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Chapter 02 – Business Ethics and Social Responsibility

For Chapter Two, McGraw-Hill offers the following stories:

“Smoke & Mirrors: Tobacco Companies Have Been Steadily Adding More Nicotine to Cigarettes to Make Them More
Addictive, Especially to Teenagers.”
Apply the WH framework to the decisions tobacco companies are making.
Is it “socially responsible” for tobacco companies to add nicotine to cigarettes?
Should legal rules provide additional protections to vulnerable consumers, such as teenagers?

b. What are business ethics and the social responsibility of business?

Ethics is the study and practice of decisions about what is good or right.

Business ethics is the use of ethics and ethical principles to solve business dilemmas.

An ethical dilemma is a question about how one should behave that requires one to reflect on the advantages and
disadvantages of the optional choices for various stakeholders.

The social responsibility of business consists of the expectations that the community places on the actions of firms inside
that community’s borders.

Teaching tip: How are the concepts of ethics and social responsibility different? Do they overlap?

c. What are values?

Values are positive abstractions that capture our sense of what is good or desirable. They are ideas that underlie
conversations about business ethics.

d. How do values provide a starting point for thinking about business ethics?
Values are essential for our clarifying why something is deemed good or bad. An understanding of values is necessary to
begin using the WH framework for ethical business decisions.

e. How are business law and business ethics related?

The legality of the decision is the minimal standard that must be met. The law both affects and is affected by evolving
ethical patterns.

f. How can we use the WH framework for ethical business decisions?

The WH framework provides practical steps for responding to an ethical dilemma.

W: Whom would the decision affect?

o Stakeholders: assorted groups of people affected by the firm's decisions, e.g., owners or shareholders,
employees, customers, management, general community, future generations.
o Interests of stakeholders will sometimes be in common and will sometimes conflict.
H: How do we make ethical decisions?
o We use classical ethical guidelines, such as these:
o The Golden Rule—“Do unto others as you would have done to you."
o Public Disclosure Test—Suppose your decision would be published in the newspaper. (Our actions are in the
open rather
than hidden.)
o Universalization Test—If I take action X, were others to follow my example, would the world be a better

1-2
© 2019 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This
document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 02 – Business Ethics and Social Responsibility

place?

Teaching tip: Choose a current ethical dilemma from the newspaper and ask students to apply the WH framework to the
dilemma.
Point/Counterpoint: Do Teaching tip: Here are some questions to help you tie the
a firm's ethical Point/Counterpoint into class discussion:
responsibilities extend Does the responsibility lie with a business to act ethically, or with
beyond maximization of government to regulate business in order to curb unethical
profits? behavior?
Do we and/or should we hold businesses to different ethical
standards than we would an individual?

4. TEACHING IDEAS

Connecting to the Core One way to connect to the core expands the chapter’s discussion of ethics
and accounting. You may want to obtain and show your class a PBS
videotape called “Bigger than Enron,” available at:

http://www.pbs.org/wgbh/pages/frontline/shows/regulation/

This videotape explores the collapse of Arthur Andersen, the accounting

firm Enron used to help it hide its fraud. The tape asks, “What went
wrong?”
Teaching Basics After showing “Bigger Than Enron,” ask the class questions that facilitate
understanding. Here are some questions to get you started:
What argument did Hedrick Smith present in the videotape?
Why should business students care about the argument and facts in the
videotape?
Is there “another side” to the story?
How did the videotape make you feel, as an American citizen?

5. ANSWERS TO BUSINESS ETHICS FLASHPOINTS

Flashpoint #1- Chevron in Ecuador: When reacting to Chevron’s behavior in Ecuador, consider your
personal value preferences and how these value preferences determine what you think is right and wrong
in this situation. If one were to believe that Chevron’s behavior in Ecuador was unethical, this may be
because of values such as respect, compassion, and safety. One may believe that these values were not
upheld by Chevron, considering the health and environmental effects that their behavior had on the
citizens and community of Ecuador.

Flashpoint #3- The WorldCom Accounting Scandal: The stakeholders directly affected by the
behavior of WorldCom would be WorldCom shareholders, employees of WorldCom, and the

1-3
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document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 02 – Business Ethics and Social Responsibility

telecommunications industry. Stakeholders in the background would be consumers in the

telecommunications industry.

Flashpoint #4- The Health Focus of Revolution Foods: The behavior of Revolution Foods
demonstrates consistency with all three ethical guidelines: the golden rule, the public disclosure test, and
the universalization test. The goal of Revolution Foods was to create a product that was considerate of
the health needs of its consumers, transparent about the ingredients being used, and mindful of creating a
product that could change norms around healthy eating.

Flashpoint#5- The Dofasco Steel Company’s Approach to Workers: Values that are in conflict in
this business scenario could be respect (for the employee’s health) over comfort (of maintaining current
safety policies), or, excellence over conformity (to the common industry practices that are less safe for
employees). When considering the WH Framework, stakeholders in this scenario would be the
employees of Dofasco, management of Dofasco, owners and investors of Dofasco, and community
members who were positively impacted by Dofasco’s Environmental Management Agreement. When
considering the values that may be in tension among these various stakeholders, Dofasco may have
appealed primarily to the universalization guideline and the golden rule guideline—focusing on the best
way to treat employees as well as how to create a work environment that, if universalized, would
promote healthier employee conditions.

6. ANSWERS TO QUESTIONS AND PROBLEMS

1. If an American business manager was working in another country and was questioning engaging in a behavior that is
ethical in that country, but unethical in the United States, that manager could apply the Public Disclosure Test.
Specifically, the manager may want to think about whether the behavior would be considered ethical if it were to be
broadcast in the country where she is working.
2. The legality of a decision or behavior is the minimal standard that must be met. The existence of this minimal
standard is essential for developing ethical business decisions. Overall, law and business ethics serve as an
interactive system- informing and affecting each other.
3. The legality of a decision is the minimal standard that must be met. The law both affects and is affected by evolving
ethical patterns.
4. The WH framework provides practical steps for responding to an ethical dilemma. The W refers to who would the
decision affect such as stakeholders and their interests. The H refers to how we make ethical decisions, specifically,
those principles and beliefs that guide our decisions.
5. Mitsubishi’s violation of the NDA would likely cause tech companies to be very cautious about how they approach
potential investors. These companies may disclose less amounts of sensitive information to potential investors out of
fear that the investor would later disclose the information or use it themselves without benefiting the company.

In certain contexts, Mitsubishi’s actions can be supported by the WH framework. For example, if the chip
technology truly was the “Holy Grail of memory technology,” products derived from the technology would likely
sell very well and bring in large amounts of revenue for Mitsubishi. This revenue would directly benefit Mitsubishi
shareholders and would likely indirectly benefit employees. If Mitsubishi was considering these stakeholders, then
its actions seems less unethical.

However, Mitsubishi’s actions can be argued to be quite unethical under the WH framework when interpreted
differently. After all, Mitsubishi essentially benefited from Stern’s ideas without Stern getting any credit or

1-4
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document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 02 – Business Ethics and Social Responsibility

compensation. Stern was a stakeholder who was negatively affected in this instance. Mitsubishi’s actions also violate
some of the How’s of the WPH framework, such as the Golden Rule. It’s doubtful that Mitsubishi would have
appreciated Stern using its ideas for his own gain without permission, so arguably it’s unethical that Mitsubishi used
Stern’s ideas without permission.
6. Presumably Kozlowski would have conducted himself differently if his actions were subject to public disclosure.
The same result would entail from the universalization test as no one would want Kozlowski’s behavior to serve as
an example for others nor did it make the world a better place.
7. The WH framework calls for students to apply the whom, purpose and how tests. Students should determine the
stakeholders affected by the decisions made by the state and the pharmaceutical companies, the values underlying
these decisions and the principles applicable to making the decision in reaching their conclusions.
8. This law is intended to protect arrestees from predatory sales practices of bail bondsmen. Without the law, a bail
bondsman can sell their services to individuals immediately after they’ve been arrested, which gives the arrestee
virtually no time to collect their thoughts and make a decision that truly reflects their interests. By allowing
solicitation of bail bond services only after an arrestee has made a “bona fide request,” the law can be more certain
that an arrestee actually wants bail services and isn’t simply acting out of the initial panic that may come from being
arrested. Within the context of the WH framework, this law ensures that the purposes behind the solicitation are
sound in order to protect the arrestee stakeholders in this situation.
9. Obviously, the executives and shareholders of Dragon are some of the stakeholders negatively affected by the ordeal
because due to the L & H shares being worthless. The less obvious stakeholders, however, include the employees of
Dragon. Even if the Dragon didn't go completely under and displace all of its employees, there was likely plenty of
downsizing to help cover the cost of repairing Dragon's financial situation.

Going by the Golden Rule standard within the WH framework, the decision of Goldman Sachs' team to not inform
Dragon about the status of L & H because Dragon didn't ask is highly unethical. Surely, Goldman Sachs would not
have appreciated if Dragon was in their position and didn't inform them of a poor business partner, so it's hardly
ethical that Goldman Sachs did just that. Ideally, a business should go as far to fulfill a contract as they would want
the other party to go in fulfilling the contract. Both businesses must try to strike a fair balance between serving both
their own interests and the interest of the other party.
10. Values that may be at odds include freedom, justice and efficiency.

1-5
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document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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