at the expense of society should reinvest f. Do not externalize costs onto society g. Do not deplete natural resources irretrievably h. Do not impoverish stakeholders x. Market Failure Model 16. Criticizes Stakeholder/Classical Model – moral laxity i. S can’t satisfy all all the time j. C taintedown interests , not shareholders 17. Gov. address – blunt instrument 18. Business need to address Market Failure k. MF provides lupoles- B not take advantage of these 19. “win but in a sportsman like way” 20. Internalize all costs- expensive, but must xi. The Sustainability Model 21. 3 pillars – Econ. /Ecological/Ethical – People/Planet/Profits 22. Leave environment no worse off than they found it 23. Future generations = stakeholders 24. Economic growth l. OK, but not uncritical – well thought out/good growth xii. The Stakeholder Model 25. Create value for all stakeholders 26. Take care of stakeholders / think of/ relationships m. Profit and leeway in return 27. Company Stakeholder Responibility xiii. Creative Capitalism 28. Main focus on closing poverty gap 29. Profit based 30. Done well at raising wealth, but still immense poverty 31. Make profit by bringing new and beneficial to those in poverty (bottom of the pyramid) xiv. Social Business 32. Social mission = #1 priority, but also makes profit 33. Ex. Microfinancing xv. And What About Philanthropy? 34. Why notg just give some away? n. Marketing purposes o. Societal responsibility p. Strategic/political reasons 35. How much do you give away?

3. Are these views truly distinct xvi. Discussion 36. Similarities (all but the Classic) q. All have current and future stakeholder needs addressed r. Go beyond narrowly defined profit 37. Critiques s. Measurement t. Evaluation
Video

B. The Challenges of Measurement 4. Triple Bottom Line xvii. People – Planet – Profit xviii. Help or Hinderance? xix. Aggregation problem 38. Allows companies to be hypocritical 39. How measure?? u. No set methodology or unit of measure 5. Do we have to reduce it to a measure? xx. Just because we can’t measure it, does not mean we should not do it 6. Global Reporting Initiative (GPI) xxi. Non-profit 1995 xxii. Come up with standards that companies ought to report xxiii. Able to audit 7. ISO 26000 (International Standards Organization) xxiv. Set standards xxv. Have inspections, meet standards, get certification xxvi. This one – not sellin – giving away, but also no certificate

C. The Impact of CSR Strategies on Business Performance 8. Do firms do well by being good? xxvii. It could be in certain industries xxviii. Negative on bottom line possibly at first with no instant return 9. Why Positive correlation xxix. Attract employees/customers xxx. Save money – packaging / design / energy xxxi. Favored Gov. regulation xxxii. Rebates 10. Positive in … xxxiii. Ad intensive industries xxxiv. Highly competitive products xxxv. Trust building 11. Otherwise negative or no effect… xxxvi. Not sustainable? xxxvii. No evidence of pos. correlation 40. SRI funds do not out perform others xxxviii. Critiques other research 12. CSR as business model?

Corporations’ Obligations to Society * Do not externalize costs onto society.

* Do not deplete natural resources irretrievably.

* Do not impoverish stakeholders.

Or, * Address and minimize the public costs they incur before they declare private costs.

* Preserve and renew resources so that they remain available for future generations.

* Invest in stakeholder relations, including but not limited to, their own stockowners.

Lyndberg, Corporations and the Public Interest: Guiding the Invisible Hand. (SF: Berrett-Koelher, 2005), P. 21.