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Ethics Test 1

by: Robbi Flack

Ethics Test 1 BUSI 30153

Robbi Flack

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About this Document

My notes from the past 3 classes on Dr. Shipp's lecture. Read through these as a study guide for everything he talked about.
Ethical Decision Making
Dr. Shipp
Study Guide
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This 14 page Study Guide was uploaded by Robbi Flack on Wednesday September 21, 2016. The Study Guide belongs to BUSI 30153 at Texas Christian University taught by Dr. Shipp in Fall 2016. Since its upload, it has received 58 views. For similar materials see Ethical Decision Making in Business at Texas Christian University.


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Date Created: 09/21/16
Week 2 • business ethics is not a separate standard • deals with a set of contexts that business people encounter • ethics is an ongoing conversation This Class • talk about decision making - ethical decision making in business • choices that people make and that managers make in a company Acting Ethically • philosophers say about acting ethically... ◦ Skinner - no bulletproof rationale to acting ethically but are arguments God commands it - falls down under a lot of assumptions that you have to make, but if you have a religion that supports this it’s different for that individual aristotle said happiness requires it - don’t act ethically on our own, do it in a group (positive thing) acting immorally is irrational - kant says when people break norms it’s irrational ◦ Machiavelli - different perspective, just have to look like you’re acting ethically, don’t actually have to be ethical actions have to be ethical not necessarily your intentions all about the action - what people actually do ◦ Martin - different reasons legal factors public image - make people think you’re good person pragmatic reasons moral reasons ◦ Chappell in agreement with Aristotle • ***Article - Alm and Torgler ◦ talks about cheating - IRS stats show that very few people cheat ◦ 1% get audited ◦ only about 2% have material errors ◦ in italy it’s much different ◦ in the US most people do actually act ethically In Business • ***Article - Velasquez 1986 ◦ in response to another article ◦ HBR article is saying you can act unethically and still be successful ◦ Velasquez tells why that perspective is wrong ◦ 2 big reasons why people should act ethically: research on prisoner’s dilemma 2 people and can either defect (self interest) or not defect (altruistic) optimal strategy is to both not defect dilemma is you don’t know what the other is doing “tit-for-tat” - tells us when you make choices history is important tells us people act according to past experiences birds of a feather research shows that ethical people like to hang out with other ethical people tells you that people act the way people they hang around with act these reasons can also be used to see why people act unethically • ***Article - Friedman 1970 ◦ says ethics will be resolved by the market ◦ should let the market determine ethics (solve its own problems) ◦ didn’t think regulations were needed ◦ held this belief through all his books/articles Week 3 Codes of Ethics • these codes can help us make important decisions • first way most people experience code of ethics in an organization is actually embodying it • company tries to explain who they are and what laws to follow, what their aspirations are Failures • Johnson & Johnson 1 1982 - MacNeil Labs makes tylenol 2 tylenol was the #1 pain reliever in the US 3 company called Bayer was also making aspirin 1 acts as a blood thinner, don’t want to take this if you have a wound 2 in children under 6 years old, can develop rare disease called Reye’s syndrome 4 tylenol doesn’t have same side effects as aspirin - hospitals shifted to tylenol 5 product tampering case in chicago for tylenol - cause a change in the packaging you could use for certain products 1 look at lab company, manufacturers, distributors, drug stores - investigated but never found who did it 6 federal trade commission & J&J legal got together - asked what do we have to do based on the law 1 all they have to do is recall all capsules, only have to compensate for portion of the bottle that hadn’t been taken already 2 estimated cost to do this was $20 mil 7 amidst this the wall street journal got marketing people together to talk… “can tylenol survive?" 1 20 experts were on this panel - professors, heads of agencies, company presidents 2 decided… no the product cannot survive 8 the CEO of J&J was driven by code of ethics and responds... 1 read our credo, what we say we are going to do 2 says we have failed at serving our customers, violated their trust 3 going to recall all tylenol products 4 no partial reimbursement, pay you for it 5 given coupon for pain reliever of your choice, good for any similar sized bottle or container 6 estimated cost was $150 mil • Union Carbide/Dow Chemical Mission and Values 1 different than J&J 2 main focus is maximizing profit for stakeholders 3 values do not match with the rest of their statements 4 Bhopal Disaster - 1984 1 worst industrial accident in world history 2 product called MIC was made - stands for methyl iso cyanate 3 agricultural chemical - in a chemical, not directly put on things 4 used for peanuts or potatoes - pesticides use MIC within it 5 extremely deadly substance 6 in a dry form when produced but when you put water on it it becomes exothermic, creates heat 7 1 cup water on a pound of MIC - temp can go from 11-12 degrees C to about 300 C in a tenth of a second 8 don’t allow production in the US 9 UC moved their production to Bhopal, India - 30 miles from anywhere, but over time the town had grown toward the plant 10in Dec. of 1984 - 21 tons of MIC was sitting in a tank, between 2000-4000 pounds of water was put in this tank 11nobody in the plant died, all had time to put their masks on, but the alarm for people outside the plant was not working 12gas that is created when it explodes is heavier than air, so gas comes down to the ground 13in one night, 10,000 people died - 110,000 people became sick enough where they were forced to seek medical attention - if you live it still destroys your respiratory system 14UC did not know how to respond - didn’t respond for days - after a week offered the india government 3 million dollars 15UC and J&J have fundamentally different values that are shown by these two cases Questions for this week • what is a code of ethics? ◦ a set of guidelines about how to act - walmart didn’t have one until 2004 ◦ need to write it down to have guidelines for how people need to act • components of code ◦ mission and values ◦ internal company policies and guidelines ◦ external compliance specific laws related to the business ◦ process • requires code of ethics ◦ Sarbanes-Oxley - publicly traded companies about 6000 12 mil corporations in the US ◦ Form 990 (for non profits)- basically a tax return for non profits - shows who gets paid, has to list top 5 people who get paid and how much Examples • A little extra in the beer ◦ Able deceived people by starting a rumor against Baker ◦ was not a form of free and open competition ◦ was a form of tortious interference, can be sued for it ◦ code of ethics says not to do this, but it’s also not legal • Imitation is the sincerest form of flattery ◦ “trade dress” - can’t copyright something that is common but can still have a trade dress on it ◦ violated following all applicable laws • Salesperson with DWI ◦ should report the person who tells you they got the DWI - other person could put the company at risk • Lowe’s Delivery person ◦ fired the people who went through with the discrimination ◦ Lowe’s stated that a discriminatory delivery request should not be honored Week 4 • J&J Tylenol case - 82 • Union Carbide case - 84 • both cases took places in the 80’s • shorter cases - volkswagen & wells fargo • VW - diesel engines 1 trying to meet aggressive mileage targets 2 their software yielded false results 3 paid about 6 billion so far for this - been doing it for years 4 many people fired 5 this is a systemic unethical behavior 6 this behavior is extremely difficult to root out in an organization because everyone is involved • WF - robo signing 1 set up automated systems to sign documents to foreclose on someone’s house 2 allocated 7 seconds per file for review 3 paid billions over this 4 another scandal: hired new person to run their consumer division - wanted to hire sales 5 to make more sales needed to open more accounts - opened more for people who already banked with them - didn’t tell their customers they were doing this but added these fees to their existing account 6 doing this with 100’s of thousands of customers 7 CEO had to testify in front of congress 8 woman who started this just left the bank - paid her 28 million when she left and in total got 124 million in her time there 9 7000 employees at wells fargo have been fired for setting up false accounts or without permission Notes • law - the floor - can’t understand what the ethical behavior is unless you understand the floor • gap between what’s legal and what’s ethical • bath salts - website that say’s “way you shouldn’t use it” then gives steps on way to abuse the product • trust - what is illegal - collaboration between people to regulate behavior • antitrust - breaking up trust behavior (regulations) legislation at preventing collaborations among business to restrain trade • types of trust behavior 1 predatory pricing - prices so low that other companies can’t compete (selling things below cost) - doesn’t allow others to get into market or drives your competitors out of business - below cost of selling the product 2 tying agreements - saying in order for you to buy one product you have to agree to buy another - clayton act - says you can’t have these agreements 1 a mcdonalds franchise saying you have to buy their sauce from them - not the same thing • consequences if you form a trust - civil and criminal 1 civil punishable by treble damages (3 times amount company gets from committing the trust violation) 2 criminal punishable by going to prison 3 antitrust violations don’t stack - feds and states both have acts that relate to antitrust 4 get busted in federal system, can still get busted in the states for the same thing 5 you’re guilty until proven innocent in trust cases - have to prove that you didn’t form a trust with another company Fraud • chinchilla case - raised in tall cages for their fur - can only live in certain temp ranges - in winter the heater brakes • buys heater that is not good for enclosed space and sues a farm and ranch store cause it killed all of his chinchillas - sales person can revoke a warning on an item - so it was considered fraud because he knew they were bad • ponzi scheme - have different explanations and backstories ◦ doesn’t matter the story they’re telling you - people told they’re gonna get something for nothing ◦ felony to operate and participate in ◦ original ponzi scheme - (charles ponzi) - about paying postage in different countries ◦ can tell ponzi scheme cause there’s no business - just shifting money around ◦ difference between multi level marketing (mary kay) and ponzi - sell to people outside of the company, not to people within in the company or just selling new started kits • kinds of frauds - ◦ financial statement - very popular baptist - stole from churches xerox - selling products to people who didn’t want them worldcom adelphia - family held company that grew tremendously - bragged that people who owned stock took low salaries - making themselves interest free, no repayment loans sunbeam enron tyco ◦ backdating stock options - incentive for performance usually for high executives, buying stock cheaper that it’s worth currently - setting option price from a price in the past - go back through a year and pick the lowest price in the last year to buy their stock options and able to cash out at the current day when it’s high united health - 1.2 billion in value of options for a single person versus 100 million if he had done it right ◦ non financial billie dol estes - payed for LBJ’s first run at the senate ◦ abusive tax shelters KPMG - went straight here - scammed the federal government out of hundreds of billions of dollars • conflicts of interest ◦ nature conservancy - what we need is a permanent land bank to preserve a property people donate land to this company and they promise they’ll never build on it or anything couldn’t afford to keep some of these cause it was too hard to upkeep so they could sell them sold them to executives for a low cost - lots were beachfront property • federal sentencing guidelines ◦ read - realize that when you’re found guilty in a federal court the process of assigning responsibility is cut and dry - there’s a process for it ◦ assigned a culpability score - how responsible you are can go up or down - getting busted in the past or put in place and effective ethics program • why do good employees act dishonestly? • who should be punished? ◦ article on vendettas Review 1st week • violin case - thinking through ethical decisions • didn’t have notes/readings - just this exercise • on exam - what you learned from violin example - own ethical decision making - the rest of the class 2nd week • notes/basics • friedman, velasquez, and tax compliance • read questions - orient you as you read through • not a unanimity of opinion about acting ethically • freedman and valasquez have different opinions • defined ethics - a system of thinking about moral choices - from business perspective - not a separate standard - ongoing process, is a context thing • why are you in this class? ◦ bullets, fill out yourself - think about what some of these answers would be - ask this in exam - how will this class effect you moving forward • foundation principles - klausens 4 elements - taken from aristotle, plato - stuff not original • why should we act ethically? ◦ v article - birds of the feather argument and cooperative behavior is more profitable (prisoner’s delimma) ◦ notes has 3 more reasons ◦ martins perspective - if you really want to be unethical there’s probably not an argument i can make to make you be ethical - says 4 reasons • in business... ◦ what it comes down to is trust in relationships - can’t screw people over • freedman’s approach - takes economist approach - everything is a transaction - not how it really works • look through ethical companies - think about the companies that are on that list • freedman - social responsibility and acting ethically is a luxury - creating unwarranted tax on shareholders ◦ argument is chilling until last sentence - one social responsibility….. so long as it stays within the rules of the game (act ethically) ◦ being honest is first step to being ethical ◦ deception is an ethical issue not legal ◦ basically shoots a hole in his own argument • v article - discussion that treachery can pay ◦ shouldn’t tell the trust cause you could lose money ◦ article refutes this ◦ birds of the feather ◦ prisoner’s delimma ◦ cooperating is better than not - but can involve you in trusts (careful with how far you go) • does ethics matter article - empirical, trying to figure out if people are compliant in their taxes for certain reasons ◦ people are far more ethical than they should be ◦ people comply far more than not - morality increases compliance without increasing cost 3rd week • codes of ethics - presentation (notes) two sets but basically the same • examples of codes of ethics - J&J, Union Carbide • cases towards the end and how code will affect the choices people make • Lowe’s example - delivery guy got sent and then brought back because he was black - cited code in this • 3 articles • webb and warner - even though we’ve gone from low to high companies with codes there’s still lot of unethical behavior - don’t answer all the questions ◦ good to have a code but that’s not enough • maser article - ethics code commitment is going beyond just the code - developing and maintaining code - instilling it in company culture ◦ explaining what you need to do to expand the code and get it to work • global business ethics cavinaugh article - controlling business behavior ◦ how do we do it - restrain people from committing unethical illegal acts ◦ 3 different strategies - regulation, global codes of conduct, voluntary self restraint ◦ goes through examples of these ◦ pg. 630 - also example used in ship’s article ◦ global codes of conduct - roundtable principles pg. 633 - principles developed against apartheid system - are there circumstances that are still in need to prevent discrimination ◦ UN global compact of business - UN commission on human rights ◦ voluntary self restraint 4th week • 5 readings • federal sentencing guidelines - ch. 8 pg. 504 ◦ about sentencing only - what’s your punishment ◦ “third….” paragraph 5 - the fine range should be based on seriousness of offense and culpability of organization ◦ culpability - based on 6 factors 4 raise - 2 mitigate one mitigating is ethics program effective compliance and ethics program pg. 512-517 means… exercise due diligence, etc. has to be real pg. 524 - see the absolute effects of having one of these programs - on the culpability score start with 5 points and apply subsections - b-g pg. 526 527- can take away points too - culpability going down self reporting, fully cooperating, demonstrating recognition - reduces culpability • fits with modified vendetta - pg. 605 ◦ at the bottom in figure 1 talks about different sanctions - can be applied to organization by govt or not govt groups ◦ hester prynne - basically shaming - make company promise not to do something again ◦ modified vendettas talked about in article ◦ tells you that sometimes organizations slip through the cracks even when they did something bad ◦ NGO’s and other people - turning the company around • fraud article - 53 million ◦ doesn’t take rocket science to commit fraud ◦ cautionary tale • identification of ponzi schemes article - important areas ◦ pg. 54 bottom - fraud occurs when probability of detection is low ◦ behavior” ◦ pg. 55 - table 1 - things that help you understand whether fraud is taking place behavioral, statistical, organizations anomaly ◦ statistical is main part of article ◦ maydolf case - something bad was taking place ◦ 50 billion dollar hedge fund - auditor is big - hedge funds are hard to audit - his audit firm was only 3 people - they were not good at auditing ◦ this is organizational issue - not how you run company this size ◦ behavioral example - article describes any investment vehicle like that has to publicly display it’s strategy - as part of encouraging you to invest ◦ said what they were going to do - split strikes conversion - works under certain market conditions ◦ operations manager testified in court that his last stock transaction has occurred in 1996 - 2007 when they were caught - claimed he had no idea anything was going wrong ◦ so many red flags with this case ◦ statistical ways you figure out things are going wrong - any investment strategy that you follow works best under certain market conditions - what happened in maydolfs fund - no matter the market conditions he always had significant returns in excess of the average returns of the others in the market


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