REL 228/MGT 228

Business, Ethics, and Society

Prof. Dougas La!ont
"EE# T$REE% LE&T'RE/D(S&'SS()*
Theme for the week: Forgive me, O Father, Lord of heaven and earth, for I
have sinned . . . [or] I have sinned, O Lord: forgive me. O God, be gracios
nto me a sinner.!
Source% The )rder of &onfession, Eastern &athoic and Eastern )rthodo+
&hurches.
(. &onscience.
"e#igios conte$t of conscience. The eastern churches teach us to ,ractice
diakrisis -or discern!ent.. &onscience is an innate facuty or ca,acity for !a/ing
!ora 0udg!ents. "e ha1e a ,ersuasi1e conscience that eads us to ,erfor!
certain actions that are 0udged 2y the facuty of discern!ent to 2e good. 3so 4e
ha1e a dissuasi1e conscience that eads us to a2stain fro! those actions,
2eha1iors, and attitudes ,ercei1ed 2y diakrisis to 2e e1i, 4rong, un0ust, or
ina,,ro,riate.
5or a discussion of conscience, see the "isdo! of Soo!on, St. Pau6s etters to
the Ro!ans and the &orinthians, St. Tho!as 37uinas, the Russian startsi, St.
Ma+i!us the &onfessor, and 5r. Staney $ara/as.
The eastern churches ,refer an ethica diakonia for &E)s and other to,
2usiness e+ecuti1es in 4hich those 4ho ha1e no conscience a2out destroying
ca,ita are 2ooted out of their to, 0o2s. Michae Eisner of Disney is an e+a!,e
of a Por/y Pig 4ho has ta/en o1er 89 2iion fro! the co!,any in saary,
2onuses, and stoc/ o,tions and, at the sa!e ti!e, has destroyed ca,ita for the
sharehoders. 5or so!e reason, his conscience faied hi!.

%ocia# conte$t of conscience. 3 defensi2e !ora 0udg!ent !ust 2e
su,,orta2e 2y a sound !ora ,rinci,e. Mora ,rinci,es ,ro1ide the confir!ing
standard for !ora 0udg!ents. $o4e1er, different theories e+ist as the ,ro,er
standard or right and 4rong. $u!ans are heirs to a rich and co!,e+ ethica
tradition in 4hich a 1ariety of different !ora ,rinci,es and ethica considerations
intert4ine and so!eti!es co!,ete. Sha4, ,,. BE, :;<::.
((. Dis,ute a!ong schoars of different traditions%
5ocus on conse7uences -conse7uentiaists. or the immediate end. E+a!,es%
5ocus on !a/ing si+ of the ne+t eight 2as/ets in 2as/et2a. )r if =esus 4ere
ai1e today, 4hich S'> 4oud he ,urchase? The !ora rightness of an action is
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deter!ined soey 2y resuts. Theories% egois! and utiitarianis!. $ere are so!e
i!!ediate end<resuts% #i<ratio in >ietna!. State conde!ns ,ro,erty for ne4
high4ay. Rights of !inority !ust 2e sacrificed for the !a0ority. &ndrew Fastow
focused on finding a ne4 4ay to hide ,oor financia resuts. This 4as his
i!!ediate end. $is dissuasi1e conscience did not 4or/ 4hen he transferred
Enron6s osses to his S,ecia Pur,ose Entities -SPEs...
5ocus on goa<oriented -teeoogica fro! the Gree/ 4or/ for goa, telos)
'erfection. E+a!,es% 5ocus on ,aying 2as/et2a as 4e as Michae =ordan.
)r if =esus 4ere ai1e today, ho4 do you 2eco!e !ore i/e &hrist? Theories
fro! 3ristote and &athoic Socia Thought. $ere are so!e fir!s and e+ecuti1es
4ho 4ere seen as ha1ing ,erfection, 2ut ater 4ere found to ha1e cay feet% GE
and =ac/ "ech. 3BB -&o!2ustion Engineering. and Percy Barne1i/. $ai2urton
and Dic/ &heney. Enron and #enneth Lay. S,rint and "iia! Esrey. "ord&o!
and Bernie E22ers. (artha %tewart focused on /ee,ing her ,u2ic i!age
,erfect that she ris/ed so !uch -89@ !iion in a ,a,er oss on her stoc/ assets,
Martha Ste4art )!ni!edia. for so itte -8:A,BBB in a ca,ita gains oss fro! the
dro, in the stoc/ ,rice of (!&one.. $er ,ersuasi1e conscience faied her 4hen
she shoud ha1e said C( !ade a !ista/e.D.
5ocus on duties, o2igations, and ,rinci,es -nonconse7uentiaists. or duty<
oriented -deontoogica. fro! the Gree/ 4ord for duty, deon .% Right and 4rong
are deter!ined 2y !ore than the i/ey conse7uences of an action. "hat !atters
is the nature of the act in 7uestion, not 0ust its resuts. Sha4, BE, ,. :A. $o4 do
you deter!ine right fro! 4rong? )d or *e4 Testa!ent. Ta!ud or &hurch
teachings. $oy #oran. 3nd other sacred scri,tures. )r a of the! together. #ant
in his &ategorica (!,erati1e says% C3ct as if your action 2eco!es the uni1ersa
a4.D Persona 7uestion% "hat /ind of 4ord 4oud this 2e if e1eryone 2ro/e
,ro!ises at 4i? (ike (i#ken and %am )aska# thought their 2usiness actions
of stoc/ ,ar/ing and using insider infor!ation in the sae of stoc/ 4oud 2eco!e
uni1ersa cor,orate a4E the federa go1ern!ent thought differenty. Both Mi/en
and "as/a ,eaded guity and 4ent to 0ai to ,rotect other fa!iy !e!2ers. Their
,ersuasi1e and dissuasi1e consciences faied the!.
(((. Mora rights 1ersus socia ,ressures% Pro<Life 1ersus Pro<&hoice
"hich duty, o2igation, right, or ,rinci,e ta/es ,recedence? Do the rights of the
!other ta/e ,recedence o1er the rights of the fetus? &bortion !eans /iing the
un2orn chid.
*ro+#ife or the mora# choice. The -Latin. Ro!an &athoic &hurch, and the
Eastern &athoic and Eastern )rthodo+ &hurches affir! the sacredness of ife.
Their 1ie4 is that ife 2egins at conce,tion. These churches are against a2ortion.
CE1ery ife is 1aued 2y God, ho4e1er incon1enient, intrusi1e, 2urdenso!e, or
4orthess it !ay a,,ear to hu!an eyes.D $o4e1er, if the un2orn chid endangers
the ife of the !other, these &hurches and (sa! say ,reser1e the ife of the
!other.
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See Psa! 9;@%9;<9F. (saiah :@%9,A. =ere!iah 9%A. St. Pau6s etter to the
Gaatians. The Didach or Teaching of the Twelve Apostles. St. Basi the Great.
St. =ohn &hrysosto!. )s!an Ba/ar, C(sa! and Bioethics,D in Orthodox
Christians and usli!s, -$oy &ross Press, 9@8F..
*ro+choice or the socia# choice. The "oe v# $ade decision, handed do4n 2y
the '.S. Su,re!e &ourt on =anuary 22, 9@G;, egaiHed Ca2ortion on de!andD
during the first tri!ester of ,regnancy. CThe 4ord ,erson as used in the 9:
th

3!end!ent does not incude the un2orn.D The concusion is that a 4o!an6s right
to ,ri1acy ta/es ,recedence o1er a gro4ing chid6s right to ife. To ,ut it another
4ay, the !other6s egay sanctioned right to ife, i2erty, and the ,ursuit of
ha,,iness ta/es ,recedence o1er the chid6s right to ife at a.
&n em'#o,ee-s decision. (f 4e focus on e!,oy!ent duties that !ight ha1e
de1astating conse7uences, shoud 4e gi1e to 'nited "ay, an organiHation that
distri2utes !oney to Panned Parenthood &inics for the ,ur,ose of carrying out
a2ortions? (f 4e carry out our o2igations as an e!,oyee and gi1e !oney to
'nited "ay, do 4e sin in the eyes of the &hurch? "i our confession 4i,e out
the stain of this sin against the si+th co!!and!ent?
The S,anish &athoic &ounci of E1ira, hed in ;BA<;BF &E, e+co!!unicated
4o!en 4ho a2ort their chidrenE these conde!ned 4o!en ony can recei1e the
sacra!ents on their death 2ed. The &athoic &ounci in Truo in F@2 &E
conde!ns those 4ho co!!it or aid those 4ho co!!it a2ortion as !urderers,
and they are e+co!!unicated for ten years. Since the 2eginning of &hristianity,
the &athoic and )rthodo+ &hurches recogniHe ife in the 4o!2 to 2e 2oth fuy
hu!an and ,ersona.
(>. Ti!e ,ressure 2ede1is ethica decision<!a/ing% E+a!,es% &haenger
disaster. 5aiure to reca the Pinto.
Incom'#ete search for information. *egati1e infor!ation is often 1aued !ore
highy than it is !erited. )nce infor!ation is gathered, ti!e<harried decision
!a/ers tend to either a2ort the decision ,rocess atogether or resort to si!,e
and fa!iiar decision rues. Ti!e ,ressure oc/s one aternati1e in as the soution
of a ,ro2e! and decreases the o,enness to ne4 aternati1es. Peo,e6s !oods
infuence their choices !ore than their dis,assionate assess!ent of the
aternati1es.
.ecision defects. Pressured indi1iduas tend not to e1auate aternati1es
o20ecti1ey 2ut tend to fa1or aternati1es according to the order in 4hich they are
,resented, or according to their ,osition in a ist of choices. Ti!e ,ressure
generay !a/es ,eo,e ess rationa.
/ti#itarian acts are adverse#, affected b, time 'ressre. So!e indi1iduas are
,rone to C2aisticD decision<!a/ing, that is, they !a/e decisions 4ithout
chec/ing the conse7uences of their decision. 3so these sa!e indi1iduas are
ess i/ey to choose aternati1es 4ith the highest e+,ected 1aue. (n short,
indi1iduas 4e<schooed in utiitarian ,rinci,es are una2e to do the necessary
cogniti1e 4or/ to a,,y the! 4hen itte ti!e is a1aia2e.
;
0ant-s 1ategorica# Im'erative. Ethica ,rinci,es that de,end on the socia
i!,act of decisions are aso under!ined. Peo,e feeing a sense of urgency
tend to totay negect socia or inter,ersona cues and 2eco!e insensiti1e to
others, or they re1ert to socia stereoty,es. This under!ines #ant6s &ategorica
(!,erati1e.
Organi2ationa# behavior. Positi1e duties suffer under ti!e ,ressure. $e,ing
2eha1ior decreases a!ong those under ti!e ,ressure. 3so creati1e thin/ing
suffers in ter!s of ,roduct inno1ations and !ar/eting creati1ity 4hen !anagers
are under ti!e ,ressure and !ust decide yes or no in ter!s of their o4n sef<
interest, or utiitarianis!.
Gro's. 'nder intense ti!e ,ressure grou,s ,roduce o4er 7uaity out,uts,
interact ess fre7uenty, fee !ore stress, sense that the tas/ 4as !ore difficut,
are ess satisfied 4ith the ,rocess. Grou,s under ti!e ,ressure intensify efforts
to secure consensus. Socia ,ressure -or grou,thin/. is ,aced on anyone 4ho
disagrees 4ith grou, decisions. E+a!,es% Bay of Pigs. >ietna! ,oicy. Lo4
status !e!2ers of grou,s defer to higher status !e!2ers, and the atter ignore
the for!er. Decisions 2eco!e !ore centraiHed a!ong higher status !e!2ers.
>. 5ocus on (ntegrity ->irtue Ethics.% 5ocus !ore on the integrity of the !ora
actor than on the !ora act itsef.
$ere are eight ste,s to sound ethica decision<!a/ing in 2usiness%
3. Gather the facts.
B. Define the ethica issues.
&. (dentify the affected ,arties.
D. (dentify the conse7uences.
E. (dentify the o2igations.
5. &onsider your character and integrity.
G. Thin/ creati1ey a2out your ,otentia actions.
$. &hec/ your gut.
>(. Egois!
3goism. "e ha1e no !ora duty to assist others. The ony !ora o2igation 4e
ha1e is to ourse1es. 34ays oo/ out for Cnu!2er one.D $u!ans are sefish
creatures -,sychoogica egois!.E truy unsefish acts are therefore i!,ossi2e.
Sha4, BE, ,,. :A<:@.
O'tions.
Ethica egois! ignores 2atant 4rongs. E+ecuti1es6 o4nershi, sta/e ,uts
e+tre!e focus on stoc/ o,tions and creates a house of cards in 4hich
e+ecuti1es succu!2 to te!,tation and greed. Fastow. $o4e1er, stoc/ o,tions
can 2e a ,o4erfu !oti1ationa too for the entire 4or/force. (icrosoft.
),tions frenHy% 4hat 4ent 4rong? The ure of stoc/ o,tions 4as an irresisti2e
!agnet. E+ecuti1es 2eca!e !iionaires 4hen they cashed in their stoc/
o,tions. (ichae# 3isner. They ,ut in 9BB hour 4ee/s. Their ,riorities 4ere
:
s/e4ed. They !ade saes and cut deas that increased re1enueE this nu!2er
2oosted the stoc/ ,rice. "ith the rising tide of the !ar/et, they cashed out.
),tions !oti1ated the! to a sefish, short<ter! 1ie4. They did not create ong<
ter! 1aue. Their 2usinesses 4ere a house of cards.
),tion<as<carrot assu!es that sef<interest dictates ,rudence. (nstead, if you
can cash out as a !iionaire 7uic/y, you ta/e e+tra ris/. &rthr &ndersen. The
a2sence of chec/s and 2aances 2y 2oards, &P3s, and the SE&, ,er!itted
1arious for!s of ooting. )1erreiance on e+,ected o,tion 4eath ed des,erate
e+ecuti1es to co!!it fraud 4ith stoc/ grants, off<2aance sheet ite!s, ta+
sheters, etc. 4enkens 5 Gi#christ.
E+,ense stoc/ o,tions. >aue the! at the date of issue. This 2eco!es
co!,ensation si!iar to 4ages.
>(((. 'tiitarian reasoning.
3 net ,ositi1e su! accruing to the co!,any gi1es a green ight to ,roceed, on
grounds the fir! is 2etter off econo!icay. This utiitarian anaysis fas short of
considering a of the ree1ant costs, incuding socia, fa!iia, e!otiona, and
,sychoogica costs. 3!ong 2usiness ethicists, 0ant-s rights and "aw#-s
6stice trm'ed 7entham and (i##s-s ti#itarian a''roach as the 8ormative
1ode. 3ns4er the foo4ing 7uestions%
3. (s utiitarianis! reay 4or/a2e?
B. 3re so!e actions 4rong, e1en if they ,roduce good?
&. (s utiitarianis! un0ust? See Sha4, BE, ,,. :@<AF.
I(. #antian ca,itais! incudes socia contract, sta/ehoder conce,t, and the
2usiness syste!.
The socia contract is to enhance socia 4efare through satisfying consu!er and
4or/er interests, 4hie at the sa!e ti!e re!aining 4ithin the 2ounds of 0ustice.
1har#es 9and,. $o4e1er, so!e of the assu!,tions are at 1ariance 4ith 4hat
4e /no4 a2out hu!an 2eha1ior. Ra4s6s cas this a C1ei of ignorance.D
&or,orations !ust refor! the!se1es, or ose their !ora right to e+ist.
"hat has !ora 4orth? (s the categorica i!,erati1e an ade7uate test of right?
"hat does it !ean to treat ,eo,e as !eans? Sha4, BE, ,,. AF<G;.
Right actions are the /ind ,er!itted 2y the !ora code o,ti!a for society as a
4hoe. %ho#d #aw,ers be whist#e+b#owers? 'nder the Sar2anes<)+ey 3ct on
cor,orate go1ernance, the 'S Securities and E+change &o!!ission !ust 4rite
rues on audit inde,endence, interna contros, off 2aance<sheet arrange!ents,
tighter use of non<standard accounting, and CnoisyD 4ithdra4as 2y a4yers 4hen
e1idence of !ateria 1ioation is found. 3!erican Bar 3ssociation6s &ode of
Professiona Ethics 2BBB.
A
4enkens+Gi#christ. This a4 fir! reached a 8GA !iion sette!ent 4ith in1estors
4ho fied a4suits accusing it of designing and seing 7uestiona2e ta+ sheters.
The (RS deter!ined this ,articuar ta+ sheter, /no4n as &o2ra for Ccurrency
o,tions 2ring re4ard aternati1es,D 4as not egiti!ate..
I. Persona 1ie4s of instructor
Juestion% &an organiHationa restructuring and interna contros change hu!an
2eha1ior 4ithin organiHations?
Discussion
Ten years ago the 2oards of directors of GM, 3!erican E+,ress, #oda/,
"estinghouse, 3,,e &o!,uter, (BM and other 2ue chi, fir!s ,ushed out their
chief e+ecuti1e officers.9@@; 4as the Kear of the Shar, #ni1es. The 2oards
2ro/e the gente!en6s agree!ent that ,oor ,erfor!ance 4as no reason to /ic/ a
chief e+ecuti1e out of office.
(n 2BB;, it oo/s 1ery !uch as if the cor,orate go1ernance re1oution of 9@@; is
2ac/ to S7uare 9. Boards are 7uic/er to ,unish inco!,etence, 2ut no !ore a,t
to s,ot cri!inaity. They shut their eyes 4hen the nu!2ers are s7uishy or e1en
frauduent. The 2oards 4i use stoc/ grants and o,tions to aign !anage!ent6s
interest 4ith that of sharehoders, yet ignore the te!,tation the o,tions create for
!anage!ent to dri1e u, stoc/ ,rices 4ith fase ,ro!ises, ta/e the !oney and
run. Thus the 2oards got Enron, "ord&o!, Tyco (nternationa, 3de,hia
&o!!unications, and !any other cor,orate scandas.
)f course, 2oards are no4 !ade u, of !ore outside directors 4hose
inde,endence is not co!,ro!ised 2y ,ersona ties to the chief e+ecuti1e or
2usiness ties to the co!,any. Pay and ,oicies -on stoc/ o,tions, etc.. are isted
in the ,ro+y state!ents. Directors no4 ta/e !ore seriousy their fiduciary duties
to reguary e1auate the chief e+ecuti1e.
"hat 4ent 4rong?
5irst, sharehoders 4ere ued into 2eie1ing that the gro4ing use of stoc/
o,tions as ,art of e+ecuti1e ,ay 4oud aign !anage!ent6s interest 4ith theirsE
instead, it te!,ted e+ecuti1es to ,ush u, share ,rices 4ith accounting tric/s.
E+ecuti1es sought to ,reser1e their ,a,er 4eath.
Second, there is a gro4ing scarcity of 7uaified auditors to s,ot those
!ani,uations. 3uditors, such as 3rthur 3ndersen, 4ere so!e of the 2est<,aid
fiction 4riters.
Third, there is a great ac/ of 7uaified directors.
5inay, the 2oo!ing stoc/ !ar/et of the 9@@B6s had a nu!2ing effect on
cor,orate ethics and sharehoder 1igiance. (f the !ar/et goes u,, you don6t
F
4orry a2out the pro for!a nu!2ers. (n1estors had no reason to focus on
funda!entas, as ong as they coud count on the greater foo theory.
"ith the Sar2anes<)+ey egisation o,en cor,orate go1ernance isn6t o,tiona or
!erey a nice thing. (t has 2eco!e a egisated reaity.
I( &ases in Sha4.
The 5ord Pinto.
Bood for Sae.
Prof. Dougas La!ont, 2/29/B;, re1ised ;/F/B:.
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