Quiz 7: Ethics and Business Decision Making
Business
Q 1Q 1
CompTac, Inc, which is headquartered in San Francisco, California, is one of the leading software manufacturers in the United States. The company invests millions of dollars in researching and developing new software applications and computer games that are sold worldwide. It also has a large service department and has taken great pains to offer its customers excellent support services.
CompTac routinely purchases some of the materials necessary to produce its computer games from a New York firm, Electrotex, Inc. A dispute arises between the two firms, and CompTac wants to sue Electrotex for breach of contract. Can CompTac bring the suit in a California state court? Can CompTac bring the suit in a federal court? Explain.
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Company C can only file this suit in California State court if it can prove that the state of California has a personal jurisdiction over the defendant i.e. company E. Company C would have to prove that company E has some close relation with the state of California. This would be difficult to prove because personal jurisdiction exists if the defendant resides in that territory in which the court is located. In this case it does not seem to be the case and therefore, it can be assumed that company C cannot bring this suit in California state court. There are two conditions which should be met before company C can file this suit in federal court. First is the diversity of citizenship of the parties involved and the second is that the amount involved in dispute should be $75,000 or more. In this case, first condition suffice i.e. both the companies involved in the dispute are situated in separate states. However there is no information in this case about the amount involved in the dispute and therefore it cannot be determined that whether the case could be filed in the federal court or not.
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Ethics can be defined as that branch of philosophy which involves systematizing, recommending, and defending the concept of correct and incorrect conduct. It helps in studying the moral behaviour among humans along with fundamental principles and concept of human conduct. Business or corporate ethics can be defined as a form of professional or applied ethics which examine ethical or moral issues which arise in business environment. Business ethics is applicable to all the aspects conduct in business and is important to the conduct of employees and organizations. Business ethics are important for an organization due to below-mentioned reasons: 1) It helps an organization to attract customers which result in increased sales and profits. 2) Increases employee retention, reduces labour turnover and increases productivity. 3) Helps in attracting investors which results in high share prices for the company.
Q 3Q 3
Business Ethics. Some business ethicists maintain that whereas personal ethics has to do with right or wrong behavior, business ethics is concerned with appropriate behavior. In other words, ethical behavior in business has less to do with moral principles than with what society deems to be appropriate behavior in the business context. Do you agree with this distinction? Do personal and business ethics ever overlap? Should personal ethics play any role in business ethical decision making?
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Business and personal ethics may sometimes overlap. Business persons may not essentially adopt different sets of principles for guiding their personal and professional life. Business activities are just one part of life and business related ethics are also a subset of ethics. Ethical decision making can get complicated during business due to the number of people providing input into those decisions. Very few business persons have a complete control over decision making process. Personal ethics should essentially play a role in ethical decision making in businesses. It would be quite hypocritical to apply different set of ethics in different situations. However, there are various other factors also which influence ethical decisions in business.
Q 4Q 4
What was the majority's decision on the principal question before the Court in this case? What were the reasons for this decision?
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Q 5Q 5
Ethics and Business Decision Making
Isabel Arnett is the chief executive officer (CEO) of Tamik, Inc., a pharmaceutical company that manufactures a vaccine called Kafluk, which supposedly provides some defense against bird flu. The company began marketing Kafluk throughout Asia. After numerous media reports that bird flu may soon become a worldwide epidemic, the demand for Kafluk increased, sales soared, and Tamik earned record profits. Tamik's CEO, Arnett, then began receiving disturbing reports from Southeast Asia that in some patients, Kafluk had caused psychiatric disturbances, including severe hallucinations, and heart and lung problems. Arnett was informed that six children in Japan had committed suicide by jumping out of windows after receiving the vaccine. To cover up the story and prevent negative publicity, Amett instructed Tamik's partners in Asia to offer cash to the Japanese families whose children had died in exchange for their silence. Arnett also refused to authorize additional research within the company to study the potential side effects of Kafluk. Using the information presented in the chapter, answer the following questions.
1. In this scenario, it is not clear that the other corporate officers and Tamik's board of directors were aware of the actions of its CEO, Amett. Flow might an integrated corporate governance system ensure that all parties were informed of Arnett's conduct?
2. Would a person who adheres to the principle of rights consider it ethical for Arnett not to disclose potential safety concerns and to refuse to perform additional research on Kafluk? Why or why not?
3. If, during this same period, Kafluk prevented one thousand Asian people who were exposed to bird flu from dying, would Arnett's conduct in this situation be ethical under a utilitarian model of ethics? Why or why not?
4. Did Tamik or Arnett violate the Foreign Corrupt Practices Act in this scenario? Why or why not?
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Q 6Q 6
The following multiple-choice question is representative of the types of questions available in one of the four sections of ThomsonNOW for Business Law Today. ThomsonNOW also provides feedback for each response option, whether correct or incorrect, and refers to the location within the chapter where the correct answer can be found. The primary focus of utilitarian ethics is the
A) outcome of actions.
B) nature of the actions themselves.
C) thought process involved in literary creation.
D) role of God-given commandments in ethics.
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Q 7Q 7
CompTac, Inc, which is headquartered in San Francisco, California, is one of the leading software manufacturers in the United States. The company invests millions of dollars in researching and developing new software applications and computer games that are sold worldwide. It also has a large service department and has taken great pains to offer its customers excellent support services.
A customer at one of CompTac's retail stores stumbles over a crate in the parking lot and breaks her leg. The crate had just moments before fallen off a CompTac truck that was delivering goods from a CompTac warehouse to the store. The customer sues CompTac, alleging negligence. Will she succeed in her suit? Why or why not?
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Q 9Q 9
Hypothetical Question with Sample Answer. If a firm engages in "ethical" behavior solely for the purpose of gaining profits from the goodwill it generates, the "ethical" behavior is essentially a means toward a self-sewing end (profits and the accumulation of wealth). In this situation, is the firm acting unethically in any way? Should motive or conduct carry greater weight on the ethical scales in this situation?
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Q 10Q 10
How did the dissent interpret the issue before the Court? What were the reasons for this interpretation?
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Q 11Q 11
CompTac, Inc, which is headquartered in San Francisco, California, is one of the leading software manufacturers in the United States. The company invests millions of dollars in researching and developing new software applications and computer games that are sold worldwide. It also has a large service department and has taken great pains to offer its customers excellent support services.
Roban Electronics, a software manufacturer and one of CompTac's major competitors, has been trying to convince one of CompTac's key employees, Jim Baxter, to come to work for Roban. Roban knows that Baxter has a written employment contract with CompTac, which Baxter would breach if he left CompTac before the contract expired. Baxter goes to work for Roban, and the departure of its key employee causes CompTac to suffer substantial losses due to delays in completing new software. Can CompTac sue Roban to recoup some of these losses? If so, on what ground?
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Ethical Decision Making. Shokun Steel Co. owns many steel plants. One of its plants is much older than the others. Equipment at that plant is outdated and inefficient, and the costs of production at that plant are now twice as high as at any of Shokun's other plants. The company cannot raise the price of steel because of competition, both domestic and international. The plant employs more than a thousand workers and is located in Twin Firs, Pennsylvania, which has a population of about 45,000. Shokun is contemplating whether to close the plant. What factors should the firm con-sider in making its decision? Will the firm violate any ethical duties if it closes the plant? Analyze these questions from the two basic perspectives on ethical reasoning discussed in this chapter.
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Q 14Q 14
ETHICS. Suppose that either or both of the parties in this case had asserted their respective positions only to increase their profits. Would this have been unethical? Explain.
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Q 15Q 15
CompTac, Inc, which is headquartered in San Francisco, California, is one of the leading software manufacturers in the United States. The company invests millions of dollars in researching and developing new software applications and computer games that are sold worldwide. It also has a large service department and has taken great pains to offer its customers excellent support services.
One of CompTac's employees in its accounting division, Alan Green, has a gambling problem. To repay a gambling debt of $10,000, Green decides to "borrow" some money from CompTac to cover the debt Using his "hacking" skills and his knowledge of CompTac account numbers, Green electronically transfers CompTac funds into his personal checking account. A week later, he is luckier at gambling and uses the same electronic procedures to transfer funds from his personal checking account to the relevant CompTac account. Has Green committed any crimes? If so, what are they?
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Q 16Q 16
How do duty-based ethical standards differ from outcome-based ethical standards? 5 What types of ethical issues might arise in the context of international business transactions?
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Q 17Q 17
Ethical Conduct. Richard Fraser was an "exclusive career insurance agent" under a contract with Nationwide Mutual Insurance Co. Fraser leased computer hardware and software from Nationwide for his business. During a dispute between Nationwide and the Nationwide Insurance Independent Contractors Association, an organization representing Fraser and other exclusive career agents, Fraser prepared a letter to Nationwide's competitors asking whether they were interested in acquiring the represented agents' policyholders. Nationwide obtained a copy of the letter and searched its electronic Me server for e-mail indicating that the letter had been sent. It found a stored e-mail that Fraser had sent to a co-worker indicating that the letter had been sent to at least one competitor. The e-mail was retrieved from the co-worker's file of already received and discarded messages stored on the server. When Nationwide canceled its contract with Fraser, he filed a suit in a federal district court against the firm, alleging, among other things, violations of various federal laws that prohibit the interception of electronic communications during transmission. In whose favor should the court rule, and why? Did Nationwide act ethically in retrieving the e-mail? Explain. [Fraser v. Nationwide Mutual Insurance Co., 352 F.3d. 107 (3d Cir. 2004)]
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Q 18Q 18
ECONOMIC DIMENSIONS. This ease resolved what seems to be a technical question in a dispute between a pharmaceutical maker and a biotechnology firm. What is the practical importance of the ruling?
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Q 19Q 19
CompTac, Inc, which is headquartered in San Francisco, California, is one of the leading software manufacturers in the United States. The company invests millions of dollars in researching and developing new software applications and computer games that are sold worldwide. It also has a large service department and has taken great pains to offer its customers excellent support services.
One of CompTac's best-selling products is a computer game that includes some extremely violent actions. Groups of parents, educators, and consumer activists have bombarded CompTac with letters and e-mail messages calling on the company to stop selling the product. CompTac executives are concerned about the public outcry, but at the same time they realize that the game is CompTac's major source of prof-its. If it ceased marketing the game, the company could go bankrupt. If you were a CompTac decision maker, what would your decision be in this situation? How would you justify your decision from an ethical perspective?
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Q 20Q 20
What type of ethical issues might arise in the context of international business transaction?
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Q 21Q 21
Case Problem with Sample Answer. Eden Electrical, Ltd., owned twenty-five appliance stores throughout Israel, at least some of which sold refrigerators made by Amana Co. Eden bought the appliances from Amana's Israeli distributor, Pan El A/Yesh Shem, which approached Eden about taking over the distributorship. Eden representatives met with Amana executives. The executives made assurances about Amana's good faith, its hope of 'having a long-term business relation-ship with Eden, and its willingness to have Eden become its exclusive distributor in Israel. Eden signed a distributorship agreement and paid Amana $2.4 million. Amana failed to deliver this amount in inventory to Eden, continued selling refrigerators to other entities for the Israeli market, and represented to others that it was still locking for a long-term distributor. Less than three months after signing the agreement with Eden, Amana terminated it without explanation. Eden filed a suit in a federal district court against Amana, alleging fraud. The court awarded Eden $12.1 million in damages. Is this amount warranted? Why or why not? How does this case illustrate why business ethics is important? [Eden Electrical, Ltd. v. Amana Co., 370 F.3d 824 (8th Cir. 2004)]
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Q 22Q 22
IMPLICATIONS FOR THE BUSINESSPERSON. What does the outcome of this case suggest to the smaller start-up company that relies on a license to obtain patented technology?
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Q 23Q 23
Ethical Conduct Unable to pay more than $1.2 billion in debt, Big Rivers Electric Corp. filed a petition to declare bankruptcy in a federal bankruptcy court in September 1996. Big Rivers' creditors included Bank of New York (BONY), Chase Manhattan Bank, Mapco Equities, and others. The court appointed J. Baxter Schilling to work as a "disinterested" (neutral) party with Big Rivers and the creditors to resolve their disputes; the court set an hourly fee as Schilling's compensation. Schilling told Chase, BONY, and Mapco that he wanted them to pay him an additional percentage fee based on the "success" he attained in finding "new value" to pay Big Rivers' debts. He said that without such a deal, he would not perform his mediation duties. Chase agreed; the others disputed the deal, but no one told the court. In October 1998, Schilling asked the court for nearly $4.5 million in compensation, including the hourly fees, which totaled about $531,000, and the percentage fees. Big Rivers and others asked the court to deny Schilling any fees on the basis that he had improperly negotiated "secret side agreements." How did Schilling violate his duties as a "disinterested" party? Should he be denied compensation? Why or why not? [In re Big Rivers Electric Corp., 355 F.3c1 415 (6th Cir. 2004)]
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Q 24Q 24
Ethical Conduct. Ernest Price suffered from sickle-cell anemia. In 1997, Price asked Dr. Ann Houston, his physician, to prescribe Oxycontin, a strong narcotic, for the pain. Over the next several years, Price saw at least ten different physicians at ten different clinics in two cities, and used seven pharmacies in three cities, to obtain and fill simultaneous prescriptions for Oxycontin. In March 2001, when Houston learned of these activities, she refused to write more prescriptions for Price. As other physicians became aware of Price's actions, they also stopped writing his prescriptions. Price filed a suit in a Mississippi state court against Purdue Manna Co. and other producers and distributors of Oxycontin, as well as his physicians and the pharmacies that had filled the prescriptions. Price alleged negligence, among other things, claiming that Oxycontin's addictive nature caused him injury and that this was the defendants' fault The defendants argued that Price's claim should be dismissed because it arose from his own wrongdoing. Who should he held legally liable? Should any of the parties be considered ethically responsible? Why or why not? [Price v. Purdue Phanna Co., 920. Sold 479 (Miss. 2006)]
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Ethical Leadership. In 1999, Andrew Fastow, chief financial officer of Enron Corp., asked Merrill Lynch, an investment firm, to participate in a bogus sale of three barges so that Enron could record earnings of $12.5 million from the sale. Through a third entity, Fastow bought the barges back within six months and paid Merrill for its participation. Five Merrill employees were convicted of conspiracy to commit wire fraud in part on an "honest services" theory. Under this theory, an employee deprives his employer of "honest services" when the employee promotes his own interests, rather than the interests of the employer. Four of the employees appealed to the U.S. Court of Appeals for the Fifth Circuit, arguing that this charge did not apply to the conduct in which they engaged. The court agreed, reasoning that the barge deal was conducted to benefit Enron, not to enrich the Merrill employees at Enron's expense. Meanwhile, Kevin Howard, chief financial officer of Enron Broadband Services (EBS), engaged in "Project Braveheart," which enabled EBS to show earnings of $111 million in 2000 and 2001. Braveheart involved the sale of an interest in the future revenue of a video-on-demand venture to nCube, a small technology firm, which was paid for its help when EBS bought the interest back. Howard was convicted of wire fraud in part on the "honest services" theory. He filed a motion to vacate this conviction on the same basis that the Merrill employees had argued. Did Howard act unethically? Explain. Should the court grant his motion? Discuss. [United States v. Howard, 471 F.Supp.2d 772 (S.D.Tex. 2007)]
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A Question of Ethics. Steven Soderbergh is the III Academy-Award-winning director of Erin Brockovich, Traffic, and many other films. CleanFlicks, LLC, filed a suit in a federal district court against Soderbergh, fifteen other direc-tors, and the Directors Guild ofAmerica. The plaintiff asked the court to rule that it had the right to sell DVDs of the defen-dants' films altered without the defendants' consent to delete scenes of "sex, nudity, profanity and gory violence." CleanFlicks sold or rented the edited DVDs under the slogan "It's About Choice" to consumers, sometimes indirectly through retailers. It would not sell to retailers that made unauthorized copies of the edited films. The defendants, with DreamWorks LW and seven other movie studios that own the copyrights to the films, filed a counterclaim against CleanFlicks and others engaged in the same business, alleging copyright infringement. Those filing the counterclaim asked the court to enjoin (prevent) CleanFlicks and the others front making and marketing altered versions of the films. [Clean Flicks of Colorado, LLC v. Soderbergh, 433 F.Supp.2d 1236 (D.Colo. 2006)] 1 Movie studios often edit their films to conform to content and other standards and sell the edited versions to network television and other commercial buyers. In this case, how-ever, the studios objected when CleanFlicks edited the films and sold the altered versions directly to consumers. Similarly; CleanFlicks made unauthorized copies of the studios' DVDs to edit the films, but objected to others' making unauthorized copies of the altered versions. Is there anything unethical about these apparently contradictory positions? Why or why not?
2 CleanFlicks and its competitors asserted in part that they were making "fair use" of the studios' copyrighted works. They argued that by their actions "they are criticizing the objectionable content commonly found in current movies and that they are providing more socially acceptable alter-natives to enable families to view the films together, with-out exposing children to the presumed harmful effects emanating from the objectionable content" If you were the judge, how would you view this argument? Is a court the appropriate forum for making determinations of public or social policy? Explain.
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Critical Legal Thinking. Human rights groups, environmental activists, and other interest groups concerned with unethical business practices have often conducted publicity campaigns against various corporations that those groups feel have engaged in unethical practices. Can a small group of well-organized activists dictate how a major corporation conducts its affairs? Discuss fully.
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Critical Thinking and Writing Assignment for Business. Assume that you are a high-level manager for a shoe manufacturer. You know that your firm could increase its profit margin by producing shoes in Indonesia, where you could hire women for $100 a month to assemble them. You also know that human rights advocates recently accused a competing shoe manufacturer of engaging in exploitative labor practices because the manufacturer sold shoes made by Indonesian women for similarly low wages. You personally do not believe that paying $100 a month to Indonesian women is unethical because you know that in their country, $100 a month is a better-than-average wage rate. Assuming that the decision is yours to make, should you have the shoes manufactured in Indonesia and make higher profits for your company? Should you instead avoid the risk of negative publicity and the consequences of that publicity for the firm's reputation and subsequent profits? Are there other alternatives? Discuss fully.
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Video Question. Go to this text's Web site at mot thomsonedu.com/wesibuslaw/blt and select "Chapter 7." Click on "Video Questions" and view the video titled Ethics: Business Ethics an Oxymoron? Then answer the following questions.
1. According to the instructor in the video, what is the primary reason that businesses act ethically?
2. Which of the two approaches to ethical reasoning that were discussed in the chapter seems to have had more influence on the instructor in the discussion of how business activities are related to societies? Explain your answer.
3. The instructor asserts that "pin the end, it is the unethical behavior that becomes costly, and conversely ethical behavior creates its own competitive advantage." Do you agree with this statement? Why or why not?
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