Business ethics: principles and contemporary applications

¶ … business scandals in the early 2000s brought the issue of business ethics to the fore -- Enron, WorldCom and Tyco. The three share some similarities but they are different in other ways. Enron was simply a case of criminal activity. The company's management did not publish financial statements and when they did the statements completely misrepresented the company's financial position. This occurred on the direction of the senior management team, with the complicity of the auditor, Arthur Andersen. These managers were heavily invested in Enron and therefore had a strong personal interest in creating phony financial statements in order to pump up the company's stock price. The corruption at Enron ran deep within the company, such that the scandal all but wiped the company out.

The situation at WorldCom was that CEO Bernie Ebbers was a heavy owner of the company's shares. As such, he benefitted from implementing an aggressive growth strategy. However, Ebbers had borrowed heavily to make some of his investments -- his position with highly leveraged and in some cases the loans had come from the company. To preserve the value of his investments, he created with the help of some senior managers fraudulent financial statements to disguise the fact that the company's earnings were falling. The result of this was that Ebbers in particular faced prosecution but the company was able to continue as MCI.

Tyco's situation was a little bit different. Tyco was already suffering from declining business when its CEO became the subject of scandal involving excessive spending of company resources. The Board had to clamp down on the executive team in order to improve the governance of the company. Members of the executive team would face lawsuit from shareholders regarding their mismanagement of the company and his taking of unauthorized bonuses, which constitutes fraud against the shareholders.

There are a few different principles that are used to evaluate ethical issues. The first teleological, which is ends-based. This system of ethics holds that the ethical goodness of an act is dependent on its results. In all three cases, there is very little doubt that the results were bad for shareholders, the markets and society as a whole. Given that these CEOs all got caught and most did time, arguably the teleological outcomes for the were also negative. Given the strongly negative consequences of their actions, it is safe to say that in choosing whether to commit securities fraud or to not commit securities fraud, for each of these CEOs they engaged in the unethical option. It is also worth considering that in all three cases the outcomes were relatively predictable, but it was our good friend hubris that caused them to engage in these acts, without accurately assessing the likelihood of the different outcomes.

Using the deontological ethics system, these acts must be evaluated against the categorical imperative. This is dependent on context, but in this situation the context is quite evident. The CEO, and all business managers for that matter, is an agent of the shareholder, entrusted by the Board of Directors to run the company in a manner that will maximize shareholder wealthy. A company is merely a set of asset which are organized for the purpose of earning a return and the sole responsibility of the manager is to pursue that wealth maximization. The CEO is not to pursue acts that serve only personal gain.. Moreover, the CEO is obligated to take into account the long run. In some of these cases, the CEOs undertook actions that did boost the share price in the short, but in the long run eviscerated the company's wealth. The CEO needs to take into account the long run effects of actions, not just the short run. Thus it is clear that in all three cases the CEO abrogated his duty -- as did other senior managers -- to maximize shareholder wealth.

Under virtue ethics, there is a supposition about what is right and wrong. This can be defined by the society but ultimately it is understood that there is a universal concept of right and wrong in this world. In these cases, it is also clear that right and wrong were not applied by these executives Their actions were clearly wrong, as to shirk one's duties and pursue only self-gain is not considered by very many people to be right.. Thus, by any reasonable standard in any society, these men engaged in illegal and unethical acts.

What these examples show us is the moral hazard that is created when business leaders have their compensation tied to the value of those companies. While this has been a good idea at times, it is clear that in some instances it simply creates a temptation to defraud the investing public by production false financial statements or bilking the company of money. These acts are unethical by all three ethical standards, and they are illegal under American securities law. Therefore, it is important that we learn about acts. They are among the most egregious violations of the public trust, and are examples that we can never take for granted that large-scale ethical violations will not occur in business. Instead, they serve as a reminder that even among business leaders ethics are not universal.

2. The issue at hand is a report of accounting fraud that was conducted by Reuters reports on the Pentagon's budget (PBS, 2013). The reporters have determined that there is a widespread practice of simply "plugging in" numbers into the financial statements at the Pentagon and across the Department of Defense. This practice reflects accounting practice that is not legal, but is done usually to disguise fraudulent actions such as the misappropriation of funds.

The authors founds evidence that there are no serious controls on accounting at the Pentagon, which creates the moral hazard that motivates people to commit fraud, because they think that they can get away with it. Such actions are unethical, however, because these are public funds and government officials have a duty to safeguard the spending of these funds. The sloppy accounting has the appearances at times of outright fraud, for example when there is a 14-year supply of something and then the Pentagon records a purchase of another 7 years' worth. Either the purchase didn't happen and there is fraud, or the Pentagon is grossly incompetent in its handling of public funds. Either way, it has long been aware of the issue but refuses to address the issue or the underlying organizational culture that perhaps such things to occur in the first place.

This situation, if judged by virtue ethics, is exemplary of unethical behavior. Central to this assessment is consideration of the role of the Pentagon and its officials. They are charged with two duties. The first is to safeguard taxpayer money, spending it wisely. This means having specific controls on the way that funds are handled and ensuring that fraud does not take place. Furthermore, the Pentagon is charged with defending the country, something that is compromised when funds are misappropriated. The money that is earmarked for national defense is carefully considered by Congress and it needs to be spend wisely to ensure that the U.S. is kept safe. Thus, the actions by the Pentagon show that these duties have both been violated. The taxpayers are owed better by those entrusted to spend their tax dollars wisely to keep the country safe, so this issue is a major ethical breach of trust that the taxpayers have in their servants in the civil service.

3. Response 1. There were many issues with Nestle, but I agree that the marketing of the baby formula was a major issue because this marketing created so many negative outcomes. This case also saw mothers mixing unsafe water with the formula, resulting in increased sickness. Nestle knows these countries do not have safe drinking water and it did not care. Furthermore, many people would use a dose that was below the recommendation in order to stretch the product further, and this led to malnourished children. There were so many problems with the marketing of this formula in the developing world, but Nestle's use of such deceptive and aggressive marketing tactics only makes the situation worse.

I feel that utilitarian ethics is the best way to evaluate this issue. Nestle of course has the right to do business in these countries, and for the wealthier classes in these countries there is no ethical issue at all because the outcomes will be fine. However, Nestle could have anticipated the negative outcomes had it thought the issue through. Its use of deceptive marketing, however, indicated that the company was more inclined to profit and had little concern for the outcomes to the consumers. The problem for Nestle is that the end users and babies, and they cannot safeguard themselves against Nestle's practices. As a result, Nestle had a duty to protect these end users and it neglected to do so. Thus, by deontological ethics Nestle had a duty of care that it failed to uphold, and the consequences were negative, indicating a breach of teleological ethics as well.

If I was the CEO of Nestle I would take strong action to address this right away. It is the right thing to do, to prevent any further harm from coming to babies in these countries. I would remove the products from the market temporarily in order to revise my strategy. I would then focus my efforts only on the upper class market in these countries, and stop with the deceptive marketing of dressing up salespeople as nurses to take advantage of the naivety of the people living in these countries. If I understood these steps I would feel a lot more confident that children are not going to get sick as the result of my product.

4. There are no real ethical issues in the innocent revelation case. It is not a genuine moral conflict to decide whether to commit a crime or not. That is like suggesting that I face a moral dilemma as to whether I should drive my car into a group of pedestrians on the sidewalk. Ultimately, blatant criminal acts are not a moral dilemma at all. A moral dilemma is when a person is forced to judge between two acts that will both cause some negative outcome and the person needs to weight the merits of each. So no, this is not an ethical dilemma as to whether I should engage in a criminal act. It is a robbery, and every person who contributes to the robbery deliberately is a robber.

If the employee's revelation was never discovered, it would not be an innocent revelation. When you tell somebody precisely how to rob a store, you are helping them rob a store. Again, there are no ethical principles at play here and in the court of law she would be convicted along with her friends. Whether or not she is caught is not related to the original issue of ethics.

No, I would not have done what the employee did. As noted, the outcome of getting caught is not relevant here, because the laws define the ethics. Whether or not the victim can afford it, or is good, is not relevant either. I guess this is deontological in nature, but the law is the issue, rather than judgment of right and wrong.

5. Bribery is an interesting ethical issue. There are strict laws against this in the U.S., even extended to the Foreign Corrupt Practices Act, so for an American technical any sort of bribe is illegal regardless of what the local culture is. There is no allowance for moral relativism. The rationale for this is simply. American values emphasize the merits of economic efficiency as a prime decision factor. Where bribery and corruption occur, economic outcomes tend to be below efficiency levels. What this means is that in a situation like this, the better candidate did not get the job. So for the company, the bribe was a negative thing because in theory they got a lesser candidate. For the economy overall, the cascading effects of rampant bribery tend to make for societies with lower levels of economic activity and wealth.

Thus, bribery is typically viewed in our culture through a utilitarian lens. It is often portrayed a deontological issue -- that bribery is always wrong -- but the justification for such a view is strictly utilitarian because over time, bribery is negative for societies around the world. Thus, where a society accept that bribery is an accepted practice, that society is basically shooting itself in the foot. The manager may not have any particular ethical duty to the owners of the firm to hire the best person, and indeed the orientation may be to build a better relationship with this lady's father because that is the prevailing business culture in many countries that relationships are the pathway to economic success. However, there is a fairly large body of research that holds that overall, bribery has negative economic consequences for a society. Therefore, it is unethical to engage in bribery, even when that society accepts it. Basically, in the long run the outcomes associated with bribery are negative so on the utilitarian scale bribery does not reflect the greatest good for the greatest number. This woman and her father should have accepted their sacrifice for the greater good under utilitarian ethics, rather than engage in bribery.