Test Bank For Business Ethics Case Studies and Selected Readings 8th Edition by Marianne M. Jennings

Business Ethics, 8e Jennings UNIT THREE – BUSINESS, STAKEHOLDERS, SOCIAL RESPONSIBILITY, AND SUSTAINABILITY True/False Questions T 1. T 2. F 3. F 4. T 5. T 6. T 7. F 8. T 9. F 10. T 11. F 12. F 13. T 14. F 15. F 16. T 17. T 18. F 19. T 20. F 21. T 22. R. Edward Freeman is a proponent of the stakeholder theory of the corporation. Stakeholders include employees and customers. Suppliers are not stakeholders in the corporation. Robert Halfon is a proponent of stakeholder theory of the corporation. Robert Halfon sees activist movements as a threat to corporate property rights. Halfon and Freeman are in agreement on the basics of stakeholder theory. Halfon and Friedman are in agreement on the social responsibility of a corporation. Tocqueville was a proponent of socialism. A decision not to sell realistic-looking toy guns is an example of an ethical choice not mandated by law. Decisions on corporate charitable contributions carry no ethical implications. Milton Friedman supports social spending by businesses if they can show a benefit to the shareholders. Employment contracts have an implied morals clause. Freeman’s stakeholder theory is grounded in ethical egoism. Outsourcing manufacturing jobs from the United States to developing countries is an example of a utilitarianism application. Once begun, the regulatory cycle cannot be reversed. The asbestos industry moved down the cycle very rapidly. Jennings and Entine propose a model of social responsibility that includes truthfulness. New environmentalism requires that the CEO be involved in company initiatives and practices. Herman Miller follows a policy of compliance with existing environmental laws. Herman Miller abandoned the use of rain-forest woods over the objections of customers and craftsmen. Countrywide went bankrupt. Countrywide was acquired by Bank of America. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings T 23. F 24. F 25. F 26. T 27. F 28. Fast-and-easy mortgage loans were largely undocumented loans. The subprime market did not begin until 2007. The default rate on subprime mortgage loans is no higher than the default rate for conventional loans. Reverse mortgages are a form of subprime lending. Craigslist is not required by law to screen ads placed on its online service for illegal conduct. Nonprofits are exempt from ethical issues because their intent is philanthropic. Multiple Choice Questions 1. According to Milton Friedman, an executive imposes taxes on shareholders when: a. He or she uses corporate funds for social causes. b. He or she fails to take all available deductions. c. He or she pays dividends. d. All of the above 2. Who said, “All businesses, forewarned, should be proactive, not reactive. They must be prepared to fight fire with fire and, if necessary, should be prepared to take their case all the way to the court”? a. R. Edward Freeman b. Milton Friedman c. Michael Novak d. Robert Halfon 3. Which of the following is not considered a stakeholder? a. Competitors b. Suppliers c. Customers d. Shareholders e. All of the above are considered stakeholders 4. Who believes that putting shareholders first is the wrong approach to corporate governance? a. R. Edward Freeman b. Milton Friedman c. Marjorie Kelly d. Robert Halfon 5. Who would take issue with the philosophy, “Treat employees well because then stockholders will prosper”? a. Immanuel Kant b. Marjorie Kelly c. Michael Novak d. Both a and b © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings e. All of the above 6. What was the issue with the Ice-T Body Count CD? a. People objected because the lyrics suggested killing police officers b. The lyrics were obscene c. The CD was not selling d. None of the above 7. Who said, “The question is not about business, it’s about responsibility”? a. President Clinton b. Charlton Heston c. Tracy Morrow d. David Geffen 8. Who said, “I don’t think that people in the media can say that advertising influences consumers to buy cars or shirts, and then argue that violence on television or in music has no impact”? a. President Bush b. Charlton Heston c. CEO of Nicole Miller d. David Geffen 9. What group sold its Time Warner stock following the Ice-T Body Count CD release? a. NOW b. NEA c. Philadelphia municipal pension fund d. Madonna 10. Who said, “I don’t condone cop killing. [But] to reach a more just and equitable society everybody’s voice must be heard”? a. Madonna b. Nicole Miller c. David Geffen d. Jerry of Ben & Jerry’s Ice Cream 11. Who spoke in protest of the Ice-T CD at Time Warner’s annual meeting? a. Madonna b. Charlton Heston c. Jerry of Ben & Jerry’s Ice Cream d. David Geffen 12. What past changes had Time Warner made based on public protests on content? a. Withdrew Madonna’s book b. Withdrew Last Temptation of Christ c. Corrected Porky Pig’s stutter d. All of the above 13. What percentage of total record sales is rap music? a. 10% © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings b. 20% c. 30% d. 18% 14. Following Body Count: a. Ice-T left the Time Warner label. b. Ice-T became impoverished. c. Ice-T became a detective on Law and Order. d. a,bandc e. aandconly 15. Following Body Count: a. Time Warner went exclusively into rap music. b. Time Warner shifted strategically into family-oriented entertainment. c. Time Warner released no more rap albums. d. Bothbandc 16. Businesses must face social issues because: a. It is the right thing to do. b. They can affect profits. c. The U.S. Constitution requires them to do so. d. None of the above 17. The Body Shop founder Anita Roddick said that she didn’t care about making money; she only cared about making the world a better place. Into which school of social responsibility would you place Ms. Roddick? a. Inherence b. Enlightened self-interest c. Invisible hand d. Social responsibility 18. Nobel economist Milton Friedman said that the social responsibility of a business is to make money for its shareholders. Into which school of social responsibility would you place Dr. Friedman? a. Inherence b. Enlightened self-interest c. Invisible hand d. Social responsibility 19. A company CEO said, “If it’s legal, it’s ethical. I do nothing more.” Into which school of social responsibility would you place this CEO? a. Inherence b. Enlightened self-interest c. Invisible hand d. Social responsibility 20. XYZ Corporation expects its managers and employees to testify at congressional hearings and appear before state legislatures to advocate policy positions on everything from taxes to activities in national parks. Into which school of social responsibility would you place XYZ Corporation? © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings a. b. c. d. Inherence Enlightened self-interest Invisible hand Social responsibility 21. Which player wrote a book that named names of baseball players who used steroids? a. Jose Canseco b. Mark McGwire c. Curt Schilling d. Sammy Sosa 22. Who said that the social responsibility of business is to earn a profit? a. Warren Buffett b. Albert Carr c. The Sadhu d. Milton Friedman e. None of the above 23. Which of the following’s views is aligned most closely with the inherence school of social responsibility? a. Milton Friedman b. Anita Roddick of the Body Shop c. Ben & Jerry d. Bothbandc e. None of the above 24. The enlightened self-interest school of social responsibility: a. Holds that the primary responsibility of business is to accommodate the community. b. Holds that the primary responsibility of business is to earn a profit. c. Does not acknowledge the interest of others beyond shareholders. d. Bothbandc e. None of the above 25. The conflicting values in the Time Warner Ice-T case are: a. First Amendment rights and duty of business to its larger community. b. Conflicts of interest and personal honesty. c. There were no conflicting values because everyone agreed with Time Warner. d. Purchasing conflicts and investments. e. None of the above 26. Which of the following is not a stakeholder in a business? a. Suppliers b. Customers c. Employees d. Community members e. All of the above are stakeholders 27. The definition of “stakeholder”: a. Is precise and definitive. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings b. c. d. e. Is very limited. Is not yet completed. Was developed by Milton Friedman. None of the above 28. Which school of social responsibility most closely matches Freeman’s Stakeholder Theory? a. Inherence b. Social Responsibility c. Invisible Hand d. Enlightened Self-Interest 29. Freeman’s Stakeholder Theory: a. Requires business to consider other groups beyond shareholders when making decisions. b. Is a free market theory. c. Require property rights before allowing input on a decision. d. Both b and c e. None of the above 30. Which of the following are not stakeholders under Freeman’s theory? a. Customers b. Employees c. Community d. Bothaandc e. All of the above are stakeholders 31. Milton Friedman’s view on executive compensation is: a. That government should control it. b. That there should be established ranges. c. That shareholders should undertake controls if they deem it necessary. d. None of the above 32. Which of the following is not one of Novak’s seven internal responsibilities of a corporation? a. To create new wealth b. To defeat envy c. To make charitable contributions d. To create new jobs 33. Who said, “All sensible businessmen prefer to be truthful, but they seldom feel inclined to tell the whole truth”? a. Marjorie Kelly b. Adam Smith c. Michael Novak d. Albert Carr 34. Social responsibility by a business: a. Is a doctrine developed by economist Milton Friedman. b. Requires a business to examine how its decisions affect its stakeholders, not just its shareholders. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings c. d. Is not part of a discussion of business ethics. None of the above 35. Rain forest chic: a. Is a Ben & Jerry’s flavor of ice cream. b. Is a label for branding strategies that focus on social responsibility. c. Is a slogan for the Body Shop. d. Is a Friedman term for social responsibility. 36. Whom does Marjorie Kelly believe should be rewarded the most for the creation of wealth in a corporation? a. The shareholders b. The executive team c. The employees d. aandb e. All of the above 37. In which stage of the regulatory cycle do scientific studies document an evolving issue? a. Latency b. Awareness c. Activism d. Regulation/litigation 38. What was the impact of the Community Reinvestment Act on Fannie Mae? a. It had to stop purchasing mortgage loans. b. It could only purchase loans that were not high credit risks. c. It enabled Fannie Mae to expand its portfolio substantially. d. None of the above 39. Who were “Friends of Angelo”? a. b. c. d. 40. What is a. b. c. d. Friends of Angelo were the members of Countrywide’s board. Friends of Angelo were those who received favorable and expedited mortgage decisions through Angelo Mozilo. Members of Countrywide’s staff who received favorable mortgage terms. None of the above the order of the stages in the regulatory cycle? Latency, awareness, activism, and regulation/litigation Latency, activism, awareness, regulation/litigation Latency, activism, regulation/litigation, awareness Latency, regulation/litigation, awareness, activism 41. As the regulatory cycle progresses: a. Options increase and cost decreases. b. Options decrease and cost decreases. c. Options decrease and cost increases. d. Options increase and cost increases. 42. Where in the regulatory cycle would you place text messaging? © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings a. b. c. d. Latency Awareness Activism Regulation/Litigation 43. Which of the following is not a stage in the regulatory cycle? a. Awareness b. Activism c. Latency d. Ethical options e. All of the above are stages 44. Place the following in the order of their progression in the regulatory cycle: I. Activism II. Awareness III. Latency IV. Regulation/Litigation a. I, II, III, IV b. II, III, I, IV c. III, I, II, IV d. III, II, I, IV e. None of the above is the correct order 45. Why does a company act voluntarily in implementing procedures and equipment beyond the statutory requirements? a. To avoid criminal penalties if there is ever a misstep b. For purposes of good relations with regulators and community c. To maximize shareholder value over the long term d. Bothbandc e. a,bandc 46. Who created Fannie Mae? a. Shareholders b. The federal government c. The Federal National Insurance Company d. None of the above 47. Which of the following lists did Fannie Mae not make? a. Fortune’s Best Companies for Minorities b. Best Companies for Working Mothers c. Business Ethics Most Ethical Company in America d. All of the above 48. What was branded in the brains of Fannie Mae employees? a. That ethics and integrity are critical to Fannie Mae’s success b. 6.46 c. Compliance with SOX requirements d. Diversity © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings 49. Fannie Mae’s policies on amortization: a. Met accounting standards. b. Were developed by the CFO and controller. c. Were adjusted for arbitrary volatility. d. All of the above 50. How did Fannie Mae discover the flaws in its computer model for amortization? a. The OFHEAO report disclosed them b. Former employee Roger Barnes raised concerns c. Bothaandb d. None of the above 51. What was the amount of Fannie Mae’s restatement of its revenue? a. $125 million b. $90 million c. $115 million d. $6.3 billion 52. The music industry’s warning labels on CDs: a. Represent a new regulation of rock music. b. Are an unconstitutional infringement of free speech. c. Are a means of halting the regulatory cycle. d. Were voluntary and initiated originally because of industry self-examination. e. None of the above 53. Why does John Mackey believe many people go into business? a. To maximize profits b. To lift wages of employees c. To offer a service or product that meets a need d. For personal wealth 54. Which formula does Kelly propose for corporate finances? a. Profit = revenues - cost b. Profit = revenues - employee income c. Profit = revenues - employee income + cost of materials d. Profits = employee income 55. John Mackey believes which of the following? a. He agrees with Kelly's views b. He believes "service to others" should be the corporate mantra c. He believes that Friedman's views are correct d. He believes that Halfon's views are correct 56. What happened to the prosecutors in the Stevens case? a. They were cleared of any misconduct b. They were disbarred c. One committed suicide © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings d. None of the above 57. What was the Wrigley company's concern in the use of Skittles in honoring Trayvon Martin? a. That the company would be associated with murder b. That it would be perceived as capitalizing on the death of a teen c. That its brand would suffer d. None of the above 58. Which of the following is a characteristic of the gun regulatory debates? a. Accurate factual information b. Bipartisan agreement c. Emotion d. All of the above 59. Which of the following best describes Craigslist's liability for content on its site? a. It is liable for any criminal activity that results from posting on its site b. It does not have an obligation to remove ads that involve criminal activity c. It must screen all ads d. None of the above 60. What happened when Smith & Wesson broke rank and decided to settle the gun litigation? a. It was touted as a good company and its earnings went up b. It lost its customer base c. It slowed down the gun regulatory cycle d. It was able to sell more guns at higher prices 61. What types of ethical issues occur at the individual level? a. Inflated travel expenses b. Falsification of financial statements c. Gray area activities d. Cheating on exams 62. What types of ethical issues occur at the societal level? a. Dabbling in gray areas b. Falsification of records c. Cheating on exams d. Insider trading 63. What affects company/organizational lapses? a. b. c. d. 64. At a. b. c. what Incentive plans Individual ethical standards Ethics codes Ethics training level of ethical lapses is the use of PEDs by players? Individual Company/organization Industry © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings d. Society 65. What problem does the United States face in criminal investigations of cruise line events? a. Lack of evidence b. Lack of jurisdiction c. Lack of sufficient resources d. There is no problem because the ICCL requires cruise lines to cooperate 66. Which is the number one cause of mortgage foreclosures? a. Loss of employment b. Negative equity c. Poor credit score d. Low down payment 67. Where are most cruise companies paying taxes? a. b. c. d. 68. What is a. b. c. d. United States United Kingdom Bahamas None of the above the average wage of a cruise ship worker? $900 - $950/month $700 - $750/month $500 - $550/month $400 - $450/month 69. What was the price of the GM Volt? a. $7,500 b. $26,000 c. $41,000 d. $52,000 70. How much of a rebate did the government offer GM Volt buyers? a. $5,000 b. $7,500 c. $10,000 d. 5% 71. What was unique about the compounding industry? a. It was neither a state nor federally regulated industry b. It had pressure to produce compounds quickly and cheaply c. It did not always comply with regulatory requirements d. It had no ethical issues 72. Where is the GM Volt today? a. Selling well b. Selling slightly less than projections c. Production is halted and sales goals will not be reached © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings d. GM is in bankruptcy 73. What issue affects farmers' markets? a. Outbreaks of Salmonella, E-Coli, and Hepatitis b. That their growth is cutting grocery margins c. That new federal regulations apply to them d. None of the above 74. What impact has the demand for biofuels had in countries like Guatemala? a. High employment and increasing incomes b. Introduction of farming technology c. Lower taxes d. Less food and higher prices 75. What issue did the federal auditor raise about Stanford's research overhead expenses? a. That the paperwork was not complete b. That there are no overhead reimbursement for grants c. That the overhead expenses submitted did not seem right d. That the overhead expenses violated the rules 76. What happened to Donald Kennedy, the president of Stanford University, after the audit of the school's overhead research costs? a. He was made a U.S. Ambassador b. He was charged criminally c. He resigned as president of Stanford d. He successfully challenged the government's position 77. What happened with Solyndra? a. It was a successful green energy company b. It was forced to file bankruptcy c. It was acquired by a Chinese firm d. It repaid its government funding 78. What methods do businesses use to obtain minority-owned business status? a. Hold ownerships with a silent minority partner b. Relocate in order to have minority employees c. Use a name that carries minority connotations d. All of the above 79. What did Herman Miller gain through its environmental initiatives? a. Extra costs b. Solid reputation with regulators c. Cost savings d. b and c only e. a and b only f. All of the above 80. Former Prosecutor Michael Nifong of Durham County, North Carolina: © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings a. b. c. d. e. a. Were ultimately found guilty of some criminal charges. b. Were exonerated by the North Carolina attorney general. c. Had their charges dropped by Michael Nifong. d. None of the above 82. The North Carolina State Bar: a. Accepted Mr. Nifong’s resignation as DA as sufficient punishment. b. Disbarred Mr. Nifong. c. Censured Mr. Nifong. d. Found no violations of the professional code of ethics by Mr. Nifong. Short Answer/Essay Questions 1. Describe a situation in which Dr. Friedman would support a corporation taking voluntary or socially responsible action. SUGGESTED ANSWER: Dr. Friedman would allow a corporation to take voluntary or socially responsible actions if its managers could show a connection between those actions and profits for the shareholders. An example would be installing scrubbers on a plant so as to reduce pollution when the reduction of that pollution saves on health care costs for employees, allows the company to recruit better employees, and reduces taxes in the area for the company and employees. 2. How would you describe Adelphia’s treatment of its stakeholders? SUGGESTED ANSWER: Adelphia was a generous corporate citizen and a good corporate citizen. It sponsored arenas, Christmas parties, inexpensive movie nights, and many other charitable causes. Adelphia was generous with its employees and kind to them. However, its shareholders did suffer because the funds were siphoned off from the company to the various favorite causes of the Rigases. 3. Describe Dayton-Hudson’s experience with charitable contributions. SUGGESTED ANSWER: Dayton-Hudson was boycotted by pro-life customers when it gave to Planned Parenthood. When it halted the contributions to Planned Parenthood, it was boycotted by its pro-choice customers. The experience of the company is an illustration of the sensitivity of some social issues and that companies can be caught in situations in which they lose customers because of positions they take on social issues. 4. Using the MLB steroids case as an example, explain how unethical choices by some players harms players who comply with the rules. Withheld evidence from defense attorneys. Conducted line-ups inappropriately. Embezzled from the county. Bothaandb a,bandc 81. The Duke LaCrosse players: © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings SUGGESTED ANSWER: Students should discuss the competitive disadvantage non-using players suffer when they comply and there is no enforcement. Also, the students should discuss that there is no way to compare players’ performances when some have acted illegally. 5. Leslie Fay Companies was a clothing conglomerate that produced lines of women’s clothing and lingerie under the brand names Leslie Fay, Joan Leslie, Albert Nipon, Theo Miles, Kasper, Le Suit, Nolan Miller, Castleberry, and Castlebrook. In early 1993, it was discovered that senior Leslie Fay executives, in an effort to inflate profits and to mask an actual loss of $13.7 million, had perpetrated an accounting fraud. Paul Polishan, Leslie Fay’s chief operating officer, was placed on leave without pay in January 1993, along with Donald F. Kenia, the corporate controller. Mr. Kenia had first alerted the company to the accounting manipulations and worked with auditors to untangle the books. By April 1993, Leslie Fay, under intense pressure from creditors, filed for Chapter 11 bankruptcy (reorganization) in Manhattan. Both Mr. Polishan and Mr. Kenia were fired. Mr. Kenia, charged with two counts of filing false statements with the SEC, has entered into a plea bargain with the U.S. Attorney in exchange for his cooperation in the continuing investigation of the Leslie Fay accounting improprieties. Also in April 1993, two new outside directors were named to the Leslie Fay board. The audit committee of the board discovered, through continuing investigation, that accounting irregularities had inflated the company’s profits for at least five quarters beginning in the fall of 1990. As Leslie Fay continued its climb from bankruptcy, it was discovered that its law firm, Weil Gotshall & Manges, had failed to disclose its close ties to two board audit committee members. A federal bankruptcy judge ordered the law firm to pay fines totaling $800,000, which was the cost of having an independent review of the law firm’s representation and conduct in the case. In March 1995, Leslie Fay placed its flagship dress and retail business up for sale and offered its CEO a success fee of $1.5 million if those businesses were sold. Also in March 1995, a report detailing accounting improprieties was released by the audit committee of the Leslie Fay board. The board found that when executives realized they would not meet pre-established goals, they would ship goods out to a Wilkes-Barre, Pennsylvania, facility to inflate sales. The executives also forged inventory tags, multiplied the value of inventory, developed phantom inventory and altered records to meet sales target. Some goods were invoiced to be shipped in the final day of a quarter even though they were not actually shipped until the next quarter. Numerous shareholders have filed suit against the Leslie Fay board and BDO Seidman, the company’s auditor during this period. John Pomerantz continued as CEO from 1993 onward. The company has tried to find a buyer but has remained unsuccessful in doing so. a. What signals about the importance of earnings at Leslie Fay were sent to the officers who committed the accounting improprieties? b. Wouldn’t employees have been aware of the financial fraud? Why didn’t they speak up? Why didn’t they tell someone? c. How might Leslie Fay have prevented what happened? d. If you were the new chief financial officer, what message would you most want to impress upon all Leslie Fay employees? © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings e. Of what significance are the law firm’s ties to the board’s audit committee members? Did these ties set a poor tone at the top? SUGGESTED ANSWERS: a. The pressure to make quarterly earnings was so intense that the officers were willing to engage in deception, fabrication, shifting of sales, etc. to meet the earnings figures. b. Employees may very well have been aware of the fraud, but with an ethical culture in which the officers were involved, it wouldn’t have done any good to speak up. In a culture such as this one, employees would be afraid to bring such matters to anyone’s attention. c. Changing the signals to officers would have helped. The intense focus on earnings and pressure to meet goals set the stage for the deception. d. The message would be: Earnings the Right Way Earnings Through Sales and Satisfaction Integrity Without Compromise e. There are conflicts of interest. Legal counsel for a business (which owes its business and account to the company) is not a good source for audit committee members. The ties suggest “good ol’ pal network” and “you scratch my back...”. Note: At the time of the discovery of the earnings misrepresentation, Leslie Fay’s stock was at $13 per share. In June, 1995, the price had dropped to 13/22. Leslie Fay continues to attempt to struggle out of bankruptcy. 6. Albertson’s, the grocery retailer, has the highest profit margins in the industry at 6%. A union has filed suit against Albertson’s for its “off-the-clock” without pay practices with respect to manager trainees. These trainees worked 4-5 hours extra each week without pay and did not complain because of promises of progression in the organization. When progression did not materialize, the trainees returned to checking positions and their union filed a class action suit on their behalf. The potential for back pay and penalties in the case is $200 million. Albertson’s notes that some managers may prod trainees to work longer without pay but that such is not company policy. a. Who is responsible for the “off-the-clock” policy? b. Is it each store manager or Albertson’s? c. Is “off-the-clock” an ethical policy? SUGGESTED ANSWERS a. Students should discuss management’s role in encouraging the practice even though individuals decide. b. Students should discuss pressure for breaches. c. The policy takes unfair advantage of employees who wish to advance and is a technical rules violation. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings 7. Fifty-nine auto dealers around the country were fined $200,000 by the Department of Labor for child labor violations. The car dealers hire 16- and 17-year olds to move cars from service bays to customer pick-up areas and from lots to show rooms. They are also employed to wash cars. The teenagers move the cars literally only hundreds of feet in the process, but they are driving the cars. Under the Fair Labor Standards Act and the federal regulations, only those employees who are age 18 or above are permitted to drive as part of job requirements. The fine for a violation is $1,100. The Department of Labor contacted dealerships and asked for the names of their employees under the age of 18. Once the Department had the names, it contacted the young employees to question them about their job duties. Upon discovery of the driving, the dealerships were fined. About one-half of the dealerships have paid the fines and the remainder are protesting. The result has been that dealerships will now employ only those who are 18 and older because it is impossible to have an employee responsible for washing cars and not be able to move the car. The result has been that many special job programs for minority students and students in vocational schools have been eliminated. a. Do you think this type of driving was intended to be covered in the child labor statutes? b. Are auto dealers taking advantage of children or helping them? SUGGESTED ANSWERS: a. Students should discuss purposes of law and protection of children. b. Discussion of impact of employing teenagers: pro and con. Issue of unfair advantage is important. 8. Discuss the benefits for a company of not downsizing, as in the case of Aaron Feuerstein and Malden Mills. SUGGESTED ANSWER: The benefits are that the employees’ morale increases because of the positive manner in which they are treated. Also, the company avoids the costs of having to retool and retrain once it does return to normal size or even requires a period of time for growth. Companies that perceive their employees to be assets also seem to reap greater productivity rewards and fewer employee disagreements and union disputes. In short, there may be long-term benefits to be gained from not downsizing and providing for employees. There are also alternatives such as employees agreeing to reduced salaries or fewer work days so that all of them can survive the crunch or crisis. 9. Explain who stakeholders are. SUGGESTED ANSWER: Customers, employees, community, suppliers 10. List and explain three schools of ethical thought. SUGGESTED ANSWER: Moral Question: Policy Question: © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings Whose Interest Should Corporation Serve? Shareholders Only Shareholders Only Larger Society Larger Society Because he feels they have a distinct structure, purpose, and role from all other organizations in society. 12. Raymond Randall is an attorney with the Federal Trade Commission. A 19-year veteran with the agency, Mr. Randall was known as a good trial attorney. The FTC charged William Farley, the chairman of Fruit of the Loom, Inc., with violations of the reporting provisions of the Hart-Scott- Rodino Act, when he purchased shares of West Point-Pepperell Corporations prior to a Fruit of the Loom takeover bid. The Hart-Scott-Rodino Act requires investors to notify the government when their holdings in a firm pass $15 million. The FTC sought a fine of $10,000 per day against Mr. Farley, for a total of $910,000. Mr. Farley did notify the FTC once Fruit of the Loom made its decision to acquire West Point-Pepperell. Randall was assigned the Farley case. The FTC took a position of refusing to disclose to Farley and his attorneys documents relating to the case. Mr. Randall felt that the documents pointed to weaknesses in the FTC case and supported Mr. Farley's point that he notified the FTC once the takeover position was announced. Mr. Randall leaked the documents to Mr. Farley's lawyer. Mr. Farley's lawyers were concerned that they should not be in possession of government documents returned the documents and resigned from the case because they had seen the documents. Mr. Farley's new attorneys went to court demanding production of the documents. The documents were ordered produced by the court. When the FTC refused to produce them, the case against Mr. Farley was dismissed by a federal district judge. a. Did Mr. Randall do the right thing in disclosing the documents to Farley's attorneys? b. Did Mr. Farley's lawyers do the right thing in returning the documents to the FTC? SUGGESTED ANSWERS: a. Mr. Randall was engaged in a form of civil disobedience. He knew that the documents were government property and enjoyed the protection of the courts, but he also felt that Mr. Farley was being prosecuted without sufficient evidence. Mr. Randall's principles, values and ethics took control of the situation and he sent the documents as a means of allowing Mr. Farley access to the information. It is important to note that Mr. Randall's action should have been his last choice. Did he go to those within the agency and attempt to resolve the problem? He should also consider his loyalty to his employer and his responsibilities as an attorney before taking the action that he did which was a form of civil disobedience. Inherence Enlightened Self-Interest Invisible Hand Best Way To Serve Interest Is If The Corporation Is Responsive To: Shareholders Only Larger Society Shareholders Only Larger Society Social Responsibility 11. Why does Michael Novak distinguish corporations’ responsibilities? SUGGESTED ANSWER: © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings b. Mr. Farley's attorneys acted with the utmost integrity in returning the documents and resigning from the case. They made some difficult choices and not only followed the law but then resigned from the case because they had seen things they were not permitted to see. Their forthright actions probably helped Mr. Farley with the court and provided great credibility for Mr. Farley and his new attorneys as they successfully pursued the dismissal. 13. Lee Iacocca, chairman and CEO of Chrysler Corporation, announced on January 27, 1988, that the automaker would be closing its Kenosha, Wisconsin, plant. Iacocca and his board of directors were under significant pressure from shareholders due to Chrysler’s continuing poor financial performance. Chrysler had acquired the Kenosha plant when it purchased American Motors Corporation in 1987. In his announcement, Iacocca blamed national trade policy for Chrysler’s declining sales and resultant earnings problems. At the Kenosha plant, which manufactured the Dodge Omni and the Plymouth Horizon, 5,500 of the 6,500 workers were to be laid off and production moved to a Detroit plant. Kenosha, a city of 77,000 on the shores of Lake Michigan, depended heavily on Chrysler’s presence. The announcement of the closing came at a critical time. Chrysler was negotiating to renew its contract with the United Auto Workers (UAW). Also, the Kenosha plant carried a history of union financial assistance. The UAW had loaned American Motors over $60 million to keep the Kenosha plant running, and Chrysler had assumed the loan obligations as part of the acquisition. Also, Wisconsin had paid $5 million for job training at the Kenosha plant in 1987 after Chrysler promised that the plant would build Omnis and Horizons for at least five more years. Peter Pfaff, a member of the UAW Local 72 of Kenosha and an employee at the plant since 1972, said: “I was there. We’ve got it on tape and in writing. They said they’d stay. Greenwald (then Chrysler Motors chairman) keeps saying Chrysler never said that, but I was there when he said it.” The Kenosha local threatened to delay negotiations on renewing the national contract with 64,000 workers. After the threat, Iacocca announced that Chrysler would establish a $20 million trust fund to aid the 5,500 Kenosha workers through housing payments and educational funding. This fund would be in addition to severance pay, extended unemployment benefits, and repayment of the UAW loans. While denying that Chrysler was setting a precedent, Iacocca declared it had a “moral obligation” to Kenosha. Wisconsin threatened to sue Chrysler over the job training program but agreed to hold off in exchange for Iacocca’s promise to extend production at the plant for several months into the fall of 1988. Iacocca stated that Chrysler was “guilty as hell of being cockeyed optimists. Blame us for being dumb managers, for spending $200 million to put two old cars (the Chrysler Fifth Avenue and the Dodge Diplomat) in an eighty-six-year-old plant, but please don’t call me a liar when I’ve got to close it sooner than I thought.” Iacocca sought congressional support for converting the Kenosha plant to defense work by Chrysler. Chrysler and the UAW negotiated a contract that provided additional unemployment benefits for the 5,500 laid-off workers and more job security for the 1,000 workers who would transfer to other Chrysler operations. Ultimately, the plant closing resulted in 3,700 layoffs. By mid-1990, Kenosha was enjoying unprecedented economic growth. At a July 1990 ceremony in which engineers detonated explosives to destroy the 250-foot-high smokestack of the Chrysler plant, dignitaries and former workers cheered. Kenosha resident T. R. Garcia said at the blasting, “I think it’s about time they got rid of it. What we need to do is develop the lake front, and this © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings thing is the last to leave.” City planner Ray Forgianni, Jr., added, “The community’s image is probably the best it’s been in 100 years. The closing was almost like a catalyst. The handwriting was on the wall-the economy needed to diversify.” a. Did Chrysler have a moral obligation to the Kenosha workers and Wisconsin, or was it just responding to pressure? b. Do arrangements like Chrysler had with the UAW loans and Wisconsin interfere with the ability to make business decisions? Review Iacocca’s quote on business mistakes as you evaluate the issue. c. Were the shareholders required to pay twice for the closing - once in severance pay and again in extended benefits? d. Was Chrysler simply putting its duty to shareholders above its duty to Wisconsin, Kenosha, and its workers? Is this proper? Is it ethical? e. Was Chrysler’s action just a catalyst for needed economic development? f. Iacocca, after having stepped down as chairman of Chrysler, made a takeover offer for Chrysler in 1995. What would Chrysler’s ethical culture be like if Mr. Iacocca had succeeded in his takeover bid? SUGGESTED ANSWERS: a. There are differing schools of thought in ethics regarding the obligation of employers who close down plants to the workers from that plant and the communities in which they are located. One group imposes an obligation on the employer to leave the town whole. This obligation requires placement of the workers and economic redevelopment of the community all at the employer's cost with some contributions from governmental entities. Another school of thought sees such additional obligations as a double tax to shareholders. Not only must they bear the cost of the cutbacks and economic downturn, they must now ensure that the workers and the community do not have to share in such losses. This view advances the notion that workers are always insulated from financial losses and economic downturns and may not have the appropriate incentives to retool. b. Obligations to restore the workers and communities add costs to downsizing and prevent flexibility in making allocation and resource decisions. An additional cost is added to becoming more efficient and the incentives may make it easier to remain inefficient. c. The rights of shareholders are often ignored in the interest of protecting the employees and communities. On the other hand, the communities give the employers the right to use the air and water sheds and the opportunity to benefit from the support of the government resources and often tax breaks. d. Yes, Chrysler defined its duty as first and foremost to its shareholders. Businesses do have a primary obligation to their investors, but Chrysler did take on more investors here (community). e. Chrysler’s withdrawal may have ultimately benefited the community. f. Mr. Iacocca’s focus would be on Chrysler’s earnings. There are ethical risks with such a focus. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings 14. In November 2009, a large cache of e-mails and technical documents from the Climate Research Unit (CRI), part of the University of East Anglia in Great Britain, appeared on several Internet file- servers and could be downloaded by the public. The University has yet to determine whether the posting of the proprietary files were the result of a hacker’s effort or whether they were posted by a whistleblower with CRI. CRI’s research and data have been used by the UN’s Intergovernmental Panel on Climate Change (IPCC) as the basis for its support for both the Kyoto and Copenhagen Protocols, a form of international treaty that would have countries agree to curb their carbon emissions. The Kyoto Protocol fizzled when the United States declined to adopt it. The meeting at Copenhagen for the adoption of emissions standards began on December 7, 2009. Fossil-fuel industries would be affected by the Protocol. Those industries include oil and gas, auto industry, and fossil-fuel based utilities (coal, oil, and gas). Those industries did undertake voluntary reductions following the demise of the Kyoto Protocol. To date, businesses and industries in the United States have achieved one-half of the reductions that Kyoto would have mandated. The 1,000+ e-mails from the scientists at CRI reveal what MIT scientist Michael Schrage has called “malice, mischief, and Machiavellian maneuverings” among the scientists with regard to their data and research on climate change. The e-mails include the following revelations:  Ongoing efforts to manipulate the peer-review process for manuscripts that were submitted for publication in academic journals if those manuscripts challenged the research and conclusions of CRI scientists. From: Phil Jones. To: Many. March 11, 2003 “I will be emailing the journal to tell them I’m having nothing more to do with it until they rid themselves of this troublesome editor.” Professor Jones appears to be lobbying for the dismissal of the editor of Climate Research, a scientific journal that published papers downplaying climate change. From Phil Jones To: Michael Mann (Pennsylvania State University). July 8, 2004 "I can't see either of these papers being in the next IPCC report. Kevin and I will keep them out somehow – even if we have to redefine what the peer-review literature is!"  There was considerable disagreement acrimony among the CRI scientists about the results, meaning, and interpretation of their data and work – something not revealed in either their publications or speeches.  Significant portions of data from CRI were withheld from public disclosure or examination by scientists outside CRI.  University of Arizona professor Jonathan Overpeck expressed concern to his colleagues in the e-mails, “Please write all e-mails as though they will be made public.”  CRI scientists ignored requests for the release of raw data.  One CRI scientist deleted his e-mails after demands for the data were made public. However, he neglected to delete an e-mail that revealed his actions in response to a British Freedom of Information Act (BFOIA), “I am supposed to go through my emails and he can get anything I’ve written about him. About 2 months ago I deleted loads of emails, so have very little – if anything at all.” There is an investigation of possible violations of the BFOIA.  That the CRI scientists were aware that the reconstruction of the earth’s climate (paleoclimatology) during periods prior to actual human measurement and recording is a massive and complicated undertaking that is dependent upon statistical interpretation of raw data, interpretation that would ordinarily result in intense academic controversy. However, the e-mails reflect efforts to prevent or obscure the controversy. Again, CRI Scientist Phil Jones’ e-mail: From: Phil Jones. To: Many. Nov 16, 1999 © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings "I've just completed Mike's Nature [the science journal] trick of adding in the real temps to each series for the last 20 years (i.e., from 1981 onwards) and from 1961 for Keith's to hide the decline."  An e-mail from a U.S. climatologist included in the releases reflected, “I support the continued collection of such data, but I am disturbed by how some people in the paleo community try to oversell their product.”  Another scientist wrote, “I’m not political. If anything, I would like to see the climate change happen, so the science could be proved right, regardless of the consequences.”  An outside scientist brought into the loop wrote, “That fact is that we can’t account for the lack of warming at the moment [since 1998] and it is a travesty that we can’t.” The University of East Anglia is conducting an investigation of the e-mails and CRI, but has warned, "The selective publication of some stolen emails and other papers taken out of context is mischievous and cannot be considered a genuine attempt to engage with this issue in a responsible way." Prominent government and NGO officials have responded by indicating that regardless of the conduct of the scientists there is a climate problem that must be addressed. List all of the ethical issues you see. Be sure to include a discussion of any social responsibility issues that you see. SUGGESTED ANSWER: Students should discuss giving or allowing false impression, withholding information, conflicts of interest, and organizational abuse. Students should also focus on whether the falsification of data and suppression of information is justified if those who engage in this behavior have enough of a belief in their cause. Students should also discuss the long-term harm that comes from disclosure of misconduct in science. 15. The American Board of Internal Medicine (ABIM) has taken some sort of disciplinary action against 140 docs who cheated on their ABIM certification exams. In a lawsuit that the ABIM had filed previously against Arora Board Review, a company that does exam review courses for certification, the discovery process yielded information that proved to be more damaging for the docs than for Arora. The documents in the now-settled case included e-mails and other correspondence from the docs to Arora. The e-mails and correspondence revealed that the docs knew many of the questions and, indeed, followed up by sending along memorized test questions from their own certification exams to Arora in order to help the cert-docs-in-waiting along. List the stakeholders in this situation. SUGGESTED ANSWER: Doctors Patients Hospitals Future doctors The review course The exam administrators Insurers (malpractice higher if docs don’t know their stuff) Medical schools (their reputations affected by conduct of doctors or lack of knowledge) Others who have to take standardized exams because of security issues © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings 16. In 2008, Starbucks placed a red light on 600 planned openings. Starbucks says it was excused from the leases because of economic conditions. Landlords note that Starbucks is driving down property values by allowing the leased spots to lie fallow. The landlords also note that they are victims because Starbucks’ expansion plans were too ambitious, even for a good economy. Discuss the social responsibility of Starbucks in this situation. SUGGESTED ANSWER: Students should identify the stakeholders: landlords, other tenants, other business owners in the area, local governments and lost revenues, and a host of vendors, contractors, and potential employees. Issues are whether there is a commitment to honor contracts or whether the shifting of the economic burden to others is appropriate. What are the norms for behavior on economic downturns? 17. Why do companies have moral clauses in their contracts with stars who are appearing in their ads? SUGGESTED ANSWER: The use of stars or athletes who run into legal or behavior problems can cause customers to boycott the company or at least refrain from buying from the company. The effect of the star or athlete’s relationship with the company is negative and brings backlash to the company. 18. A group of food retailers and manufacturers banded together to self-regulate their ads, particularly on the Internet, for their products. Discuss why the manufacturers and retailers would make such a joint agreement? SUGGESTED ANSWER: They are trying to control the regulatory cycle. If they behave more responsibly in their restraint, their ads will not be prohibited. Their self-control also addresses social issues such as childhood obesity and health complications from eating foods that have low nutritional value and/or high sugar and/or fat. 19. Explain the evolution of an individual baseball player using performance enhancing drugs (PEDs) to it becoming a societal issue. SUGGESTED ANSWER: When one athlete decides to use PEDs, it is his or her decision. But, when his or her team rewards him or her, it becomes an organizational issue. When other teams join in to be competitive and also give their PEDs players rewards, it is an industry issue. When we pay to see the games and fill the stadiums to see PEDs players, it becomes a societal issue. 20. Discuss the actions of the Duke faculty members with their ad and their follow-up conduct. SUGGESTED ANSWER: Students should use this as an opportunity to discuss how critical it is to view issues with facts and then analyze them appropriately. Often, our opinions and emotions get in the way and blind us to facts and questions that we should be asking and exploring. 21. Discuss the ethics of posing as another for purposes of investigating an issue or organization. SUGGESTED ANSWER: © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Business Ethics, 8e Jennings There is a false impression. Students can bring in ethical theory here and discuss the greater public good of ferreting out this kind of underground criminal activity going on in a government subsidized program for housing that is encouraged by the staff of the funded organization. There are the categories of false impression and taking unfair