CONTEMPORARY

ISSUES IN WORK
AND
BUSINESS ETHICS
 The Financial Disaster of
2008
Borrowing was cheap
Fed Funds rate became almost zero.
9/11 fueled the economic activity
Household debt $13.9 billion in 2008 was almost half of it in2000
Both borrowers and lenders had to be more responsible
Real estate became the investment of choice
Value of homes skyrocketed
$300.000 one year later-$450.000
Almost no down payment
Home equity had grown so quickly
 The Financial Disaster of
2008
Mortgage originators peddled Liar Loans
Old rules of financing home ownership changed: stopped
asking for solid proof of employment & income /a cash down
payment / real estate values were rising so fast/ 100 percent
financing became possible / old-fashioned credit restrictions
loosened/ no-doc (no documentation) or liar loans
 The Financial Disaster of
2008
Banks securitized the poison and spread it around
U.S. Market was safe for investors in developing countries :
China, Russia etc. New investment products developed
mortgage-backed securities / credit-defaulted swaps (CDS) to
mitigate financial risks frenzy
Those who were supposed to protect people didnt
Misleading credit opinions by Rating agencies like Standard &
Poors, Moodys hired by the companies they rate / conflict of
interest
Network of risk managers & board of directors of the financial
community failed AIG, Citigroup, Merrill Lynch, Lehman
Brothers etc.
 The Financial Disaster of
2008
Bank CEOs, executives, Wall Street traders were paid
handsomely to bolster short-term profit. SEC/ Madoff ($65
billion defraud unraveled by himself), Congress repealed
Glass-Steagall Act of 1929 which created separate institutions
for commercial & investment banks.

Was it ethical to sell a product they called a liar loan, knowing

that the customer surely would be unable to repay (even if it
was legal to do so)?
 VPs Dilemma
Youre the VP of a medium-sized organization that uses chemicals in
its production processes. In good faith, youve hired a highly
competent scientist to ensure that your company complies with all
environmental laws and safety regulation. This individual informs you
that a chemical the company now uses in some quantity is not yet on
the approved Environmental Protection Agency (EPA) list. However,
it has been found to be safe and is scheduled to be placed on the
list about 3 months. You cant produce your product without this
chemical, yet regulation say that you are not supposed to use the
chemical until its officially approved. Waiting for approval would
require shutting down the plant for 3 months, putting hundreds of
people out of work and threatening the companys very survival.
What should you do?
 The Sales Rep
A sale representative for a struggling computer supply firm
has a chance to close a multimillion-dollar deal for an office
system to be installed over a two-year period. The machines
for the first delivery are in the companys warehouse, but the
remainder would have to be ordered from the manufacturer.
Because the manufacturer is having difficulty meeting the
heavy demand for the popular model, the sales representative
is not sure that subsequent deliveries can be made on time.
Any delay in converting to the new system would be costly to
the customer; however, the blame could be placed on the
manufacturer.
Should the sales representative close the deal without
advising the customer of the problem?
 The Research Director
The director of research in a large aerospace firm recently
promoted a women to head an engineering team charged
with designing a critical component for a new plane. She was
tapped for the job because of her superior knowledge of the
engineering aspects of the project, but the men under her
direction have been expressing resentment at working for a
woman by subtly sabotaging the work of the team. The
director believes that it is unfair to deprive the women of
advancement merely because of the prejudges of her male
colleagues, but quick completion of the designs and the
building of a prototype are vital to the success of the
company.
Should he remove the woman as head of the engineering
team?
 The Marketing VP
The vice president of marketing for a major brewing company
is aware that college students account for a large proportion
of beer sales and that people in this age group form lifelong
loyalties to particular brands of beer. The executive is
personally uncomfortable with the tasteless gimmicks used by
her competitors in the industry to encourage drinking on the
campuses, including beach parties and bear-drinking contests.
She worries about the companys contribution to underage
drinking and alcohol abuse among collage students.
Should she go along with the competitors?
 The CEO
The CEO of a midsize producer of a popular line of kitchen
appliances is approached about merging with a large
company. The terms offered by the suitor are very
advantageous to the CEO, who would receive a large
severance package. The shareholders of the firm would also
benefit, because the offer for their stock substantially above
the current market price. The CEO learns , however, that
plans call for closing a plant that is the major employer in a
small town. The firm has always taken its social responsibility
seriously, but the CEO is now unsure of how to balance the
welfare of the employees who would be thrown out of work
and the community where the plant is located against the
interests of the shareholders. He is also not sure how much to
take his own interests into account.
Should he bail out in order to enrich himself?
Start-Up Software Firm
Four males and one female resign their positions with a large
computer company to spin-off a small software firm. During the first
year of operation they were very diligent, industrious, creative, and
fortunate in developing a new and exciting product. During their
second year of operations, a large firm in the East became aware of
their success and was interested in a buy-out. In the negotiations a
representative of the larger company was to visit the small firm. The
representative was to fly in on Friday to look at the area, and then
on Monday, the representative was to meet and consider the buy-out
option. Completion of this negotiation could make all of the five
members of the group extremely wealthy. In order to ensure that
the negotiations went well, three of the males felt that it would be
wise to have the representative from the East well entertained the
weekend prior to the meeting. They asked the female member of the
group if she would volunteer to be an escort, and ensure the
representative had a "fun and entertaining" time.
Cheap Threads

U.S. consumers crave bargain clothes including college/university

logo products which for many years have been produced by foreign
sweatshops. The apparel business involves hundreds of thousands of
factories in widely disparate economies.

But students want more! Student groups from over 100 colleges
have demanded that a rigorous monitoring plan be instituted where
companies publicly disclose the location of their foreign factories so
human rights and labor groups can monitor so-called living wages.
Public pressure may force some companies to voluntarily comply, yet
consumers' desire for bargain goods means companies still face
fierce competitive pressures.
 Is passing a personality or honesty test a justifiable
preemployment condition? Are drug tests?
What rights do employees have on their job?
How should business respond to employees who have AIDS?
Should manufacturers reveal all product defects?
At what point does acceptable exaggeration become lying
about a product or a service?
When does aggressive marketing become consumer
manipulation?
What are businesses environmental responsibilities?
Is a corporation obliged to help combat social problems such
as poverty, pollution and urban decay?
 May employees ever use their positions inside an organization
to advance their own interests?
Is insider trading or the use of privileged information
immoral?
How much loyalty do workers owe their companies?
What say should a business have over the off-the-job
activities of its employees?
What obligations does a worker have to outside parties, such
as customers, competitors , or society generally?
When, if ever, is an employee morally required to blow a
whistle?
 Corporate Responsibility
Crisis
More than half of the 4,500 college-educated respondents of
the survey stated that they trust business less than they did
one year ago (in 2008).

91 percent of the consumers stated that they purchased a

product or service from a company they trust. While, 77
percent refused to purchase a product or service from a
company that they mistrusted.
2009 Edelman Trust Barometer Survey
 Corporate Responsibility
Crisis
Opinion polls now place business people in
lower esteem than politicians.
Jennifer Merritt (2002) For MBAs, Soul Searching 101, Business
Week, Sept. 16,p.64.

A W.S.J./NBC poll found that 57% of the

general public believed that standards &
values of corporate leaders & executives
had dropped in the last 20 years
Eric Hellweg (2002)
Why study business
ethics and social issues?
In an Ethics Officer Assoc. Survey, 48
% of employees indicated that they
had done something unethical or
illegal in the past year
Annual cost of unethical or illegal acts
by U.S. Employees: $400 billion
 Cost of Unethical
Business Applications
Individuals themselves and their
families
Employees /lost their jobs, incomes,
healthcare insurance, retirement funds
Consumers
Investors
General public
Common unethical acts
Lying (either to fellow employees, bosses, customers, vendors
or the general public)
Falsifying records
Alcohol and drug abuse
Conflict of interest
Stealing
Gift/entertainment receipt in violation of company policy
Abusive or intimidating behavior toward employees,
Misrepresenting the time spent working

1997 Business Ethics Survey of Ethics Recourse Center /

J.Schermerhorn, 2008
American Distrust of
Business
80 %
American business is
too concerned
about profits, not
concerned about
responsibilities to
workers, consumers
and environment
American Distrust of
Business(cont.)
70%
If the opportunity arises, most
businesses will take advantage of the
public if they feel they are not likely to
be found out.
American Distrust of
Business(cont.)
61%
Even long established
companies cannot be
trusted to make safe,
durable products
without the
government setting
industry standards.
Source: Wall Street Journal, Feb.
15 2005
 BUSINESS DECISION
MAKING
In deciding on an ethical course of action, one can
rely on some extent on the rules of right conduct
that people employ in everyday life. But business
activity also has some features that limit the
applicability of ordinary ethical views.
Economic character of business activities
distinguishes them from daily life activities.
Second distinguishing feature of business activity is
that it typically takes place in large, impersonal
organizations, which is a hierarchical system of
functionally defined positions designed to achieve
some goal or set of goals.
 Business: any org. whose objective is to
provide goods or services for profit.
Businesspeople : who participate in
planning, organizing or directing the work
for business.
Organization: group of people working
together to achieve a common
purpose.(provide a product or service or
health care, education /academic
organization.)
Decision making occurs on several
distinct levels:
The level of individual/personal

The level of the organization

The level of the sector

The level of the business system.

 Arent Bad Apples the Cause of
Ethical Problems in Organizations?

Isnt it the fault of few individuals with poor character? Lets

discard them!
Character : a complex combination of traits that are thought
to guide individual behavior in ethical dilemma situations.
Thought to be relatively stable.
Predispositions of people about behaving ethically or
unethically . Sociopaths like Madoff do exist.
The organization must scrutinize itself if something rotten
inside it is spoiling the apples. Arthur Andersen: from a
culture of integrity of audits to a consulting culture focused on
feeding the bottom line.
Most of the time there is no strict internal moral compass
rather looking around for clues about how to think & behave
 Arent Bad Apples the Cause of Ethical
Problems in Organizations?

Nature or nurture
Are we more the result of our genes (nature) or our
environments (nurture)?
Nature and nurture
 Arent Adults Ethics Fully
Formed and Unchangeable?
Young adults in their 20s and 30s who attend moral
development educational programs have been found to
advance in moral reasoning even more than younger
individuals do.
In todays highly complex business organizations , additional
guidance is necessary.
Employers have real responsibility to teach employees what
they need to know to recognize and deal with ethical issues
they are likely to face at work.