Solution and Answer Guide
Business Law and the Regulation of Business 14th Edition 2025 by Richard A. Mann, Barry S. Roberts
Chapter 2: Business Ethics
TABLE OF CONTENTS
Answers to Questions and Case Problems ................................................................................................ 1
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. You have an employee who has a chemical imbalance in the brain that causes him to be severely unstable. The
medication that is available to deal with this schizophrenic condition is extremely powerful and decreases the
taker's life span by one to two years for every year that the user takes it. You know that his doctors and family
believe that it is in his best interest to take the medication. What course of action should you follow?
Answer: This question illustrates one scenario where arguments against corporate social responsibility
could come into play. If you take the ―anti-social responsibility‖ position that a corporation has—as its
primary objective—a fundamental responsibility to maximize profits, the employer could make the
medication a requirement for the employee to remain in the workforce. It could be argued that this
decision may also decrease the possibility of injury or deterioration in working conditions for other
employees. The other side of the argument, however, is that this type of decision is too personal for a
corporation to make. The ultimate determination should reside with the employee, and it should be his
free decision to take or not take the medication. This puts the responsibility back where it belongs: on
the employee and his family.
2. You have a very shy employee from another country. After a time, you notice that the quality of her
performance is deteriorating. You find an appropriate time to speak with her and determine that she is extremely
distraught. She tells you that her family has arranged a marriage for her and that she refuses to obey their
contract. She further states to you that she is thinking about committing suicide. Two weeks later, after her poor
performance continues, you determine that she is on the verge of a nervous breakdown; and once again she
informs you that she is going to commit suicide. What should you do? Consider further that you can petition a
court to have her involuntarily committed to a mental hospital. You know, however, that her family would
consider such a commitment an extreme insult and that they might seek retribution. Does this prospect alter
your decision? Explain.
Answer: A good, responsible manager would be hard-pressed to demand that the employee either
improve her on-the-job performance or face dismissal. However, initiating an involuntary committal to
a mental hospital could constitute an improper invasion of rights with many legal repercussions. An
interim step of providing appropriate psychological social counseling (perhaps at company expense)
would seem to best fit into the concept of good corporate management. This would benefit not only the
individual but the corporation, as it may be able to keep a valued employee. The cost of counseling is
likely to be less expensive than hiring and training a new employee.
3. You receive a telephone call from a company that you never do business with requesting a reference on one of
your employees, Mary Sunshine. You believe Mary performs in a generally incompetent manner, and you
would be delighted to see her take another job. You give her a glowing reference. Is this right? Explain.
Answer: Pawning off an incompetent employee would certainly help the profitability of an employer.
However, relatively accurate referrals are expected, and good corporate citizenship would impose a
moral responsibility to act properly. The employer would be better advised to give a more accurate, but
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, not overly negative, description of Mary‘s job performance (while staying within the conditional
privilege of avoiding a defamation action), rather than generate animosity and gain a reputation as a
liar among other businesses in the area.
4. You have just received a report suggesting that a chemical your company uses in its manufacturing process is
very dangerous. You have not read the report, but you are generally aware of its contents. You believe that the
chemical can be replaced fairly easily, but that if word gets out, panic may set in among employees and
community members. A reporter asks if you have seen the report, and you say no. Is your behavior right or
wrong? Explain.
Answer: Weighing the arguments for profitability to shareholders and fairness to shareholders and
employees against the arguments for good corporate citizenship and long-run profits, an appropriate
response might be that you are aware of the report but haven‘t thoroughly read or studied it.
Proceeding with a course that acknowledges (at least internally) past dangerous practices, while
immediately correcting the current problems, and correcting future problems in a timely manner, may
be an appropriate legal as well as moral response to this problem. This is one of the reasons many
corporations have a corporate spokesperson to give appropriate and consistent responses.
5. You and Joe Jones, your neighbor and friend, bought lottery tickets at the corner drugstore. While watching the
lottery drawing on television with you that night, Joe leaped from the couch, waved his lottery ticket, and
shouted, ―I've got the winning number!‖ Suddenly, he clutched his chest, keeled over, and died on the spot. You
are the only living person who knows that Joe, not you, bought the winning ticket. If you substitute his ticket for
yours, no one will know of the switch, and you will be $10 million richer. Joe's only living relative is a rich aunt
whom he despised. Will you switch his ticket for yours? Explain.
Answer: Perhaps an advocate of utilitarianism or social egalitarianism might feel that switching the
ticket would be morally appropriate on the premise that it maximized pleasure and was an appropriate
distribution of wealth. However, such a moral rationalization would demonstrate the flaws in both
theories. There is no escaping the fact that switching the tickets would be improper under the law and
most moral theories.
6. Omega, Inc., a publicly held corporation, has assets of $100 million and annual earnings in the range of $13 to
$15 million. Omega owns three aluminum plants, which are profitable, and one plastics plant, which is losing
$4 million a year. Because of its very high operating costs, the plastics plant shows no sign of ever becoming
profitable, and there is no evidence that the plant and the underlying real estate will increase in value. Omega
decides to sell the plastics plant. The only bidder for the plant is Gold, who intends to use the plant for a new
purpose: to introduce automation, and to replace all existing employees. Would it be ethical for Omega to turn
down Gold's bid and keep the plastics plant operating indefinitely for the purpose of preserving the employees'
jobs? Explain.
Answer: Indefinite maintenance of the plastics plant may strike one as being the morally correct thing
to do. The moral basis for such a decision would be essentially egalitarianism where the wealth
generated by many is redistributed to benefit others. However, as the basis for an economic system,
such an approach may be doomed to ultimate failure in that it does not rectify anything and only
prolongs a perhaps snowballing problem that could taint and impair the job security of everyone
employed by Omega. If managerial and operational changes truly cannot rectify the net loss situation
suffered by the plastics plant, sale of the plant to Gold may, in a broader context, be the morally correct
thing to do.
7. You are the sales manager of a two-year-old electronics firm. At times, the firm has seemed to be on the brink
of failure, but recently it has begun to be profitable. In large part, the profitability is due to the aggressive and
talented sales force you recruited. Two months ago, you hired Alice North, an honors graduate from the State
University, who decided that she was tired of the Research Department and wanted to try sales.
Almost immediately after you sent Alice out for training with Brad West, your best salesperson, he began
reporting to you an unexpected turn of events. According to Brad, ―Alice is terrific: she's confident, smooth, and
persistent. Unfortunately, a lot of our buyers are good old boys who just aren't comfortable around young,
bright women. Just last week, Hiram Jones, one of our biggest customers, told me that he simply won't continue
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, to do business with ‗young chicks‘ who think they invented the world. It's not that Alice is a know-it-all. She's
not. It's just that these guys like to booze it up a bit, tell some off-color jokes, and then get down to business.
Alice doesn't drink, and although she never objects to the jokes, it's clear she thinks they're offensive.‖ Brad felt
that several potential deals had fallen through ―because the mood just wasn't right with Alice there.‖ Brad
added, ―I don't like a lot of these guys' styles myself, but I go along to make the sales. I just do not think Alice is
going to make it.‖
When you call Alice in to discuss the situation, she concedes the accuracy of Brad's report but indicates that
she's not to blame and insists that she be kept on the job. You feel committed to equal opportunity but don't
want to jeopardize your company's ability to survive. Explain what you should do.
Answer: This is a common problem with a myriad of legal and moral implications. From a
profitability standpoint, especially in the case of a company on the brink of economic failure, ignoring
the requirements and whims of customers can amount to economic death. From a legal standpoint, the
Equal Opportunity laws operate harshly against an employer that discriminates on the basis of sex or
race in hiring and promotional activities. Employees are frequently aware of their rights, yet wish to
help the business of an employer and otherwise act as a good ―team player.‖ A possible response might
be (with the consent of Alice) attempting to divide sales accounts to give to Alice those accounts
where her sex would be a neutral or perhaps positive factor, while retaining for Brad oversight of the
―good old boy‖ accounts. Such an approach would acknowledge both her legal rights and her
justifiable expectations while not undermining the profitability of a company whose very existence is
at issue. Best utilization of employees is critical to any corporation, and this includes sensitivity to both
the employees‘ needs and the customers‘ needs.
8. Major Company subcontracted the development of part of a large technology system to Start-up Company, a
small corporation specializing in custom computer systems. The contract, which was a major breakthrough for
Start-up Company and crucial to its future, provided for an initial development fee and subsequent progress
payments, as well as a final date for completion.
Start-up Company provided Major Company with periodic reports indicating that everything was on schedule.
After several months, however, the status reports stopped coming, and the company missed delivery of the
schematics, the second major milestone. As an in-house technical consultant for Major Company, you visited
Start-up Company and found not only that it was far behind schedule but also that they it lied about its previous
progress. Moreover, you determined that this slippage put the schedule for the entire project in severe jeopardy.
The cause of Start-up's slippage was the removal of personnel from your project to work on short-term contracts
to obtain money to meet the weekly payroll.
Your company decided that you should stay at Start-up Company to monitor its work and to assist in the design
of the project. After six weeks and some progress, Start-up is still way behind its delivery dates. Nonetheless,
you are now familiar enough with the project to complete it in-house with Major's personnel.
Start-up is still experiencing severe cash flow problems and repeatedly requests payment from Major. But your
CEO, furious with Start-up's lies and deceptions, wishes to ―bury‖ Start-up and finish the project using Major
Company's internal resources. She knows that withholding payment to Start-up will put it out of business. What
do you do? Explain.
Answer: We don't know if the development fee was ever paid to Start-up Company. Major had an
obligation to pay the initial development fee. If it was paid and Start-up did not produce the required
progress reports, then Major is correct to withhold payment. Situational ethics will come into play
when you decide whether or not to give Start-up more time to complete the work. If the start-up fee
was not paid and it was Major‘s failure to pay on schedule that caused Start-up to divert their
personnel, then Major needs to take some share of the blame.
9. A customer requested certain sophisticated tests on equipment he purchased from your factory. Such tests are
very expensive and must be performed by a third party. The equipment was tested as requested and met all of
the industry standards but showed anomalies that could not be explained.
Though the problem appeared to be very minor, you decided to inspect the unit to try to understand the test
data—a very expensive and time-consuming process. You informed the customer of this decision. A problem
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, was found, but it was minor and was highly unlikely ever to cause the unit to fail. In addition to the time and
expense required to rebuild the equipment, notifying the customer that you were planning to rebuild the unit
would also put your overall manufacturing procedures in question. Should you fix the problem, ship the
equipment as is, or inform the customer? Explain.
Answer: You must inform the customer. The customer apparently has the right to request such testing,
and as such you have ethical responsibility to inform the customer of all factors. The ultimate decision
should be made by the customer. However, you have the obligation to comply with the legal and
governmental responsibilities within your industry.
10. You are a project manager for a company making a major proposal to a Middle Eastern country. Your major
competition is from Japan.
a. Your local agent, who is closely tied to a very influential sheikh, would receive a 5 percent commission if
the proposal were accepted. Near the date for decision, the agent asks you for $150,000 to ―grease the
skids‖ so that your proposal is accepted. What do you do?
b. What do you do if, after you say no, the agent goes to your vice president, who provides the money?
c. Your overseas operation learns that most other foreign companies in this Middle Eastern location bolster
their business by exchanging currency on the gray market. You discover that your division is twice as
profitable as budgeted due to the amount of domestic currency you have received on the gray market. What
do you do?
Answer:
(a) This may cross the line from ethical to legal requirements. If this is not illegal, then in applying the
doctrine of ethical relativism, you must decide what is subjectively right for you. You also need to
check the company code of conduct and any other applicable policy.
(b) Again when applying the doctrine of ethical relativism, if you feel strongly enough, you may have
to quit your job or request a transfer to another division. If this activity is not legal, you have the
obligation to report it to your company's superiors.
(c) The Utilitarianism cost–benefit analysis will allow you to first quantify this in monetary terms and
then compare the direct and indirect costs and benefits. This process may achieve the most profit but
may ignore justice in the process.
11. Explain what relevance ethics has to business.
Answer: Business ethics is the study and determination of what is right and good in business settings.
Business ethics seeks to understand the moral issues that arise from business practices, institutions, and
decision making, and their relationship to generalized human values. Unlike legal analyses, analyses of
ethics have no central authority, such as courts or legislatures, upon which to rely; nor do they follow
clear-cut universal standards. Nonetheless, despite these inherent limitations, it still may be possible to
make meaningful ethical judgments.
12. How should the financial interests of stockholders be balanced with the varied interests of stakeholders? If you
were writing a code of conduct for your company, how would you address this issue?
Answer: Finding this balance has been the struggle for most, if not all, businesses throughout time.
Historically, the stockholder model for the role of business has been the norm. Under this theory, a
corporation is viewed as private property owned by and for the benefit of its owners—the stockholders
of the corporation. The stakeholder model, on the other hand, holds that corporations are responsible to
society at large and more directly to all those constituencies on which they depend for their survival.
Thus, it is argued that a corporation should be managed for the benefit of all of its stakeholders—
stockholders, employees, customers, suppliers, and managers, as well as the local communities in
which it operates. (Student answers will vary but should address these two models.)
13. A company adopts a policy that (a) prohibits romantic relationships between employees of different rank and
(b) permits romantic relationships between employees of the same rank only if both employees waive in writing
their rights to sue the company should the relationship end. Violation of this rule is grounds for dismissal. Is this
rule ethical? If not, how should it be revised? Explain.
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