An Introduction to Business Ethics
Author: DesJardins
Date: 0101-01-01 00:00:00+00:00
Publisher: MHE

Table of Contents

Table of Contents and Preface

1. Cover Page
2. Title Page
3. Copyright Page
4. About the Author
5. Dedication
6. Contents
7. Preface to the Seventh Edition
8. Connect

Chapter 1: Why Study Ethics?

1. Chapter 1 Introduction

1. DISCUSSION CASE: Facebook

2. 1.1 Business Ethics: The What and the Why

3. 1.2 Ethics, Morality, and Social justice

4. 1.3 Business Ethics as Responsible Decision Making

5. 1.4 Skeptical Challenge I: isn’t the law enough?

6. 1.5 Skeptical Challenge ii: Ethical relativism

7. 1.6 A Model for Ethical Decision Making

1. Reflections on the Chapter Discussion Case
2. Chapter Review Questions
3. Endnote

Chapter 2: Ethical Theory and Business

1. Chapter 2 Introduction

1. DISCUSSION CASE: CEO Compensation versus Minimum Wage

2. 2.1 Introduction
3. 2.2 Virtue Ethics
4. 2.3 Utilitarian Ethics

5. 2.4 Challenges to Utilitarianism

1. Problems Raised from within the Utilitarian Tradition

2. Problems Raised to the Utilitarian Tradition

6. 2.5 Utilitarianism and Business Policy

7. 2.6 Rights, duties, and Principle-Based Ethics

8. 2.7 Summary and Review

1. Reflections on the Chapter Discussion Case
2. Chapter Review Questions
3. Endnotes

Chapter 3: Corporate Social Responsibility

1. Chapter 3 Introduction

1. DISCUSSION CASE: Section 230: If it is Legal, Is It Ethically Responsible?

2. 3.1 Introduction

3. 3.2 The Economic Model of Corporate Social Responsibility

4. 3.3 Critical Assessment of the Economic Model: The Utilitarian Defense

5. 3.4 Critical Assessment of the Economic Model: The Private Property Defense

6. 3.5 Modified Version of the Economic Model: The Moral Minimum

7. 3.6 The Stakeholder Model of Corporate Social Responsibility

8. 3.7 Strategic Model of Corporate Social Responsibility: Benefit Corporations

9. 3.8 Summary and Review

1. Reflections on the Chapter Discussion Case
2. Chapter Review Questions
3. Endnotes

Chapter 4: Corporate Culture, Governance, and Ethical Leadership

1. Chapter 4 Introduction

1. DISCUSSION CASE: Fraud at Wells Fargo

2. 4.1 Introduction
3. 4.2 What is Corporate Culture?
4. 4.3 Culture and Ethics

5. 4.4 Ethical Leadership and Corporate Culture

6. 4.5 Effective Leadership and Ethical Leadership

7. 4.6 Building a Values-Based Corporate Culture

1. Mission Statements, Codes of Conduct, and Statements of Values

2. Ethics Hotlines, Ombudsmen, and Integrating Ethical Culture

3. Assessing and Monitoring the Corporate Culture: Audits

4. Reflections on the Chapter Discussion Case
5. Chapter Review Questions
6. Endnotes

Chapter 5: The Meaning and Value of Work

1. Chapter 5 Introduction

1. DISCUSSION CASE: Work–Life Balance After a Pandemic

2. 5.1 Introduction
3. 5.2 The Meanings of Work
4. 5.3 The Value of Work
5. 5.4 Conventional Views of Work
6. 5.5 The Human Fulfillment Model
7. 5.6 The Liberal Model of Work

8. 5.7 Business’s Responsibility for Meaningful Work

1. Reflections on the Chapter Discussion Case
2. Chapter Review Questions
3. Endnotes

Chapter 6: Moral Rights in the Workplace

1. Chapter 6 Introduction

1. DISCUSSION CASE: Workplace Privacy and Employee Monitoring

2. 6.1 Introduction: Employee Rights
3. 6.2 The Right to Work
4. 6.3 Employment at Will
5. 6.4 Due Process in the Workplace
6. 6.5 Participation Rights
7. 6.6 Freedom of Expression
8. 6.7 Employee Health and Safety

9. 6.8 Privacy in the Workplace

1. Reflections on the Chapter Discussion Case
2. Chapter Review Questions
3. Endnotes

Chapter 7: Employee Responsibilities

1. Chapter 7 Introduction

1. DISCUSSION CASE: Trust in Business

2. 7.1 Introduction

3. 7.2 Trust And Business

4. 7.3 The Narrow View of Employee Responsibilities: Employees as Agents

5. 7.4 Professional Ethics and the Gatekeeper Function

6. 7.5 Managerial Responsibility and Conflicts of Interest

7. 7.6 Trust and Loyalty in the Workplace

8. 7.7 Responsibilities to Third Parties: Honesty, Whistle-Blowing, and Insider Trading

1. Honesty
2. Whistle-Blowing
3. Insider Trading
4. Reflections on the Chapter Discussion Case
5. Chapter Review Questions
6. Endnotes

Chapter 8: Marketing Ethics: Product Safety and Pricing

1. Chapter 8 Introduction

1. DISCUSSION CASE: Social Harms: Obesity and Opioids

2. 8.1 Ethical Issues in Marketing: An Overview

3. 8.2 Ethical Responsibility for Products: From Caveat Emptor to Negligence

1. Caveat Emptor

2. Negligence

4. 8.3 Strict Product Liability

5. 8.4 Ethics and Pricing

1. Reflections on the Chapter Discussion Case
2. Chapter Review Questions
3. Endnotes

Chapter 9: Marketing Ethics: Advertising and Digital Marketing

1. Chapter 9 Introduction

1. DISCUSSION CASE: Digital Marketing and “Dark Patterns”

2. 9.1 Introduction

3. 9.2 Ethics of Manipulation and Deception

4. 9.3 Governemnt Regulation of Deceptive and Unfair Advertising

5. 9.4 Digital Marketing and Consumer Privacy

6. 9.5 Marketing Ethics and Consumer Autonomy

7. 9.6 Targeting the Vulnerable: Marketing and Sales

1. Reflections on the Chapter Discussion Case
2. Chapter Review Questions
3. Endnotes

Chapter 10: Sustainability and the Natural Environment

1. Chapter 10 Introduction

1. DISCUSSION CASE: Business and Sustainability

2. 10.1 Introduction: Business, the Environment, and Sustainability

3. 10.2 Corporate Social Responsibility and the Environment

4. 10.3 Business’s Responsibility as Environmental Regulation

5. 10.4 Business Ethics and Sustainable Economics

6. 10.5 Business Ethics in the Age of Sustainable Development

7. 10.6 The “Business Case” for Sustainability

8. 10.7 Critical Reflections on Chapter Discussion Case

1. Chapter Review Questions

2. Endnotes

Chapter 11: Workplace Diversity and Discrimination

1. Chapter 11 Introduction

1. DISCUSSION CASE: Sexual Harassment and Gender Equality

2. 11.1 Introduction: Diversity and Equality

3. 11.2 Sexual Harassment in the Workplace

4. 11.3 Discrimination, Equal Opportunity, and Affirmative Action

5. 11.4 Preferential Treatment in Employment

6. 11.5 Arguments Against Preferential Hiring

7. 11.6 Arguments in Support of Preferential Hiring

1. Reflections on the Chapter Discussion Case
2. Chapter Review Questions
3. Endnotes

Chapter 12: International Business and Globalization

1. Chapter 12 Introduction

1. DISCUSSION CASE: Business Ethics in a Global Setting

2. 12.1 Introduction

3. 12.2 Ethical Relativism and Cross-Cultural Values

4. 12.3 Cross-Cultural Values, Human Rights, and the Ruggie Principles

5. 12.4 Globalization and International Business

6. 12.5 Globalization and the Poor

7. 12.6 “Race to the Bottom”

8. 12.7 Democracy, Cultural Integrity, and Human Rights

9. 12.8 International Business and a Duty of National Loyalty

1. Reflections on the Chapter Discussion Case
2. Chapter Review Questions
3. Endnotes

Index

1. Index

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2. A Page 2 Shows the Features Text Alternative (FM)

3. Figure 10.1 Text Alternative (Chapter 10)

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Guide

Table of Contents and Preface
Cover Page
Title Page
Copyright Page
About the Author
Dedication
Contents
Preface to the Seventh Edition
Connect
Chapter 1: Why Study Ethics?
Chapter 1 Introduction
DISCUSSION CASE: Facebook
1.1 Business Ethics: The What and the Why
1.2 Ethics, Morality, and Social justice

1.3 Business Ethics as Responsible Decision Making

1.4 Skeptical Challenge I: isn’t the law enough?

1.5 Skeptical Challenge ii: Ethical relativism

1.6 A Model for Ethical Decision Making
Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnote
Chapter 2: Ethical Theory and Business
Chapter 2 Introduction

DISCUSSION CASE: CEO Compensation versus Minimum Wage

2.1 Introduction
2.2 Virtue Ethics
2.3 Utilitarian Ethics
2.4 Challenges to Utilitarianism

Problems Raised from within the Utilitarian Tradition

Problems Raised to the Utilitarian Tradition

2.5 Utilitarianism and Business Policy

2.6 Rights, duties, and Principle-Based Ethics

2.7 Summary and Review
Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnotes
Chapter 3: Corporate Social Responsibility
Chapter 3 Introduction

DISCUSSION CASE: Section 230: If it is Legal, Is It Ethically Responsible?

3.1 Introduction

3.2 The Economic Model of Corporate Social Responsibility

3.3 Critical Assessment of the Economic Model: The Utilitarian Defense

3.4 Critical Assessment of the Economic Model: The Private Property Defense

3.5 Modified Version of the Economic Model: The Moral Minimum

3.6 The Stakeholder Model of Corporate Social Responsibility

3.7 Strategic Model of Corporate Social Responsibility: Benefit Corporations

3.8 Summary and Review
Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnotes

Chapter 4: Corporate Culture, Governance, and Ethical Leadership

Chapter 4 Introduction
DISCUSSION CASE: Fraud at Wells Fargo
4.1 Introduction
4.2 What is Corporate Culture?
4.3 Culture and Ethics
4.4 Ethical Leadership and Corporate Culture

4.5 Effective Leadership and Ethical Leadership

4.6 Building a Values-Based Corporate Culture

Mission Statements, Codes of Conduct, and Statements of Values

Ethics Hotlines, Ombudsmen, and Integrating Ethical Culture

Assessing and Monitoring the Corporate Culture: Audits

Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnotes
Chapter 5: The Meaning and Value of Work
Chapter 5 Introduction

DISCUSSION CASE: Work–Life Balance After a Pandemic

5.1 Introduction
5.2 The Meanings of Work
5.3 The Value of Work
5.4 Conventional Views of Work
5.5 The Human Fulfillment Model
5.6 The Liberal Model of Work

5.7 Business’s Responsibility for Meaningful Work

Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnotes
Chapter 6: Moral Rights in the Workplace
Chapter 6 Introduction

DISCUSSION CASE: Workplace Privacy and Employee Monitoring

6.1 Introduction: Employee Rights
6.2 The Right to Work
6.3 Employment at Will
6.4 Due Process in the Workplace
6.5 Participation Rights
6.6 Freedom of Expression
6.7 Employee Health and Safety
6.8 Privacy in the Workplace
Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnotes
Chapter 7: Employee Responsibilities
Chapter 7 Introduction
DISCUSSION CASE: Trust in Business
7.1 Introduction
7.2 Trust And Business

7.3 The Narrow View of Employee Responsibilities: Employees as Agents

7.4 Professional Ethics and the Gatekeeper Function

7.5 Managerial Responsibility and Conflicts of Interest

7.6 Trust and Loyalty in the Workplace

7.7 Responsibilities to Third Parties: Honesty, Whistle-Blowing, and Insider Trading

Honesty
Whistle-Blowing
Insider Trading
Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnotes

Chapter 8: Marketing Ethics: Product Safety and Pricing

Chapter 8 Introduction

DISCUSSION CASE: Social Harms: Obesity and Opioids

8.1 Ethical Issues in Marketing: An Overview

8.2 Ethical Responsibility for Products: From Caveat Emptor to Negligence

Caveat Emptor
Negligence
8.3 Strict Product Liability
8.4 Ethics and Pricing
Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnotes

Chapter 9: Marketing Ethics: Advertising and Digital Marketing

Chapter 9 Introduction

DISCUSSION CASE: Digital Marketing and “Dark Patterns”

9.1 Introduction

9.2 Ethics of Manipulation and Deception

9.3 Governemnt Regulation of Deceptive and Unfair Advertising

9.4 Digital Marketing and Consumer Privacy

9.5 Marketing Ethics and Consumer Autonomy

9.6 Targeting the Vulnerable: Marketing and Sales

Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnotes

Chapter 10: Sustainability and the Natural Environment

Chapter 10 Introduction

DISCUSSION CASE: Business and Sustainability

10.1 Introduction: Business, the Environment, and Sustainability

10.2 Corporate Social Responsibility and the Environment

10.3 Business’s Responsibility as Environmental Regulation

10.4 Business Ethics and Sustainable Economics

10.5 Business Ethics in the Age of Sustainable Development

10.6 The “Business Case” for Sustainability

10.7 Critical Reflections on Chapter Discussion Case

Chapter Review Questions

Endnotes

Chapter 11: Workplace Diversity and Discrimination

Chapter 11 Introduction

DISCUSSION CASE: Sexual Harassment and Gender Equality

11.1 Introduction: Diversity and Equality

11.2 Sexual Harassment in the Workplace

11.3 Discrimination, Equal Opportunity, and Affirmative Action

11.4 Preferential Treatment in Employment

11.5 Arguments Against Preferential Hiring

11.6 Arguments in Support of Preferential Hiring

Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnotes

Chapter 12: International Business and Globalization

Chapter 12 Introduction

DISCUSSION CASE: Business Ethics in a Global Setting

12.1 Introduction

12.2 Ethical Relativism and Cross-Cultural Values

12.3 Cross-Cultural Values, Human Rights, and the Ruggie Principles

12.4 Globalization and International Business
12.5 Globalization and the Poor
12.6 “Race to the Bottom”

12.7 Democracy, Cultural Integrity, and Human Rights

12.8 International Business and a Duty of National Loyalty

Reflections on the Chapter Discussion Case
Chapter Review Questions
Endnotes
Index
Index

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A Page 1 Shows the Features Text Alternative (FM)

A Page 2 Shows the Features Text Alternative (FM)

Figure 10.1 Text Alternative (Chapter 10)

Figure 10.2 Text Alternative (Chapter 10)

Page i

AN INTRODUCTION TO

BUSINESS ETHICS

Seventh Edition

Joseph DesJardins

College of St. Benedict/St. John’s University

Page ii

AN INTRODUCTION TO BUSINESS ETHICS, SEVENTH EDITION

Published by McGraw Hill LLC, 1325 Avenue of the Americas, New York, NY 10019. Copyright ©2024 by McGraw Hill LLC. All rights reserved. Printed in the United States of America. Previous editions ©2020, 2014, and 2011. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw Hill LLC, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 LCR 28 27 26 25 24 23

ISBN 978-1-266-15069-2 (bound edition)

MHID 1-266-15069-2 (bound edition)

ISBN 978-1-265-67295-9 (loose-leaf edition)

MHID 1-265-67295-4 (loose-leaf edition)

Product Developer: Elisa Odoardi

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Cover Image: Shutterstock Images, LLC

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All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Names: DesJardins, Joseph R. author.

Title: An introduction to business ethics / Joseph DesJardins.

Description: Seventh Edition. | Dubuque, IA : McGraw Hill LLC, [2024] |

Revised edition of the author’s An introduction to business ethics, [2020]

Identifiers: LCCN 2022039624 (print) | LCCN 2022039625 (ebook) | ISBN

9781266150692 (hardcover) | ISBN 9781265672959 (spiral bound) | ISBN

9781265709037 (ebook) | ISBN 9781265678449 (ebook other)

Subjects: LCSH: Business ethics.

Classification: LCC HF5387 .D392 2023 (print) | LCC HF5387 (ebook) | DDC

174/.4--dc23/eng/20220819

LC record available at https://lccn.loc.gov/2022039624

LC ebook record available at https://lccn.loc.gov/2022039625

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw Hill LLC, and McGraw Hill LLC does not guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

Page iii

About the Author

Joe DesJardins is professor emeritus at the College of St. Benedict and St. John’s University in Minnesota where he held the Ralph Gross Chair in Business and the Liberal Arts. He is past president and former executive director of the Society for Business Ethics and has published and lectured extensively in the areas of business ethics, environmental ethics, and sustainability. His other books include Business Ethics: Decision Making for Personal Integrity and Social Responsibility (with Laura Hartman and Chris MacDonald); Environmental Ethics: An Introduction to Environmental Philosophy; Contemporary Issues in Business Ethics (co-editor with John McCall); and Business, Ethics, and the Environment. He received his B.A. from Southern Connecticut State University and his M.A. and Ph.D. from the University of Notre Dame.

Page iv

To Muriel Eloise

Page v

Contents

Preface x

Chapter One: Why Study Ethics? 1

Learning Objectives 1

Discussion Case: Facebook 1

1. Discussion Questions 5

2. 1.1 Business Ethics: The What and the Why 6

3. 1.2 Ethics, Morality, and Social Justice 9

4. 1.3 Business Ethics as Responsible Decision Making 12

5. 1.4 Skeptical Challenge I: Isn’t the Law Enough? 14

6. 1.5 Skeptical Challenge II: Ethical Relativism 16

7. 1.6 A Model for Ethical Decision Making 22

8. Reflections on the Chapter Discussion Case 25

9. Chapter Review Questions 26

Chapter Two: Ethical Theory and Business 27

Learning Objectives 27

Discussion Case: CEO Compensation versus Minimum Wage 27

1. Discussion Questions 29

2. 2.1 Introduction 30

3. 2.2 Virtue Ethics 32

4. 2.3 Utilitarian Ethics 37

5. 2.4 Challenges to Utilitarianism 41

6. 2.5 Utilitarianism and Business Policy 44

7. 2.6 Rights, Duties, and Principle-Based Ethics 46

8. 2.7 Summary and Review 50

9. Reflections on the Chapter Discussion Case 52

10. Chapter Review Questions 53

Chapter Three: Corporate Social Responsibility 54

Learning Objectives 54

Discussion Case: Section 230: If It Is Legal, Is It Ethically Responsible? 54

Page vi

1. Discussion Questions 58

2. 3.1 Introduction 59

3. 3.2 The Economic Model of Corporate Social Responsibility 59

4. 3.3 Critical Assessment of the Economic Model: The Utilitarian Defense 62

5. 3.4 Critical Assessment of the Economic Model: The Private Property Defense 67

6. 3.5 Modified Version of the Economic Model: The Moral Minimum 70

7. 3.6 The Stakeholder Model of Corporate Social Responsibility 73

8. 3.7 Strategic Model of Corporate Social Responsibility: Benefit Corporations 78

9. 3.8 Summary and Review 80

10. Reflections on the Chapter Discussion Case 82

11. Chapter Review Questions 83

Chapter Four: Corporate Culture, Governance, and Ethical Leadership 86

Learning Objectives 86

Discussion Case: Fraud at Wells Fargo 86

1. Discussion Questions 89

2. 4.1 Introduction 89

3. 4.2 What Is Corporate Culture? 90

4. 4.3 Culture and Ethics 92

5. 4.4 Ethical Leadership and Corporate Culture 94

6. 4.5 Effective Leadership and Ethical Leadership 97

7. 4.6 Building a Values-Based Corporate Culture 99

8. Reflections on the Chapter Discussion Case 102

9. Chapter Review Questions 102

Chapter Five: The Meaning and Value of Work 104

Learning Objectives 104

Discussion Case: Work–Life Balance After a Pandemic 104

1. Discussion Questions 107

2. 5.1 Introduction 107

3. 5.2 The Meanings of Work 109

4. 5.3 The Value of Work 111

5. 5.4 Conventional Views of Work 116

6. 5.5 The Human Fulfillment Model 117

7. 5.6 The Liberal Model of Work 120

8. 5.7 Business’s Responsibility for Meaningful Work 122

9. Reflections on the Chapter Discussion Case 124

10. Chapter Review Questions 125

Page vii

Chapter Six: Moral Rights in the Workplace 127

Learning Objectives 127

Discussion Case: Workplace Privacy and Employee Monitoring 127

1. Discussion Questions 129

2. 6.1 Introduction: Employee Rights 129

3. 6.2 The Right to Work 131

4. 6.3 Employment at Will 134

5. 6.4 Due Process in the Workplace 136

6. 6.5 Participation Rights 140

7. 6.6 Freedom of Expression 142

8. 6.7 Employee Health and Safety 145

9. 6.8 Privacy in the Workplace 151

10. Reflections on the Chapter Discussion Case 154

11. Chapter Review Questions 155

Chapter Seven: Employee Responsibilities 157

Learning Objectives 157

Discussion Case: Trust in Business 157

1. Discussion Questions 160

2. 7.1 Introduction 160

3. 7.2 Trust and Business 162

4. 7.3 The Narrow View of Employee Responsibilities: Employees as Agents 163

5. 7.4 Professional Ethics and the Gatekeeper Function 168

6. 7.5 Managerial Responsibility and Conflicts of Interest 171

7. 7.6 Trust and Loyalty in the Workplace 175

8. 7.7 Responsibilities to Third Parties: Honesty, Whistle-Blowing, and Insider Trading 178

9. Reflections on the Chapter Discussion Case 185

10. Chapter Review Questions 187

Chapter Eight: Marketing Ethics: Product Safety and Pricing 159

Learning Objectives 189

Discussion Case: Social Harms: Obesity and Opioids 189

1. Discussion Questions 193

2. 8.1 Ethical Issues in Marketing: An Overview 193

3. 8.2 Ethical Responsibility for Products: From Caveat Emptor to Negligence 197

4. 8.3 Strict Product Liability 202

5. 8.4 Ethics and Pricing 204

6. Reflections on the Chapter Discussion Case 208

7. Chapter Review Questions 209

Page viii

Chapter Nine: Marketing Ethics: Advertising and Digital Marketing 211

Learning Objectives 211

Discussion Case: Digital Marketing and “Dark Patterns” 211

1. Discussion Questions 213

2. 9.1 Introduction 214

3. 9.2 Ethics of Manipulation and Deception 218

4. 9.3 Government Regulation of Deceptive and Unfair Advertising 221

5. 9.4 Digital Marketing and Consumer Privacy 225

6. 9.5 Marketing Ethics and Consumer Autonomy 227

7. 9.6 Targeting the Vulnerable: Marketing and Sales 233

8. Reflections on the Chapter Discussion Case 237

9. Chapter Review Questions 238

Chapter Ten: Sustainability and the Natural Environment 240

Learning Objectives 240

Discussion Case: Business and Sustainability 240

1. Discussion Questions 243

2. 10.1 Introduction: Business, the Environment, and Sustainability 244

3. 10.2 Corporate Social Responsibility and the Environment 245

4. 10.3 Business’s Responsibility as Environmental Regulation 248

5. 10.4 Business Ethics and Sustainable Economics 250

6. 10.5 Business Ethics in the Age of Sustainable Development 253

7. 10.6 The “Business Case” for Sustainability 257

8. 10.7 Critical Reflections on Chapter Discussion Case 259

9. Chapter Review Questions 261

Chapter Eleven: Workplace Diversity and Discrimination 262

Learning Objectives 262

Discussion Case: Sexual Harassment and Gender Equality 262

1. Discussion Questions 264

2. 11.1 Introduction: Diversity and Equality 264

3. 11.2 Sexual Harassment in the Workplace 268

4. 11.3 Discrimination, Equal Opportunity, and Affirmative Action 272

5. 11.4 Preferential Treatment in Employment 277

6. 11.5 Arguments Against Preferential Hiring 281

7. 11.6 Arguments in Support of Preferential Hiring 284

8. Reflections on the Chapter Discussion Case 287

9. Chapter Review Questions 288

Page ix

Chapter Twelve: International Business and Globalization 290

Learning Objectives 290

Discussion Case: Business Ethics in a Global Setting 290

1. Discussion Questions 292

2. 12.1 Introduction 293

3. 12.2 Ethical Relativism and Cross-Cultural Values 294

4. 12.3 Cross-Cultural Values, Human Rights, and the Ruggie Principles 297

5. 12.4 Globalization and International Business 300

6. 12.5 Globalization and the Poor 302

7. 12.6 “Race to the Bottom” 305

8. 12.7 Democracy, Cultural Integrity, and Human Rights 306

9. 12.8 International Business and a Duty of National Loyalty 309

10. Reflections on the Chapter Discussion Case 311

11. Chapter Review Questions 311

Index 313

Page x

Preface to the Seventh Edition

My overarching goal in the seventh edition of this text remains what it was for the first edition: “to provide a clear, concise, and reasonably comprehensive introductory survey of the ethical choices available to us in business.” This book arose from the challenges encountered in my own teaching of business ethics. Over the years I taught business ethics in many settings and with many formats. My course sometimes relied on an anthology of readings, other times on case studies. I have taught business ethics as a large lecture course and as a small seminar, to undergraduates in a liberal arts setting, and to business executives in an EMBA course. It is difficult to imagine another discipline that is as multidisciplinary, taught in as many formats and as many contexts, by faculty with as many different backgrounds and with as many different aims, as business ethics.

Yet, although the students, format, pedagogy, and teaching goals change, the basic philosophical and conceptual structure for the field remains relatively stable. There are a range of stakeholders with whom business interacts: employees, customers, suppliers, governments, society. Each of these relationships creates ethical responsibilities, and every adult unavoidably will interact with business in several of these roles. A course in business ethics, therefore, should ask students to examine this range of responsibilities from the perspective of employee, customer, and citizen as well as from the perspective of business manager or executive. Students should consider such issues in terms of both the type of lives they themselves wish to lead and the type of public policy for governing business they are willing to support.

My hope was that this book could provide a basic framework for examining the range of ethical issues that arise in a business context. With this basic framework provided, individual instructors would then be free to develop their courses in various ways. I have been grateful to learn that this book is being used in a wide variety of settings. Many people have chosen to use it as a supplement to the instructor’s own lectures, an anthologized collection of readings, a series of case studies, or some combination of all three. Others have chosen to use this text to cover the ethics component of another course in such business-related disciplines as management, leadership, marketing, accounting, human resources. The book also has been used to provide coverage of business-related topics in more general courses in applied or professional ethics. I take this variety of uses as evidence that the first edition was reasonably successful in achieving its goals.

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New to the Seventh Edition

The primary goal of this new edition is to update cases with more contemporary examples and data, and to continue to revise the text for the sake of clarity and accessibility for students. To those ends, readers will note the following major changes for the Seventh edition:

Two new features are intended to support student learning:

A Glossary of Key Terms to help introduce students to new and unfamiliar concepts

“Reality Checks”—Short descriptive text boxes added within each chapter to help ground the ethical and philosophical discussion in real-life cases and situations.

In addition, new or updated discussions and cases on such topics and companies as:

- Facebook

- Apple

- Ethical and Effective Leadership

- Section 230 and the Ethical Responsibility of Social Media Companies

- Brain Hacking and Ethical Responsibility of Technology Companies

- Dark Patterns and Digital Marketing

- Meaningful Work and Work from Home

- Work-Life Balance during a Pandemic

- Employee Privacy and Workplace Monitoring

- Vaccine Mandates and Employee Rights

- Minimum Wage

- Fired over Zoom

- The Agency Problem

- Digital Natives and the Reasonable Consumer

- Guidelines for Establishing Facts

- Triple Bottom Line

- Trust

- Conflicts of interest and Congressional Ownership of Stocks

As always, a new edition provides an opportunity to not only update material, but to present it in a more accessible style. In continuing to strive for these goals, I have rewritten some sections, deleted some outdated cases and dated material, and worked to improve the clarity of the more philosophical sections.

Readers of previous editions will find a familiar format. Each chapter begins with a discussion case developed from actual events. The intent of these cases is to raise questions and get students thinking and talking about the ethical issues that will be introduced in the chapter. The text of each chapter then tries to do three things:

- Identify and explain the ethical issues involved;

- Direct students to an examination of these issues from the points of view of various stakeholders; and

- Lead students through some initial steps of a philosophical analysis of these issues.

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The emphasis remains on encouraging student thinking, reasoning, and decision making rather than on providing answers or promoting a specific set of conclusions. To this end, a section on ethical decision making at the end of chapter 1 provides one model for decision making that might prove useful throughout the remainder of the text.

Writing Assignment

Available within McGraw Hill Connect® and McGraw Hill Connect® Master, the Writing Assignment tool delivers a learning experience to help students improve their written communication skills and conceptual understanding. As an instructor you can assign, monitor, grade, and provide feedback on writing more efficiently and effectively.

Remote Proctoring & Browser-Locking Capabilities

New remote proctoring and browser-locking capabilities, hosted by Proctorio within Connect, provide control of the assessment environment by enabling security options and verifying the identity of the student.

Seamlessly integrated within Connect, these services allow instructors to control students’ assessment experience by restricting browser activity, recording students’ activity, and verifying students are doing their own work.

Instant and detailed reporting gives instructors an at-a-glance view of potential academic integrity concerns, thereby avoiding personal bias and supporting evidence-based claims.

Acknowledgments

As with previous editions, my greatest debt in writing this book is to those scholars engaged in the academic research of business ethics. I tried to acknowledge their work whenever I relied on it in this text, but in case I have missed anyone, I hope this general acknowledgment can serve to repay my debt to the business ethics community. I also acknowledge three members of that community who deserve special mention and thanks. My own work in business ethics has, for over thirty-five years, benefited from the friendships of John McCall, Ron Duska, and Laura Hartman. Thirty-five years of friendship and collaboration tends to blur the lines of authorship, but it is fair to say that I have learned much more from John, Ron, and Laura than they from me. Some material is developed from sections I wrote for another McGraw Hill book co-written with Laura Hartman and Chris MacDonald, Business Ethics: Decision Making for Personal Integrity and Social Responsibility. I would like to thank Laura and Chris, as well as McGraw Hill, for their kind permission to re-use that material here.

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I owe sincere thanks to the following teachers and scholars who were gracious enough to review previous editions of this book for McGraw Hill: Dr. Edwin A. Coolbaugh—Johnson & Wales University; Jill Dieterle—Eastern Michigan University; Glenn Moots—Northwood University; Jane Hammang-Buhl—Marygrove College; Ilona Motsif—Trinity College; Bonnie Fremgen—University of Notre Dame; Sheila Bradford—Tulsa Community College; Donald Skubik—California Baptist University; Sandra Powell—Weber State University; Gerald Williams—Seton Hall University; Leslie Connell—University of Central Florida; Brad K. Wilburn—Santa Clara University; Carlo Filice—SUNY, Geneseo; Brian Barnes—University of Louisville; Marvin Brown—University of San Francisco; Patrice DiQuinzio—Muhlenberg College; Julian Friedland—Leeds School of Business, University of Colorado at Boulder; Derek S. Jeffreys—The University of Wisconsin, Green Bay; Albert B. Maggio Jr.—bicoastal-law.com; Andy Wible—Muskegon Community College; Christina L. Stamper—Western Michigan University; Charles R. Fenner, Jr.—State University of New York at Canton; Sandra Obilade—Brescia University; Lisa Marie Plantamura—Centenary College; James E. Welch—Kentucky Wesleyan College; Adis M. Vila—Dickinson College; Chester Holloman—Shorter College; Jan Jordan—Paris Junior College; Jon Adam Matthews—Central Carolina Community College; Bruce Alan Kibler—University of Wisconsin-Superior; Carla Johnston—St. Cloud State University; Martha Helland—University of Sioux Falls; Jessica MacManus—Notre Dame; David Levy—State University of New York—Geneseo; Barbara Barresi—Capital University; Kenneth Ferguson—East Carolina University; Michael Shaffer—St. Cloud University; Wake Maki—University of North Carolina-Greensboro; Richard McGowan—Butler University; Kapp Johnson, California Lutheran University; Michael Harford, Morehead State University; Aaron Butler, Warner Pacific College ADP; Paul Disney, Western Oregon University; Kenneth W. Gaines, East-West University; Summer Zwanziger Elsinger, Upper Iowa University; Jonathan Krabill, Columbus State Community College.

The seventh edition benefited from the thorough and thoughtful reviews by:

- Claire A. Simmers, Ph.D. Saint Joseph’s University

- John Mccullough, John Brown University

- Hamid H. Kazeroony Inver Hills Community College

- Jill Hennessy South College

- Sharon Harvey, Arizone State University at Lake Havasu

Joe DesJardins

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Page 1

Chapter 1

Why Study Ethics?

Learning Objectives

After reading this chapter, you should be able to:

- Identify why the study of ethics is important;

- Explain the interdisciplinary nature of business ethics;

- Explain the activity of ethical decision making;

- Clarify the distinction between ethics and law;

- Explain why ethical relativism is unreasonable;

- Distinguish between ethics, morality, and social justice;

- Apply a decision-making model to a case study.

DISCUSSION CASE: Facebook

Established in 2004, Facebook today claims almost 3 billion active users, with 1.9 billion daily users. It has a market capitalization of $850 billion, $86 billion in annual revenue, is the sixth largest publicly traded company, and is ranked thirty-fourth on the Fortune 500 list.

Facebook’s ethical challenges extend back to the earliest years of the company’s existence when it was criticized for failing to respect users’ privacy, a charge that continues to haunt it today. Within just two years of Facebook’s founding, many users complained that its News Feed feature used information in ways that users had not intended or approved. Within a year of this controversy, Facebook was criticized, and later sued, for its Beacon advertising system. This case revolved around Facebook’s collection of users’ data from third-party websites that was then sold to advertisers who then targeted Facebook users and their friends based on users’ browsing activity. The U.S. Federal Trade Commission (FTC) began an investigation of Facebook’s use of consumer data and respect for consumer privacy, resulting in a 2011 legal settlement that required Facebook to limit its use of users’ data. Current critics claim that not much changed at Facebook following that settlement.

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Facebook’s stance on user privacy again made headlines in 2021 during a very public dispute between Facebook and Apple, a dispute in which Facebook’s Mark Zuckerberg and Apple’s Tim Cook played very prominent public roles. Apple’s 2021 update to its operating system, iOS 14.5, included a significant change for how its users’ privacy would be treated. Beginning with this update, all apps using the iOS operating system would be required to give users an explicit and clear choice to opt-out of any tracking of their activities. Apple called this policy “App Tracking Transparency” and explained this new feature to its users as involving “a choice on how apps use and share your data—data like your age, location, health information, spending habits, and your browsing history, to name a few—they collect thousands of pieces of information about you to create a digital profile that they sell to others. This has been happening without your knowledge or permission. Your information is for sale. You have become the product. That’s why iPhone users will now be asked a single, simple question—allow apps to track you or not? We believe that you should have a choice. App Tracking Transparency—a simple new feature that puts your data back in your control."

The problem is that collecting and selling exactly this type of data is the core of Facebook’s business model and it was very clear to everyone that Apple was talking about Facebook. During a 2018 interview, Apple’s CEO Tim Cook seemed to go out of his way to connect his criticism of Facebook’s policies on user privacy with another, perhaps even more serious, ethical scandal surrounding Facebook. At that time, Facebook’s Mark Zuckerberg was facing serious questions from the U.S. Congress regarding Facebook’s role in fostering misinformation during the 2016 U.S. presidential election. The interviewer asked Cook what he would do if he were in Zuckerberg’s position. Cook replied, “I wouldn’t be in that situation.” He went on to explain that unlike Facebook, Apple was “not going to traffic in your personal life. I think it’s an invasion of privacy. Privacy, to us, is a human right. It’s a civil liberty.”

Respecting consumer privacy is only one area that has generated widespread ethical criticism. Facebook’s role in the 2016 election, and more recently their policies regarding misinformation and conspiracy theories regarding the COVID pandemic, vaccinations, and U.S. politics, has been a focus of other intense and ongoing criticisms.

In October 2017, one year after the 2016 election, executives from Twitter, Google, and Facebook testified before both the U.S. House and U.S. Senate Intelligence Committees that were investigating Russian interference in the U.S. elections. The committees were presented with thousands of ads, tweets, and posts that were placed by Russian agents. Facebook alone presented the committees with over 3,000 such ads. Some of the ads aimed to aggravate social tensions within the United States on such topics as immigration, Black Lives Matter, the confederacy, Muslims, and gun rights. One ad promoted a rally to oppose the “Islamization” of America, while other ads promoted an opposing rally defending Islam at the same time and place. Other ads took specific positions supporting or opposing candidates, most of which were critical of Hillary Clinton and supported Donald Trump. For example, one ad depicted the devil promising that “if Hillary Clinton wins I win,” while a portrait of Jesus promised that he will help defeat both the devil and Clinton.

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Paid advertising was only one way that the Russians used Facebook to promote their agenda. They also created false accounts and fictional groups where they could simply post information like any other Facebook users. The Russians promoted their ads, posts, and agenda the same way any digital marketer operates on Facebook. They relied on Facebook data to target individuals and groups who would be predisposed to “buy” what they were selling. They created ads that would appeal to these people and then paid Facebook to place the ads on the targeted audience’s page. They created accounts and groups that attracted thousands of other users and then Facebook users did much of the rest of the work to increase circulation by “liking” and forwarding ads and posts to “friends.”

Facebook initially told Congress that some 3,000 ads reached as many as 10 million Americans. In a later testimony, those numbers changed to 80,000 items (ads and posts) that were viewed by 29 million people, who then forwarded them to more than 10 million more people. By 2018, Facebook was estimating that as many as 126 million people were exposed to a Russian-linked ad or post between 2015 and 2017.

Many observers thought that Facebook, and in particular its founder and CEO Mark Zuckerberg and COO Sheryl Sandberg, were slow to respond to the issues raised by this activity. Zuckerberg’s first public statement described the idea that fake information on Facebook could have influenced the election “a pretty crazy idea.” Facebook later acknowledged the Russian activities, but denied responsibility, claiming that they were more a victim of Russian meddling than an accomplice. They claimed that they did not know about Russian interference and could not have done much about it without becoming a censor of content, a step that they were unwilling or unable to take.

Underlying this initial response was Facebook’s belief that they were not a media company comparable to cable providers or newspapers but were simply a company that provided a platform that people could use to communicate. They claimed that their priority at the time was to guarantee reliability and security of that communication platform. Facebook claimed that it was more focused on protecting the security of accounts and preventing theft of content than on deceptive or compromised content.

Whatever hesitancy Facebook had regarding responsibility for Russian meddling in the campaign fell apart during the spring of 2018 when a second wave of the scandal became public. This second wave focused on another company that was also involved in the 2016 election and the access which that company, Cambridge Analytica, had to Facebook’s data.

At first glance, selling access to users’ data would seem a natural progression from Facebook’s work with marketers who wished to target their ads. The competitive advantage that platforms like Facebook have over traditional mass media is the massive amount of user data that are collected. These data allow both advertisers and developers to very precisely target potential customers on even an individual level. Thus, both advertisers and developers are attracted to Facebook not just as a platform for their ads and apps but they were also purchasing access to user information so that they could better target their products.

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However, there is an obvious tension between the goal of profiting from selling access to data and Facebook’s stated goal of protecting the security and privacy of users’ accounts. To address this potential problem, Facebook developed policies to regulate what those companies given access to Facebook’s data could do with the data collected. The primary policy used to regulate such access was a prohibition against storing those data and using them for any reason other than to better target products. However, there is another tension built into the Facebook business model. Apps that are more successful in drawing and keeping users on Facebook are more valuable because they are thereby spending more time viewing ads and providing information. Thus, it is in Facebook’s financial interests to ensure that its policies do not discourage developers. Facebook’s failure to enforce these policies and monitor those companies became clear with public disclosures regarding Cambridge Analytica.

By 2018, the general outline of what happened during the 2016 election became clear. A psychology researcher working at Cambridge University in England, Aleksandr Kogan, formed a company that developed an app to administer a personality test similar to one developed at Cambridge. Using hundreds of thousands of dollars from Cambridge Analytica, Kogan’s company placed and promoted this app on Facebook. Over 250,000 Facebook accounts used the app. These users consented to having their data collected but were told that it was being used for academic research purposes. However, Facebook’s policies allowed the app to collect data not only on those directly using the app but also on everyone listed as a “friend” of those users and these people neither knew about nor consented to having their information collected. All told, data from more than 50 million people were collected. These data were then transferred or sold to Cambridge Analytica, a violation of Facebook’s policies that prohibited data collections to be saved and commercially sold.

In turn, Cambridge Analytica used the data provided by Kogan to develop some 30 million “psychographic” profiles on Facebook users that were then used as part of their political consultancy business. Cambridge Analytica marketed themselves as political consultants who could provide detailed and targeted profiles of 30 million potential voters. Cambridge Analytica was hired by the Trump presidential campaign, after previously working for the Ted Cruz presidential campaign. In the United Kingdom, Cambridge Analytica was also involved as consultant for the “Brexit” campaign to have the United Kingdom withdraw from the European Union.

Facebook took a similar defensive stance when criticized for misinformation and conspiracy theories found on its platform during the global pandemic of 2020–2022. Facebook was a major vehicle for the spread of misinformation, disinformation, and wild conspiracy theories about the cause and seriousness of the pandemic and about the effectiveness of vaccines. They again denied responsibility for what had been posted to their platform and claimed that they had taken action once they became aware of false information but that policing content of all posts is a near impossible task.

Facebook’s defense was undermined by the action of a whistleblower and a series of stories published by The Wall Street Journal in September 2021. The Journal’s report was based upon “internal Facebook documents, including research reports, online employee discussions and drafts of presentations to senior management" that it had obtained from a former Facebook employee. In October 2021, Frances Haugen appeared on the news program 60 Minutes and disclosed that she was the whistleblower responsible for the disclosure of the documents used in the Wall Street Journal report. Haugen later provided evidence and testimony to the U.S. Securities and Exchange Commission (SEC), the U.S. Congress, the U.K. Parliament, and the European Union Parliament.

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Haugen had worked as a manager in Facebook’s civic integrity department, so she was in position to see firsthand how the company responded to misinformation and election interference. The Journal’s reports document Facebook’s knowledge about and action regarding such problems as sex trafficking, drug cartels, election interference, COVID misinformation, vaccine misinformation, hate speech, and harmful impacts on children. Haugen told reporters that “The thing I saw at Facebook over and over again was there were conflicts of interest between what was good for the public and what was good for Facebook. And Facebook, over and over again, chose to optimize for its own interests, like making more money.”

This was not the first time that public and legal attention was focused on Facebook as a result of decisions made by an insider who went public with their criticisms of Facebook’s ethics. Beginning in 2018, Roger McNamee, an entrepreneur who was among the original investors in Facebook, published a series of op-eds and interviews in major media outlets calling for federal regulation to respond to what he described as “truly horrible behavior” by Facebook. In May 2019, Charles Hughes, a co-founder of Facebook and college roommate of Mark Zuckerberg, wrote an op-ed in The New York Times calling for Facebook to be broken up. Hughes described Facebook as a monopoly with “unprecedented and un-American” power that cannot be trusted to reform itself. In 2020, Sophie Zhang, a data scientist whose position at Facebook was to investigate fake accounts, revealed that Facebook had long known about foreign governments using its platform to mislead and manipulate their own citizens. When she became convinced that Facebook had no intention to address these problems, she wrote a long memo describing the problems and left her job. The memo was initially posted to an internal Facebook site, but was later released to the media.[1]

Discussion Questions

1. On financial grounds, there can be no doubt that Facebook has been a very successful company and CEO Mark Zuckerberg an effective leader. Based on what you know, would you describe Facebook as a good company or Zuckerberg as an ethical leader? Why or why not?

2. What responsibilities does Facebook (or Google or Twitter) have for policing political advertisements placed on their platform?

3. By most accounts, Facebook did not do anything illegal in any of these situations, but did they fail in any ethical duties?

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Facebook’s claim that it is just a platform for bringing people together and not a publishing company is reminiscent of a claim that Nike made years ago when they were criticized for the use of child labor in their supply chain. Nike executives defended themselves by claiming that Nike is just a marketing company and not a manufacturer. Similarly, Uber recently defended itself against charges of mistreating drivers by claiming that they are not a transportation company but just a platform for bringing together independent contractors and customers. All these responses share an underlying assumption that different companies have different responsibilities depending on their corporate purpose. How is the purpose of a company related to its ethical responsibilities?

5. Does a company have special loyalty or extra responsibilities to the country in which it operates? In what sense, if any, is Facebook an “American” company?

6. How would you describe the decisions made by the insiders at Facebook who chose to go public with their criticisms? What pressures and values might lead them to go public with their revelations? What pressures and values might work against divulging this information?

1.1 Business Ethics: The What and the Why

For most people, it is impossible to read about Facebook’s decisions without making judgments about those decisions. After reviewing this case, some people might conclude that Facebook has consistently made unethical decisions and decide to boycott the platform. Others might decide that Facebook has done nothing particularly wrong, and they might even praise the company for its successful business model. Still others might have mixed reactions: Selling users’ private information is ethically acceptable, but failing to do more to prevent election interference was wrong. Some might want more information before reaching a judgment.

Facebook is not alone, of course, in making these kinds of decisions. Every day at every business, decisions are made that affect the well-being of all involved: consumers, employees, shareholders, business partners, and the wider society in which business operates. As the consumers, employees, shareholders, and citizens are affected, we are naturally inclined to step back and judge those decisions. At its essence, business ethics is a systematic version of this process of stepping back to evaluate those business decisions: Were they the right decisions? Wrong? Were they responsible? Who is to be held accountable? What harms were done? What good was accomplished? What decisions should be avoided? Which decisions should be emulated?

Just having an opinion and making judgments about a business decision is not enough to qualify as business ethics. Anyone can have an opinion, but not every opinion is reasonable, correct, thoughtful, appropriate, or fair. The goal of this text—and surely the goal of a class on business ethics—is to help you think through ethical issues in a more systematic and deliberative process so that your opinions and judgments, and your own decisions while in business, are reasonable, correct, thoughtful, appropriate, and fair. The goal is to make responsible ethical decisions and avoid irresponsible opinions. Let us explore these ideas a bit further in this opening section to help explain the goals for a business ethics course.

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The word “ethics” is commonly used to refer to two different but related things. On one hand, ethics refers to those opinions, beliefs, and values that guide a person’s life and decisions. This is the practical side of ethics that we experience in everyday life. In this sense, we might speak of the Facebook executives as having no ethics, or we might refer to the Facebook whistleblowers as having high ethical standards. This meaning of ethics can be applied not only to individuals but also to organizations or even entire societies, as when we might conclude that Facebook lacked a strong ethical culture.

On the other hand, “ethics” is used to identify an academic field that studies those opinions, beliefs, and values in order to reach conclusions about the reasonableness of those opinions, beliefs, and values. In this sense, one engages in the discipline of ethics by stepping back from the actual every day decisions that people make to reflect on and evaluate them. Are they the right ones? Why? Should they guide our decisions? Why? What decisions should be made?

From the earliest days of philosophy, the purpose of studying ethics was not just to describe the opinions, beliefs, and values that actually guide behavior, but to try to influence individuals and organizations to become more ethical. A class in business ethics aims not only to help you learn some information about business and ethics but it also aims to help you do ethics and become ethical. That is, the goal of business ethics is more than just teaching and learning about the academic field of ethics—what philosophers call descriptive ethics. The goal is also to help each of us become more ethical, to make more ethically responsible decisions, and to help us create and promote ethical institutions—what philosophers call normative ethics.

The world of ethics is more complicated than it might first appear. Sometimes an ethical issue will be as clear-cut as when Cambridge Analytica violated the terms of agreement with Facebook to misuse private data. Sometimes we need to think carefully in order to even identify something as ethically wrong. For example, what, if anything, did Facebook do wrong when it allowed vaccine skeptics to post misleading information? A case could be made that it is not Facebook’s role or expertise to make scientific judgments about content posted on their platform. Many of the issues we examine in this book involve situations in which the ethical decision and responsibility is not at all obvious. A class in business ethics can help us develop the skills needed to both identify ethical issues and evaluate them.

But even when the wrong is obvious and widely understood to be wrong, individuals and businesses still commit unethical acts. Sadly, all too often people who should know better fail to do what is ethical. A class in business ethics can help us understand how and why people behave unethically. It should also help us think about what type of employee, consumer, or manager we should be. We hope to understand the social conditions that encourage, or discourage, ethical behavior. Of course, we not only want to understand why unethical behavior occurs, we also want to prevent it from happening in the future. A third goal of a class in business ethics, therefore, is to help us understand and create ethical organizations.

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This point reminds us that ethical decisions and actions occur on several levels. As the Facebook case demonstrates, business ethics involves decisions and actions of individuals, organizations, and at the level of governments and the wider society. As individuals, each of us will interact with businesses in several ways, most immediately as customers and as employees. A business ethics class can help us understand what we would do if we were the users whose data were misused by Facebook, or what we might have done had we been the individual employees who knew of Facebook’s misbehavior.

But individuals do not exist in a vacuum. As the example of the Facebook whistleblowers suggests, it can be difficult for good people to live up to their ethical standards within a corrupt organization. Likewise, it can be difficult for bad people to act unethically within an organization that promotes and lives up to high ethical standards. As we will see later in this book, organizations, corporate culture, and corporate leadership count.

Finally, business organizations themselves do not exist in a vacuum. Every business is situated within one or more social, economic, and political structure. Just as individual decisions and behaviors are influenced by the surrounding organization, so too are the decisions of individual businesses and entire industries influenced by social, economic, and political environments. Allowing disinformation about a pandemic and about an effective vaccine occurred in a very specific social, political context that influences how we are to evaluate that decision. Obviously, the law itself is the major means by which a society imposes its standards and expectations upon business, and the social, economic, and political environments are heavily value-laden. A class on business ethics should also help us think through these social, economic, and political values, and business’s role within that broader context.

Given this description, it is clear that business ethics is a multidisciplinary field. First, the field of business ethics includes the more general discipline of philosophical ethics. For thousands of years, philosophers have thought and theorized about such things as rights and duties, virtues and values, social justice, responsibilities, liberty, equality, and the common good. Learning about philosophical ethics provides a knowledge base for our own study of business ethics so that we won’t have to start from scratch. This text adopts such a philosophical approach to business ethics.

Business ethics also requires resources from such fields as psychology, business management, organizational behavior, leadership studies, and sociology. How and why people behave as they do, how the organizational environment encourages and discourages behaviors, and how organizations and individuals within them can create a culture in which ethical behavior flourishes are questions that arise from this diverse group of social sciences.

Broader social disciplines such as law, economics, and political science contribute to business ethics as we think about how business organizations fit into a broader social and political context.

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To summarize, as a field, business ethics investigates ethical questions that arise at the individual, organizational, and social or political level. As ethically responsible people, each of us should consider how we interact with businesses as individual consumers or employees, as managers and executives, and as citizens. This text is a contribution to the academic field of business ethics. Its aim is to describe, examine, and evaluate ethical issues that arise within business settings and to help each of us become more ethical individuals and help us create more ethical institutions. A business ethics class therefore has many goals, including the following:

1. A class in business ethics can help us develop the knowledge base and skills needed to identify ethical issues.

2. A class in business ethics can help us understand how and why people behave unethically.

3. A class in business ethics can help us decide how we should act, what we should do, and the type of person we should be as individuals.

4. A class in business ethics can help us create ethical organizations.

5. A class in business ethics should help us think through the social, economic, and political policies that we should support as citizens.

1.2 Ethics, Morality, and Social justice

A friend who also teaches ethics tells his students that they engage in ethics every day. He explains that ethics underlies the question that each of us asks every morning when we wake up: What am I going to do today? But while this is a simple question, it is perhaps the most fundamental question any human can ask: What I am going to do with my life? How should I live? What should I do? What type of person should I be?

For many, perhaps most people, these questions are implicitly answered without conscious deliberation: We simply conform to the ethos and customs of their culture. We act the way we do, we become the type of person we are, because that is what is expected of us by our family, our culture, and our religion. You get up in the morning and go to class because that is what a person like me in a situation like the one I am in, does.

In a tradition that stretches back to the ancient Greeks, questions of ethics, what we should do and how we should live, can be answered by appeal to ethos, what we are expected to do by our own culture. We might think of our own ethos as our default position; it is the way we normally act, what we normally believe, how we normally live our lives. These “norms” are our cultural values, our ethos. They are the norms by which we have been raised and educated. They come from family, from religion, from our local community, from our wider society.

But it is likely true that all of us, at one time or another, have reflected on our own norms and had questions about them: Are they right? We might question what our parents taught us, what our religion teaches, what we learned in school. At this point, we begin to think for ourselves. In a sense, this is the point at which we begin to do philosophy.

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Philosophical ethics encourages us to step back from our ethos, from our cultural norms, to examine, evaluate, and either accept them as our own, or reject them. Philosophical ethics denies that conformity and obedience to cultural norms are the best guides to how we should live. Conforming to the expectations of the Facebook corporate culture, for example, would have required many employees to violate their own integrity. From the time of Socrates in ancient Athens, philosophy rejects conformity to authority as the source of ethics; it rejects conformity to an ethos as the basis of ethics. Instead, philosophical ethics defends the use of reason as the foundation of ethics, seeking a reasoned analysis of ethos and a reasoned defense of how we ought to live. Engaging in this practice is to think for oneself. Using his typical irony, Socrates identified this goal as “no small thing.”

Philosophical ethics requires us to abstract ourselves from what is normally or typically done and reflect upon whether or not what is done should be done and whether what is valued should be valued. The difference between what is valued and what ought to be valued is the difference between ethos and ethics, and the difference between what we earlier described as descriptive ethics and normative ethics.

This observation also helps to explain some of the skepticism surrounding business ethics. Any philosophical focus on business ethics seems to suggest some dissatisfaction with, or misgivings about, what is normally or customarily done in business. Why step back from what is normally done unless you have reason to doubt that what is being done should be done? But while philosophical ethics is critical in the sense of demanding reasons for each decision, it need not be critical in the sense of rejecting or disagreeing with the customary norms and standards.

As a branch of philosophical ethics, business ethics asks us to step back from our daily decisions, step back from the ethos of business, and reflect upon how business decisions affect our lives; in what ways do the practices and decisions made within business promote or undermine human well-being? Raising these questions does not imply that what is normally being done is unethical. After examining ethical issues in business, we may end up defending the same values and making the same decisions that we would have originally. But philosophical ethics does require a conscious reflection and analysis of those beliefs and values upon which we act. Again, to rely on Socratic wisdom, philosophical ethics assumes that “the unexamined life is not worth living.” As we proceed through an examination of business ethics, we are really doing little more than reflecting upon daily events and echoing Socrates’ question: How we ought to live?

So, how we ought to live? There is a slight ambiguity in this questions because the “we” can refer both to each of us individually and all of us together. In the first individual sense, this is a question about how I should live my life, how I should act, what I should do, what kind of person I should be. In the collective sense, this is a question about how a society ought to be structured, about how we ought to live together in community.

This first sense of ethics, the concern with how each of us should live our lives, is sometimes referred to as morality. One part of morality involves examining principles and rules that might help us decide what we should do. Another important part of morality involves an examination of those character traits, or virtues, that would constitute a life worth living. This distinction is sometimes made in terms of deciding how we should act, and deciding the type of person we should be. The second, more collective, area of ethics is sometimes referred to as social ethics, and it raises questions of organizational behavior, public policy, law, civic virtue, and political philosophy.

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Business ethics addresses both kinds of questions. Questions of individual morality will be a major theme throughout this text. One of the most fundamental goals of business ethics is to provide opportunities for students to step back from the immediate concerns of day-to-day life and ask: “What kind of person should I be?” “What should I do?” “What kind of life will I live?” “What would I have done if I worked at Facebook and was responsible for managing the civic integrity department?”

No doubt, most of us at most times of our lives are too concerned with more immediate issues, such as completing an assigned task, paying our bills, and having fun, to consciously step back and ask about the meaning and value of what we do. But this is what philosophical ethics demands. Morality takes the larger perspective. Imagine late in your life looking back to reflect on the kind of life you have led and asking: “Has this life been worth living? Am I proud of my life? Am I proud or ashamed of the person I have been? Has this been a full and meaningful life?” These are among the fundamental questions of morality.

But business ethics also addresses issues of social ethics and public policy. Understanding this viewpoint can start with the recognition that business institutions are human creations and this fact means that humans cannot avoid responsibility for them. As the Facebook case indicates, business institutions have a tremendous influence on many lives. We depend on business for our jobs, our food, our health care, our homes, our livelihoods, and so on. The public policy perspective invites us to step back from the actual practice of business to ask: “How should business be structured?” If we had it all to do over again, how would we arrange business institutions in our society? In this sense, public policy questions ask us to take the point of view of the citizen who is deciding how society—and business institutions as a part of society—ought to be organized and conducted. Many observers would point out that Facebook’s problems are much more an ethical failure of institutions and “business models,” than of individuals. When we ask these questions, we can see that important ethical questions remain even when the particular decision facing an individual appears clear-cut. As an individual working at a social media company, you may choose to pursue a strategy of selling user data, but citizens get to decide whether or not to regulate such practices and whether or not to legally require companies to respect user privacy.

In summary, philosophical ethics developed out of the recognition that reliance on ethos, the cultural expectations for how we should live, is an incomplete and inadequate answer to the fundamental question of how we ought to live our lives. We cannot escape responsibility for our choices. But the ethical question of how we should live occurs at two levels: at the level of personal morality, ethics asks about how I should live, what I should do, what type of person I should be; at the level of social justice, ethics asks about the type of society, community, and organization in which we ought to live.

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1.3 Business Ethics as Responsible Decision Making

In the first section, we suggested that one aim of a business ethics course was to help you become ethical. Why else do we require a class in ethics, as is often the case in business schools, if not to try to reduce the type of unethical behavior that occurs in business? Yet, ethical behavior is notoriously hard to teach. Philosophers have struggled with this issue since Plato himself opened one of his dialogues with this very question: Can ethics be taught? Even if it can be, should it be taught? Whose ethics? There seems to be wide disagreement about what ethics requires.

This does not mean that there are no common goals, concepts, principles, and frameworks in ethics. The academic study of ethics can be traced back at least 2,500 years to the time of the ancient Greek philosophers Socrates, Plato, and Aristotle. As is true for any academic discipline, studying ethics requires that you become familiar with some of the basic ideas, concepts, and categories. Just as there are Generally Accepted Accounting Principles (GAAP) for accountants and a disciplinary language for fields such as economics and finance, there are a set of principles, standards, concepts, and language that are common within business ethics. Learning about ethics means understanding such concepts as rights, duties, autonomy, and character; such values as honesty, loyalty, integrity, and trustworthiness; and such principles as fairness, treating people with respect, and serving the common good. Chapter 2 will introduce some common ethical theories and principles that have significant impact on business ethics.

There is also a large body of scholarly literature in business ethics itself, and an important element of a course in business ethics is to become familiar with that scholarly literature. In each of the following chapters, we will rely on some of this scholarship to review various ethical issues so that we may enter the business ethics conversation at a more advanced level than if we were starting from scratch. As the old adage reminds us, there is no reason to try to reinvent the wheel.

But beyond this academic side of learning information, business ethics also has a practical goal in the sense that it aims at judgment, behavior, and actions. We still all hope that a book or a class in business ethics will translate into more ethical decisions and behavior among business practitioners.

Unfortunately, this goal also raises difficult challenges. First, there is the daunting gap between ethical judgment and ethical behavior. From at least the time of Plato and Aristotle, Western philosophy has acknowledged a real discontinuity between judging some act as right and following through and doing it. (In contemporary vernacular, this is the challenge to “walk the talk.”) It is difficult enough to know the difference between good and bad, or right and wrong. But knowing is different from doing, and not everyone has the fortitude, strength of character, or motivation to act in ways that we know are best. It is not at all clear, for example, that an ethics course would have made any difference to the individuals at Facebook.

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A second complication is that while we would all hope to encourage ethical behavior, few teachers think that it is their role to tell students the right answers or proclaim what they ought to think and how they ought to live. That seems more like indoctrination or preaching than education. The role of an ethics course should not be to convey information to a passive audience, nor to treat students as children to be told what to believe and how to act. The goal is to treat students as active learners and engage them in an active process of thinking and questioning. Taking Socrates as the model, philosophical ethics rejects the view that blind obedience to authority or the simple acceptance of customary norms is an adequate ethical perspective. Teaching ethics must, in this view, involve students thinking for themselves. The unexamined life, Socrates claimed, is not worth living.

The problem, of course, is that when people think for themselves they don’t always agree with each other, and they certainly don’t always act in a way that others would judge as ethical. If the ethics classroom does not teach students the right answers, many students will conclude that there are no right answers. Thus, a major challenge for business ethics is to find a middle ground between preaching dogmatic truths to passive listeners on one hand, and encouraging the skeptic’s conclusion that all opinions are equal to one another.

A common goal for most courses in business ethics navigates this difficulty by emphasizing the process of ethical reasoning, not the conclusions. Business ethics is concerned more with reasoning than with answers. Responsible reasoning must begin with an accurate and fair account of the facts; one must listen to all sides with an open mind, one must become familiar with all the relevant issues at stake, and one must pursue the logical analysis of each issue fully and with intellectual rigor. One must be familiar with the language and basic concepts of ethics, as well as the thinking that has gone before. Business ethics essentially involves this process of ethical analysis. Without it, one risks turning ethics into dogmatism; with it, one has gone as far as possible to defeat relativism. With this process, we are best prepared to avoid the dilemma of dogmatism and relativism.

This dilemma not only confronts business ethics in an academic setting, it is true for ethics within business settings as well. Even if they could be successful in doing so, few business managers would want to approach ethical issues by making pronouncements of ethical dogma. Like good teachers, good business managers and leaders seek to empower their employees to make their own decisions. But responsible businesses also do not suggest that anything goes or that all values are equal. Value relativism in the workplace will likely lead only to power struggles and conflict.

In summary, a major goal of business ethics is to help people develop skills for responsible decision making. Responsible decisions may not always reach the same conclusions, which itself seems reasonable given the complexity of ethical issues. Yet, there are standards for making responsible decisions. Not every decision is as reasonable or responsible as every other. There are good and bad, reasonable and unreasonable, responsible and irresponsible decisions. This book hopes to aid you in this process of responsible decision making.

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1.4 Skeptical Challenge I: isn’t the law enough?

Due, perhaps, to the difficulties just described, business ethics sometimes faces some real skepticism among students, teachers, and business practitioners. There is a common belief that ethical considerations should be kept out of business decisions. What some have called the “separation thesis” holds that business activities ought to be separate from ordinary ethics. This skepticism emerges in a variety of forms, but two are worth considering at length.

The first skeptical challenge to business ethics is that it is unnecessary. On this view, it is enough that business obeys the law; ethics is unnecessary and it distracts from business’s main purpose. A second skeptical challenge, examined in the next section, builds on the skepticism mentioned previously. On this view, ethics is little more than personal opinion and it is hopeless to think that we can ever reach agreement on contentious ethical issues. Once again, ethics is thought unnecessary and distracting from the real purpose of business. The conclusion reached from both of these skeptical challenges is that we can ignore the study of business ethics.

Some believe that we can disregard ethics and concentrate on legal compliance. For many businesspeople, ethics is identified with obedience to the law. An ethical business, therefore, should have an ethics officer or an ethics department, usually staffed by attorneys, that monitors compliance with the legal and professional standards of conduct.

Unfortunately, compliance with the law alone will prove insufficient for ethically responsible business. From this compliance perspective, it is easy to think of the law as a set of rules that one can obey or violate in an unambiguous way. Traffic laws, for example, require stopping at a red light and prohibit speeds over a certain limit. But this is a very incomplete and misleading understanding of the law for several reasons.

First, even when there are specific regulations that require or prohibit certain actions, ambiguity is always possible in the application of those regulations. For example, consider the following case. At a management training program I recently attended, two corporate attorneys outlined some of the legal responsibilities for managers under the Americans with Disabilities Act. This law requires business to make “reasonable accommodations” for workers with disabilities. This law goes on to specify some, but not all, of the conditions that would count as a disability. During the question period, one manager explained that she had an employee who suffered from asthma and she wondered if asthma was a disability. The two attorneys conferred for a moment and answered simply: “It depends.” The law’s definition of a disability involves, in part, how serious the impairment is, how much it limits the worker’s life activities, and whether or not it is easily corrected by medication. Given this ambiguity, the manager must make a judgment about how to treat this worker. Assume that this manager is committed to doing the ethically correct thing but believes that one’s ethical responsibility is to obey the law. What should this manager do? In such a case, the decision is unavoidable because one cannot simply and unambiguously apply a rule of law. The law’s phrase of “reasonable accommodation” is ambiguous and the manager therefore cannot avoid making a judgment about what ought to be done.

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More generally, much of the civil law governing business is based on the legal precedents of case law rather than on specific statutes or regulations. Case law is fundamentally ambiguous in a way that statutory law is not. In a very real sense, many acts are not illegal until a court rules that they are. For example, both the attorneys and the auditors in the famous Enron corruption case were directed by executives to “push the envelope” of legality. Given that many of Enron’s financial practices were quite literally unprecedented, their attorneys and accountants offered advice that they believed could be defended in court. Until and unless these acts were challenged in court, there was a real sense in which they were perfectly legal. While admittedly pushing the envelope on accounting and tax regulations, what they did was not obviously illegal at the time that they did it.

A similar situation occurs in many more recent cases, especially those involving information technology. So, for example, many legal protections concerning consumer privacy developed in a time before computers, the Internet, and digital marketing existed. What do privacy laws written in the time of paper files and records mean in the days of digital files and cloud computing? Should Uber be governed by legal regulations written to regulate taxi companies or by those written to govern independent contractors? Does Facebook have the same ethical duties regarding customer privacy and records as the phone company?

These questions highlight the fact that even the law faces significant challenges in offering clear direction for business. Further, as many cases that we will examine demonstrate, even when the law is clear there can be great incentives and opportunities to ignore the law, especially in cases where managers and senior executives seem complicit. This means that one cannot always rely on the law to decide what is right or wrong. The manager whose employee suffers from asthma will need to make a decision and the law won’t decide this for her. An employee who believes that opening fraudulent banking accounts is wrong will still need to decide what to do when a manager encourages them to do it anyway.

But there is still a wide range of ethical issues that lay outside legal requirements. Sometimes the law prohibits certain behaviors, other times it allows a wide range of behaviors. Especially in a society that values individual freedom, not everything that is legal is ethically right, and not everything that is ethically wrong is illegal. The law leaves great freedom for individuals and organizations to decide for themselves what to do and how to live. For example, following the tragic school shooting in Parkland, Florida, in February 2018, Dick’s Sporting Goods made a corporate decision to stop selling assault-style rifles at its 700 U.S. stores. Dick’s Board Chair and CEO Ed Stack announced that the company needed to do the right thing even though it was not required by law. Other retailers followed, including Walmart that unilaterally decided to stop selling such rifles to people below the age of twenty-one. These cases demonstrate that the law alone will never be enough to determine what a business should, or should not, do.

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Another example made headlines during the COVID-19 pandemic, when many employees worked from home. On December 1, 2021, 900 employees of the online mortgage company Better.com were asked to attend an online Zoom call with CEO Vishal Garg. Garg began the meeting by announcing that he had “not great news.” “We are laying off about 15 percent of the company for a number of reasons—the market efficiency and performances, and productivity. If you’re on this call, you are part of the unlucky group that is being laid off. Your employment here is terminated effective immediately.”

Soon after the call copies of the video went viral on social media and Garg received widespread criticism for his actions. Within a week he issued an apology in which he shared with remaining employees. “I failed to show the appropriate amount of respect and appreciation for the individuals who were affected and for their contributions to Better. I realize that the way I communicated this news made a difficult situation worse. I am deeply sorry and am committed to learning from this situation and doing more to be the leader that you expect me to be.” Few would dispute that Garg had the legal authority to fire the 900 workers but few think that his methods were ethically right. (For a more detailed examination of situations where what the law allows is not always ethical, see the Discussion Case on Section 230, which opens chapter 3.)

Expressed in these terms, perhaps the major reason to study ethics is because whether we examine ethical questions explicitly or not, they are answered by each and every one of us every day in the course of living our lives. Presumably, the executives at Facebook did not wake up one morning and decide to promote vaccine disinformation or to encourage election interference, but the actions they took and the decisions they made had the same result. The actions we take and the lives we lead give practical answers to the fundamental ethical question of how we should live. Our only real choice is whether we answer these questions deliberately or unconsciously. Thus, we once again refer to the philosophical answer for why you should study ethics that was given by Socrates over 2,000 years ago. “The unexamined life is not worth living.”

1.5 Skeptical Challenge ii: Ethical relativism

A second skeptical challenge to business ethics is called ethical relativism. This view holds that ethical values are relative to individual opinions or cultural norms and that, therefore, there is no common rational basis for making ethical judgments. In terms used previously, relativism holds that there is no difference between ethos and ethics. Values are thought to be too personal, too individualized, too relativistic to provide any objective guidance. Given the wide disagreements about ethics in business that can occur, this view can initially appear plausible, but upon closer analysis it is not.

The day on which I originally wrote this chapter began with a morning class in business ethics. After the class, a student remained to ask some questions about a paper assignment that I had returned during the previous class meeting. This student wanted to know how I had graded her paper, particularly why she had received an unexpectedly low grade. As we reviewed the paper, I pointed out that much of it offered little more than her opinions. She then asked a question that is familiar to many ethics teachers. “How can you say that my opinions are wrong? Isn’t everyone entitled to their own opinions?” I answered that while people may be entitled to hold any opinion they wish, not all opinions are equal. Some are right and some are wrong, some are reasonable and some are unreasonable, some are thoughtful and others are less thoughtful. “But this is ethics,” she responded. “Who’s to say what’s right or wrong?” I suggested that anyone who had reasons could say what was right or wrong and asked if she herself didn’t have some reasons to support her opinions. Why did she believe what she had written? She responded that she didn’t know but that it was “just the way I feel.”

This student’s response is a perfect example of ethical relativism and I suspect that this skeptical reaction might be familiar to many students. Ethics is not like math, science, or accounting. One cannot look up the right answer or calculate the answer with mathematical precision. One cannot prove the truth of an ethical judgment in the way that one can offer a proof in geometry. One cannot run an experiment that supports, or refutes, an ethical opinion. Unlike these other disciplines, ethics appears to rest on mere opinion. People differ about ethical judgments, and there seems no rational way to decide between competing conclusions. Ethical issues seem based in personal feelings and emotions.

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Ethical relativism holds that ethical values and judgments are ultimately dependent upon, or relative to, one’s culture or personal feelings. In this sense, ethics truly is simply a matter of opinion, be it the opinion of one’s self or one’s culture, society, or religion. Ethical relativism presents a serious challenge to any consideration of ethics because it denies that we can make rational or objective ethical judgments. There is no right or wrong, moral or immoral, except in terms of a particular culture or society. The student who remained after class was implicitly assuming a version of ethical relativism. In her view, ethical judgments were a matter of opinion and if two people differed in their opinions, there was no legitimate way to decide between them. Every person is entitled to their own opinion, and no one opinion is more legitimate or more correct than another.

Relativism represents a serious challenge to ethics, including business ethics, because if it is correct, then it makes little sense for us to attempt to evaluate ethical judgments in business. If relativism is correct, then at best business ethics can help explicate the cultural or social values that underlie our ethical judgments, but it can do little to evaluate them as right or wrong. Philosophical ethics, from the relativist perspective, becomes little more than a process of values clarification in which we can clarify and elucidate our values but not justify them.

Relativism is especially important as we think about ethical issues involving international business. Consider the issues raised by child labor. Some Western businesses have been criticized for using suppliers who rely on child laborers working under harsh conditions for long hours and very low wages to produce expensive consumer goods like sneakers and designer clothing. A common response to such criticism points out that such working conditions are accepted in the host country and, therefore, critics from economically developed countries have no justification for imposing their own cultural norms on others. This, in a nutshell, is ethical relativism.

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Reality Check: Are You an Ethical Relativist?

Are you an ethical relativist? Ethical relativism holds that ethical values are relative to particular people, cultures, or times and denies that there can be any rationally justified or objective ethical judgments. When there are ethical disagreements between people or cultures, the ethical relativist concludes that there is no way to resolve that dispute and prove one side is right or more reasonable than the other.

Often, people describe behavior they don’t approve of as “distasteful.” Ordinarily, we think of matters of taste as personal, subjective things. You enjoy spicy Indian food, while I prefer a simple burger and fries. It is all a matter of personal taste. You might think sky-high executive salaries are distasteful, but others find them well deserved. Ethical relativists believe that ethical values are much like tastes in food; it all depends on, or it is all relative to, one’s own background, culture, and personal opinions.

Most ethicists believe that ethical relativism is not a credible point of view, but many people still find it tempting.

Do you believe that there is no way to decide what is ethically right or wrong? Imagine a teacher returns an assignment to you with a grade of F. When you ask for an explanation, you are told that, frankly, the teacher does not believe that people “like you” (e.g., men, Christians, African Americans) are capable of doing good work in this field (e.g., science, engineering, math, finance). When you object that this is unfair and wrong, the teacher offers a relativist explanation. “Fairness is a matter of personal opinion,” the professor explains. “Who determines what is fair or unfair?” you ask. Your teacher claims that his view of what is fair is as valid as any other. Because everyone is entitled to their own personal opinion, the professor is entitled to fail you because, in his personal opinion, you do not deserve to succeed.

1. Would you accept this explanation and be content with your failing grade? If not, how would you defend your own opposing view?

2. Are there any relevant facts on which you would rely to support your claim?

3. What values are involved in this dispute?

4. What alternatives are available to you?

5. Besides you and your teacher, are there any other stakeholders—people who are or should be involved in this situation?

6. What reasons would you offer to the dean in an appeal to have the grade changed?

7. What consequences would this professor’s practice have on education?

8. If reasoning and logical persuasion do not work, how else could this dispute be resolved?

Let us use an example of sexual harassment to consider how my relativist student might scrutinize it. One form of sexual harassment occurs when submission to sexual favors has made a condition of employment. (This is called quid pro quo harassment, and it was the type of harassment alleged by multiple women against the movie producer Harvey Weinstein.) Imagine a male executive telling a female job applicant that she would be hired only if she submitted to his sexual advances. Now imagine that our relativist concludes that the criticism of harassment is simply a matter of opinion, that all opinions are equally valid, and that while the woman may feel that harassment is wrong, the manager may feel that it is right. (He might answer criticism as did my student, “it’s just the way I feel.”)

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From the relativist perspective, each opinion or feeling is equally valid. Is there any way that the #MeToo movement might defend the claim that such harassment is rationally and objectively unethical? One might argue, among other things, that sexual harassment subjects women to unfair workplace discrimination. The inequality of power in this situation places the woman in the unacceptable position of having to choose between her livelihood and her own sexual integrity. Such a choice is fundamentally coercive and threatening. One might also point out that the male manager would unlikely accept as a general rule the principle that employers are justified in using threats to coerce employees into submitting to such degrading acts. In developing such arguments and appealing to standards and principles, we seem to have moved the discussion from mere opinion to a more reasoned conclusion.

Of course, the relativist could argue that such values as equality, fairness, integrity, self-respect, and freedom from coercion and threats are all themselves a matter of personal or social opinion. From the relativist perspective, all that has been shown is that harassment is wrong as long as you assume that people deserve a workplace that is free from discrimination and threats. But, the committed relativist would reply, who is to say that people do deserve such things? While we may have advanced the debate somewhat, we still haven’t proven to the relativist that harassment is wrong.

Consider how the debate has advanced. If, like my student, we start with mere opinions and feelings, then this discussion has moved beyond mere opinion by appealing to certain values and principles that justify and legitimize that opinion. This is no longer mere opinion but opinion based on principle. In developing this argument, we would point to certain facts, such as the disproportionate power relationship that exists between job applicant and employer. We would point out the crucial importance that jobs play in our lives and the harms that can occur from the loss of a job. We could explain the psychological good of self-respect, offer a conceptual analysis of integrity and its value to the self, and discuss the importance of personal autonomy. We could take a social perspective and consider the present status of women in the workplace and the social harms that can result from discrimination. And very importantly, we would employ the careful and rigorous rules of logic throughout our reasoning. Conclusions reached after this process surely are more reasonable and justified than mere opinion.

In the face of such reasoning, the relativist could continue to insist on proof, and this demand could go on indefinitely. (Although, as I would point out to my student, a paper that argues against harassment by reasoning along the lines suggested above would be more reasonable, and therefore receive a higher grade, than one that simply asserts the opinion that harassment is wrong because “that’s just the way I feel.”) But note that at this point the relativist would have to reject not only the original conclusion (sexual harassment is wrong) but also a wide variety of other beliefs and values (everyone should be treated with equal respect, people should be free from coercion and threats, self-respect is good, loss of dignity is harmful, and so forth). The costs of relativism—what you would need to give up to maintain it—just got much higher. If the relativist is determined enough, and if their standards of proof are high enough, then perhaps we could never satisfy the demand for proof.

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However, we’ll set more modest goals for this text. Throughout this book, we will treat ethics more as a process for thinking and reasoning than a set of specific beliefs or conclusions. I will assume that we can reason about ethical matters and that it is possible to rationally defend some views against others. I will assume that a conclusion defended by appeal to such values as equality, fairness, freedom from coercion, integrity, freedom from harm, and honesty (among others) is a conclusion that is more reasonable than the one that is simply asserted as a matter of personal feeling or opinion. A conclusion that is reached through careful logical analysis and reasoning is rationally better than the one that is simply asserted as a personal opinion. An argument that goes on to elucidate such values as equality, fairness, and freedom from coercion is more rational still.

We may discover that the most interesting and challenging ethical controversies involve a clash between two or more such values. Thus, for example, after the decisions made by Dick’s Sporting Goods and Walmart, a nineteen-year-old filed a lawsuit against the companies on the grounds that his rights of equal treatment were violated by their free choice to stop selling guns to people under twenty-one. In this case, we seem to have a conflict between two claims of freedom of choice. I will also assume that it is exactly at such points that more, rather than less, rigorous and careful reasoning is required. For example, some might argue that as long as the young man could buy a gun elsewhere, his rights were not violated by the decisions made by Dick’s Sporting Goods and Walmart. Others might argue that his freedom was violated when private companies seek to restrict his choices on the basis of their own personal values. Disputes about the meaning and scope of such fundamental values provide a greater justification for the need of ethics as a process of reasoning.

Perhaps, then, we can learn from ethical relativism and take it as a challenge to our own complacency and laziness. Whenever we are ready to give up and simply assume that our own opinions are adequate, let us call to mind the relativist question as a challenge: “Who is to say what’s right?” It will be a challenge worth answering.

Providing answers to the relativist has long occupied philosophical ethics. The ethical theories that we examine in the following chapter can be thought of as philosophical attempts to provide more fundamental answers to the relativist. But before we turn to these theories, and before we leave this consideration of ethical relativism, let me call your attention to several confusions that often lead students into the relativist trap. In my own teaching experience, many students who do not avoid these traps end up reaching relativist conclusions by default.

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The first trap has already been mentioned. We should be careful not to hold ethics to too high a standard of proof. If we start with the assumption that an ethical judgment must be proven as absolutely certain and beyond doubt, then ethics assuredly will fail to meet this standard. Mathematics and the more theoretical side of physics, engineering, and chemistry may meet this standard, but very few other intellectual fields would pass such a test. Reasoning in all of the humanities, the social sciences (including economics), the biological sciences, medicine, meteorology, and the applied sides of physics, chemistry, and engineering would fail to meet this standard in most of their conclusions. The business-related disciplines of management, marketing, finance, and accounting never establish their conclusions as certain beyond doubt. So, before rejecting ethics as little more than mere opinion, we should be careful that we are not using a standard that would commit us to similar conclusions about most other areas of human knowledge.

The second trap involves confusing the fact that there is wide disagreement about values, with the conclusion that no agreement is possible. The first view, often called cultural relativism, offers a factual description of different cultures and societies. People do not always agree about ethical matters. Some cultures may believe, in fact, that children are little more than slave labor. However, in itself, the fact of disagreement provides no reason for concluding that all of these diverse opinions are equally valid. To understand this point, consider the wide disagreement about scientific matters.

During the COVID-19 pandemic, some people believed that the vaccine itself could cause an infection. But just because someone believes something, it does not mean that their belief is true, reasonable, or valid. Indeed, we can find many examples of widespread beliefs in such things as the Earth is flat, that the Earth is only a few thousand years old, that evolution has never occurred, that aliens visit regularly, or that people can foresee the future by charting the course of the planets and stars. Of course, believing that the world is flat does not make it flat and believing that aliens exist does not mean that they do. So, too, with ethics. The fact that people hold different opinions does not, in itself, mean that each of these opinions is equally valid.

We should also be careful not to assume too quickly that there is a wide disagreement about fundamental ethical values. Certainly, there is a wide variety of cultural beliefs, customs, values, and practices. But there is also wide agreement about many values as well. Child abuse, torture, genocide, and slavery are just some practices that are universally condemned on ethical grounds. No doubt, we can find cases where individuals and even societies engage in such atrocities, but we would find very few who would seriously defend these practices as justified or merely a matter of personal opinion. While it may appear that some cultures legitimize child labor, it is more likely the case that such circumstances are seen as an unfortunate but necessary alternative to starvation. Accepting a deplorable situation as the least harmful of the alternatives is not the same as accepting it as ethically valid.

A third trap involves confusing values such as respect, tolerance, and impartiality with relativism. Respect for other people is a fundamental ethical value. Part of what it means to respect someone is to listen to their opinions and to show tolerance for opinions that differ from our own. But tolerating diverse opinions and values is not the same as ethical relativism. Let us turn the relativist challenge back on to the value of tolerance. Is tolerance (and respect and impartiality) merely a matter of opinion? If it is, then intolerant people have no reason to change their views. Condemning intolerance is simply your opinion. If, on the other hand, tolerance is not merely a matter of opinion, if in other words, it is put forward as a legitimate social value, then we have at least one value—tolerance—that has escaped the relativist critique.

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1.6 A Model for Ethical Decision Making

This chapter introduced ethics as involving a process of reasoning rather than a set of answers. The opening pages of this chapter spoke of the goal of business ethics not as offering strict rules and moralizing sermons but as a process of responsible decision making. Deciding how to act, how to live, and who to be are the fundamental challenges of living an ethical life. The following decision-making model can help this process.[2]

Making a responsible decision requires that we begin with a fair and accurate understanding of the situation. We need to know the facts. Because ethical issues often involve complicated and emotionally charged situations, uncovering the facts and attaining an unbiased and complete understanding can be more difficult than it sounds. (To consider the difficulty that can sometimes confront the attempt to determine the facts, see the Reality Check below.)

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Reality Check: Alternative Facts, Fake News, and Vaccine Conspiracy Theories

Prior to the American Revolution, future U.S. president John Adams was asked to defend several British soldiers who were accused of killing some American colonists during the Boston Massacre. Fearing that the American jury would be prejudiced against the British soldiers, Adams reminded the jurors that “Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence.” Adams’ point, of course, was that fair and reasonable decisions must be firmly rooted in facts and not in our feelings or prejudices.

Facts are stubborn, but they can also be difficult; difficult to discern, difficult to understand, difficult to communicate, difficult on which to agree. Facts can also be denied, manipulated, undermined, lied about, and ignored. Facts can face especially serious challenges when they come into conflict with powerful economic and political forces. Facts may be stubborn, but they are not always obvious to everyone.

More recent events suggest that perhaps Adams’ perspective was too optimistic as we have witnessed an unprecedented assault on the public’s ability to determine the facts and trust reliable sources. These difficulties were on full display during the global pandemic of 2020–2022 when widespread disinformation campaigns and conspiracy theories, many of which were promoted on Facebook and other social media platforms, helped persuade millions of people to avoid getting a lifesaving vaccine.

As context for this, consider two ideas that were promoted during the Donald Trump administration: “alternative facts” and “fake news.” In the opening days of that administration in January 2016, Press Secretary Sean Spicer claimed that the inauguration had been witnessed by the largest crowd in history. When presented with evidence by NBC News’ Chuck Todd that this was not true, presidential advisor Kellyanne Conway explained that Spicer was using “alternative facts.” Todd responded, “Alternative facts are not facts. They’re falsehoods.”

Fake news is, of course, an important and legitimate concept. History has witnessed many sources of information and news that are no more than propaganda and misinformation. Authoritarian governments have often relied on fake news sources to promote their agenda and hide their evil. The Nazis in Germany during World War II had an official ministry of propaganda that promoted its fascist agenda and played a central role in the attempt to rationalize Nazi genocide against Jews. The Soviet Union’s major newspaper, Pravda, was owned by the Soviet Communist Party and was famous for its lies and disinformation. (Interestingly, “pravda” is the Russian word for “truth.”) Russia’s media reports during the Ukrainian invasion denying the massacres at Bucha and Mariupol provided more recent examples of fake news.

But fake news emerged in the past decade in more insidious ways. First, the U.S. President himself, Donald Trump, used the idea to discredit any news source that was critical of him. Mainstream media outlets such as The New York Times, The Washington Post, CNN, NBC, and others, were disparaged as “fake news.” What had previously been trusted sources for news and information became, for a large portion of the U.S. population, untrustworthy and deceptive.

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Second, while social media platforms have never claimed to be a source of reliable and trustworthy news, beginning especially with the 2016 U.S. presidential election social media platforms have provided fertile ground for fake news and disinformation. (See the Opening Decision Case for this chapter for how Facebook dealt with disinformation during the 2016 election.) These issues reached a peak during the COVID pandemic of 2020–2022 with widespread misinformation, disinformation, and conspiracy theories undermining public response to the pandemic and public acceptance of vaccines.

The Kaiser Family Foundation, an independent and nonpartisan foundation dedicated to health care research, released the results of a study in November 2021. The study found that 78 percent of the public believed at least one of the following “myths,” or false statements, about the COVID vaccine:

- Deaths caused by the vaccine have been hidden from the public by government.

- The vaccine causes infertility.

- Ivermectin, a drug used to treat roundworm and parasites, is a safe and effective treatment for COVID.

- The vaccine itself gives you COVID.

- The vaccine contains a microchip that is used to track people,

- The vaccine changes your DNA.

These results were correlated with the news sources that the public relies on. About 10 percent of the people who believed four or more of these false statements relied on such main stream media sources as their local TV stations, CNN, or NPR. The number more than tripled for those who relied on Fox News or One America News, and reached almost half (46 percent) for those who rely on Newsmax.[3]

1. How would you check the validity of the myths listed above? What sources would you rely on?

2. A distinction is often made between “misinformation,” which is false or misleading information, and “disinformation” which is false or misleading information that is intentionally promoted. Which of the above myths do you think is misinformation? Disinformation?

3. Vaccine skeptics often advised people to “do your own research” before taking the vaccine. How is the research done by the public different from the research conducted by medical scientists?

4. How is the “news” that is published in mainstream news outlets such as The New York Times or CNN similar and dissimilar to the “news” that appears in Facebook’s News Feed?

5. What is the difference between alternative facts, and alternative explanations of the facts?

A second step in responsible decision making is to identify the ethical issues at stake. It is not uncommon for people to disagree over whether or not a particular case is an ethical case at all. Oftentimes what one person sees simply as an economic or legal issue will be viewed by others as a major ethical issue. For example, someone might think of the Facebook’s actions as involving nothing more than carrying out its business model; others might see this as a case of unethical behavior. Explaining what makes an issue an ethical issue is a vital step in ethical decision making.

Once the ethical issues have been identified, the next steps are to identify the people who are affected by the situation and understand how they might be affected. Who are the stakeholders in a decision? How will they be harmed or benefited? What will the likely consequences be? What is owed to the various stakeholders?

The next step is to consider alternative courses of action. What choices are available? A useful stimulus to this step is to put yourself in another person’s position and imagine how the situation would appear, how it would feel, from their perspective. Use what has been called “moral imagination” to explore a wide range of alternative choices and values. Consider how your decision will be interpreted from another perspective. As you approach a decision, step back and employ what we might call the “New York Times test.” What would the public reaction be if your decision was presented in full detail on the front page of The New York Times? This is a way to ask oneself how a decision will stand up to public scrutiny. Is your decision one that you would be willing to explain and defend openly, or is it a decision that you would just as soon have kept quiet? Transparency is often a good test for responsible decision making.

Ultimately, one must make a decision. After understanding the facts, considering all stakeholders, and thinking about alternatives, choose a course of action. But even after the decision has been made, responsible decision making requires us to monitor the results and learn from them. Responsible decision making is an iterative process: think–choose–act–think.

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To review, a responsible ethical decision involves the following:

- Understanding and determining the facts;

- Identifying the ethical issues involved;

- Identifying all stakeholders;

- Understanding how those stakeholders will be affected;

- Employing moral imagination to understand alternative decisions;

- Considering how others will judge your decision;

- Making a decision and monitoring and learning from the results.

Reflections on the Chapter Discussion Case

Reflecting on the discussion case that opened this chapter can be useful to reinforce each point. What are the facts of Facebook actions? This chapter provided only a very brief case description. Are there any facts that you would need to know before making a judgment about this case? Are you missing any information? Are any facts in dispute?

Next, consider the range of ethical issues involved in the case. Consumers have been mislead by how Facebook has used the data it collects about users. The nature and extent of privacy rights are in dispute. Millions of Facebook users were presented with deceptive and fraudulent information posted by foreign agents and conspiracy theorists. Some executives within Facebook mislead the public, while others sacrificed their careers as the cost of maintaining their integrity. Facebook’s practices helped but the integrity of an entire U.S. election was put into question.

We should also reflect on the wide range of people who had a stake in decisions made at Facebook: consumers, employees, competitors, governments, and financial markets themselves. Who was harmed, who benefited from Facebook’s decisions? More generally, we should understand that the decisions made within business affect the lives and well-being of millions of people every day who depend on the decisions made in business as diverse as small family-run firms to the world’s largest corporations.

We should also consider possible alternatives open to Facebook. Are there ways to monitor the content on their platform that would not adversely affect profitability? What would be the implications of following Apple’s lead in creating greater protections for user privacy? Beyond Facebook, are there alternatives available for society, perhaps by changing the Section 230 law that shields Internet platforms from liability for what is posted on their sites?

In the Discussion Case that opens chapter 3, we will examine a law that some have claimed created the Internet as we know it. Critics of that law, called Section 230, argue that this law is responsible for most of the ethical shortcomings of Facebook and all other social media and online platforms. An ethical judgment about Facebook cannot be separated from a discussion of the political and legal environment which permits, and perhaps encourages, unethical decisions.

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Chapter Review Questions

1. How would you answer someone who asked: “Why should I study ethics if I want to be an accountant?”

2. What is the difference between ethics and ethos?

3. Why is obedience to the law not enough to be an ethical person, or an ethical business?

4. This chapter introduced a distinction between ethics, morality, and social ethics. How would you describe each?

5. What reasons would you offer to convince someone that ethical relativism is unreasonable?

6. Other than business managers and owners, which other constituencies might have a stake in business decisions?

Endnote

- 1 “The Facebook Files,” The Wall Street Journal (October 1, 2021), https://www.wsj. com/articles/the-facebook-files-11631713039 (accessed December 12, 2021); “Facebook whistleblower Frances Haugen calls for urgent external regulation,” The Guardian (October 21, 2021), https:// www.theguardian.com/technology/2021/oct/24/frances-haugen-i-never-wanted-to-be-awhistleblower-but-lives-were-in-danger (accessed December 12, 2021); “Facebook Will not Fix Itself,” by Roger McNamee, Time (October 7, 2021), https://time.com/6104863/facebook-regulation-roger-mcnamee/(accessed December 12, 2021); Zucked; Waking up to the Facebook Catastrophe, Penguin Books, New York, 2019; Christopher Hughes, “Its Time to Break Up Facebook,” New York Times (May 9, 2018), https://www.nytimes.com/2019/05/09/opinion/sunday/chris-hughes-facebookzuckerberg.html(accessed December 12, 2021); “Whistleblower says Facebook Ignored Global Political Manipulation,” Buzz Feed News (September 14, 2020), https://www. buzzfeednews.com/article/craigsilverman/facebook-ignore-political-manipulationwhistleblower-memo (accessed December 12, 2021).

- 2This decision-making model is adapted from a more detailed version offered in Business Ethics: Decision Making for Personal Integrity and Social Justice, by Laura Hartman, Joseph DesJardins and Chris MacDonald (McGraw-Hill, 6th ed., 2022).

- 3KFF Covid Vaccine Monitor: Media and Misinformation, https://www.kff.org/coronavirus-covid-19/poll-finding/kff-covid-19-vaccine-monitor-media-and-misinformation/ (accessed January 6, 2022.)

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Chapter 2

Ethical Theory and Business

Learning Objectives

After reading this chapter, you should be able to:

- Understand the basic concepts and categories of ethics;

- Explain ethical virtues;

- Identify a number of virtues and vices;

- Explain the ethical theory of utilitarianism;

- Explain how utilitarian ethics can provide support for market economics and business policy;

- Explain several challenges to utilitarian ethics;

- Explain an ethics based on principles, rights, and duties.

DISCUSSION CASE: CEO Compensation versus Minimum Wage

In early 2022, Apple reported that CEO Tim Cook received $98.7 million in total compensation for 2021. Contained in a legal filing with the U.S. Securities and Exchange Commission, the report acknowledged that this figure was 1,447 times the median Apple employee salary of $68,254. Both the total compensation number, and the gap between CEO and average employee pay, continued a trend that has seen both increase substantially over the past few decades.

The gap between executive pay and the lowest- or average-wage employee is a common measure for determining when executive salaries are excessive. That gap, particularly within the United States, has grown to levels that would have been unimaginable just a few decades ago. Research by the Economic Policy Institute, a nonpartisan research group focusing on issues of economic equality, found that in 1960 the after-tax average for CEOs was twelve times the average pay earned by a factory worker; by 1965 it had risen to a factor of twenty and by 1989 to sixty-one. In a 1998 article titled “The Great CEIO Pay Heist,” Fortune magazine estimated that the gap had reached 182 times average pay. By 2007, the Economic Policy Institute had its estimate as 275 times the average worker, and by 2020 the gap had reached 351-1.

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In April 2019, the CEOs of seven of the largest U.S. banks were called to testify before the U.S. House Financial Services Committee. Following the economic recession in 2008–2009, U.S. government action, including financial bailouts, helped many of these banks avoid serious financial difficulties, including bankruptcy. The government’s reasoning at this time was that many of these banks were “too big to fail.” Ten years after that crisis, the congressional committee was examining how the banks were performing.

One topic that received significant attention during these hearings was excessive CEO pay. Congresswoman Nydia M. Velázquez of New York questioned Michael Corbat, CEO of Citigroup, about his $24 million salary in 2018. The congresswoman pointed out that Corbat’s salary was 486 times higher than the average salary of a Citigroup employee. Congresswoman Katie Porter of California challenged Jamie Dimon, CEO of J.P. Morgan, to explain how a J.P. Morgan employee in Irvine, California, Porter’s hometown, could survive on the bank’s starting salary of $16.50 per hour. Porter calculated that at this wage, an employee would fall over $500 short each month with normal living expenses in Irvine. Dimon was paid $31 million in 2018, or more than 900 times the pay of the $16.50 hourly wage employee. The very day that Dimon testified before Congress, J.P. Morgan reported record revenues and profits for the first quarter of 2019. In 2018, Dimon’s pay differential was 949-1.

Another case before Congress involved testimony by the CEO of Mylan, a U.S. pharmaceutical company that manufactures the EpiPen, an easy-to-use auto-injection medical device. EpiPen delivers the proper dosage of epinephrine, a drug that safely and effectively counteracts anaphylaxis, a severe allergic reaction that can close a person’s breathing passages and cause death. EpiPen is especially effective because the proper dosage can be quickly delivered by anyone—the persons themselves, co-workers, teachers, by standers—by simply placing the device against the skin and pushing a button. Because of the ease of use, EpiPens are especially popular for treating severe allergies in children.

The device itself is simple and inexpensive, costing less than a few dollars to manufacture. The drug epinephrine is also inexpensive, costing less than $1 per dose. When Mylan purchased rights to the EpiPen in 2007, EpiPens sold for under $60 each, and annual sales approached $200 million. By 2016, when few competitors remained and Mylan had a 90 percent share of the market, the price for a two-pack of EpiPens had risen to over $600. It was estimated that in 2016, sales of EpiPen produced close to $1.5 billion in revenues. During this same period, Mylan’s CEO’s pay rose from $2.3 to $19 million annually, a 671 percent increase, while the average wholesale price of the EpiPen increased 461 percent. In that same year, former CEO Robert Coury was reported to have received over $90 million in compensation.

During Bresch’s testimony Congressman John Duncan told her that “The greed is astounding, it’s sickening and disgusting. I’m a very conservative, pro-business Republican, but I am really sickened by what I heard today and by what I’ve read before about this situation. In my opinion, no one can really earn or deserve $19 million a year.”

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Some people defend high levels of pay for CEOs, pointing out that the highest levels of compensation are achieved through stock options, which means that CEOs do well only when the value of the company’s stock goes up, a sign that the CEO is actually doing a good job. Thus, high CEO pay creates incentives for high performance. Others, however, are skeptical. As a Bloomberg article points out, “Stock options, once believed to align executives with shareholders because they appreciate when the stock price rises, are now derided for encouraging short-term financial engineering at the expense of long-term planning.” In other words, stock options encourage CEOs to find short-term ways to boost stock prices (such as reducing costs by cutting employees), even if those moves aren’t in the long-term interests of the company and its shareholders. (The Wells Fargo case described at the beginning of chapter 4 provides an example of how a CEO can benefit from stock prices that are manipulated by unethical means.)

Turning from the highest paid to the lowest, the federal minimum wage paid in the United States in 2022 is $7.25 per hour, a rate that has not changed since 2009. Adjusted for inflation, the purchasing power of that $7.25 has dropped more than 20 percent during the past twelve years, while average CEO pay has increased by almost 40 percent. Debates about the minimum wage, as well as the money paid in unemployment insurance to those who have lost jobs, reached a crescendo during congressional debates over proposals for addressing the economic fallout of the COVID-19 pandemic. Many representatives wanted to use the government economic recovery law to raise the federal minimum wage to $15 hourly and extend federal unemployment benefits. Supporters argued that putting money into the hands of consumers would stimulate economic growth and help those who had been most harmed by the economic downturn. Opponents argued that increased wages would cause employers to hire fewer workers at exactly the time when the economy needed an increase in hiring and that requiring higher wages for low-skilled job would be an unfair imposition on business owners. Some opponents also argued that extending unemployment payments would create a disincentive for people to return to work and would reward people who would rather stay at home than work.[1]

Discussion Questions

1. Beyond the brief description provided above, what other facts would you like to know before making a judgment about the ethics of CEO pay? What other facts would you like to know before making a judgment about the ethics of minimum wages?

2. What ethical issues are at stake in the debates over CEO pay? What ethical issues are at stake over a minimum wage increase?

3. What reasons might be offered by the Board of Directors of Apple to justify Tim Cook’s compensation? What reasons might be offered to criticize it?

4. Critics claimed that extending unemployment payments during the pandemic would create a disincentive for unemployed people to return to work. What does this assume about the motivation of workers? Do your own research on the facts about unemployment payments and return to work. When unemployment payments ended, did people return to work? What sources can you find on this question? Are they reliable? How did you decide?

5. Imagine that your city council or state legislature is considering an increase in the minimum wage to $15 per hour. What would you recommend to your representative? What reasons would you give to support your recommendation?

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2.1 Introduction

The CEO compensation case demonstrates how business activities can raise fundamental questions of fairness, justice, rights, duties, and virtues. Like the Facebook case at the start of chapter 1, it would be impossible to talk about these cases without using the language of ethics. Because the language of ethics is inextricably a part of business, it makes sense to begin our examination of business ethics with a short introduction to some of the basic concepts, terms, and categories of philosophical ethics. Just as you need to have a familiarity with the language and concepts of economics and management to make responsible business decisions so, too, you need a basic familiarity with ethics. This chapter will show how some of the key concepts of ethics are both relevant and necessary for any study of business.

Chapter 1 introduced ethics as a process of reasoning about what is perhaps the most significant question any human being can ask: How should I live my life? But, of course, this question is not new; every major philosophical, cultural, political, and religious tradition in human history has grappled with it. In light of this, it would be a mistake to ignore these traditions as we examine ethical issues in business. Nevertheless, discussion of ethical “theories” and philosophy can seem too abstract to be of much relevance to business. In this chapter, I hope to suggest a more accessible understanding of ethics, one that will shed some light on the practical and pragmatic application to actual problems faced by businesspeople.

An ethical theory, or ethical framework, is nothing more than an attempt to provide a systematic answer to the fundamental ethical question: How should human beings live their lives? Ethical theories attempt to answer the question of how we should live, but they also give reasons to support their answers. Ethics seeks to provide a reasonable justification for why we should act and decide in a particular prescribed way. Anyone can offer advice for what you should do and how you should act, but a philosophical and reasoned ethics must answer the “Why?” question as well.

As a first step, let us reflect upon the reasoning that was offered to support and criticize the actions of the Mylan EpiPen case. As described in the discussion case, these reasons fall into three general categories. Some reasons appeal to the personal character of the people involved. Executives were described as “greedy” or uncaring. Other reasons appealed to the consequences of EpiPen pricing and to failures within the political and economic system to serve the public good. Other reasons appealed to certain principles: fairness, justice, rights.

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As it turns out, the three major traditions of ethics that we shall rely on in this text are reflected in these three categories. This should be no surprise, since ethical traditions in philosophy reflect common ways to think and reason about how we should live and what we should do. Ethics of personal character, of overall social consequences, and of principles, are the traditions that we will rely on for much of this text.

This chapter will introduce three ethical traditions that have proven influential in the development of business ethics and that have a very practical relevance in evaluating ethical issues in contemporary business. Virtue ethics directs us to consider the moral character of individuals and how various character traits can contribute to, or obstruct, a worthy and good human life. Reasoning that criticizes excessive executive pay or price gouging as greedy, or as motivated by selfishness, is language that comes from a virtue-based perspective on ethics. The implication is that a greedy person who does distasteful and selfish things will not lead a fulfilling and good human life. Opposing unemployment insurance on the grounds that it would reward lazy and unmotivated workers is also a perspective also grounded in the ethics of virtue (or in this case, vice). On this view, a good person is someone motivated to work and unwilling to rely on government handouts.

Virtue ethics is especially focused on the ethics of personal morality and individual character: Is this a good person? Is this person honorable? What type of person am I? What type of person do I wish for my children to be? Virtue ethics speaks a language of personal character. The virtues, or character traits, are such qualities as honesty, integrity, trustworthiness, compassion, humility, friendliness, kindness, and loyalty. The opposite of virtues, identified as vices, include describing someone as greedy, selfish, arrogant, condescending, deceitful, a hypocrite.

A second ethical tradition is utilitarianism, which holds that ethical decisions are determined on the overall social consequences of an act. Utilitarianism judges an act that produces greatest beneficial consequences as the ethically right thing to do. While utilitarianism can apply to personal morality and individual decisions (I should do whatever produces the greatest overall benefits), it most appropriately applies to social and policy decisions. Thus, in the Mylan case, utilitarians might debate whether more rather than fewer government regulations, more rather than less reliance on the free market, would produce the greatest overall social benefit.

Finally, an ethical tradition based on the importance of ethical principles and rights directs us to decide on the basis of moral principles such as every person should have a right to an equal and fair chance at living a healthy life, that some individuals should not benefit excessively at the expense of vulnerable other, and that we all have a duty to meet human needs before pursuing business profits. Principles, promises, justice, fairness, rights, and duties are concepts that are at the heart of principle-based ethics.

We will examine these arguments in more depth later in this chapter. For now, the crucial thing to recognize is the inescapability of the language of ethics. Debates surrounding CEO compensation were fundamentally debates about ethics: What do people deserve? What policy produces beneficial overall consequences? What is one’s duty? What is fair or unfair, just or unjust? What is wrong with being greedy?

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2.2 Virtue Ethics

As already described, virtue ethics focuses on the ethics of personal character. Virtue ethics is a tradition within philosophical ethics that seeks a full and detailed description of those character traits, or “virtues,” that would make a human life, a good, meaningful, well-lived life. When we describe someone as an honest person, a loyal friend, a helpful neighbor, a caring and generous citizen, or when we say that someone is a person of integrity, or that an employee is reliable, trustworthy, diligent, and disciplined, we are speaking the language of virtues. When someone is described as greedy, as happened in the discussion case that opened this chapter, we are also speaking language of virtues or, in the case the opposite of virtues, the vices. A person described as selfish, mean-spirited, arrogant, narcissistic, untrustworthy, dishonest, or immodest is lacking virtue and living an unethical life.

We’ll find the language of virtue ethics at several points in this book, most notably in discussions of leadership and corporate culture. Consider how you would answer the question: What makes a good leader? Words like decisive, transparent, trustworthy, honest, integrity, visionary, fair, empowering, respectful, inspirational, and courageous come to mind. Each of the words describes a human virtue, traits that others can rely on because they are deeply ingrained within the person’s character. Virtues are not characteristics that a person adopts one day, but forgets about and drops the next. They are enduring because they describe who that person truly is. Bad leaders not only lack such characteristics, they might also be described by such vices as self-centered, egoistic, mean-spirited, timid, unreliable, and undisciplined.

Similarly, consider how you might describe a good, ethical employee. Again, virtue words come to mind, characteristics such as trustworthy, loyal, creative, hard-working, motivated, reliable, honest. Bad employees might be characterized as lazy, dishonest, unreliable, or easily distracted.

From its earliest days, virtue ethics has grappled with two fundamental challenges: one practical and one critical. The practical challenge, one that Plato himself asked, is “Can virtue be taught?” How do people become honest, trustworthy, reliable, kind? Why do some people become mean-spirited and others kind, some self-centered and others altruistic? Is this something that can be taught and, if so, how? These questions have arisen in business ethics as businesses seek ways to encourage ethical behavior and discourage unethical behavior. As will be described in the discussion case from chapter 4, Wells Fargo’s corporate culture created an environment in which the virtue of honesty was discouraged and the vice of greed was the norm. The question of how virtuous and ethical behavior can be encouraged within business will be examined in chapter 4’s focus on the idea of a corporate culture, the social environment that establishes corporate expectations, behaviors, and norms.

The critical challenge asks why be virtuous? Why should one be honest, kind, hard-working, rather than selfish, unreliable, lazy? This is a philosophical challenge that seeks a rational justification of the virtues. According to critics, without a rational justification that provides reasons for being virtuous, virtue ethics amounts to little more than name calling or what logicians would call an ad hominem attack.

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Both of these challenges have found a sympathetic audience among some in business. These challenges often arise from a particular view of human nature, a view that is as much at home in economics than it is in philosophy. That view, identified as psychological egoism, posits that human beings are, by nature, selfish. If this is true and all humans always act out of self-interest, then that would be a significant challenge for anyone hoping to teach people to be otherwise. How can one teach someone to be altruistic, kind, generous, and helpful if those behaviors go against human nature? Further, how can you provide a reason for someone to act against their own self-interest if, in fact, that would be to go against human nature?

REALITY CHECK Psychological Egoism: Are People Naturally Selfish?

In the background to some skepticism about the relevance of ethics to business, and often part of the reasoning behind the separation thesis, lies a theory called psychological egoism. This theory purports to be an account of human motivation, asserting that humans are fundamentally and unavoidably motivated by self-interest. In other words, everything that we do is one for our own, egoistic, benefit. Because this is thought a “fact” of human nature, so the argument goes, ethical considerations that expect us to act for the interests of others is unrealistic. Thus, it is only realistic to keep business rules separate from ordinary ethics.

Psychological egoists conclude that because humans are incapable of acting out of altruistic motivation, our only reasonable option is to arrange institutions in ways that channel individual egoism to the social good. The social contract tradition in political philosophy associated with Thomas Hobbes, for example, acknowledges the reality of self-interested individuals but argues that cooperative social behavior is in the self-interest of individuals. Adam Smith’s theory provides another variation of this approach. Smith argues that rationally self-interested egoists acting within an open and competitive market and constrained by prohibitions against fraud and coercion would, as if led “by an invisible hand,” promote the greater social good.

But is psychological egoism an accurate theory of human motivation? Does psychological egoism pose a serious challenge to doing business ethics? The first thing to note is that if this is to be a challenge to ethics, defenders must claim that egoism is something more than merely a tendency of humans. If humans acted selfishly only some of the time but were capable of altruistic behavior at other times (as Adam Smith himself seems to have concluded), then we have no reason to give up on ethics and no reason to adopt the separation thesis. In fact, this may well be the major point of ethics: People tend to act selfishly; therefore, ethics exists to establish constraints upon this selfish behavior.

In order for psychological egoism to threaten the relevance of ethics, defenders must claim that humans not only have a general tendency to act selfishly, but must always and only act out of self-interest. But, on the face of it, such a claim is obviously false. Parents and friends are two everyday examples of humans who regularly act for the well-being of others. More generally, if psychological egoism were true, we would either need to radically revise or totally abandon such concepts as friendship, love, charity, volunteering, sacrifice, generosity, loyalty, and countless other acts that assume altruistic motivation.

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Egoists have two ways to answer these facts. First, they might claim that when people act in such ways, they are still doing what they want and, therefore, are still acting selfishly. But this option is deeply misguided. On one hand, if this is intended as an empirical claim about human behavior, it is obviously false. People do things that they don’t “want” to do all the time (consider going to the dentist and doing philosophy homework as examples!). On the other hand, if this is not intended as an empirical claim—if it is an attempt to define self-interest as doing whatever an individual wants—then the egoist has abandoned the attack on ethics. That is, if the egoist admits that people are capable of two types of self-interested acts—those in which they want to benefit the self and those in which they want to benefit others—then the door is still open for ethics to sometimes require the latter rather than the former.

A second response commonly made by egoists is to claim that even in cases of sacrifice and charity, people derive satisfaction out of ethical acts, and this suggests that selfishness underlies even the most beneficent act. So, even the mother who sacrifices for her baby is self-interested because she gets the satisfaction of lovingly caring for her baby from the act. But this response also fails because it confuses the intention or motivation for acting (one of the things with which ethics is concerned) with the feelings or reactions that follow from the act. I am selfish egoist only if the reason (or intent or motivation) that I have for helping my children is in order to feel good about myself. I am selfish if my intent for helping my friends is only to derive some personal benefit from this act. But that is not what motivates parents, or friends, or many of us much of the time. Our reason and motivation are to help others, and feeling good about it after the fact does not diminish the ethical nature of the act.

Familiarity with psychological egoism will be helpful for the study of business ethics. Ethics will sometimes require business managers to sacrifice their own self-interest, often in the form of profits, in order to fulfill their ethical responsibilities. It is not uncommon for people to think that such a requirement is unrealistic and unreasonable. This may be particularly true for those people who have been taught by certain economic theories that humans are naturally selfish. But psychological egoism provides no support for such conclusions.

Long traditions in both philosophical ethics and economics have developed out of this perspective. In ethics, the social contract tradition holds that ethical responsibilities and duties to others must be based on a social contract, an agreement that essentially says that I will be ethical toward you—help you and not hurt you—as long as you agree to do the same to me. Thus, ethical duties are based upon self-interest and what may appear to be acting for the interests of another actually is acting for your own self-interest.

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In economic theory, defenders of free markets argue that because human nature is self-interested, economic systems should be arranged to channel that self-interest toward the overall social interest. In a tradition that reaches as far back as Adam Smith, some economists argue that competitive markets, freedom from coercion and fraud, and freedom from governmental control will, “as if lead by an invisible hand,” turn self-interested behavior toward social good. Both the social contract tradition and the free market view in economics will be in the background of many of the debates we examine throughout this text. In particular, the free market economic view is deeply embedded in one of the major theories of corporate social responsibility that we examine at length in the next chapter.

But the virtue ethics tradition has experienced something of a revival in recent years and it is perhaps no coincidence that this has occurred as psychological egoism has gone out of favor. As philosophers and psychologists have always known, human motivation is more complex than is portrayed by psychological egoism. The entire field of behavioral economics grew out of this recognition that human beings seldom behave in ways that conform to the narrow self-interest predicted by abstract, mathematical model of economics. Certainly, some people are motivated only by selfish reasons, but many others are not. Some people are motivated by a deep care for others, by compassion, sympathy, and respect. Most of us behave both selfishly and charitably at different times. Importantly, as every parent would recognize, such motivational factors can be taught and learned. Human beings are no more naturally selfish and greedy than they are naturally kind and compassionate. Human beings have the capability of being both selfish and kind, greedy and charitable.

Once we recognize this fact (and philosophers from at least the time of Plato and Aristotle have recognized this), we can begin to separate the motivations that are likely to lead us to a good and happy life from those motivations that are likely to lead us to a life of unhappiness. The first set of motivation or character traits are called virtues, the latter are vices. An ethics of virtue seeks to develop the character traits and habits that will lead us to live a meaningful and happy human life.

By connecting the virtues to a happy, good human life, virtue ethicists answer the critical question of justification as that raised earlier. You should be honest, kind, friendly, and so on because by doing so you will live a better, happier, more fulfilled human life.

For virtue ethics, how these traits are acquired, which would be an answer for the practical challenge described above, becomes an important task for ethics. Can we teach people to be honest, trustworthy, loyal, courteous, moderate, respectful, and compassionate? While this might be difficult, it is not, as the psychological egoist would claim, impossible. Virtue ethicists turn to such fields as psychology, education, organizational behavior, and sociology to gain insight about how to teach virtue.

Parents confront this question every day. I know my children will lead happier and more meaningful lives if they are honest, respectful, cheerful, moderate, and not greedy, envious, gloomy, arrogant, and selfish. Yet, simply telling my children to be honest and to avoid greed is insufficient. I cannot remain passive and assume that these traits will develop naturally. Instilling these character traits and habits is a long-term process that develops over time.

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Business institutions also have come to recognize that character formation is both difficult and unavoidable. Employees come to business with certain character traits and habits, and these can get shaped and reinforced in the workplace. Hire a person with the wrong character traits, and there will be trouble ahead. Designing a workplace, creating a corporate culture, to reinforce virtues and discourage vice is one of the greatest challenges for an ethical business.

An ethics of virtue shifts the focus from questions about what a person should do to a focus on what type of person one is. This shift requires not only a different view of ethics but, at least as important, also a different view of ourselves. Implicit in this distinction is the recognition that our identity as a person is constituted in part by our wants, beliefs, motivations, values, and attitudes. A person’s character—those dispositions, relationships, attitudes, values, and beliefs that popularly might be called a “personality”—is not some feature that remains independent of that person’s identity. Character is not like a suit of clothes that you step into and out of at will. Rather, the self is identical to a person’s most fundamental and enduring dispositions, attitudes, values, and beliefs.

As an example, consider the issue of executive compensation that was discussed in this chapter’s discussion case. It is important to remember that not every CEO demands an exorbitant salary. The language of virtues and vices would seem very relevant as we think about the motivations involved. Why do some people expect and demand tens of millions of dollars a year from selling a medically necessary medical device, while others would be happy with much less? Virtues such as modesty, moderation, self-control, unselfishness, and humility come to mind when we think about a CEO who could, but does not, take an excessive salary. Self-indulgence, greed, callousness, competitiveness, and selfishness come to mind about the others. To a person with moderate and constrained desires, an exorbitant salary is simply not an option. It would be out of character.

Virtue ethics can offer us a more fully textured understanding of life within business. Rather than simply describing people as good or bad, right or wrong, an ethics of virtue encourages a fuller description. For example, we might describe a business leader as visionary and courageous, a person of integrity, who sympathizes with employees and cares about their well-being. Other executives might be described as greedy or ruthless, proud or competitive. Faced with a difficult dilemma, we might ask what would a person with integrity do.

For each of us, working in business will provide opportunities for behavior that is generous or greedy, ruthless or compassionate, fair or manipulative. Given these opportunities, each one of us must ask which character traits are likely to help us live a good life and which are likely to frustrate this. What type of person are we to be? What would an honest person say and do? Do I have the courage of my convictions?

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By the time we are adults, much of our character is formed by such factors as our parents, schools, church, friends, and society. But powerful social institutions such as business and especially our own places of employment and our particular social roles within them (e.g., manager, professional, and trainee) can have a profound influence on shaping our character. An accounting firm that hires a group of trainees fully expecting that fewer than half will be retained and only a very small group will make partner, encourages motivations and behavior very different from a firm that hires fewer people but gives them all a greater chance at long-term success. A company that sets unrealistic sales goals will find that it creates a different sales force than one that understands sales more as customer service. Virtue ethics reminds us to look to the actual practices we find in the business world and ask what type of people are being created by these practices. Many individual moral dilemmas that arise within business ethics can best be understood as arising from a tension between the type of person we seek to be and the type of person business expects us to be.

Consider an example described to me by someone who is conducting empirical studies of the values found within marketing firms and advertising agencies. This person reported that on several occasions advertising agents told her that they would never allow their own children to watch the very television shows and advertisements that their own firm was producing. By their own admission, the ads for such shows aim to manipulate children into buying, or getting their parents to buy, products that had little or no real value. In some cases the ads promoted beer drinking and the advertisers themselves admitted, as their “dirty little secret,” that they were targeted for the teenage market. Further, their own research showed them how successful their ads were in increasing sales.

Independent of the ethical questions we might ask about advertising aimed at children, a virtue ethics approach would look at the type of person who is so able to disassociate oneself and one’s own values from one’s work, and the social institutions and practices that encourage it. What kind of person is willing to subject children to marketing practices that they are unwilling to accept for their own children? Such a person seems to lack even the most elementary form of personal integrity. What kind of institution encourages people to treat children in ways that they willingly admit are indecent? What kind of person do you become by working in such an institution?

Virtues ethics provides us with the language and framework for talking about and examining a wide range of human values in business. It helps us understand good people, in all their diversity, and bad people, in all their diversity as well. It helps us evaluate organizations and how they can encourage and discourage ethical behavior, and how they might be changed so that we get more of the former and less of the latter.

2.3 Utilitarian Ethics

Utilitarianism is a second ethical tradition that is very relevant for understanding business ethics. Utilitarianism has had a significant impact on the modern world and has been especially influential in shaping politics, economics, and public policy. It therefore has had, and continues to have, an enormous influence on business. Because of its influence on contemporary politics and economics, it will be helpful to start our consideration by locating utilitarianism within its historical context. Roots of utilitarian thinking can be found in works by Thomas Hobbes (1588–1679), David Hume (1711–1776), and Adam Smith (1723–1790), but the classic formulations are found in the works of Jeremy Bentham (1748–1832) and John Stuart Mill (1806–1873). Each of these social philosophers was writing against a background of the great democratic revolutions of the seventeenth and eighteenth centuries.

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Utilitarianism tells us that we can determine the ethical significance of any action by looking to the consequences of that act. Utilitarianism is typically identified with the policy of “maximizing the overall good” or, in a slightly different version, of producing “the greatest good for the greatest number.” Acts that accomplish this aim are good; those that do not are bad. Thus, utilitarianism can be thought of in terms of means and ends. An act or a decision is judged as ethical depending on whether or not it is an effective means for attaining the ethically good end of overall, maximum happiness.

As utilitarianism emerged in the eighteenth and nineteenth centuries, this emphasis on the overall good, and upon producing the greatest good for the greatest number, directly opposed authoritarian policies that aimed to benefit the political elite. Thus, utilitarianism provided strong support for democratic institutions and policies. Government and all social institutions exist for the well-being of all, not to further the interests of the monarch, the nobility, or some small minority. Likewise, the economy exists to provide the highest standard of living for the greatest number of people, not to create wealth for a privileged few.

These early utilitarians also believed that, apart from exceptional circumstances, the best judges of happiness are individuals themselves. Each person, rather than a king or priest, should be free to judge for should be free to judge what is good for themselves. Thus, utilitarianism also provided strong support for civil liberties and civil rights. This combined view, that social policy should aim for the greatest overall good and that individuals should have the freedom to decide for themselves what their own good is, provided strong philosophical support for the type of liberal democratic forms of governments that developed in Western Europe and the United States, including support for free markets and free economies.

Thus, utilitarianism is a consequentialist ethics. Decisions and acts are determined by their consequences. (How else might we judge acts? Well, sometimes we determine that we should or should not do something as a matter of principle, regardless of consequences. We’ll look at this approach in more detail in the next section.) In this way, utilitarians tend to be pragmatic thinkers. No act is ever right or wrong in all cases in every situation. It will all depend on the consequences. For example, lying is neither right nor wrong at all times in all situations. There might be situations in which lying will produce greater overall good than telling the truth. In such a situation, it would be ethically right to tell a lie.

Consider a question that might arise out of the discussion case from the start of this chapter. Should the U.S. government pass a law that limits the amount of profit Mylan can earn from the EpiPen? A utilitarian approach to this question will consider the likely consequences of either alternative. Limiting the price of a product would tend to make it more readily available to people who need it, especially those with limited resources. In general, this could save lives and promote health. On the other hand, lower prices might make it more difficult to attract research and development among pharmaceutical companies. This would result in harm to everyone, including consumers. Utilitarianism would suspend judgment until the consequences, or expected consequences, became known. Either way, the ethical judgment made about the decision is a function of what happens after the fact.

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If we judge our actions in terms of consequences, in terms of means and ends, then we must have some standard for deciding between good and bad consequences, between good and bad ends. How do we know that these consequences are good but others are bad? In very general terms, all utilitarian thinkers agree that we should maximize the overall good, but among utilitarians there are different interpretations of what this “good” involves.

In general, the utilitarian position is that the goal of ethics, both individually and as a matter of public policy, should be to maximize the overall happiness. But, what exactly is happiness? Jeremy Bentham argued that only pleasure, or at least the absence of pain, was intrinsically good. Happiness, according to Bentham, must be understood in terms of pleasure and the absence of pain; unhappiness is understood as pain or the deprivation of pleasure. On Bentham’s view, pleasure and pain are the two fundamental motivational factors of human nature. In his words,

Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do. . . . They govern us in all we do, in all we say, in all we think.[2]

Consider, then, Bentham’s utilitarian reasoning. Only pleasure and the absence of pain are valued for its own sake. Only pleasure and the absence of pain, therefore, are intrinsically, objectively, and indisputably good. If pleasure and the absence of pain are good, more pleasure (or less pain) is better and maximum pleasure (or minimum pain) is best. Therefore, maximizing pleasure (the utilitarian principle) is the fundamental, objective, and indisputable ethical principle.

While the imperative to maximize pleasure sounds like a return to egoism, utilitarianism differs from egoism in important ways. Egoism focuses on the happiness of individuals. Utilitarian acts are judged by their consequences for the general and overall good. Consistent with their commitment to democratic equality, however, the general good includes the well-being of each individual affected by the action.

While agreeing with the general framework of Bentham’s utilitarianism, John Stuart Mill defended a different understanding of happiness. Mill believed that there is a qualitative dimension to happiness that is missed by Bentham’s focus on pleasure. Human happiness is not mere hedonism. According to Mill, humans are capable of enjoying a variety of experiences that produce happiness. Besides the pleasures of sensation that Bentham mentions, humans also experience social and intellectual pleasures that are qualitatively different from, and superior to, mere feelings. In a famous passage, Mill claims that “it is better to be a human being dissatisfied than a pig satisfied; better to be a Socrates dissatisfied than a fool satisfied.”[3]

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But the claim that there is a form of happiness that is qualitatively better than sensations of pleasure is controversial. How do we know, or how can we prove, that it is better to be Socrates dissatisfied than a fool satisfied? Mill’s answer has significant ethical and social implications. To decide which pleasures and what type of happiness is better, according to Mill, we should consult with someone with the experience of both. Such experienced and competent judges are the best test for determining the highest happiness.

Of two pleasures, if there be one to which all or almost all who have experience of both give a decided preference, . . . that is the more desirable pleasure.[4]

And if disagreement continues beyond this, Mill next suggests that

From the verdict of the only competent judges, I apprehend there can be no appeal. On a question which is the best worth having of two pleasures . . . the judgment of those who are qualified by knowledge of both, of if they differ, that of the majority among them, must be admitted as final.[5]

Thus, Mill acknowledges that not all opinions are equal. Some people are more competent and more qualified than others in judging what is good. Mill’s utilitarianism does not support an uncritical majority rule in which every opinion of what is good is treated as equally valid. However, we shouldn’t abandon democracy because of this. The way to develop competent judges is through experience and education. People need to be educated and experienced in a variety of pleasures before they are competent to judge. Once they are experienced, then majority-rule democracy is the best way to make decisions.

Thus, in John Stuart Mill’s writings we find one of the classic defenses of liberal democracy and liberal education. The most fundamental ethical principle commits us to arranging society in such a way that we maximize the happiness for the greatest number of people. The best means for attaining this goal is an educated citizenry making decisions through a majority-rule democracy. The best method for securing an educated citizenry is to allow individuals the freedom of choice to pursue their own ends. Even when those choices are unwise, individuals are gaining the experience needed to distinguish between good and bad, higher and lower, pleasures.

These views have significant implications for business and economics. In classical free market economics, consumer demand is sovereign. Economic transactions occur when individuals seek their own happiness, understood as getting what they demand. If individuals make mistakes and buy products that fail to bring them satisfaction, they learn from their mistakes, no longer buy the product, and according to supply and demand, market forces eventually eliminate unsatisfactory products.

Perhaps utilitarianism’s greatest contribution to social and political thought has come through its influence in economics. With roots in the works of Adam Smith as well as those of Bentham and Mill, the ethics of twentieth-century neoclassical economics—essentially what we think of as free market capitalism—is decidedly utilitarian. It is in this way that utilitarianism has had an overwhelming impact on business and business ethics.

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Under free market economies, economic activity aims to satisfy consumer demand. The law of supply and demand tells us that economies should, and healthy economies do, produce (supply) those goods and services that consumers want (demand). Since scarcity and competition prevent everyone from getting all that they want, the goal of free market economics is to optimally satisfy wants. Free markets accomplish this goal by allowing individuals to decide for themselves what they most want and then bargain for these goods in a free and competitive marketplace. This process of allowing individuals to set their own preferences and bid for them in the marketplace will, over time and under the right conditions, guarantee the optimal satisfaction of wants.

This brief description suggests how free market economics fits the utilitarian framework. The end or goal of economic activity, what economists often refer to as utility or welfare, is the maximum satisfaction of consumer demand. We do the most good for the greatest number when we get as many people as possible as much of what they want as possible. The “good” is defined in terms of satisfying one’s wants. But since scarcity and competition prevent us from getting all that we want, individuals are left to rank-order their wants or, in other terms, to establish their own preferences. Thus, free market economics can be thought of as a version of preference utilitarianism, where the utilitarian goal is the maximum satisfaction of preferences.

Given this goal, free market economics advises us that the most efficient means to attain that goal is to structure our economy according to the principles of free market capitalism. We should allow individuals the freedom to bargain for themselves in an open, free, and competitive marketplace. Self-interested individuals (and mainstream economics assumes that this is at least a strong tendency among human motivations) will always be seeking ways to improve their own position. Agreements (contracts) will occur only in those situations where both parties believe that a transaction will improve their own position. In such a situation, the competition among rational and self-interested individuals will continuously work to promote the greatest overall good. Whenever a situation occurs in which one or more individuals can attain an improvement in their own happiness without a net loss in others’ happiness, market forces will guarantee that this occurs. Thus, the market is seen as the most efficient means to the utilitarian end of maximizing happiness.

2.4 Challenges to Utilitarianism

We will examine some more specific debates surrounding how the free market version of utilitarianism gets used in business ethics in chapter 3. For now, let us consider some general challenges to the ethics of utilitarianism. We can classify these challenges into two groups—problems raised from within a utilitarian perspective that involve finding a defensible version of utilitarianism and problems raised from outside that challenge the plausibility of the entire utilitarian project.

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Problems Raised from within the Utilitarian Tradition

We will mention two challenges that are debated from within utilitarian perspectives. First, all utilitarians must find a defensible way to measure happiness. Phrases like “maximize the overall good” and the “greatest good for the greatest number” require some form of measurement and comparison (how else would you know that this situation rather than another has maximized the good?). Bentham went to great lengths to develop a “hedonistic calculus” to help quantify pleasures. Mill left it to the judgment of a majority of well-informed, competent judges. Economists substitute such measures as the gross national product for determining overall happiness.

Bentham, Mill, and neoclassical economics all sought a scientific, measurable ethics. But there simply is no consensus among utilitarians on how to measure and determine the overall good. This problem is only compounded by the fact that utilitarians are committed to considering all the consequences to all affected parties. Many business ethics issues highlight how difficult this could be. Consider the consequences of using nonrenewable energy sources and burning fossil fuels for energy. It is hard to see how a utilitarian could ever hope to calculate the consequences of a choice between investing in nonrenewable sources and continuing the present reliance on coal and oil. Yet this is exactly what is required by the utilitarian principle. (Attempts to shift focus, as economists often do, on to the “expected” utility of an act is to abandon utilitarianism. At that point, we have adopted an ethics not of consequences but of intentions and that is no longer utilitarianism. We’ll see this view developed in the following section.)

The second problem with the utilitarian perspective deals with differing versions of the good and the implications for human freedom. Historically, utilitarians are social and political liberals. That is, they all placed a very high value on individual freedom of choice. But there is a tension between objective accounts of the good and individual freedom. Simply put, free individuals do not always choose to do what is good for them. The more utilitarians emphasize freedom, the more likely they hold more relativistic accounts of the good. On this view, good is simply a matter of opinion, or individual desires, preferences, and wants. However, this seems to abandon the entire project of ethics since, after all, people often desire what is trivial, immoral, and bad. On the other hand, the more utilitarians are willing to specify a specific content to the good life, the more the need to abandon the commitment to individual freedom. If we know what is truly good, then individuals ought to act in certain ways (to maximize the good) even if they don’t want to. Finding a balance between individual freedom and the overall good is a challenge that confronts most versions of utilitarianism.

Problems Raised to the Utilitarian Tradition

The final challenges are not raised from within the utilitarian perspective but rather go directly to the core of utilitarianism. The essence of utilitarianism is its consequentialism. Good and bad acts are judged by their consequences. In short, the end justifies the means. But this seems to deny one of the earliest and most fundamental ethical principles that many of us have learned: The ends don’t justify the means.

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This challenge can be explained in terms of rules or principles. When we say that the ends don’t justify the means what we are often saying is that there are certain rules or principles we should follow no matter what the consequences. Put another way, we have certain duties or obligations that we ought to obey even when doing so does not produce a net increase in overall happiness. Examples of such duties are those required by such principles as justice, loyalty, and respect, as well as the duties that flow from our roles as parent, spouse, friend, and citizen. We will examine that ethical tradition in more detail in the next section.

Several examples can be used to explain this criticism. Since utilitarianism focuses on the overall consequences, utilitarianism seems willing to sacrifice the good of individuals for the greater overall good. So, for example, it might turn out that the overall happiness would be increased if we allocate health care according to free markets. Utilitarians could object to denying someone needed medical care like an EpiPen not as a matter of principle, but only if and to the degree that denial of medicine to a minority of people detracts from the overall good. If it turns out that such action increases the net overall happiness, utilitarianism would have to support it. In the judgment of many people, such a decision would violate the principles of justice, equality, and respect. As we will see developed in the following section, principle-based ethics would appeal to the concept of ethical rights in criticizing utilitarianism. From that perspective, individuals possess certain basic rights that should not be violated even if doing so would increase the overall social happiness. Some might claim, for example, that everyone has a right to needed health care. Or, critics of laws restricting executive compensation argue that businesses should be free to decide for themselves what to pay their executives. The income paid to executives belongs to the corporation, not to the government, and therefore such a law would violate their property rights. Rights function to protect certain central interests from being sacrificed for the greater overall happiness. Utilitarians can defend rights only to the degree that rights contribute to the overall good.

Another example that can be raised against utilitarianism looks to specific relationships and commitments that we all make. For example, as a parent we love our children and have certain duties to them. Imagine a situation in which you have to choose between saving the life of your child and saving the life of a talented dedicated brain surgeon. Utilitarians are committed to determining the ethical decision by calculating the overall consequences of each choice and doing whatever will maximize the overall good. The example can be arranged in such a way that saving the brain surgeon clearly contributes to the overall good. But what ethical judgment should we make about the parent who even begins to make such calculations?

Utilitarians would seem to be committed to parental love and duty only to the degree that such love and duty contributes to the overall good. Parents should love their children because this contributes to the overall good of society. (And if it doesn’t?) But surely this misrepresents (and insults) the nature of parental love. I do not love my children because of the consequences that this might have for society. Principle-based ethicists would argue that there are certain commitments that we make, certain duties that we have, which should not be violated even if doing so would increase the net overall happiness. Violating such commitments and duties would require individuals to sacrifice their own integrity for the common good. Thus, critics of excessive executive compensation might claim that gross inequality in pay is unfair and unjust in principle. We will consider similar themes of professional commitments and duties when a later chapter examines the role of professional responsibilities within business institutions.

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2.5 Utilitarianism and Business Policy

Before moving on to principle-based ethics, it will be helpful to connect utilitarian ethics to some general concerns of business ethics. At its most basic, utilitarianism is a social philosophy, offering criteria by which the basic structure of social institutions, such as business and the economy, ought to be determined. Utilitarianism asserts that social institutions should be structured in whatever way will maximize the overall good. Two important schools of thought, each reflected in many contemporary policy debates that concern business, have emerged within the utilitarianism for deciding how best to achieve this goal.

One version of utilitarianism public policy holds that there are experts who can predict the outcome of various policies and carry out policies that will attain our ends. These experts, usually trained in social sciences such as economics, are familiar with the specifics of how society works and can therefore determine which policy will maximize the overall good. This approach to public policy underlies one theory of the entire administrative and bureaucratic side of government. On this view, the legislative body (from Congress to local city councils) establishes the public goals, and the administrative side (presidents, governors, mayors) executes (administers) policies to fulfill these goals. The people working within the administration, the classic government bureaucrats, should know how the social and political system works and use this knowledge to carry out the mandate of the legislature. The government is filled with such people, typically trained in such fields as economics, law, social science, public policy, and political science. This approach, for example, would justify widespread government regulation of business on the grounds that such a regulation will ensure that business activities do contribute to the overall good. As an example, consider how the Federal Reserve Bank functions in the United States, as described in the Reality Check below.

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Reality Check: The Federal Reserve as Utilitarianism in Practice

A strong case can be made for thinking of utilitarianism as the implicit ethical framework that underlies much economic policy in market-based political systems. Consider how central banks (such as the U.S. Federal Reserve Board or the Bank of England) set interest rates. The banks begin with an established goal, a public policy “good,” that it takes to be the greatest good for the country. (This goal is something like the highest sustainable rate of economic growth compatible with minimal inflation.) The central bank examines the relevant economic data and makes a judgment about the present and future state of the economy. If economic activity seems to be slowing down, the central bank might decide to lower interest rates as a means for stimulating economic growth. If the economy seems to be growing too fast and the inflation rate is increasing, it might choose to raise interest rates. Lowering or raising interest rates, in and of itself, is neither good nor bad; the rightness of the act depends on the consequences.

Something very much like this can be seen in the ongoing actions of the U.S. Federal Reserve Board (the “Fed”). Beginning with the recession of 2007, the Fed began a process of significantly lowering interest rates to the point that they approached record lows near 0 percent. As the U.S. economy began to recover in 2015, the Fed began to increase rates until they reached a recent high of 2.4 percent in 2019. Their goal was to continue to support economic growth, but to forestall any rise in inflation.

As the COVID-19 pandemic hit in 2020 and the economy began to crash again, the Fed immediately cut rates back to the all-time low of almost 0 percent, hoping to provide an economic stimulus. Then, in 2021 as hiring increased and the economy began to emerge from the pandemic, the Fed concluded that inflation as a growing concern and, as a result, they began once again to increase interest rates.

Throughout this process, one can see the Fed acting as a utilitarian would advise: When the overall good is threatened by an economic downturn, the right decision is to lower rates and thereby help the economy grow. When the facts change and the growth (inflation) begins to be too fast, decide to increase interest rates so that inflation pressure decreases and the greater good is served. The role of public servants like the U.S. Federal Reserve is to use their expertise to judge the likely consequences and make the decision that is most likely to produce the best result for the public as a whole.

A second influential version of utilitarian policy invokes the tradition of Adam Smith and claims that competitive markets are the best means for attaining utilitarian goals. This version would promote policies that deregulate private industry, protect property rights, allow for free exchanges, and encourage competition. In such situations the self-interest of rational individuals will result, as if led by “an invisible hand” in Adam Smith’s terms, to the maximum satisfaction of individual happiness.

The dispute between these two versions of utilitarian policy, what we might call the “expert” and the “market” versions, characterizes many disputes in public policy and many within business ethics. Consider recent debates within the United States concerning health care policy. Some argue that the country’s health care is best provided by a government-regulated and government-managed, if not government provided, health care system. Others argue that health care decisions are best left to the decisions of private individuals within a free market deciding for themselves the appropriate level of health care that they are willing to pay for. Both sides might agree that the ultimate goal is to provide the best health care for the most people, but they disagree significantly on the appropriate means for attaining that goal.

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Another example of these debates within business ethics concerns regulation of unsafe workplaces. One side argues that questions of safety and risk should be determined by experts who then establish standards that business is required to meet. Government regulators (in this case, the Occupational Safety and Health Administration [OSHA]) are then charged with enforcing safety standards in the workplace. The other side argues that the best judges of acceptable risk and safety are workers themselves. A free and competitive labor market will ensure that people will get the level of safety that they want. Individuals calculate for themselves what risks they wish to take and what trade-offs they are willing to make in order to attain safety. Workers willing to take risks likely will be paid more than workers who demand safe work environments. Thus, a market-based solution will prove best at optimally satisfying these various and competing interests.

There is no question that utilitarian reasoning dominates among policy makers and policy administrators. Policy experts at all levels are focused on results and on getting things done. This makes the utilitarian emphasis on consequences particularly attractive to fields such as economics, business, and government. It seems obvious that policy questions should be judged by results and consequences. The utilitarian emphasis on measuring, comparing, and quantifying also reinforces the view that policy makers should be neutral administrators. The standard view is that policy goals should be left to the democratic decisions of the people. The people decide what they want and what makes them happy; the job of social policy is simply to help them attain those goals in as efficient a manner as possible. Efficiency is simply another word for maximizing happiness.

Despite these close connections between utilitarianism and public policy, serious ethical challenges remain. We turn now to a major alternative to utilitarian ethics: principle-based ethics.

2.6 Rights, duties, and Principle-Based Ethics

Principle-based ethics, or what is sometimes called an ethics of rights and duties, emphasizes the fact that sometimes the correct path is determined not by its consequences but by certain principles or duties. More familiar synonyms for duty include obligations, commitments, and responsibilities. This principle-based approach faults utilitarianism for thinking that our acts should always be judged by their consequences to the overall good. This ethical tradition denies the utilitarian belief that the ends do justify the means. It holds that there are some things that we should, or should not, do regardless of the consequences. In general terms, rights and duties determine what we should do as a matter of principle, regardless of consequences.

To understand why the ends don’t justify the means we need to emphasize that utilitarian ends are focused on the collective or aggregate good. Utilitarianism is concerned with the well-being of the whole. (This is one of the things that makes utilitarianism attractive to public policy makers.) But many of us have a deep commitment to the dignity of individuals. We believe that individuals should not be used as a mere means to the greater overall good. A prominent way of explaining this is to say that individuals have rights that should not be sacrificed simply to produce a net increase in the collective good and that others have a duty to respect those rights.

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Consider the debate concerning child labor in the developing world. Some policy makers in impoverished countries believe that the best means for raising the standard of living within their country is to increase exports. This brings in hard currency with which the country can pay for food, medicine, and education (and repay debts!). Increasing exports will raise the standard of living for all citizens and thereby meet the utilitarian goal of improving the collective good. However, to increase exports a country must be capable of selling their goods at costs below those of competing countries. Since labor is a major production cost, keeping labor costs low helps the country as a whole. Unfortunately, one means for maintaining low labor costs is to employ young children. (Cases of child labor in the manufacture of athletic shoes and clothing are only the most well-publicized instances of an all too common phenomenon.)

Is it ethical to use young children in such circumstances? Defenders of this practice argue, typically on good utilitarian grounds, that the children are better off with the jobs than without them, that they contribute to their own family’s income, and that they contribute to the overall welfare of their society. Critics claim, on principle-based grounds, that it is unethical to treat young children this way even if there are beneficial results. In this view, child labor is ethically equivalent to child abuse and slavery. It is something wrong on principle.

Within one tradition, our ethical duty is explained in terms of a principle that the German philosopher Immanuel Kant called the categorical imperative. (An imperative is a command or duty; categorical means that it is without exception.) Our primary duty is, according to Kant, to act only in those ways in which the maxim of our acts could be made a universal law. This is a very abstract way of saying something that is fairly intuitive. The “maxim” of our acts can be thought of as the intention behind our acts. The maxim answers the question: “What am I doing?”

Kant tells us that we should act only according to those maxims that could be universally accepted and acted on. (Consider how Kant might respond to the egoist view that all human behavior is intended for one’s own self-interest.) For example, Kant believed that truth telling could, but lying could not, be made a universal law. If everyone lied whenever it suited them, rational communication would be impossible. Thus, lying is unethical. This condition of universality, not unlike the Golden Rule, prohibits us from giving our own personal point of view privileged status over the points of view of others. It is a strong requirement of impartiality and equality for ethics.

Kant also provided two other versions of this categorical imperative that are less abstract. He claimed that ethics requires us to treat all people as ends and never only as means. In yet another formulation, we are required to treat people as subjects, not as objects. These formulations restate the commitment to treat people as capable of thinking and choosing for themselves. Humans are subjects (they perform the act rather than being acted upon, to use the familiar subject/object categories from grammar). They have their own ends and purposes and therefore should not be treated simply as a means to the ends of others. In chapter 3, we will examine the "moral minimum" model of corporate social responsibility that concludes, on Kantian grounds, that business managers have direct ethical responsibilities to all parties (stakeholders) who are affected by business activities.

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Thus, on this theory, our fundamental ethical duty is to treat people with respect, to treat them as equally capable of living an autonomous life. But since each person has this same fundamental duty toward others, each of us can be said to have the right to be treated with respect, the right to be treated as an end and never as a means only. I have the right to pursue my own autonomously chosen ends as long as I do not in turn treat other people as means to my ends.

This points to a common way of understanding rights and duties. Philosophers will sometimes claim that rights and duties are correlative. This is to say that my rights establish your duties and my duties correspond to the rights of others. The principle-based tradition focuses on duties, which can be thought of as establishing the ethical limits of my behavior. From my perspective, duties are what I owe to others. Other people have certain claims upon my behavior; they have, in other words, certain rights against me.

Thus, to return to the earlier example, the Kantian would object to child labor because such practices violate our duty to treat children with respect. We violate the rights of children when we treat them as mere means to the ends of production and economic growth. We are treating them merely as means because, as children, they are incapable of rationally and freely choosing their own ends.

From this beginning, the principle-based, or rights-based, approach to ethics gets more complex. A complete theory must specify what rights we have and how they are justified, the range and scope of rights, and some process for prioritizing rights and resolving conflicts between different rights. As preparation for evaluating many of the debates to follow, we will pursue these questions briefly.

One way to understand rights is to think of them as protecting interests. We often make a distinction between a person’s wants and interests. Wants (or desires) are psychological states of an individual. They are what, as a matter of fact, people will pursue. Wants are subjectively known, in the sense that individuals enjoy a privileged status for knowing what they want. (Imagine disagreeing with a person’s claim that they want something.) Interests work for a person’s benefit and are objectively connected to what is good for that person. People don’t always want what it is in their interest to have.

For example, if given the choice, many children would want to eat sugarcoated breakfast cereal each morning. Their parents deny them this on the grounds that it is not in their interests to eat such food. In this case, wants and interests conflict. Likewise, many college students want to skip class, but it is not in their interest to do so. On the other hand, wants and interests can coincide. You want a good education and good health, both of which are in your interests to have.

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As we have seen, some versions of utilitarianism take happiness, understood as the satisfaction of wants, as the final goal of ethics. This version would either deny the distinction between wants and interests (interests being simply strong wants) or argue that the best way to decide what is in someone’s interest is to let them decide for themselves (i.e., let them pursue their own wants). Either way, utilitarians believe that all wants/interests equally deserve to be satisfied to the degree that they equally produce happiness. If your desire for protection against an unsafe workplace is equal to my desire for high wages, each equally deserves satisfaction. Given this equality, the utilitarian commitment to satisfy as many wants as possible seems a reasonable strategy.

But principle-based ethics disagrees and argues that wants and interests are not equal. They argue that at least some interests are so important to the well-being of an individual that they should not be sacrificed simply for a net increase in the overall happiness. Rights serve to protect these interests from being sacrificed.

Consider the case of downloading and sharing music and movie files over the Internet. A plausible case could be made that we would promote greater overall happiness by adopting a public policy that allowed unlimited and unrestricted downloads. Only a relatively small minority of people, mostly performing artists and producers, would be unhappy. On utilitarian grounds, it would seem that we would best serve the public interest by allowing unregulated downloads. However, the artists and producers would claim that they have property rights that should prohibit such a policy. The interests that the public might have in listening to free music or watching free videos is not on a par with the interests that individuals have in controlling their own property.

Rights are thought to function the way a “trump suit” functions in a game of cards. A trump overrides the face value of cards of any other suits. Rights function in this way because they protect certain interests that are more important and central to human well-being than the mere happiness of others. The connection between rights and interests is important because it provides a way for determining which rights we have. By identifying central important interests, and distinguishing them from mere wants, we can determine the range of human rights.

So what rights do we have? The challenge is to develop an account that creates neither too many nor too few rights. Here is another example from my local community. City planners have a blueprint for road construction throughout the area. One of the planned roads would cut through and destroy a rare oak woodland within the city. When the plan was announced, local residents objected to the road on a variety of environmental grounds. The director of the regional planning group answered protesters by claiming that local citizens “have a right to uncongested roads.” Surely this theory of rights is too extensive.

The connection between rights and duties that we mentioned previously is a good test for this. If rights imply duties, and if people have a right to uncongested roads, then it would seem that someone (local government?) has the duty to provide enough roads to prevent people from ever having to sit in a traffic jam. It is difficult to see how this could be done without wreaking havoc on the well-being of many people by raising taxes, destroying neighborhoods, taking away property, and so on.

This suggests that we do not get “rights” simply by wanting something very badly. (Critics charge that this is a problem with rights-based ethics. It encourages people toward self-centered individualism, trying to privilege their own selfish wants by calling them rights. Anything that someone wants eventually gets called a right and thereby people come to expect society to provide this for them.) But we also don’t want to have too narrow a view of rights. Too weak an account, or too few rights, collapses the entire theory toward utilitarianism.

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We can at least sketch a general account of rights by returning to the original idea of respect and the elements of autonomy and dignity on which it is based. What human characteristic justifies the assumption that humans possess a special dignity? Why would it be wrong to treat humans as mere means or objects, rather than as ends or subjects?

The most common answer offered through the Western ethical tradition is that the human capacity to make rational choices is the distinctive human characteristic. Humans do not act only out of instinct and conditioning, they make free choices about how they live their lives, about their own ends. In this sense, humans are said to have autonomy. Humans are subjects in the sense that they originate action, they choose, they act for their own ends. To treat someone as a means or as an object is to deny to them this distinctive and essential human characteristic; it would be to deny to them their very humanity.

From this we can see how two related rights have emerged as fundamental within philosophical ethics. If autonomy, or self-rule, is a fundamental characteristic of human nature, then the freedom to make our own choices deserves special protection as a basic right. But since all humans possess this fundamental characteristic, equal treatment (or equal consideration) is also a fundamental right. Thus, personal liberty and equality are considered by many to be fundamental human rights.

In summary, we can say that rights offer protection of certain central human interests, prohibiting the sacrifice of these interests merely to provide a net increase in the overall happiness. But interests, as opposed to desires, are connected to human well-being in an objective manner. Human nature, characterized as the capacity for free and autonomous choice, provides the grounds for distinguishing central interests from mere wants.

2.7 Summary and Review

No doubt, philosophical ethics can appear very abstract and far removed from the business world. Despite such appearances, these frameworks provide helpful ways to think about everyday issues in business by providing the fundamental concepts and categories for thinking about ethical issues. We should resist the temptation to treat these theories as some external rules that can be applied to situations in a way that produces specific decisions. It is best to think of these theories as attempts to articulate the basic principles already present in common ways of thinking. Once such principles are clearly described, the philosopher’s role is to draw out their implications and offer justifications of them. Then the principles can be brought back to bear on practical decision making. Understood in this way, ethical theories are not as abstract and nebulous as they might at first appear. They have emerged from common ways of thinking as much as they are intended to guide our ways of thinking.

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Virtue ethics encourages us to step back from specific decisions and actions to ask the very profound and personal questions: Who am I? What type of person am I to be? Throughout the course of our lives, each one of us develops a personal character that is reflected in what we believe, what we value, what we desire, and how we act. This character is manifested in our habits, dispositions, and personality. The ethics of virtue seeks to articulate which of those habits and character traits are likely to be part of a meaningful and happy human life. Whether reflected in the ordinary language of such virtues as honesty, integrity, modesty, and trustworthiness, or such vices as greed, materialism, belligerence, and rudeness, virtue ethics plays an important role in ordinary business life.

Or, consider utilitarianism. The fundamental insight of utilitarian thinking is that we should consider the consequences, all the consequences, of our actions before deciding what to do. A reasonable principle is that we should consider not only the consequences that our acts might have for ourselves but also the consequences of our acts for all parties affected by them. The ethical theory of utilitarianism tries to work out the implications of this insight. In doing so, this theory has presented a powerful approach to answer the fundamental ethical question: How should we live our lives?

It is fair to say that many economic decisions are implicitly justified on utilitarian grounds. Understanding utilitarianism, both its strengths and weaknesses, is necessary for developing a reasoned perspective on many economic matters. From the original rationale for market-based economies found in the works of Adam Smith to the original legal rationale for creating limited-liability corporations to much public policy and law-governing finance, employment, consumerism, and world trade, utilitarian considerations have played a prominent, if not deciding, role.

Likewise, principled approaches to ethics capture another insight that is recognized in such common observations as “the ends don’t justify the means.” If utilitarian ethics make judgments in terms of consequences, principled approaches demand that something should, or should not, be done regardless of the consequences. Some acts are right or wrong as a matter of principle, and it is our duty to act accordingly even if beneficial consequences would suggest otherwise. Respecting individual rights and fulfilling our ethical obligations can set limits on decisions aimed at producing good consequences.

The language of rights and obligations will play a major role in all the discussions that follow. One need only reflect on such phrases as “human resource management” and “labor as a factor of production” to see that Kantian ethics will have much to contribute to discussions about how employees ought to be treated. Treating employees as mere means to the end of productivity, while perhaps useful in terms of beneficial consequences, is something that principle-based ethics rejects. Likewise, the professional duties associated with the gate-keeping roles as accountants, auditors, lawyers, financial analysts, and boards of directors also function as ethical limitations on business activities.

The basic approaches to ethics outlined in this chapter will provide essential tools for understanding business ethics, and for making responsible ethical decisions in business.

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Reflections on the Chapter Discussion Case

Consider a range of possible responses to the examples of exorbitant CEO pay described in the chapter’s opening discussion case. No doubt some people would respond with strong emotions, like the congressman who concluded that “the greed is astounding” and “sickening and disgusting.” Others might conclude that critics are envious or jealous. But once we go beyond such immediate emotional opinions, it would not be possible to discuss this issue without the language of ethics. If we examine that language even a little, we can discover patterns in the way that most people think about ethical issues.

Many people judge the ethics of CEO pay in terms of consequences. Some argue that high salaries, especially when based on bonuses paid for performance, create incentives for corporate leaders to do good work. That is, high pay leads to beneficial overall consequences. Others disagree and conclude, as the story cited from Bloomberg news does, that these incentives create perverse results in which a firm’s long-term interests are harmed by short-term strategies aimed at increasing compensation. The pattern in these judgments is to reach ethical conclusions based on the overall consequences of an action.

Deciding between these judgments would involve, at least in part, investigating the real-world consequences that result from such policies. Ethical analysis will sometimes require such empirical investigation: Do compensation packages that promise high rewards for successful work result in better executive performance? Determining the facts will often play an important role in ethical analysis, and this would be a helpful first step to take in the process of analysis.

This case also raises ethical issues of principles and standards that do not involve empirical consequences. Have executives earned their salary? Do they deserve to be paid tens of millions of dollars annually? Ownership rights and fiduciary duties are other factors that establish ethical constraints on consequentialist thinking. For example, many argue that executive compensation results from a contract—a promise—and is therefore something deserved. Others might claim that they work hard and have earned their pay. Words like “deserve” and “earned” refer to ethical principles of justice and right. A helpful step in the process of identifying principles and duties is to ask who might be benefited and who might be harmed by alternative decisions.

Critics might point out that CEO contracts are often made between small groups of board members and colleagues who, themselves, are often CEOs and senior executives at other firms. Such contracts would not be truly fair and would not fulfill the duty that board members have to shareholders and to the corporation itself. Once again, words like “fairness” and “duties” refer to ethical principles that underlie these judgments. Other critics emphasize the disparity between CEO pay and the average worker. Some would claim that this great inequality is unfair and that workers are being disrespected and exploited because they lack the power to represent their own interests.

These lines of thought also share a common pattern. They all appeal to some principle or rule that should guide our decisions. “People should receive what they have earned or deserve.” “People should be treated fairly and with respect.” “We should keep our promises.” “All should be treated equally.”

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The issue of executive compensation also raises questions about personal virtues and vices. At first glance, this is a descriptive activity: Describe someone who so desires money that he would engage in price gouging on a product needed by sick people; describe someone for whom a salary of millions of dollars each year is not enough. But within these descriptions are normative and evaluative components. A person described as greedy has a real character flaw; a person of integrity is to be praised and honored. One challenge to such descriptions, of course, is to answer the “so what?” question. So what if I am greedy? Why should I care if I lack integrity? These questions go to the heart of ethical motivation. Business ethics seeks not only to justify good and right behavior, but it also seeks to motivate people to act accordingly. This is among the foremost ethical challenges facing contemporary business managers.

Chapter Review Questions

1. Distinguish between utilitarian, principle-based, and virtue-based approaches to ethics. What are the strengths and weaknesses of each?

2. How are utilitarian ethics relevant to business? Explain at least two challenges to utilitarian ethics.

3. How does principle-based ethics establish a connection between individual rights and the nature of human beings?

4. Develop a list of virtues and vices. As a helpful way to begin, think about the pledge offered by Boy Scouts and Girls Scouts that begins: “A scout is trustworthy, loyal, helpful. …” Are these various virtues unified in any way?

5. In what ways, if at all, do you think that a virtuous life is ethically better than one lacking the virtues? In answering this question, refer to specific virtues (e.g., in what ways is a trustworthy life better than one lacking trust? A generous life better than a miserly one?).

Endnotes

- 1Figures on pay differential taken from Economic Policy Institute, https://www.epi.org/publication/ceo-pay-in-2020/ (accessed Jan 12, 2021). Bloomberg quotes from Caleb Melby, “Executive Pay: Valuing CEOs (March 15, 2015),” Bloomberg.com, www.bloomberg.com/quicktake/executive-pay (accessed June 26, 2016). Fortune story from “The Great CEO Pay Heist: Executive compensation has become highway robbery—we all know that. But how did it happen? And why can’t we stop it?” by Geoffrey Colvin, June 25, 2001.

- 2Jeremy Bentham, An Introduction to the Principles of Morals and Legislation (Oxford: Clarendon Press, 1907), p. 1.

- 3John Stuart Mill, Utilitarianism, ed. George Sher (Indianapolis: Hackett Publishing Co., 1979), p. 10.

- 4Ibid., p. 8.

- 5Ibid., p. 11.

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Chapter 3

Corporate Social Responsibility

Learning Objectives

After reading this chapter, you should be able to:

- Identify the economic, moral minimum, stakeholder, and strategic models of corporate social responsibility;

- Explain and evaluate the utilitarian and private property-based justifications for the economic model of CSR;

- Explain how the moral minimum model is a middle ground between the economic and stakeholder models;

- Explain the ethical basis of the stakeholder model of CSR;

- Explain the strategic model of CSR, and how Benefit Corporations are different from traditional corporations.

DISCUSSION CASE: Section 230: If it is Legal, Is It Ethically Responsible?

“No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

This sentence has been called the “twenty-six words that created the Internet” and the most important words in the tech industry.[1] The sentence is from Section 230 of a United States federal law, the Communications Decency Act of 1996, and is commonly referred to simply as Section 230. The phrase “interactive computer service” refers to any Internet-based company that allows users to post information and upload data and videos. This includes every technology company ranging from your local Internet Service Providers (ISPs) to Facebook, Google, Twitter, YouTube, TikTok, and Instagram. It is not an exaggeration to say that without Section 230, the Internet would not exist as it does today.

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What does Section 230 mean, and why is it so important? This law holds that any company that allows users to post or upload information to their website cannot be treated as if they themselves spoke or published that information. Unlike a newspaper or television station, for example, which are considered publishers of the content that they print or broadcast, this law says that Internet companies are not “publisher or speaker.” Therefore, they cannot be held legally responsible for the content of what was posted or uploaded. In short, they have broad legal immunity for anything posted, even if it is slanderous, libelous, misleading, false, fraudulent, harmful, or pornographic. As private businesses, the companies may choose to censor what is posted and by whom, but they have both the freedom to allow most of any content, and legal immunity for anything that is posted.

When this law was being written in the mid-1990s, the Internet was in its infancy, and none of the companies mentioned above existed. The world was just beginning to understand this technology, and the law was intended to help a new and growing industry. The law determined that Internet companies would be treated similarly to telephone companies. From this perspective, Internet companies simply provide a platform that other people use to communicate. Just as a telephone company cannot be responsible for what people say over the telephone (and this was, of course, well before cell phones existed!), Internet companies cannot be responsible for what someone posts. The users who post irresponsible information might themselves be subject to penalty for such wrongs as slander and fraud, but the company owning the Internet platform cannot. Unlike television companies and newspapers that have editors and producers to act as gatekeepers for what is broadcast or printed, Internet providers do not control what users post on their sites. Therefore, they should not be held responsible.

While there was little debate when the law was first passed in the 1990s, Section 230 is one of the most controversial laws in the United States today. To understand why, it is helpful to remember the business model for most of these companies. Internet platforms and websites such as Facebook, Twitter, Google, and the like do not sell you anything. The user is not their customer. The companies make money by getting you to spend time on their platforms, looking at ads, clicking on links, posting your own information and content (which they can then use as a commodity). The more time you spend on their sites and the more clicks they get from you, the more money they make in advertising and in selling this data to others. Their business model is deeply interested in whatever content that will attract users to their site and keep them online.

It did not take long for some to realize what content would attract most views. Internet entrepreneurs understood that pornography, for example, would attract lots of viewers. Before the Internet age, if you wanted pornography you had to seek it out (it was not readily available) and you had to pay for it. Today, it is freely available to anyone at the click of a mouse. If Section 230 protects the platform from liability for content, should they be immune when child pornography, violent porn, and revenge porn are uploaded to their sites?

It was clear to other Internet entrepreneurs that prostitution was another area that would attract lots of viewers. Craigslist and Backpage were two web platforms that were major providers of Internet ads for prostitution. Both faced legal challenges, and both claimed that they were protected by Section 230.

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For example, in the early 2000s, Craigslist featured a section for “erotic services” which, among other services, featured explicit ads for escorts. Critics charged that some of these ads were fronts for sex trafficking and child prostitution. While Craigslist voluntarily agreed to work with legal authorities to try to eliminate such ads and expose those responsible for them, the company insisted that Section 230 protected them from legal responsibility, especially for ads involving consensual adult prostitution. Craigslist eventually decided to close the adult section of their website in what CEO Jim Buckmaster described as a compromise of principles, judging that the legal fight was not worth the hassle. He was quoted as saying “For a long time we tried to do what, in our minds, was the principled thing. Instead, we ended up doing the pragmatic thing.”

As Craigslist moved away from these ads, Backpage’s listings for prostitution increased significantly. Lawsuits and criminal indictments, most dealing with cases of child prostitution and sex trafficking, eventually closed down Backpage, and in the process began to establish limits to Section 230. Platforms that were judged to be complicit in ads that promoted sex trafficking—for example by helping to develop, pay for, or knowingly ignoring ads for sex trafficking or child prostitution—could be held legally liable both for civil lawsuits and criminal prosecution.

Other controversies focused on Section 230 protections for content involving activities that were not so much illegal as immoral and vile. TheDirty.com is a website specializing in content best described as libelous gossip, rumors, and innuendo. TheDirty claims to be dedicated to exposing the truth, especially about people who otherwise want to project a clean image. When applied to frauds or scams, this mission seems benign or even praiseworthy. But in practice the website allows anyone to post anything, including photos intending to “name and shame” others without verification. Allegations of misbehavior, drunkenness, adultery, and especially sexually embarrassing material are regularly featured on the website. As of this writing (May 2022), TheDirty still exists, although Google deindexed it from their search engine, making it difficult to find.

The platforms 4chan and 8chan have been among the most extreme examples of hosting unrestrained postings. The sites have allowed anonymous posting of photos of murder victims, mass shootings, Nazi and racists propaganda and, for a period before taking them down, animated depictions of child pornography.

Even greater political controversy has involved major platforms such as Facebook, YouTube, and Twitter. In March 2019, a white supremacist murdered fifty-one people at two mosques in Christchurch, New Zealand. For over seventeen minutes, the terrorist livestreamed his attack on Facebook. Although Facebook did not learn of the video stream until twelve minutes after it ended, the company did remove it from their website, removed the shooter’s account, prevented the video from being further shared and uploaded, and banned any posts that seemed to endorse or praise the shooting. While admitting that Facebook’s AI filter failed to prevent the live streaming, CEO Mark Zuckerberg declined to implement policies that would delay live broadcasts, claiming that it would “fundamentally break” the benefits of live streaming. Presumably, the “benefits” include the money that Facebook makes by attracting viewers to livestreaming.

The Christchurch murders were similar to a case from 2014 when the terrorist organization ISIS posted videos and pictures of their beheading an American journalist on YouTube and Twitter. Both platforms quickly removed the posts, but had no policy in place to prevent them from being posted originally.

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The Christchurch shootings came two years after Facebook was widely criticized for how their platform was used by Russian agents trying to disrupt the 2016 U.S. presidential election. As described in the Discussion case for chapter 1, Facebook eventually disclosed that as many as 126 million people were exposed to Russian-linked ads or posts in the year leading up to that election. Many of the Russian-linked ads aimed to aggravate social tensions within the United States on such topics as immigration, Black Lives Matter, the confederacy, Muslims, and gun rights. One ad promoted a rally to oppose the “Islamization” of America, while another ad promoted an opposing rally to defend Islam scheduled at the same time and place.

The Russians not only bought ads on Twitter and Google, but they created false accounts on all these platforms, used bots to post false tweets, and posted videos on Google’s YouTube and photos on Facebook’s Instagram. The Russians promoted their ads, posts, and agenda the same way any digital marketer operates on Facebook. They relied on Facebook data to target individuals and groups who would be predisposed to “buy” what they were selling. They created ads that would appeal to these people, and then paid Facebook to place the ads on the targeted audience’s page. They created accounts and groups that attracted thousands of other users and then stepped back as Facebook users did much of the rest of the work to increase circulation by “liking” and forwarding ads and posts to “friends.”

More recently, Facebook has been used to spread misinformation, disinformation, and conspiracy theories regarding the COVID-19 pandemic and the COVID-19 vaccine. In 2021 Facebook removed some users who violated the company’s policies against posting harmful and false COVID-19 information, but the followers of these banned users continued to spread and share conspiracy theories. A Facebook executive, Andrew Bosworth, echoed the common claim that the platform could not be responsible for the actions on individuals who posted on it. “Individual humans are the ones who choose to believe or not believe a thing. They are the ones who choose to share or not share a thing . . . That’s their choice. They are allowed to do that. You have an issue with those people. You don’t have an issue with Facebook. You can’t put that on me.”

Throughout these controversies, Facebook and other similar platforms appealed to a claim that was made for the original Section 230 law was written. The sheer volume of posts made on an Internet platform makes it impossible (at least within their business model) for Internet companies to monitor content the way that newspapers or televisions stations do.

Finally, while Section 230 grants legal protection for companies for what is uploaded, it always remains possible for the companies themselves to censor, restrict, delete posts, or de-platform users. As private companies, they are free to establish their own terms of use and policies and use this as the grounds for removing posts, videos, and users. All platforms have engaged in content moderation to some degree. Famously, Twitter banned former President Donald Trump from its platform in January 2021. In making the decision, Twitter said “After close review of recent Tweets from the @realDonaldTrump account and the context around them we have permanently suspended the account due to the risk of further incitement of violence.” When he was banned, the former president’s account had more than 88 million followers.

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At the time of this writing (May 2022), entrepreneur Elon Musk reached a tentative agreement to buy Twitter for $44 billion. Musk has been outspoken in his belief unrestrained free speech and has described Twitter as the new “town-square” where people should be free to gather and exchange views. But given the types of examples described above, it is hard to imagine that Twitter will truly become home to unrestrained free speech. Musk’s plan to change Twitter from a publicly traded corporation to a privately owned firm, will give him great latitude in deciding to what degree Twitter will engage in content moderation.

Even with Section 230 protection, content moderation will always be an unavoidable aspect of any social media platform. Because the law allows great platforms great freedom in what is posted, the line between free speech and content moderation will inevitably involve value judgments. As a final example, consider a case from early 2022 when a TikTok user with over 2 million followers posted an arts and craft video that went viral. While the intended project was to make the child’s play project “slime,” the poster had provide the recipe for an extremely flammable mixture similar to napalm. Napalm is the incendiary gel used by the military in bombs and flamethrowers. TikTok removed the post as soon as they learned of it, but not until it had gone viral across other social media platforms.

Discussion Questions

1. Given the legal protections offered by Section 230, it is generally legal to operate Internet websites such as TheDirty and 4chan. Should that change? Is it ethical to operate such a website? To use such a website as a consumer? To advertise on such a website?

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2. There are two perspectives from which we might judge websites that post pornography or escort services. We might judge them from the perspective of an individual business opportunity, or from the perspective of society at large. If you had the opportunity to work for (or to create) an Internet company specializing in pornography or escort services, would you? Are such companies a good thing for society? Should they be more strictly regulated?

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3. Facebook and other web-based platforms claim that it is near impossible to police the content that is posted to their sites beforehand. At best, their AI technology can flag and remove some content after it has been posted, but even then they are reluctant to practice censorship. Do you agree with their decisions?

4. How would the world change if Section 230 was repealed and Internet platforms could be held legally liable for the content posted to their sites? Can you imagine ways in which Section 230 should be modified?

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How are Internet platforms similar to telephone companies as merely providing platforms for communications? How are they dissimilar? How are they similar or dissimilar to television stations or newspapers?

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6. On what basis should social media platforms engage in content moderation? Where should they draw the line? On what grounds should they de-platform or censor some users? Does it matter if the company is private or publicly traded?

3.1 Introduction

The discussion case that opens this chapter demonstrates how business decisions are deeply and inseparably connected to social and political decisions. Imagine how the entire technology industry would be different if Section 230 had not become law. Imagine how the world would be different if, for example, Facebook could be sued for libel every time something defamatory was posted on any Facebook page.

This chapter’s topic is corporate social responsibility (CSR). The general question is what responsibilities do corporations have, if any, to the society in which they operate? Perhaps more than any other topic in business ethics, CSR connects the three levels of business ethics that were described in chapter 1. CSR addresses ethics at the individual, organizational, and social levels. Competing models of CSR have implications for what individuals, as employees, customers, and citizens, can rightfully expect of business. At the organizational level, these models have direct implications for how corporate and business organizations should be structured and how they should be managed. Finally, at the social and political level, all models of CSR are rooted in particular philosophical and political theories about the role of corporate and business entities within society.

The opening discussion case also highlights another topic examined in chapter 1. For many observers of business, it is enough ethically for business to obey the law. We identified that perspective as a skeptical challenge to business ethics because it assumed that the law is enough to prevent unethical decisions. But, the Section 230 case demonstrates the ethical complexity involved in business decision making. In this case, the law does not require anything of technology companies, instead it allows them greater latitude in decision making by limiting their legal liability. In effect, the law has created a greater range of choices, and a greater need for ethical reflection and decision making. The models of CSR examined in this chapter provide a range of guidance for that reflection and decision making.

3.2 The Economic Model of Corporate Social Responsibility

What we shall call the economic model of corporate social responsibility has its roots in free market, or neoclassical, economic theory. This model is commonly identified with “shareholder primacy” approach to business management because it holds that a business’s primary responsibility is to its shareholders. This perspective is perhaps the most influential theory of corporate responsibility of the past century, and it has been especially influential in business school education. In essence, this model directs business management to maximize profits within the law.

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This economic model of CSR has its philosophical and ethical roots in economic utilitarianism. From this utilitarian perspective, the ethical goal of economy is to maximize happiness, understood as optimizing the satisfaction of individual preferences or wants. Following Adam Smith, this model argues that the best means for attaining this ethical goal is by adopting a free market economic system. Competitive markets are thought to be the most efficient means for allocating and distributing goods and services. Thus, a particular model of business and business management follows from that system. Within this economic model of CSR, business managers should seek to maximize profits within the law because profits are a measure of the efficiency of various means for achieving the overall goal of optimally distributing goods and services.

Perhaps the best-known defender of the economic model of corporate social responsibility was the Nobel Prize–winning economist Milton Friedman. In his book, Capitalism and Freedom, Friedman offers this clear statement of the economic model:

The view has been gaining widespread acceptance that corporate officials . . . have a social responsibility that goes beyond serving the interests of their stockholders. . . . This view shows a fundamental misconception of the character and nature of a free economy. In such an economy, there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud. . . . Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.[2]

This can appear as a narrowly selfish understanding of business to some critics. On closer analysis, however, we can see the ethical roots of this view within Friedman’s quote. (It would also be useful to review the skeptical challenges to business ethics examined in chapter 1 in light of this quotation.) The social responsibility of managers is “to make as much money for their stockholders as possible.” This responsibility follows from the “character and nature of a free economy.” Thus, a particular economic theory, what for simplicity’s sake we shall call the free market theory, provides the rationale for this managerial role.

But why should we accept this economic theory? In the above quotation, Friedman offers hints for how he might respond to this decidedly ethical question. If we disregard the role that the free market theory assigns to business management, we would “undermine the very foundations of our free society.” Managers are ethically obliged to maximize profits in order to avoid this serious ethical wrong.

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This short passage only hints at the variety of social, political, ethical, and economic issues that are embedded in the market approach to business ethics. Indeed, it would be fair to describe “the market” as one of the most influential public policy philosophies in modern history. For issues ranging from environmental protection to the allocation of health care, and certainly for virtually every controversy in business ethics, we can commonly find a recommendation to “let the market decide.” In this text alone, we shall examine market-based recommendations for such diverse issues as employee health and safety, deceptive advertising, product safety, employee rights and responsibilities, and environmental protection. It will be worthwhile to examine this view in depth.

Let us consider in general terms how someone who adopts this model might react to the Section 230 legislation. Almost without exception, it is legally permissible for an Internet company to allow any posts to its platform. The pursuit of profit, within the law and free from “deception and fraud,” would incentivize an entrepreneur to seek out posts that would attract users and keep them on the platform. In fact, that incentive created a wide market for Internet pornography, prostitution, slander, gossip, and other socially undesirable services and products. Deciding to pursue these markets—or not—was an inescapable ethical decision.

More specifically, let us consider Facebook from the perspective of this economic model of corporate social responsibility. Facebook’s tremendous financial accomplishment is good evidence that management has been successful in the marketplace. Facebook’s user base has grown significantly, from 100 million in 2008 to almost 3 billion active users in 2022. Facebook’s revenues have increased from $272 million, with a net operating loss of $56 million in 2008, to over $117 billion, with a $46 billion income in 2021. On Election Day in 2012, just a month after it first sold publicly, Facebook’s stock was priced at under $20 per share. On Election Day in 2016, the stock price was $120 and during the Cambridge Analytica scandal, the price had fallen to $160. As of this writing in April 2022, the stock price was at $220 per share. By any measure, Facebook has provided services that the market greatly values.

How would “the market” evaluate this corporate strategy? Facebook seems to be exactly the type of socially responsible corporation envisioned by Friedman’s model. Facebook’s return on investment over the past ten years has been extraordinary. Assuming that the social media industry has been free and open to competition (remember Myspace?) and assuming that Facebook has not engaged in fraud, deception, nor done anything illegal (thanks in no small part to Section 230), Facebook’s corporate strategy has, in the market view, attained several significant ethical objectives. Perhaps most importantly, 3 billion users have free access to a social media platform with a global reach. Advertisers and others have found a valuable means for reaching an audience of billions of people. Stockholders have received an astonishing return on their investment. It would seem that everyone associated with Facebook has benefited from this business. Judged by the standard of shareholder primacy, it would be difficult to conclude that Facebook has not fulfilled its corporate social responsibility according to the economic model.

This justification of the free market clearly is based on the utilitarian ethical principle that one should act so as to maximize the overall good. But besides utilitarianism, there is another ethical defense of the free market. Rather than appeal to the good consequences of the market, this approach appeals instead to the right of private property.

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Again, Milton Friedman offers us a succinct statement of this principle:

In a free-enterprise, private property system a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom. . . . The key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation . . . and his primary responsibility is to them.[3]

From this perspective, a business is understood as private property, and like any private property, the owners have a right to decide what to do with it. If the owner of a private business wishes to use her property to benefit employees or a community, fine. But if the managers of a publicly traded company like Facebook choose to use their shareholders’ property to serve the interests of employees and the local community, they would be acting irresponsibly. Pursuing any social objective other than the maximization of profit is spending someone else’s money for your own purposes. According to defenders of the economic model, this violates important ethical principles and is ethically equivalent to theft.

Accordingly, the economic model of CSR directs business management to pursue maximum profits. This is the primary ethical responsibility of business management and is defended on both utilitarian and individual rights grounds. These same ethical considerations also direct governments to adopt a laissez-faire approach to business. Business ought to be free from government regulation and control, allowing the market to function most efficiently.

3.3 Critical Assessment of the Economic Model: The Utilitarian Defense

Because the economic model of corporate social responsibility has been so influential in business and economics, it will be important to think carefully about its ethical foundations. This economic model of CSR has been seriously challenged on a variety of grounds.[4] For our purposes, we can focus on the ethical challenges that are rooted in the ethical frameworks of utilitarianism and rights that were described in chapter 2.

The utilitarian defense of the economic model returns us to the discussion of utilitarianism found in chapter 2. Utilitarian ethics was described in terms of means and ends, of acts and consequences. Managers are assigned a certain role within a free market economy because by filling this role they contribute to the production of beneficial consequences. Seen in this way, we can raise two general types of challenges: those that focus on the adequacy of free markets as means to the ends of maximally satisfying consumer demand, and those that focus on the appropriateness of these ends as legitimate ethical goals. More simply, is the free market an adequate means to our ethical ends, and are the ends ethically appropriate?

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Economists are familiar with a variety of situations in which the pursuit of profit will not result in a net increase in overall consumer satisfaction. In fact, such situations are called market failures precisely because in these cases markets fail to do what they were designed to do. By definition, a market failure occurs when markets fail as the means for achieving their ends. We can mention three general cases of market failures that are familiar examples from economics. Externalities such as pollution and resource depletion are perhaps the best-known examples of market failures. Externalities provide examples of efficiently functioning markets failing to achieve optimal results. Common examples of externalities would be such things as air pollution, greenhouse gas emissions, groundwater contamination and depletion, soil erosion, and nuclear waste disposal. The costs of such problems are borne by parties (e.g., people downwind, neighbors, future generations) who are not a part of the exchange between seller and buyer. Such parties are said to be external to the economic exchange. Since the “costs” of these problems are borne by external parties, the exchange price does not represent an equilibrium between true costs and benefits. Such external costs (or benefits) mean that market exchanges will not achieve the optimal distribution of costs and benefits that are represented by that equilibrium. In short, markets fail to achieve their intended result. If we wish to attain that optimal distribution, the market will need to be regulated and controlled so as to internalize these externalities.

A second example of market failure occurs in the case of public goods. There are many social goods—for example, a stable climate, clean air, groundwater, ocean fisheries, scenic views, friendly and supportive neighborhoods and communities, and safe streets—for which no pricing mechanisms exist. Without an economic price, no means are provided for markets to ensure that these goods get allocated to those who most value them. Thus, there is no guarantee that markets result in the optimal satisfaction of the public interest in regard to public goods. If we wish to preserve and protect such goods, something other than economic markets will be needed as our policy mechanism.

A case could be made that in the Facebook example, the public good of preserving the integrity of democratic elections was not served by Facebook’s free market pursuit of profit. Those who valued election integrity were not a party to the markets in which Facebook operates, and thus these interests, which, like all interests, need to be part of any truly utilitarian calculation, were ignored.

A third type of market failure occurs in situations in which individual pursuit of rational self-interest—the sort of behavior required by competitive markets—results in a worse outcome than what would have occurred had the parties’ behavior been coordinated, either through cooperation or regulation. So-called prisoners’ dilemma cases are examples of situations in which cooperation has a more optimal outcome than competition.[5] But perhaps more common are situations in which individual rationality results in public harms.

Important ethical and policy questions can be missed if we leave policy decisions solely to the outcome of individual decisions. This problem arises for many issues in business ethics, particularly for health risks involved in such things as exposure to workplace chemicals, consuming food treated with pesticides or food additives, drinking water that contains nitrates and chemical residues, or pollution that results from the individual choices of numerous consumers. As a particular example, consider the decision involved in choosing to drive a low-mileage sport utility vehicle.

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Driving such vehicles increases the amount of airborne pollutants discharged per mile driven. A 13-mpg SUV will discharge 134 tons of CO_2 over its 124,000-mile lifetime. A 36-mpg compact car will discharge 48 tons over the same distance. If I act as the rationally self-interested individual presupposed by free market economics, I would calculate the benefits of driving an SUV and weigh them against the increased costs and health risks that I face from pollution. Since the increased risks to me (or to any individual facing such a choice) of my driving an SUV rather than a compact are infinitesimally small, my self-interested choice to drive an SUV is reasonable according to market conceptions of individual rationality.

Consider these same facts not from an individual point of view but from the point of view of the population of, say, Los Angeles. Since, as our individual calculation indicated, it can be rational for any individual to choose an SUV, the individualistic approach implicit in market solutions would accept the Los Angeles pollution rate as a rational policy. The overall social result of such individual calculations might be significant increases in pollution and such pollution-related diseases as asthma and allergies. There are a number of alternative policies (e.g., restricting SUV sales, increasing taxes on gasoline, treating SUVs as cars instead of light trucks in calculating corporate automobile fuel efficiency standards) that could address pollution and pollution-related disease. However, these alternatives would be considered only if we examine this question from a social rather than an individualistic perspective.

A similar dilemma could be seen in the calculations that some people made regarding the COVID-19 vaccine. At the height of the COVID-19 pandemic in late 2021, the death rate for unvaccinated individuals in the United States was in the range of 20 people per 100,000. The death rate for fully vaccinated people was just over 1 in 100,000. As an individual considering these numbers, especially if I am young and otherwise healthy, I might judge that the increased risk from 1 in 100,000 to 20 in 100,000 was so small that it was insignificant. The reality is that I would be unlikely to die from COVID-19.

But, again, consider these risks not from an individual perspective, but from the point of view of a public health official who is looking at the entire U.S. population of 350 million people. The death rate of 1 in 100,000 for vaccinated people means that, for a population of 350,000,000 people, 3,500 people would die. Increase that number by 20 times, and there would be 70,000 deaths if no one was vaccinated. A wide range of policy options could close the gap between 70,000 and 3,500 deaths, and therefore leaving public health policy to the decisions of individuals would seem to be an unwise approach.

Because these are important ethical questions, and because they remain unasked from within market transactions, we must conclude that markets are incomplete (at best) as a means to attaining the overall social good. In other words, what is good and rational for an individual is not necessarily what is good and rational for a society. Once again, if society wishes to address these concerns, it will need to rely on public and not private (i.e., the market) decision-making mechanisms.

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The upshot of these challenges is that economic markets are so complex that it is extremely unlikely that a single and simple directive such as maximize profits will produce the greater overall good in all cases and in every situation. As we have seen in chapter 2, utilitarianism is a very pragmatic theory. Ethical judgments about particular acts are always contingent upon what happens after the act. Utilitarians are committed to specific principles only when, and only to the degree that, they produce the desired results. Because we can never know the future in a complex and ever-changing world, utilitarians always remain ready to revise their principles in light of changing consequences. An unconditioned ethical directive, such as the one that the economic model of corporate social responsibility demands of business management, is inappropriate for a utilitarian theory. A more precise formulation of a utilitarian-based market principle for management would be: Maximize profit whenever doing so produces the greatest overall good for the greatest number of people. This principle, in turn, will require management to consider the impact that a decision will have in many ways other than merely financial.

Of course, defenders of market solutions have ready responses to these challenges. Even free market defenders could support regulation that would require business to internalize externalities. Presumably they would support legislation to create shadow prices for unpriced social goods or for exempting such goods from the market, as when national parks and wilderness areas are set aside as public lands. The law is also the appropriate mechanism for addressing social goods that are unattainable through individual choice. In short, the law is the obvious remedy for social harms resulting from market failures.

Once again, as Friedman says, as long as business obeys the law, it meets its social responsibility by responding to consumer demand in the marketplace. But there are good reasons for thinking that such ad hoc attempts to repair market failures are socially inadequate. First is what I call the first-generation problem. Markets can work to prevent harm only through information supplied by the existence of market failures. Only when fish populations in the North Atlantic collapsed did we learn that free and open competition among the world’s fishing industry for unowned public goods failed to prevent the decimation of cod, swordfish, Atlantic salmon, and lobster populations. Only when workers died from exposure to such workplace pollutants as asbestos and coal dust and only when consumers died from exploding fuel tanks and contaminated food products did society learn about the dangers of these situations. That is, we learn about market failures and thereby prevent harms in the future only by sacrificing the first generation as a means for gaining this information. When public policy involves irreplaceable public goods such as public health and safety, such a reactionary strategy is ill-advised.

But even if we allow government regulation to establish social standards for business, we are still faced with the ability of business to influence both government regulation and consumer demand. The economic model of corporate social responsibility limits business’s responsibility to obeying the law and responding to consumer demand. In this model, it is government’s responsibility to prevent and compensate for market failures. Once market failures are adequately addressed, business needs only obey the law and respond to the market. But this assumes that business cannot or does not inappropriately influence the law. “Inappropriate” influence, in this model, is influence aimed not at optimizing the overall good (the goal, after all, of markets) but at protecting the interests of business. One example is the automobile industry’s successful lobbying effort to have SUVs treated as trucks rather than as passenger vehicles so that manufacturers can meet corporate automobile fuel efficiency (CAFE) standards for passenger vehicles established by law.

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But just as we must recognize the ability of business to influence government policy, we must also recognize its ability to influence consumers. To conclude that business fulfills its social responsibility when it responds to the demands of consumers is to underestimate the role that business can play in shaping public opinion. (We will examine this issue in more depth in chapter 8.) Advertising is a $200 billion a year industry in the United States alone. It is surely disingenuous to claim that business passively responds to consumer desires and that consumers are unaffected by the messages that business conveys. Assuming that business is not going to stop advertising its products or lobbying government, the market-based approach that is implicit within the economic model of corporate social responsibility is inadequate.

The second ethical challenge to this utilitarian defense of the economic model claims that the ends attained even by an efficiently functioning market are unsatisfactory on ethical grounds. Throughout this chapter, we have been referring to the ends or goals of the market variously as “maximize overall happiness,” “optimal satisfaction of consumer demand,” “greatest overall good,” “greatest good for the greatest number,” “maximally satisfying wants,” and “the satisfaction of consumer preference.” Let us return to a discussion from chapter 2 and become more precise in analyzing the ends of an efficiently functioning market.

Utilitarian ethics directs us to maximize happiness. How would a market serve this goal? At first glance, it seems that people are happy whenever they get what they want and markets function to satisfy consumer wants. But, more precisely, markets address only those wants that are expressed within markets. We might better call such wants consumer demand or consumer preferences. Now, of course, what people demand as consumers and what makes them happy are not always identical. Friendship, psychological health, and love are important elements of happy lives but you cannot buy any of these sold on the open market. Drugs, pornography, and cigarettes are some things demanded by consumers that do not, in the ethical sense, make people happy. In fact, there is some evidence, both anecdotal and social scientific, that suggests that people who get a lot of consumer goods are often not as happy as those with fewer such goods. Put another way, even if people received all the goods and services that they desired as consumers, there is no guarantee that they would be happy.[6]

A defender of free markets might claim that even if consumer satisfaction does not tell the entire story of human happiness, it at least tells a part. Even if some good things cannot be bought, getting more rather than less of what can be bought still contributes to human happiness. Let us step back here to recognize the significance of this issue. Market economies, and many of the political institutions that surround them, assume (often uncritically) the value of economic productivity and economic growth. The language of economic growth is simply a shorthand way of saying that more people are getting more of what they want. Specifically, it would be satisfying more of those wants that can be expressed in the marketplace. But is it true that getting more of what you seek in the market is good? Is it always ethically better to satisfy rather than frustrate consumer preferences? Is economic growth always good?

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But surely the answer to this question is that economic growth itself is not always an ethically good thing. Economic growth measures only the quantity of what consumers spend, it does not assess the quality of what they are purchasing with that spending. From a strict market perspective, there is no difference between $10,000 spent on medical bills produced by an automobile accident and $10,000 spent on improved safety equipment that might have prevented the accident. Yet, ethically, there seems to be a major difference between the good accomplished by, and the reasons that lead to, these two different consumer choices.

Economic growth means only that consumers are getting more of what they want, as determined by what they spend in the marketplace. But some things that consumers want, such as nutritious food, education, health care, are good and worthwhile. Some of what people want is silly, vacuous, and trivial; some are shameful or immoral. Some examples can help make this point. There is, unfortunately, a market for buying and selling infants, but buying and selling infants is ethically wrong. As we saw in the Section 230 Discussion Case that opened this chapter, there is a market for child pornography and child prostitution, but these are grievous moral wrongs. There are also economic markets for drugs, nuclear weapons, chemical weapons, and military secrets. There are markets for buying political advertisements aimed at disrupting a country’s democratic elections. In short, markets provide no substantive ethical basis for evaluating the ethical content or quality of consumer choice. Efficient markets, which even in theory can accomplish nothing other than optimally satisfying consumer choice, offer no guarantee that an ethically worthy outcome has been achieved.

Thus, there are reasons to doubt the utilitarian rationale for the economic model. The well-established existence of various market failures shows that there is no guarantee that markets attain the utilitarian goals at which they aim. A close consideration of the consequences of even an efficiently functioning market suggests that these consequences cannot provide a conclusive ethical rationale for the market and, therefore, for the managerial role that follows from it.

3.4 Critical Assessment of the Economic Model: The Private Property Defense

The second ethical defense of the economic model appeals to the rights of private owners rather than to the alleged beneficial consequences of markets. In this view, managers have an overriding obligation to maximize profits because that is what their employers, the owners of the corporation, want done with corporate resources. Any alternative constitutes an illegitimate restriction on the property rights of those owners.

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Again, let us return to some themes introduced in chapter 2, where we examined the nature of rights within the context of a general examination of ethical theory. We can indicate two significant challenges to this private property rights defense of the economic model.

First, we need to recognize that property rights are not absolute. Minimally, one’s right to use property is constrained by the rights of others. I cannot use my gun to shoot you, for an obvious example. Property rights are also restricted in much less dramatic ways. Zoning laws provide ample examples where property rights are restricted for the common good. In consideration of the interests of my neighbors, I cannot use my home as a business, for example, because the residential zoning in my neighborhood prohibits such commercial uses. I cannot rent my home as a residence to more than four unrelated local college students. I cannot use my backyard as storage for junk cars or for other trash. Because of a covenant entered into by the original residents of my neighborhood, I cannot even replace the natural wood siding on my house with vinyl or steel siding. There seems widespread acceptance of such limitations on private property throughout liberal democratic societies.

Of course, defenders of the economic model could acknowledge that such limitations exist, but argue that they are wrong. But, defenders would need to argue that the use of private property in pursuit of profits will always override other competing goods and other rights if they are to successfully defend the principle that business managers ought always to pursue profits for stockholders. Again, given the qualifications he mentions, it seems that even Milton Friedman does not wish to make this extreme claim. Even Friedman restricts property rights when they conflict with the basic rules of society as embodied in “law and ethical custom.”

A second challenge questions the understanding of stockholders implied by this defense. We need to recognize that, historically, corporate property rights differ from personal property. Stockholder rights and responsibilities were legal creations with particular social goals in mind. Stockholders are granted limited legal liability for the acts of their corporate property. This protects stockholders from losing their personal property in judgments against their corporation. In return for this protection, society gained a beneficial economic tool: an efficient means for raising large amounts of capital to finance major economic activities. This suggests that corporate ownership may not include all of the rights and privileges that are included with ownership of personal property. Specifically, the connection between ownership and control that exists for personal property does not legally exist for corporate property.

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This challenge can be understood by distinguishing between owners and investors. In some corporations, a few individuals privately own the stock. But stock ownership in publicly traded corporations, might be divided among hundreds of millions of shares of stock. Stockholders in these corporations are better understood as investors rather than as owners. Many investors buy their stocks, as Friedman suggests, with the hope of maximizing the return on their investment. But it is simplistic and misleading to claim that all investors seek to “make as much money as possible.” Many investors are happy with a lower rate of profit in return for a lower risk. From the perspective of management, especially executives of large public-traded corporations, investors are less owners than they are one among many constituencies that needs to be balanced. A corporation needs the capital supplied by investors, just as it needs the labor and creativity supplied by employees; material and other resources provided by suppliers; advice and resources supplied by financial institutions, accountants, and lawyers; and the market demand supplied by consumers. Market pressures require management to provide a high enough return on investment so that investors will keep their capital in the company’s stock. Likewise, market pressure requires management to pay a high enough salary and benefit package to keep qualified employees with the firm. Just as there is a labor market, there is a capital market. Investors are owed a competitive rate of return on their investment and employees are owed a competitive wage and benefit package. If investors disagree with managerial decisions, they are free to move their capital elsewhere. If employees disagree with managerial decisions, they also are free to take their labor elsewhere. If enough do either, managers will be directed by market forces to adjust their policies accordingly.

This is not to say that management can do just anything they want with corporate resources. We shall examine the ethical limits to managerial prerogative throughout this book. But these ethical limits come not only from the interests of stockholders, but also from the interests of employees, consumers, and society at large, or so critics of the economic model claim. The economic model of corporate social responsibility treats stockholder interests as overriding all else.

A final theme in Friedman’s essay that deserves consideration is the suggestion that obeying the law is the only legitimate constraint on the pursuit of profit. This philosophical conclusion is reflected in the practice of many corporations that have established ethics programs and ethics officers. Much good work gets done by ethics officers, but it is fair to say that much of their work focuses on issues of legal compliance. That is, in practice, much of corporate ethics is identified with obedience to the law. But, as was described in chapter 1, compliance with the law is not enough to ensure ethical behavior.

On a practical level, telling business that its ethical responsibilities end with obedience to the law is just inviting more and more legal regulation. In the first decade of the twenty-first century, it was the failure of personal ethics among such companies as Enron and WorldCom that led to the creation of the Sarbanes–Oxley Act and many other legal reforms. Ethical failures among the banking and financial industry that led to the financial recession in 2008 resulted in more governmental regulations and laws. Ongoing political debates about Section 230 and potential anti-trust action against companies like Microsoft, Apple, Facebook, and Google provide more recent examples. If business restricts its ethical responsibilities to obedience to the law, it should not be surprised to find a new wave of government regulations that require what were formerly voluntary actions.

More importantly, the perspective that compliance is sufficient for ethical responsibility relies on a misleading understanding of the law. This perspective suggests that laws are clear-cut, unambiguous rules that can be easily applied. As chapter 1 argued, this rule model of law is very common, but not very accurate. If the law was clear and unambiguous, there wouldn’t be much of a role for lawyers and courts. Furthermore, as demonstrated by Section 230, sometimes the law determines what is permitted and allowed, rather than what is prohibited and illegal.

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It is worth remembering several points made in chapter 1. Many of the people involved in corporate scandals were lawyers. In the famous Enron case, for example, corporate attorneys and accountants were encouraged to “push the envelope” of what was legal. There does not seem to be anything illegal about Facebook’s actions during the 2016 presidential elections nor about posting such content as pornography. Especially in civil law, where much is established by past precedent, there is always room for ambiguity in applying the law. After all, every new case is different in some way from the past. Further, in civil law there is a real sense in which one has not done anything illegal unless and until a court decides that one has, and this means that if no one files a lawsuit to challenge some action, it was legal.

If corporate managers are told, as Friedman suggests, that they have a social responsibility to maximize profits within the law, then responsible managers will go to their corporate attorneys and accountants to ask what the law allows. A competent attorney or accountant will advise on how far one can reasonably go before they would do something that is obviously illegal. In this situation, it would seem a manager has a responsibility to push the envelope of legality in pursuit of profits. In Friedman’s view, whatever is not obviously illegal is the socially responsible action. Most of the corporate scandals in recent years involved attorneys and accountants advising their clients that what they were doing could be defended in court. The off-book partnerships that were at the heart of the collapse of Enron and Arthur Andersen were designed with the advice of attorneys who thought that, if challenged, they had at least a reasonable chance of winning in court. At this point, the decision to push the envelope becomes more a matter of risk assessment and cost-benefit analysis than a matter of law or ethics. In this model, there is a strong incentive to assess the likelihood of being challenged in court, the likelihood of losing the case, and the likelihood of settling for financial damages and comparing those costs against the financial benefits of taking the action.

Because the law is ambiguous, because in many cases it simply is not clear what the law requires, because the law sometimes allows rather than prohibits actions, business managers will often face decisions that will rely on their ethical judgments. To suggest otherwise is simply to hold a false picture of corporate, and legal, reality. Thus, the fundamental ethical questions will confront even the businessperson who is committed to obeying the law. What should I do? How should I live?

3.5 Modified Version of the Economic Model: The Moral Minimum

In theory, the economic model remains an attractive ideal. It is an elegant theory that appeals to such important ethical norms as utilitarianism, freedom, and private property. It carries strong rhetorical force by its connection to the free enterprise system, free markets, and capitalism. But the fact of the matter is that even its staunchest defenders acknowledge its limitations. The imperative to maximize profits is always conditioned by such phrases as “within the law,” “without deception or fraud,” and “while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.” These restrictions simply acknowledge the legitimacy of placing ethical limitations on the pursuit of profit. In many ways, the only debate remaining is over where those limits are to be set. We can think of the following CSR models as increasingly expanding those limits.

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It was perhaps considerations such as this that led philosopher Norman Bowie to claim that “something of a consensus has emerged regarding the social responsibility of business.” Bowie labels this consensus the neoclassical model of CSR. On this model, the pursuit of profit is constrained not only by obedience to law, but also by an obligation to obey a moral minimum. Business managers must first meet certain moral obligations which, once met, open the door to the pursuit of profit.[7]

To explain this notion of a moral minimum, Bowie appeals to a framework for distinguishing duties that is fairly standard in some traditional ethical theories. In fact, Bowie identifies this approach as a Kantian theory of business ethics, and it is a clear example of the principle-based ethics introduced in chapter 2. In simple terms, this framework distinguishes between ethical responsibilities to cause no harm, to prevent harm, and to do good. Bowie argues that people have a strong and overriding ethical duty to cause no harm and only a prima facie duty to prevent harm or to do good. The obligation to cause no harm, in Bowie’s view, overrides other ethical considerations including the right to use and manage one’s own property for profit. The pursuit of profit legitimately can be constrained by this ethical duty of causing no harm to others. This, according to Bowie, is a “moral minimum” that can be demanded of everyone. Doing good, however, is something that people should be encouraged to do and praised for doing. But it is not something that people are ethically obligated to do, since such an obligation would impose unreasonable burdens and limitations on people.

Let us return to Section 230 to illustrate this view. Bowie would argue that publishing Internet content that violates someone’s rights—for example, violates their privacy or defames their reputation—is unethical, even if it is, strictly speaking, legally permissible. Likewise, Bowie’s theory has a straightforward way to justify prohibiting content that promoted sex trafficking or child sex abuse. However, publishing content that would prevent harm or do some positive good, perhaps by publishing accurate information about vaccines in order to counter disinformation and conspiracy theories, would be permissible but not ethically required.

Bowie accepts the economic model’s view that managers are the agents of stockholder-owners and thus they have a duty (derived from the contract between them) to further the interests of stockholders. Thus, while it is ethically good for managers to prevent harm or to do some good, their duty to stockholders overrides these concerns. As long as managers comply with the moral minimum and cause no harm, they have a responsibility to maximize profits. In this way, Bowie’s “moral minimum” model is a revised version of the economic model of corporate social responsibility.

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While the distinction among causing harm, preventing harm, and doing good might be clear initially, distinguishing among these cases on a consistent basis presents a major challenge. The difference between causing and preventing harms may not be as significant ethically as one might think. Distinguishing between harm and good, also, is not always clear and easy. How significantly the neoclassical model differs from the economic model is a function of how one interprets these distinctions. If we interpret the imperative to “cause no harm” narrowly, the range of duties faced by management under Bowie’s neoclassical model is not much different from the economic model defended by Milton Friedman. If we do not make a hard and fast distinction between causing and preventing, and between harm and good, then the range of managerial duties increases and the differences between these two models change accordingly. Let us return to the Facebook case to explore this issue.

For the sake of the example, let us assume that some harm was done to the integrity of the electoral process by the efforts of the Russian troll farm to place misleading ads and posts on Facebook. The questions become, did Facebook do anything to cause that harm? What is a cause? An initially plausible account of causality holds that the cause of some harm is that without which the harm would not have occurred. The cause is the sine qua non (that without which) of the harm. But understood in this way, there are an indefinite number of causes: the Russians themselves; the Facebook users who viewed, liked, and forwarded the ads; the Internet itself (without it, there would have been no Facebook); and Facebook itself, both by its very existence and by its failure to police ads more thoroughly.

The point is that the distinction between acts that cause and acts that prevent harm may depend more on our descriptions of the act than on any intrinsic character of the act itself. (This same question is central to ethical debates concerning euthanasia: Is the decision to remove a mechanical respirator actively causing the patient’s death or is it merely passively allowing the patient to die by failing to take steps to prevent the death?)

A similar challenge can be raised to the distinction between doing good and preventing harm. Consider the case of an automobile manufacturer that invests in a hybrid-electric or fuel cell–powered vehicle. Is this decision an ethical “good” that is praiseworthy but not required, or is it an ethically required obligation not to harm others through pollution and resource depletion?

The point of these examples is not to suggest that there is no distinction between harm and good or between causing harm and not causing harm. Rather, as a theory of corporate social responsibility, the modified version of the economic model cannot escape confronting the specific limits of corporate social responsibility head-on. The modified theory would need to offer a reasoned explanation for why any particular case is a matter of causing harm, and therefore is something ethically prohibited, or of doing good, and therefore something more akin to charity. Upon reflection, this suggests that we must abandon an in-principle determination of the extent of corporate social responsibility and decide this on a case-by-case basis. The implication of this is that for every case in which stockholder interests appear to conflict with the interests of employees, consumers, suppliers, or society, business management must carefully analyze the situation to determine its ethical responsibility.

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The significance of the moral minimum approach lies in its recognition that compliance with the law is insufficient for being an ethically responsible business. An adequate theory of corporate social responsibility must extend beyond the law to acknowledge ethical duties. Business managers and executives must understand that hiring a compliance officer is only a first step in the process of integrating ethics into a business. However, in recognizing that ethical duties do bind business managers and create a constraint on the pursuit of profit, the moral minimum approach has opened the door to a broader understanding of ethical responsibilities. We turn now to the stakeholder theory of corporate social responsibility, an approach that carries the moral minimum to its logical conclusion.

3.6 The Stakeholder Model of Corporate Social Responsibility

The stakeholder model of corporate social responsibility begins with the insight that every business decision affects a wide variety of people, benefiting some and imposing costs on others. As we have seen in such cases as Wells Fargo and Facebook, decisions made by business managers produce far-ranging consequences throughout society. Indeed, as economists have long recognized, every business decision involves the imposition of costs in the sense that every decision forgoes other opportunities. Any theory of corporate social responsibility that claims an ethical basis must defend its answers to the question: Who should benefit, and who should pay the costs, for each business decision? Both the economic model and the moral minimum model give stockholders a privileged position in the answer to this question. Once minimal legal and/or moral constraints are met, stockholders ought to be the primary beneficiaries of business decisions.

The philosophical point assumed by both the economic model and moral minimum model is that the actions of corporations and their managers can and should be restricted by the rights of others. The stakeholder theory carries this point to its logical conclusion: Everyone has equal rights; therefore, the actions of corporations and their managers equally should be restricted by the legitimate rights of “stakeholders,” namely, anyone affected by those decisions. The stakeholder model agrees that stockholders do have an ethical claim upon managerial decisions and those claims do establish a managerial duty. But, the ethical claims of stockholders must be balanced against any comparable ethical claims of anyone else affected by managerial decisions. In other words, the logic of these previous models of CSR acknowledges that managerial decisions should be constrained by ethically legitimate claims of others. The stakeholder theory accepts this logic but rejects the conclusion that only stockholders have ethically legitimate claims upon managers. Logic would require that if the ethical claims of other parties are comparable to those advanced by stockholders, then managers have a duty to these other parties. The stakeholder model argues that many such ethically legitimate claims do exist.

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Stakeholder theory shifts from viewing stockholders as owners to viewing them as investors, or financiers. Investors provide a necessary ingredient for corporate success—capital—but this is no more necessary than labor, supplies, a social infrastructure, or a market. The manager’s role is to balance these oftentimes competing interests in such a way that the firm continues to provide value for all these stakeholders. Stakeholder theorist Edward Freeman makes this point succinctly:

The basic idea is that businesses, and the executives who manage them, actually do and should create value for customers, suppliers, employees, communities, and financiers (or shareholders) … the primary responsibility of the executive is to create as much value for stakeholders as possible, and that no stakeholder interest is viable in isolation of the other stakeholders.[8]

Let us return to the Facebook case. The economic model of CSR would direct Facebook executives and managers to make decisions (as allowed by law) that benefit stockholders. The ethical rationale for this is the belief that such an approach has more beneficial overall social consequences and that as owners the stockholders have a right to such benefits. However, as previous sections of this chapter have argued, neither of these rationales is persuasive. Thus, we are left with the more basic ethical assumption that the interests of every party affected by a decision deserve equal consideration in that decision. From the stakeholder perspective, when we consider the interests of other parties, we recognize a broad range of managerial responsibilities. Stakeholder theory would argue that Facebook’s executives also have ethical responsibilities to users, voters, and the society that are ethically equal to their responsibilities to shareholders.

Edward Freeman has offered a defense of the stakeholder model in his essay, “Managing for Stakeholders.” Freeman argues that the economic model fails as both an accurate descriptive and as a reasonable normative account of business management. As a descriptive account of business, the economic model ignores over a century of legal precedent arising from both case law and legislative enactments. While it might have been true over a century ago that management had an overriding obligation to stockholders, the law now recognizes a wide range of managerial obligations to such stakeholders as consumers, employees, competitors, the environment, and the disabled. Thus, as a matter of law, it is simply false to claim that management can ignore duties to everyone but stockholders.

We also need to recognize that these legal precedents did not simply fall from the sky. It is the considered judgment of the most fundamental institutions of a democratic society, the courts and legislatures, that corporate management must limit their fiduciary duty to stockholders in the name of the rights and interests of various constituencies affected by corporate decisions. Economic considerations also diminish the plausibility of the economic model. The wide variety of market failures well-established in economics shows that, even when managers pursue profits, there are no guarantees that they will serve the interests of either stockholders or the public. When markets fail to attain their goals, society has no reason to sanction the primacy of the fiduciary obligation to stockholders.

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But perhaps the most important argument in favor of the stakeholder model rests in ethical considerations. As we have seen, the economic model appeals to two fundamental ethical norms for its justification: utilitarian considerations of social well-being and individual rights. On each of these normative accounts, however, due consideration must be given to all affected parties. Essential to any utilitarian theory is the commitment to balance the interests of all concerned and to give to each equal consideration. The stakeholder theory simply acknowledges this fact by requiring management to balance the ethical interests of all affected parties. Sometimes, as the economic model would hold, balancing will require management to maximize stockholder interests. But sometimes not. Utilitarianism requires management to consider the consequences of its decisions for the well-being of all affected groups. Stakeholder theory requires the same.

Likewise, any theory of moral rights is committed to equal rights for all. In its Kantian formulation, this ethical theory argues that the overriding moral imperative is to treat all people as ends and never as means only. Corporate managers who fail to give due consideration to the rights of employees and other concerned groups in the pursuit of profit are treating these groups as means to the ends of stockholders. This, in the Kantian tradition, is unjust. (Of course, ignoring the interests of stockholders is equally unjust.)

Thus, the stakeholder theory argues that on the very same grounds that are used to justify the economic model, a wider stakeholder theory of CSR is proven ethically superior. As Freeman argues that “the stakeholder theory does not give primacy to one stakeholder group over another, though there will be times when one group will benefit at the expense of others. In general, however, management must keep the relationships among stakeholders in balance.”[9]

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Reality Check: What Do Leading CEOs Think of Shareholder Primacy and the Stakeholder Model?

“Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke. It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism. Our conviction at BlackRock is that companies perform better when they are deliberate about their role in society and act in the interests of their employees, customers, communities, and their shareholders.”

—Larry Fink, CEO BlackRock Capital February 2022.

In addition to BlackRock CEO Larry Fink, many other CEOs agree that business has responsibilities to a wide variety of stakeholders. In August 2019, the Business Roundtable, an organization comprised of CEOs of many of the world’s largest corporations, issued a statement on the purpose of a corporation. For over twenty years, the Business Roundtable had endorsed the principle of shareholder primacy as the fundamental corporate purpose. Shareholder primacy, of course, is another way of expressing the perspective that this chapter identifies as the economic model of CSR, or managerial capitalism. As captured in the quotation from Milton Friedman, this perspective argues that the primary purpose of a corporation is to serve shareholders by maximizing profit.

The revised statement on corporate purpose represents a dramatic change away from that perspective. The new statement replaces shareholder primacy with a “fundamental commitment” to serve all stakeholders. The new statement affirms the principle that the purpose of a corporation is to create value for all stakeholders, including customers, employees, suppliers, and communities. Shareholders are included among all stakeholders, of course, but no longer function as the primary focus of corporate responsibility. The statement recognizes that all stakeholders are essential for a corporation to exist and that, therefore, corporate managers have equal responsibilities to all stakeholders.

The statement commits corporate leaders to serve customers by “meeting and exceeding their expectations”; to serve employees by providing fair pay and benefits, adequate training, and a diverse and respectful workplace; to serve suppliers by treating them “fairly and ethically”; to serve their communities by protecting the environment and engaging in sustainable practices; and to serve shareholders by providing long-term value and transparent communication.

The statement reaffirmed the commitment for the “free market system” but acknowledged that business must play a central role in guaranteeing that the free market system serves the entire society. In releasing the statement, Jamie Dimon, the Business Roundtable chair and CEO of JPMorgan Chase, stated: “These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”

The statement was signed by the CEOs of 181 of the largest corporations in the world, including Jeffrey Bezos of Amazon, Tim Cook of Apple, and such prominent corporations as GM, Ford, Best Buy, Target, Walmart, 3M, Xerox, Visa, Mastercard, UPS, and IBM.[10]

Two general types of challenges can be raised against the stakeholder theory. The first engages the debate on substantive grounds and argues for the primacy of stockholders’ interests. The second argues that the stakeholder theory is so general and vague that it can offer little practical guidance to management.

To defeat the stakeholder theory on substantive grounds, the defender of the economic model must argue that the responsibilities to stockholders always override the ethical responsibilities to other affected parties. On utilitarian grounds, this argument must claim that the net social consequences of profit maximization will always outweigh the net social consequences of decisions that constrain profit by consideration of the interests of others. On libertarian/property rights grounds, this argument would have to establish the primacy of property over other individual rights. As we have seen, both arguments face significant philosophical challenges.

Practical challenges to the stakeholder theory are of two types: problems with identifying stakeholders and their interests, and problems deciding what course of action follows from the imperative to balance stakeholder interests. If we interpret the meaning of stakeholder widely as any affected party, we seem to place managers under an impossible burden of determining who might be affected by every decision. The narrow interpretation seems to offer a more practical option, but it might do so at the cost of ignoring ethically relevant parties.

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Even if we could identify all relevant parties and their affected interests, the stakeholder model seems to offer little in the way of specific practical advice to managers. How, exactly, should a manager go about balancing the diverse and competing claims of all affected parties? The inability of stakeholder theory to answer this question is, in the views of some critics, a telling defect of the theory.

Nonetheless, perhaps these critics are asking too much of the stakeholder theory. It is tempting to think that a normative theory of managerial responsibility should provide specific practical guidance. Such a theory should make a difference in how corporations are managed. But we shouldn’t make the mistake of concluding that the practical guidance offered by such a theory needs to provide univocal and specific advice in every potential situation.

Compare the two general normative principles that derive from the economic and stakeholder theories of CSR. The economic model mandates that managers should maximize profits, while the theory requires managers to balance the competing claims of stakeholders. Which offers the more practical and specific advice? Even the economic model leaves business managers with significant latitude in making decisions. The imperative to maximize profits offers a general guideline, but it does not offer exact practical guidance. After all, managerial authority is justified within this theory by appeal to the expertise that managers bring to their fiduciary relationship with stockholders. This expert role for managers makes sense only when we assume significant discretion for managerial decision making. In all but the simplest business decisions—that is, for any decision that relies on the expert judgment of managers—it is unlikely that we could ever know in advance which course would, in fact, maximize profits. To prove, after the fact, that any particular decision did maximize profits would require that we prove a counterfactual: If the manager had made an alternative decision, then profits would have been lower. Except, again, in the simplest cases, it is difficult to know how this could be established. In practice, managerial effectiveness at profit maximization is measured by one thing: Do stockholders choose to keep their money invested in this firm?

Similar conclusions must be reached about the practical guidance offered by the stakeholder theory. It is difficult, if not impossible, to determine in advance what particular decision would appropriately balance stakeholder interests. It may well be that the best way to measure this is by asking a similar question: Do the various stakeholders choose to continue their relationship with management? Disgruntled employees, disaffected customers, and falling stock prices are good evidence that management is failing to balance stakeholder interests. Likewise, as demonstrated by countless successful corporations, there is good evidence that management can appropriately balance these competing interests.

Of course, this response has not refuted the criticism that the stakeholder theory is ineffective in its ability to guide managerial decision making. But it does suggest that the stakeholder theory is not peculiar in this respect. Like the economic model, it offers practical advice by ruling out some alternatives and, like the economic model, it can be tested in the marketplace. Perhaps it is practical enough.

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3.7 Strategic Model of Corporate Social Responsibility: Benefit Corporations

The final model of corporate social responsibility that we will consider conceives of social responsibility as part of the very mission, or strategic vision, of the firm. Social responsibility in these cases is woven into the fabric of the firm—the distinction between “social ends” and private ends breaks down, so that one serves the ends of shareholders by serving social ends—quite the opposite of the economic model, which held that one serves social ends by serving the financial ends of shareholders.

We can distinguish between two types of organizations that would fall under this category: We are all familiar with many not-for-profit organizations whose mission is to serve social ends. Charities; NGOs; and educational, medical, and health care institutions would fall under this category. But there is a growing recognition that some for-profit organizations also have social goals as a central part of the strategic mission of the organization. In two areas in particular, social entrepreneurship and sustainability, we find for-profit firms that do not assume a tension between profit and social responsibility. Rather than “not for profit,” such firms are characterized as “more than profit.”

Most discussions about CSR are framed in terms of a debate: Business should, or should not, be expected to sacrifice profits for social ends. Much of the CSR literature assumes a tension between the pursuit of profit and social responsibility. But what if the stockholders themselves choose socially responsible goals in addition to, and perhaps even superior to, profit maximization? Benefit Corporations, a new legal model created by more than twenty states, aim to do just this.

There is a growing recognition that some for-profit organizations also have social goals as a central part of the strategic mission of the organization. In the areas of social entrepreneurship and sustainability, for example, we find for-profit firms that do not assume a tension between profit and social responsibility. Like any corporation, a Benefit Corporation is a legal entity with legal rights and duties created to achieve the general benefits of any corporation: limited liability, protecting owner assets, achieving tax advantages, and so on. Importantly, Benefit Corporations are not nonprofit organizations. They are for-profit businesses that create value for their stockholders as a by-product of creating values for a wide range of other stakeholders. Benefit Corporations differ from traditional corporations in that their boards and managers are given the legal authority to pursue social and environmental goals in addition to the financial goals that corporations generally pursue. This means that Benefit Corporations are free to make social and environmental goals part of the very mission and identity of the corporation and therefore makes the boards and managers accountable to wider social goals. The profit sought by stockholders thus becomes one among other equally legitimate goals sought by a range of corporate stakeholders. The tension that is thought to exist between social ends and profits disappears in the Benefit Corporation model.

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Many social entrepreneurs who seek to achieve beneficial social ends have found the Benefit Corporation as a perfect legal model to pursue the dreams. Businesses that have adopted sustainability as part of their strategic mission have also found the Benefit Corporation a helpful model. One estimate is that there were over 2,000 active Benefit Corporations in the United States in 2015.[11] Some of the best-known companies include King Arthur Flour, Patagonia, Kickstarter, Seventh Generation, and Plum Organics. These for-profit businesses recognize that without profitability, they will neither remain in business nor attract the investment needed to grow. But profit is recognized as a means, not an end in itself. Profits serve socially responsible ends by making the business financially sustainable so that it can pursue social ends.

There are a number of advantages that are claimed for Benefit Corporations besides the normal financial benefits of any incorporation. Perhaps the most important is that it allows corporations with socially responsible missions to protect that mission by giving both mangers and boards the legal ability to prioritize mission over profits. Especially at a time when corporations and their managers are judged by short-term, quarterly earnings reports, normal corporate charters can create pressures on managers to back away from social missions in order to increase short-term profit. Recognizing that there can be different paths to profitability, Benefit Corporations hold management accountable for finding a path that also achieves socially responsible mission goals.

Advocates also claim that Benefit Corporations have an advantage attracting employees, especially among a younger generation that is concerned as much with workplace quality as with such traditional benefits as salary and status. One study reported that businesses with a clear social mission and a reputation for creating social benefits were more successful in attracting and retaining millennial employees.[12]

Benefit Corporations are also better positioned to attract socially motivated customers and investors. There is a growing market among socially conscious consumers for businesses that serve the common good. There is also a growing capital market among institutional and individual investors seeking socially responsible investments. Pursuits of socially responsible ends are part of the legal charter of Benefit Corporations and not something done simply as a public relations ploy.

As in any good business practice, the Benefit Corporations have stimulated a movement to measure, assess, and certify businesses engaged as Benefit Corporations. Some Benefit Corporations choose to take an additional step and become certified as a “B-Corp” by working with an independent nonprofit group, B-Labs, to assess the effectiveness of their strategy in serving socially responsible goals. Becoming a certified B-Corp provides a means for assuring consumers, investors, employees, and the general public that the company is successful in its mission. But, it is also possible for traditional corporations to become certified as a B-Corp without having the underlying legal structure of the Benefit Corporation.

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Because these firms fully integrate social goals into the core strategy of their business model, we can refer to this as the strategic model of CSR. At first glance, firms that adopt the strategic model raise no particular ethical issues. Even defenders of the economic model of CSR, such as Milton Friedman, would agree that owners of a firm are free to make the pursuit of social goals a part of their business model. They would just disagree that these social goals should be part of every business’s mission.

It certainly would be too much to expect every business to adopt the principles of social entrepreneurs and devote all their activities to the service of social goals. At best, social entrepreneurs demonstrate that profit is not incompatible with doing good, and that one can do good profitably. But there are some who would argue that the ethical responsibilities associated with sustainability are relevant to every business concern. In some ways, sustainability offers a model of CSR that suggests that ethical goals should be at the heart of every corporate mission. There are reasons to think that sustainability promises to be a concept of growing importance with discussions of CSR.

But even for those companies that do not explicitly adopt the Benefit Corporation model, many firms are making social and environmental goals part of their strategic mission. Within the past decade, thousands of companies have supplemented their financial annual report with a corporate sustainability report, which provides an overview of the firm’s performance on environmental and social issues. In some cases, sustainability reports are completely replacing financial reporting by integrating assessment of financial, environmental, and social performance into one comprehensive report.

According to the Global Reporting Initiative, a nonprofit organization that was instrumental in creating a widely accepted sustainability reporting framework, sustainability reporting is a process of publicly disclosing an organization’s economic, environmental, and social performance. Many organizations find that financial reporting alone no longer satisfies the needs of shareholders, customers, communities, and other stakeholders for information about overall organizational performance. The term “sustainability reporting” is synonymous with citizenship reporting, social reporting, triple bottom line reporting, and other terms that encompass the economic, environmental, and social aspects of an organization’s performance.[13]

3.8 Summary and Review

This chapter has introduced some of the basic models and theories for understanding the ethical responsibilities of business. These theories provide normative models for understanding how business should operate. Since they are normative models, they should not be judged solely by how accurately they describe contemporary business. Consistent with the model of normative ethics described in chapter 1, this chapter also offers some preliminary analyses of the reasons for and against these models.

One can think of these competing models of CSR along a continuum of expanding ethical constraints upon the general goal of increasing profits by responding to consumer demand. At one extreme we find the very narrow view of CSR associated with Milton Friedman and neoclassical economics. Business’s social responsibility is to maximize profit by meeting consumer demand. The only constraint upon the pursuit of profit is obedience to the law. At its most libertarian extreme, of course, this view would also argue that the only appropriate laws are those that protect property and prohibit fraud and coercion.

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Theories of CSR become more moderate by expanding the range of constraints upon the pursuit of profit. Thus, Norman Bowie, for example, argues on Kantian grounds that beyond obedience to the law, business has an ethical duty to cause no harm. At its most extreme, the only harms recognized as ethically legitimate would be those that violate the rights of other people, but a broader understanding of harms would lead to a broader conception of business responsibility. Stakeholder theories essentially develop this notion by identifying ethically legitimate stakeholders other than investors and by articulating the specific duties that are owed to them.

We can thus characterize these theories as variations on the theme of balancing utilitarian and principle-based ethics. The pursuit of profit is the mechanism by which business is thought to serve the utilitarian goal of satisfying consumer demand and thereby maximizing the overall good. But this utilitarian goal is itself to be constrained by the duties that one has to persons affected by these activities. Depending on the theory of rights and duties that one adopts, those constraints range from the minimal duty of obeying the law to more extensive accounts of duties associated with the stakeholder theory.

As a final reflection, we might consider the implications that the stakeholder model has for our understanding the nature and purpose of business. When stockholders are given a privileged position in management’s ethical responsibilities, as they are in the shareholder primacy model, it is common to conceptualize business on the model of private property being managed for the sake of its owners. But, when the interests of stockholders are given equal ethical standing with the interests of all other constituencies affected by managerial decisions, the model of business as private property is less compelling. If managers have the responsibility to balance the ethical interest of all stakeholders, then we can begin to understand the firm as an independent entity created by society to achieve social goals.

The claim, reflected so clearly in Milton Friedman’s work, that the purpose of a business is to maximize profits makes sense only when stockholders—the beneficiaries of profit—are given a distinctive ethical status. But what would the purpose of business be if not to maximize profits? What goal should guide management as they seek to balance the demands of various, and often competing, stakeholders?

A plausible alternative was suggested decades ago by Theodore Levitt, longtime professor of marketing at the Harvard Business School. Levitt’s quote can provide a thought-provoking end to this chapter.

The purpose of business is to create and keep a customer. To do that you have to produce and deliver goods and services that people want and value at prices and under conditions that are reasonably attractive…. It was not so long ago that a lot of companies assumed something quite different about the purpose of business. They said quite simply that the purpose of business is to make money. But that proved as vacuous as saying that the purpose of life is to eat…. To say that profit is a purpose of business is, simply, morally shallow…. if no greater purpose can be discerned or justified, business cannot, morally, justify its existence. It is a repugnant idea, an idea whose time has gone…. Finally, it’s an empty idea. Profits can be made in lots of devious and transient ways…. To say that they should attract and hold customers forces facing the necessity of figuring out what people really want and value, and then catering to those wants and values. It provides specific guidance and has moral merit.[14]

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Reflections on the Chapter Discussion Case

What happened to Facebook following the 2016 U.S. presidential election, as well as the 2015 “Brexit” election in the United Kingdom, demonstrates how difficult it is for a modern corporation to think of itself as simply an economic or financial institution with no direct social or political responsibilities. Every business is deeply embedded within the society in which it operates. It relies on that society for legal, financial, and political frameworks that make the very existence of business possible, and it relies on that society for its employees and customers. It should come as no surprise to any business, therefore, that society will have expectations of business beyond the simple economic expectation that business supplies goods and services.

But, according to Facebook’s own statements following the election of 2016, it did come as a surprise. Members of the U.S. Congress and the U.K. Parliament, as well as many citizens of both countries, expected Facebook to play a much more aggressive role in monitoring the ads and posts placed on their platform, and policing their own policies governing data access and usage. In the United States, there were numerous calls to eliminate or substantially change Section 230. Both the United States and the United Kingdom considered further regulations to govern how Facebook and other social media platforms should respect consumer privacy.

Some potential directions in which these regulations might develop were on display in April 2018 when Mark Zuckerberg testified before the U.S. Congress. Zuckerberg opened his testimony by admitting that Facebook was slow to respond to the threats posed by foreign interference in U.S. elections, and apologizing for that.

One of my greatest regrets in running the company is that we were slow in identifying the Russian information operations in 2016…. It was my mistake, and I’m sorry. I started Facebook, I run it, and I’m responsible for what happens here. It’s clear now that we didn’t do enough to prevent these tools from being used for harm. That goes for fake news, foreign interference in elections, and hate speech, as well as developers and data privacy.

In response to several questions from senators, Zuckerberg acknowledged that Facebook should have some responsibility for the content on its platform, a change from earlier views in which Facebook was compared with telephone companies rather than newspapers. He also acknowledged that, like other media companies, Facebook had a responsibility to monitor and control content. How, exactly, Section 230 might be amended as a result was not made clear. Zuckerberg offered little in response to how Facebook would move to protect privacy.

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This, of course, brings us back to the Discussion Case that opened chapter 1. You’ll remember in that case, Apple CEO Tim Cook describing Apple’s commitment to protect user privacy. Beginning in 2021, Apple began aggressively promoting its iPhones as offering greater privacy protection, clearly differentiating its business model from Facebook’s. While some saw this in terms of Apple’s corporate ethics and values, others saw it as a strategic move to get ahead of political calls for greater government regulation.

These cases should remind us of the inseparability of business decisions and ethical, social, and political decisions. We have offered philosophical reasons for thinking that the separation thesis—the skeptical view that ethics should be kept separate from business decisions—is wrong. But perhaps the more persuasive argument is that it is simply not possible in the real world, a world in which laws like Section 230 and the laws of incorporation actually create business organizations.

Chapter Review Questions

1. Explain the connection between the economic model of corporate social responsibility and “free market” or “neoclassical” economic theory.

2. What are the two ethical justifications for the economic model of corporate social responsibility? What are the most significant challenges facing these justifications?

3. Explain the philanthropic model of corporate social responsibility. To what degree do you think it differs from the economic model?

4. How does the modified version of the economic model with its notion of a “moral minimum” differ from the economic model of corporate social responsibility?

5. Explain the stakeholder theory of corporate social responsibility, its ethical rationale, and two challenges to it.

6. How does the stakeholder emphasis of the creation of stakeholder value differ from the economic model?

7. Why is sustainability a strategic goal for business?

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Endnotes

1The following sources were used in preparing this Discussion Case. The Twenty-Six Words That Created the Internet, Jeff Kosseff (Cornell University Press, 2019). What is Section 230? An expert on internet law and regulation explains the legislation that paved the way for Facebook, Google and Twitter, by Abbey Stemler, The Conversation, August 2, 2021, https://theconversation.com/what-is-section-230-an-expert-on-internet-law-and-regulation-explains-the-legislation-that-paved-the-way-for-facebook-google-and-twitter-164993 (accessed January 14, 2022). Jim Buckmaster: Craigslist put up an ad for a programmer. It got a chief executive, by Graham Snowdon The Guardian, October 6, 2011, https://www.theguardian.com/business/2011/oct/06/craigslist-jim-buckmaster-interview (accessed January 13, 2022). “I Am Jane Doe” Takes on Backpage, by Tad Friend, The New Yorker, January 8, 2017. Danielle K. Citron & Benjamin Wittes, The Problem Isn’t Just Backpage: Revising Section 230 Immunity, 2 Georgetown Law Technology Review 453 (2018). Available at: https://scholarship.law.bu.edu/faculty_scholarship/631 Zuckerberg resists pressure to alter Facebook’s livestream feature after Christchurch attacks, by Chloe Taylor, The Guardian, April 4, 2019. https://www.cnbc.com/2019/04/04/zuckerberg-resists-pressure-to-alter-facebooks-livestream-feature-after-christchurch-attacks.html (accessed January 15, 2022). “Facebook exec blames society for COVID misinformation,” by Ina Fried, Axios December 12, 2021 https://www.axios.com/facebook-bosworth-covid-misinformation-89a751dc-6875-4ad3-8103-33cd10b9972c.html Accessed January 17, 2022.

2Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), p. 133.

3Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” The New York Times Magazine (September 13, 1970), reprinted in Contemporary Issues in Business Ethics, 4e., edited by Joseph R. DesJardins and John McCall (Belmont, CA: Wadsworth Publishing, 2000), p. 9.

4For example, in an article analyzing the earlier business scandals of Enron and Arthur Andersen cases, Fortune magazine called this Friedman-like view the “cult of the shareholder” and attributed much of the blame for several corporate bankruptcies and financial falls to the “God-awful” accounting games played by executives seeking only to increase their company’s stock price. Differing from the ethical criticisms of the Friedman view considered in this chapter, Fortune’s criticisms are that this view adopts an unrealistic and inadvisable model of corporate control and ownership. See “Dirty Numbers” by Andy Serwer, Fortune (February 18, 2002), pp. 75–84.

5This classic case is represented by a grid in which two prisoners who are accused of a crime are offered two options by the police: confess or not. If one prisoner confesses while her partner does not, she is set free and her partner gets a ten-year prison sentence. If both confess, they each get a five-year sentence. If neither confesses, they each get six months in jail. What would rational, self-interested individuals do in such a situation? If I am prisoner A, then I look at my options: Whichever choice my partner makes, it will be better for me to confess. If she confesses and I don’t, then I get ten years in jail. So, if she confesses it is preferable for me to confess as well. If she doesn’t confess and I confess, then I go free. Either way, it is rational for me to confess. But, since exactly the same reasoning will lead prisoner B to reach the same conclusion, the “rational” choice for two self-interested noncooperating individuals results in a suboptimal outcome for both. On the other hand, if the two prisoners cooperated, trusted each other, and kept their word, the reasonable thing to do would be for both not to confess and settle for a six-month sentence. But, this suggests that the ideal market situation should be abandoned in favor of a more cooperative, or at least coordinated, relationship.

6Many useful discussions of happiness and consumption, by social scientists as well as philosophers, can be found in The Ethics of Consumption, edited by David Crocker and Toby Linden (Lanham, MD: Rowman & Littlefield, 1998). An entertaining and informative video presentation of these issues is found in Affluenza. “Affluenza” is the contagious disease that accompanies affluence.

7Norman Bowie, “New Directions in Corporate Social Responsibility,” in Business Horizons, July–August 1991, p. 56. Bowie’s views are developed further in his Business Ethics: A Kantian Perspective, 2e (Cambridge University Press, 2017).

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8“Managing for Stakeholders” by R. Edward Freeman reprinted in Business Ethics: Decision-Making for Personal Integrity and Social Justice, by Laura Hartman and Joseph DesJardins, 2e (McGraw-Hill, 2010).

9“A Stakeholder Theory of the Modern Corporation: Kantian Capitalism,” by William Evan and R. Edward Freeman, in Contemporary Issues in Business Ethics, 4e, edited by Joseph R. DesJardins and John McCall (Belmont, CA: Wadsworth Publishing, 2005), p. 89. Freeman’s views are developed more fully in R. Edward Freeman, Strategic Management: A Stakeholder Approach (Marshfield, MA: Pitman, 1984).

10Source: Business Roundtable, “Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans,’” press release (August 19, 2019), https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans.

11Ellen Berrey, How Many Benefit Corporations Are There? (May 5, 2015). Available at SSRN: http://ssrn.com/abstract=2602781.

12Deloitte Millennial Survey, January 2014, http://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/gx-dttl-2014-millennial-survey-report.pdf (accessed April 14, 2015).

13Source: http://www.globalreporting.org.

14This quote is taken from “Marketing and the Corporate Purpose: The Purpose Is to Create and Keep a Customer,” by Theodore Levitt, a speech delivered at New York University, March 2, 1977, available from Vital Speeches of the Day. Similar claims can be found in chapter 1, “Marketing and the Corporate Purpose,” of The Marketing Imagination, by Theodore Levitt (New York: Free Press, 1983), pp. 5, 7.

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Chapter 4

Corporate Culture, Governance, and Ethical Leadership

Learning Objectives

After reading this chapter, you will be able to:

- Define corporate culture;

- Explain how corporate culture impacts ethical decision making;

- Discuss the role of corporate leadership in establishing the culture;

- Explain the difference between effective leaders and ethical leaders;

- Discuss the role of mission statements and codes in creating an ethical corporate culture;

- Explain how various reporting mechanisms such as ethics hotlines and ombudsman can help integrate ethics within a firm;

- Discuss the role of assessment, monitoring, and auditing of the culture and ethics program;

- Explain how culture can be enforced via governmental regulation.

DISCUSSION CASE: Fraud at Wells Fargo

Wells Fargo is one of the world’s largest banking and financial services companies, operating in more than thirty countries with more than one-quarter of a million employees and 70 million customers. With roots in the mid-nineteenth century, it is also one of the oldest continuing operating financial institutions in the United States.

Wells Fargo has long been known for its business strategy of cross-selling, the practice of marketing additional products to existing customers. Traditionally, banks and financial services companies saw themselves as professionals who provided advisory services to clients in much the same way that an attorney or an accountant provides professional services to their clients. On this model, success would be measured in terms of achieving the clients’ interests in managing risks, return on investment, and so forth. This fiduciary model aims to align the interests of the firm with the interests of the client so that when the client succeeds, the firm succeeds.

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But many banks and financial institutions have moved away from this fiduciary model in recent decades to adopt a more transactional, consumerist model in which clients are viewed simply as customers to whom the company sells products. Here, the firm’s success is measured in terms of how many products are sold and how much profit is earned from those sales. Of course, one trade-off of this shift is that client and business interests may not always align in that the business can profit whether or not the customer does. Wells Fargo was among the first banks to move aggressively in this direction.

Exactly how aggressive Wells Fargo had been in cross-selling became clear in September 2016 when the U.S. Consumer Financial Protection Bureau announced that Wells Fargo employees had fraudulently opened millions of unauthorized credit card and deposit accounts in the name of present customers. Wells Fargo admitted to the wrongdoing and agreed to fines of $185 million to state and federal authorities. In paying these fines, Wells Fargo admitted to selling products to customers who neither knew about nor consented to these actions. The resulting scandal plagues Wells Fargo to this day.

At the time of the announcement, Wells Fargo admitted that between 2011 and 2016 employees had opened more than 1.5 million fraudulent accounts and more than 500,000 unauthorized credit card applications in the names of present customers. Further investigations that reviewed activities prior to 2011 discovered that more than half a million additional fraudulent online bill-paying accounts had also been opened and hundreds of thousands of fraudulent insurance policies were sold to unsuspecting customers. As of spring 2018, Wells Fargo had admitted to selling more than 3.5 million unauthorized financial products to customers.

The process involved in committing this fraud was reasonably easy. Employees, mostly in the type of entry-level positions that recent college graduates might fill, had ready access to the information needed for the new accounts: names, addresses, social security numbers, and so forth. Applying for and confirming the sale of a new product for an existing customer could be done with a few clicks of a mouse. Investigations revealed that thousands of employees had taken part in the scheme. Over 5,000 employees lost their jobs when the fraud was discovered.

Of course, such widespread fraud could not have gone unnoticed by the managers who had oversight of these employees. It soon became clear that mid-level management had actively participated in these activities, including providing instructions on how to do it and how to avoid detection by customers. Employees were advised on how to forge signatures and create fake PIN numbers. Managers instructed employees to use some of their own personal information or fake e-mail addresses on the accounts so that the defrauded customers would not receive follow-up information or the new credit and debit cards. It also appears that employees who were reluctant to participate, or who attempted to blow the whistle, got punished by not only losing their jobs but also receiving negative evaluations that effectively prevented them from finding future employment in the banking industry. Less directly, but perhaps much more effectively, management participated in the practice by creating and enforcing demanding sales quotas. Employees who missed targets for cross-selling were required to work nights and weekends and were denied promotions and salary increases.

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Initially, senior Wells Fargo executives, including CEO and Board Chair John Stumpf, seemed to claim that the fault rested with “dishonest” individuals who had been fired as a result. In testimony to the U.S. Senate Banking Committee, Stumpf claimed that: “I do want to make it clear that there was no orchestrated effort, or scheme as some have called it, by the company. We never directed or wanted our employees, whom we refer to as team members, to provide products and services to customers they did not want or need.” Stumpf explained the widespread nature of the fraud as likely resulting from employees talking to each other.

But closer analysis showed a pattern of decisions, behavior, and tone at the highest executive levels that contributed to a culture in which such widespread fraud flourished. Stumpf himself was known for his mantra, “eight is great,” suggesting a target of eight products for each customer in an industry where the average was less than half of that. During every quarterly earnings call when the fraud was prevalent, Stumpf had touted to investors the ever-increasing levels of record cross-selling. Partially as a result, the value of Stumpf’s own stock ownership increased by more than $200 million during the five years that the fraud was prevalent.

There was also evidence that senior executives knew of the fraudulent sales well before the practice became public. A 2013 Los Angeles Times article, which eventually led to the government investigations that uncovered the fraud, contained allegations of this practice. Wells Fargo’s own training manual contained a reminder not to sell products without the explicit consent of customers—a reminder that was highlighted and emphasized in a way to suggest that the practice was known to occur. Wells Fargo executives also had internal reports showing that the steady increase in cross-selling was correlated with a steady increase in accounts that were never used by customers.

Further, the entire culture of Wells Fargo seemed designed to encourage cheating and discourage honest sales practices. For example, the incentive system, ranging from sales targets for hourly workers to executive bonuses, made it clear to everyone that aggressive cross-selling was the expectation for all. The executive who had direct oversight of the sales division received over $125 million when she retired just before the scandal was revealed. (Wells Fargo eventually recovered half that amount in a clawback process.) Employees stated that reports to an internal ethics hotline were ignored. In response to claims that they failed to exercise their oversight function as required by U.S. federal law, board members later claimed they were left in the dark, learning about the scandal from the media. Like many corporations, the Wells Fargo CEO also served as the chair of the board.

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Various government agencies were involved in this case. City of Los Angeles and California state investigators played a major role in uncovering the fraud. The federal Consumer Financial Protection Bureau also worked on the investigations and instituted the large fine against Wells Fargo. The U.S. Senate Banking Committee held several hearings in which members very publicly criticized Wells Fargo executives and its board. In February 2018, the U.S. Federal Reserve Bank, the primary regulator of U.S. banks, imposed strong penalties on the bank and its board. In an unprecedented punishment, the Fed restricted Wells Fargo’s future growth and required the replacement of several board members for failing their oversight duty. But other government actions, including laws that prohibited fraud, protecting whistle-blowers, and laws that required ethical compliance and oversight by the board, proved ineffective in preventing widespread fraud that went on for many years.

Discussion Questions

1. As described in chapter 1, a helpful first step in any ethical analysis is to look for harms and benefits. What harms were done by this fraud? Can you explain exactly what the ethical wrong was? Who, other than consumers, were harmed? Who benefited? Did the parties who benefited deserve the benefit? Were any benefits unfair or unethical?

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2. Who were the stakeholders in this case?

3. Where would you place primary responsibility for this scandal: individual employees who forged customers’ accounts, managers who oversaw those employees, senior executives, board members, or the corporation itself?

4. Sometimes when we assign responsibility, we are looking for someone to blame, someone who is at fault. Who do you blame in this case?

Sometimes the question of responsibility is asked so that we can identify the cause and, in turn, prevent it from happening again. What recommendations would you make to prevent this from happening again?

5. How do you understand the difference between a fiduciary model and a transactional, consumerist model of business–customer relationship? What reasons exist for the fiduciary model? Is there an ethical difference between the two?

6. Is it fair to expect employees, whether they are professionals such as branch managers and accountants, or entry-level salespeople, to confront management over directives that they believe are unethical?

4.1 Introduction

The Wells Fargo case that opens this chapter brings us back to an important element of business ethics that was introduced in chapter 1. Ethical decisions affecting business can occur at multiple levels: individual-level decisions, ranging from the entry-level sales staff and branch managers to the CEO; organizational-level decisions, manifested in such things as performance standards and board policies; and at the social and political level, represented by actions of public journalism, government regulation, and state and federal policy making. Understanding and evaluating Wells Fargo requires us to think about ethics at all three levels.

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Many of the issues surrounding corporate social responsibility (CSR) examined in chapter 3 concern business as a social institution and, in that sense, they examine business from an external perspective. As citizens we ask and debate whether business has any social responsibility beyond the economic responsibilities of providing goods and services, jobs, and profits. But the Wells Fargo case calls out for an analysis of ethical decisions from an internal perspective. What was going on at Wells Fargo that such a wide-ranging practice of fraud could occur for so long a time?

This chapter examines the ethical responsibilities of business from an internal perspective. How should businesses be organized, governed, and managed in order to bring about ethical behavior and ethical decision making within the firm? What is the appropriate role for various organizational actors—boards, executives, managers—in fostering and promoting ethical behavior? Does the responsibility rest with individuals, or with institutional structures? When things go wrong, who should be accountable and by whom?

The economic model of corporate social responsibility described in chapter 3 treats ethics as an external constraint placed on business from outside, as if business requires an external reason for acting in ways that are socially responsible. But many businesses take social responsibility as an inherent element of their business model. This shouldn’t be surprising; after all, the individuals who work in business are no less ethical than anyone else. Assuming then that a business seeks to operate in socially responsible and ethical ways, this chapter explores strategies for creating and maintaining ethically responsible businesses.

In particular, this chapter will consider ways in which corporations might develop ethical cultures, cultures in which individuals are encouraged and supported in making ethically responsible decisions. In ordinary thinking about ethics, it is easy to emphasize the responsibility of individuals for the decisions they make in business. These decisions impact one’s own personal integrity and also have consequences for many stakeholders with whom business organizations interact.

But as described in chapter 1, personal decision making and ethical behavior do not exist in a vacuum. Decision making within a firm will be influenced, encouraged, discouraged, limited, shaped, and in some cases virtually determined by the corporate culture of the firm. Individuals can be hindered or helped in making the right (or the wrong) decision by the expectations, values, and structure of the organization in which they live and work. We can see how this occurred at Wells Fargo in the discussion case. We also saw whistle-blowers at Facebook describe the challenges they faced within that corporate culture. This chapter surveys some of the major issues surrounding the development, influence, and management of a corporate culture and the role of business leaders in creating and preserving ethical cultures.

4.2 What is Corporate Culture?

So, what do we mean by “corporate culture”? Every organization has a culture, fashioned by a shared pattern of beliefs, expectations, and meanings that influence and guide the thinking and behaviors of the members of that organization. This culture is what “organizes” an organization. Organizational culture shapes and unifies the people who are members of the organization. Consider how some organization you are a part of—a school, dormitory, fraternity, sorority—differs from a similar one. Is there a “type” of person stereotypical of your organization, dormitory, fraternity, or sorority? Are there unspoken but still influential standards and expectations that shape students at your school? How would you be different if you had chosen a different school, or had joined a different fraternity or sorority, or had participated in a different organization?

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Reality Check: What is Your Own Culture?

If culture involves a shared pattern of beliefs, expectations, and meanings, then we would expect to find it at any social level at which people share these characteristics, including:

- Religious, ethnic, and linguistic affiliation.

- Generation.

- Gender.

- Social class.

- Geographical or national origin

- Organization/corporate.

- Family.

Reflect on your own beliefs, attitudes, and values. How have they been shaped by your own culture? How are your beliefs and expectations alike, and different from friends who do not share your religion, ethnic background, gender? Have a conversation with a student in your class from a different state or country than your own. Do you have different expectations and norms regarding such things as work and gender roles? How do your expectations regarding such things as work and gender roles differ from your parents? In what ways do you differ from the normal expectations of your hometown or family? What pressures have existed for you to “fit in” and conform to the “ways things are done around here”?

Businesses also have unspoken yet influential standards and expectations. IBM was once famous for having a culture in which highly starched white shirts and ties (for it was a predominantly male culture) were part of the required dress code. Compare that with a company such as Apple that has reputation for a culture of informality. Some companies have a straight 9-to-5 work schedule; others expect employees to work long hours and weekends. A person with a 9-to-5 attitude who enters the second type of firm, intending to leave as the clock strikes 5, will have a difficult time fitting in and succeeding. The same holds true for a firm’s values. If you join a firm with a culture that supports other values than those with which you are comfortable, there will be value conflicts—for better or worse.

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No culture, in business or elsewhere, is static. Cultures change; but modifying culture or having any impact on it at all is a bit like moving an iceberg. The iceberg is always moving and, if you ignore it, it will continue to float with whatever currents hold sway at the moment. One person cannot alter its course alone, but strong leaders can have a significant impact on a culture, and a strong business leader can certainly have a significant impact on a corporate culture.

A firm’s culture can be its sustaining value—that which offers it direction and stability during challenging times. Some of the very best corporations, ethically and financially, are famous for having strong corporate cultures that promote such virtues as creativity, independence, integrity, honesty, and loyalty. A corporate culture can, however, also serve to constrain an organization to the common ways of managing issues—“that’s how things have always been done here” or “that’s our prevailing climate.” The stability that can be a benefit at one time can be a barrier to success in another.

Does a corporate culture matter? As described in their best-selling book Built to Last: Successful Habits of Visionary Companies, authors James Collins and Jerry Porras researched dozens of successful companies looking for common practices that might explain their success. These companies not only outperformed their competitors in financial terms, but also have outperformed their competition over the long term. On average, the companies they studied were founded in 1897. Among their key findings was the fact that the truly exceptional and enduring companies all placed great emphasis on a set of core values. These core values are described as the “essential and enduring tenets” that help define the company and are “not to be compromised for financial gain or short-term expediency.”[1]

Collins and Porras cited numerous examples of core values being articulated and promoted by the founders and CEOs of such successful companies as IBM, Johnson & Johnson, Hewlett Packard, Procter & Gamble, Walmart, Merck, Motorola, Sony, Walt Disney, and General Electric. Some companies made a commitment to customers as their core value; others focused on employees, their products, innovation, or even risk-taking. The common theme was that core values and a clear corporate purpose, what together are described as the organization’s core ideology, were essential elements of enduring and financially successful companies.

When we talk about a corporation’s “culture” we are saying that a corporation has a set of identifiable values. These values get manifested in the decisions of individuals and in corporate policies and practices. Of course, as the opening discussion case about Wells Fargo suggests, corporate values themselves might be open to ethical criticism.

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4.3 Culture And Ethics

How, exactly, does the notion of culture connect with ethics? More specifically, what role does corporate culture play in business ethics? We can answer these questions by reflecting on several topics introduced previously.

Chapter 1 considered the relationship between law and ethics and concluded that compliance with the law is insufficient to guarantee ethical conduct. As an example in chapter 1, we referred to the Americans with Disabilities Act (ADA), which requires businesses to make reasonable accommodations for employees with disabilities. But, like any other law, the ADA can be ambiguous in application, for example, in determining if a business should make a reasonable accommodation for an employee with allergies, depression, dyslexia, arthritis, hearing loss, or high blood pressure. In situations where the law is an incomplete guide for ethical decision making, the business culture is likely to be the determining factor in what gets decided. One corporate culture might encourage generosity toward employees, another might take a narrow, more miserly approach.

As another example, consider the case regarding Section 230 as described at the start of chapter 3. Consider two social media companies that allow users to post advertisements for goods and services. The law gives each company wide latitude in deciding what to post. One decides to allow posts promoting pornography, prostitution, and vaccine disinformation. The other does not. Both can be profitable and both are legally allowed. The corporate culture is likely the factor that determines which decision gets made, what type of business each is going to pursue.

Consider also how corporate culture played out during the COVID-19 pandemic when a large percentage of employees were required to work from home. Companies with a pre-existing culture that encouraged independence and flexibility were able to make this transition more easily than companies that had a rigid structure of authority and supervision. Employees and firms who already were accustomed to independent and flexible work did not experience the disruption faced by other firms.

An ethical culture therefore would be one in which employees are empowered and expected to act in ethically responsible ways even when the law does not require it. A corporate culture sets the expectations and norms that will determine which decisions get made. Later in this chapter, we will examine types of cultures and various ways in which a corporation can create a culture that encourages ethical action.

The notion of expectations and habits suggests another previous topic that is relevant for our discussion of corporate culture. Chapter 2 introduced the ethics of virtue and described virtues as character traits and habits. The cultivation of one’s habits, including the cultivation of ethical virtue, is greatly shaped by the culture in which one lives.

When we talk about ethical decision making and behavior, it is easy to think in terms of a deliberative process in which a person consciously deliberates about and weighs each alternative before acting. But the virtue ethics tradition reminds us that our decisions and our actions are often less deliberate than that. We are as likely to act out of habit and based on character as we are to act after careful deliberation. So the question of where we get our habits and character is all-important.

Part of the answer surely is that we can choose to develop some habits rather than others. For example, think of how one might cultivate the habit of daily exercise or evening study habits. But it is also clear that our habits are shaped and formed by education and training—by culture. This education takes place in every social environment, ranging from families and religions to entire societies and cultures. It also takes place in the workplace, where individuals quickly learn appropriate and expected behaviors.

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Once again, consider the case of Wells Fargo. New employees soon learned what was expected and what the norms for behavior were from their co-workers, their immediate supervisors, from the pay and reward policies, and from stories about the CEO’s “eight is great” mantra. Intentionally or not, business institutions provide an environment in which habits are formed and virtues, or vices, are created. To talk of such an environment is to talk of an ethical corporate culture.

Besides these more abstract considerations, an ethical culture can also have a direct and practical impact on the bottom line. If attended to and supported, a strong ethical culture can serve as a deterrent to stakeholder damage and improve bottom-line sustainability. If ignored, the culture could instead reinforce a perception that “anything goes,” and “any way to a better bottom line is acceptable,” which in the long term destroys sustainability. Responsibility for creating and sustaining such ethical corporate cultures rests in business leaders.

As we examine cases such as Facebook, Apple, and Wells Fargo, one cannot help but be struck by the power of a corporate culture to shape the individuals who work within it. While it may be true that individuals can shape an organization, and perhaps charismatic leaders can do this especially well, it is equally, if not more, true that organizations shape individuals. Imagine spending a twenty-, thirty-, or even forty-year career in the same organization. Imagine, for example, how branch managers at other banks might have responded to cases in which entry-level employees fraudulently created customer accounts. Imagine such a person moving from Wells Fargo to a small community bank.

The person that you become—your attitudes, values, expectations, mindset, and habits—will all be significantly determined by the culture of the organization in which you work. This will occur whether or not anyone consciously thinks about it or not. Ethical businesses find ways to encourage, to shape, and to allow ethically responsible decisions. We can understand a corporate culture as the sum total of all the corporate practices that encourage, shape, or allow some types of decisions and discourage others.

4.4 Ethical Leadership And Corporate Culture

No doubt there is a continuous interplay between individual decision making and the organizational culture. The culture can greatly influence how individuals think and act, but individuals also can shape the culture. This is especially true of senior leadership. If the goal of corporate culture is to cultivate values, expectations, beliefs, and patterns of behavior that best and most effectively support ethical decision making, it becomes the major responsibility of corporate leadership to steward this effort. Leaders are charged with this duty in part because stakeholders throughout the organization are guided to a large extent by the “tone at the top.”

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Corporate culture itself can also influence the type of leadership that fits in to the organization. In 2003, for example, Merck CEO Raymond Gilmartin explained Merck’s approach to ethical leadership: “In thought, word, and deed, a company’s leaders must clearly and unambiguously both advocate and model ethical behavior.”[2] This standard for CEO behavior at Merck again was manifested in 2017 when then Merck CEO Kenneth Frazier resigned from President Trump’s manufacturing council in protest of the president’s controversial remarks following demonstrations by white nationalists and racists in Charlottesville, Virginia. Frazier issued a statement in which he claimed: “In that moment, the president’s response was one that I felt was not in concordance with my views, and I didn’t think they were in concordance with the views that we claim to hold as a country. I wanted to say that this was a statement I was making in terms of my own values, and the company’s values, and there was unanimous support for that. My board supported that 100 percent.”

On the other hand, if a leader is perceived to be shirking her or his duties, misusing corporate assets, misrepresenting the firm’s capabilities, or engaging in other inappropriate behaviors, stakeholders receive the message that this type of behavior is not only acceptable, but perhaps expected and certainly the way to get ahead in that organization. Instead, if a leader is clearly placing her or his own ethical behavior above any other considerations, stakeholders are guided to follow that role model and to emulate that priority scheme.

One can only assume that the behavior exhibited by Wells Fargo CEO Stumpf immediately following the public disclosure of the corporate scandals was indicative of their more general attitudes toward employees. Remember Stumpf blaming “dishonest” employees talking among themselves for the widespread fraud. Employees are no fools and recognize such hypocrisy from CEOs who are otherwise known for aggressively promoting cross-selling and for enforcing a rigid, hierarchical management style.

Beyond personal behavior, leadership sets the tone through other mechanisms, such as the dedication of resources or the creation of policies and a reward system. Ethical business leaders not only talk about ethics and act ethically on a personal level, but also allocate corporate resources to support and promote ethical behavior. There is a long-standing credo of management: “Budgeting is all about values.” More common versions are “Put your money where your mouth is,” and “Walk the talk.”

Consider two cases of corporate leadership described in chapter 1. When initially confronted with evidence of Russian interference in the 2016 election, Facebook CEO denied any responsibility, calling it a “pretty crazy idea.” During that same testimony, Zuckerberg told Congress that privacy “is the most important principle for Facebook: Every piece of content that you share on Facebook, you own and you have complete control over who sees it, and how you share it, and you can remove it at any time.” Later evidence demonstrated that Facebook sold access to user data to over 150 companies.

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Of course, insiders knew all along that Zuckerberg’s answers were at best misleading. Zuckerberg’s testimony was later undermined in a series of stories published by The Wall Street Journal in 2021 that were based on documents revealed by insiders. According to the Journal, “Time and again, the documents show, Facebook’s researchers have identified the platform’s ill effects. Time and again, despite congressional hearings, its own pledges and numerous media exposés, the company didn’t fix them. The documents offer perhaps the clearest picture thus far of how broadly Facebook’s problems are known inside the company, up to the chief executive himself.”

Now consider the statements made by Apple CEO Tim Cook around the same time that Zuckerberg was testifying before Congress. Cook explained the new feature of its iOS operating system as giving users “a choice on how apps use and share your data—data like your age, location, health information, spending habits, and your browsing history, to name a few—they collect thousands of pieces of information about you to create a digital profile that they sell to others. This has been happening without your knowledge or permission. Your information is for sale. You have become the product. That’s why iPhone users will now be asked a single, simple question—allow apps to track you or not? We believe that you should have a choice. App Tracking Transparency—a simple new feature that puts your data back in your control."

At the time that Mark Zuckerberg was facing serious questions from the U.S. Congress regarding Facebook’s role in fostering misinformation Cook was asked what he would do if he were in Zuckerberg’s position. Cook replied, “I wouldn’t be in that situation.” He went on to explain that unlike Facebook, Apple was “not going to traffic in your personal life. I think it’s an invasion of privacy. Privacy, to us, is a human right. It’s a civil liberty.”

For now, step away from any judgments about the ethics of either Zuckerberg or Cook and think about how their statements and actions would influence the culture of their firms. We already know that some Facebook employees left the firm, and some even became whistle-blowers to call attention to the transgressions they witnessed. But more generally, the actions of a CEO, especially if they are such publicly identifiable and influential as Zuckerberg and Cook, will have a profound effect on employees throughout the firm.

Zuckerberg and Cook may be exceptional examples. Not every CEO will get as much public attention and scrutiny as these two. Yet every CEO will be a major factor in the creation and promotion of a corporate culture simply by how they behave and what they say. But, as previously mentioned, all of these traits and behaviors must be visible. If an executive is “quietly ethical” within the confines of the top management team, but employees down the line are unaware of it, she or he is not likely to be perceived as an ethical leader. Traits and behaviors must be socially visible and understood in order to be noticed and influence perceptions. People—employees, customers, investors, and management—notice when an executive walks the talk and acts on concerns for the common good, for society as a whole, and for the long term. Because executives are expected to be focused on the financial bottom line and the short-term demands of stock analysts, when they focus on these broader and longer-term concerns, people notice. Finally, making courageous decisions in tough situations represents another way ethical leaders get noticed. Ethical leaders are “courageous enough to say ‘no’ to conduct that would be inconsistent with [their] values.”[3]

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4.5 Effective Leadership And Ethical Leadership

Being perceived as a leader plays an important role in a leader’s ability to create and transform an ethical corporate culture. Key executives have the capability of transforming a business culture for better or worse. If the corporate culture has a significant impact on ethical decision making within the firm, then leaders have the responsibility for shaping that environment so that ethical decision making might flourish. All stakeholders rely on the decisions made by organizational leadership and it is the duty of those leaders to earn this trust.

But what does it mean to be a “leader” and, more important, what do we mean by an “ethical” leader? It is important to make a distinction between good leaders and ethical leaders. A good leader is simply anyone who does well what leaders do. Since leaders guide, direct, and escort others toward a destination, a good leader is someone who does this successfully and, presumably, efficiently. Good leaders are effective at getting followers to their common destination. But not every good leader is an ethical leader, and not every effective leader is worthy of trust.

In the corporate context, Apple’s Steve Jobs was a very good and effective leader. He was able to transform Apple into a leading technology and media giant. Jobs was named as Fortune magazine’s “CEO of the Decade.” By all accounts, he was an imaginative and creative leader who instilled great loyalty among employees. Financier Bernard Madoff, convicted of defrauding clients of hundreds of millions of dollars, was also an inspirational and creative leader, but he was unethical. So, what is the difference between an effective leader and an ethical one?

One key difference lies with the means used to motivate others and achieve one’s goals. Steve Jobs is said to have been a very difficult boss. Effective leaders might be able to achieve their goals through threats, intimidation, harassment, and coercion. One can also lead using more attractive means such as modeling ethical behavior, persuasion, or simply by dint of one’s institutional role.

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Reality Check: Mark Zuckerberg: Effective Leader? Ethical Leader?

Mark Zuckerberg began working to create Facebook while an undergraduate at Harvard in the early 2000s. Originally designed as a social media platform for Harvard students, the idea quickly expanded to include other colleges and, eventually in 2006, to the general public. Within a year, Facebook allowed other software developers access to the Facebook platform and within a short time tens of thousands of apps were being used on the platform. By 2010 Facebook claimed to have over 500 million users, and in October 2012 they announced that it had 1 billion active users.

Facebook made its first public stock offering in 2012 with an initial stock price of $38 and total valuation of $104 billion. As described in the Opening Discussion Case for chapter 1, Facebook has become one of the world’s largest businesses in under twenty years. At the start of 2022, Facebook’s stock price was in the range of $335, almost ten times its opening value twenty years earlier. In 2021, Facebook claimed over 2.9 billion monthly users, a market capitalization of $850 billion, had $86 billion in revenue, was the sixth largest publicly traded companies, and was ranked thirty-fourth on the Fortune 500 list. Zuckerberg himself has had equal success. He has been named among Time magazine’s Most Influential people of the world every year since 2008, and their Person of the Year in 2010. In 2021, his personal worth was estimated to be $115 billion, making him the eighth wealthiest person in the world according to Bloomberg News.

1. From what you know, how would you describe the leadership of Mark Zuckerberg? Is he a good leader? Is he an effective leader? Is he an ethical leader? What further information would you like to have in order to be more convinced in your opinion?

2. How would you distinguish between effective and ethical leadership? Can you think of any ethical leaders who were ineffective? Any effective leaders who were unethical?

Some of the discussions in the literature on leadership often suggest that ethical leadership is determined solely by the methods used in leading. Promoters of certain styles of leadership want to suggest that their style is superior to others. Consequently, they tend to identify a method of leading with “true” leadership in an ethical sense. On this line, for example, Robert Greenleaf’s book Servant Leadership suggests that the best leaders are nonhierarchical individuals who lead by the example of serving others. Other discussions similarly suggest that “transformative” or “transactional” leaders employ methods that empower subordinates to take the initiative and solve problems for themselves, and that this constitutes the best ethical leadership style.

Certainly, ethically appropriate methods of leadership are central to becoming an ethical leader. Creating a corporate culture in which employees are empowered and expected to make ethically responsible decisions is a necessary part of being an ethical business leader. But while some means may be ethically better than others (e.g., persuasion rather than coercion), it is not the method alone that establishes a leader as ethical. While perhaps necessary, ethical means of leading others are not sufficient for establishing ethical leadership. The other element of ethical leadership involves the end or goal toward which the leader leads.

One cannot be a leader, and there cannot be followers, unless there is a direction or goal toward which one is heading. In the business context, productivity, efficiency, and profitability are minimal goals. A business executive who leads a firm into bankruptcy is unlikely to qualify as an effective or good leader. An executive who transforms a business into a productive, efficient, and profitable business will be judged as an effective business leader. One who does this in a way that respects subordinates, or empowers them to become creative and successful, is (at least at first glance) both an effective and ethical leader. But, is profitability and efficiency done through ethical means alone enough to make a business leader an ethical leader?

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Imagine a business leader who empowers the subordinates, respects their autonomy by consulting and listening, but who leads a business that pollutes the environment, or sells weapons to radical organizations. Would the method of leadership alone determine the ethical standing of such a leader? Beyond the goal of profitability, other socially responsible goals might be necessary before we conclude that the leader is fully ethical.

In many ways, the remaining chapters of this book examine other goals that might be a part of the vision for an ethical business leader. Goals that address such topics as employee rights, consumer safety, ethical marketing, diversity, and environmental responsibilities are likely elements of the mission and goals of a fully ethical, and not merely effective, corporate leader.

4.6 Building a Values-Based Corporate Culture

Similar to the iceberg metaphor previously used to describe organizational culture, each individual in an organization has an impact on the corporate culture; however, it is seldom the case that any one individual can build or change the culture alone. Culture derives from leadership, but also from integration and assessment/monitoring. We will conclude this chapter by describing a variety of managerial strategies and methods can be used to create and maintain an ethical culture.

Mission Statements, Codes of Conduct, and Statements of Values

One of the key manifestations of ethical leadership is the articulation of values for the organization. While senior leadership can articulate some particular values, many firms realize that broad organization-wide participation in creating these values is a more effective strategy. However, it is that leader’s responsibility to ensure that the firm is guided by some set of organizing principles that can guide employees in their decision-making processes.

In broad terms, an organization articulates its values in a mission statement or other statements of purpose. These are often aspirational, but nevertheless they can establish norms and expectations. For example, Ben and Jerry’s corporate mission included the goal to “make the world a better place.” Google says its mission “is to organize the world’s information and make it universally accessible and useful,” but it long-promoted another simpler motto: “Don’t be evil.” HP pledges as their mission to “earn customer respect and loyalty by consistently providing the highest quality and value.” When David Packard passed away, Bill Hewlett, his business partner in creating HP, commented, “As far as the company is concerned, the greatest thing he left behind him was a code of ethics known as ‘the HP Way.’”[4]

Missions and value statements can be inspiring—should be inspiring according to Jim Collins, author of Built to Last and Good to Great. “Contrary to business school doctrine, we did not find ‘maximizing shareholder wealth’ or ‘profit maximization’ as the dominant driving force or primary objective through the history of most of the visionary companies. They have tended to produce a cluster of objectives, of which money is only one—and not necessarily the primary one.”[5] By establishing (especially through a participatory process) the core tenets on which a company is built, corporate leadership is effectively laying down the law with regard to the basis and objectives for all future decisions.

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A wave of corporate scandals in the early 2000s brought a proliferation of corporate codes of conduct as part of the corporate response to Congressional and regulatory action. Typically, codes of ethics begin with a statement of general values, often tied to the organizational mission statement, and then provide guidelines for behavior. How successful these codes are depends in large part on the process by which they are conceived and written, as well as their implementation. As with the construction of a personal code or mission, it is critical to first ask yourself what you stand for or what the company stands for. Why does the firm exist, what are its purposes, and how will it implement these objectives? Once you make these determinations, how will you share them and encourage a commitment to them among your colleagues and subordinates?

How effective are codes of conduct in creating an ethical culture? Before it collapsed in a widespread scandal of unethical actions, Enron was famous for touting its Code of Ethics. Referring to Enron’s Code, the Ethics Resource Center President Stuart Gilman reminds us that you can’t simply “print, post and pray.” Follow-through and implementation are crucial. Finally, to have an effective code that will successfully impact culture, there must be a belief throughout the organization that this culture is actually possible, achievable. If conflicts remain that will prevent certain components from being realized, or if key leadership is not on board, no one will have faith in the changes articulated.

Ethics Hotlines, Ombudsmen, and Integrating Ethical Culture

Recalling Gilman’s warning not to “print, post and pray,” business firms must have mechanisms in place that allow employees to come forward with questions, concerns, and information about unethical behavior. Integrating an ethical culture throughout a firm and providing a means for enforcement is vitally critical both to the success of any cultural shift and to the impact on all stakeholders. If ethical behavior is not enforced, codes and rules will prove to be meaningless. Following the disclosure of sales fraud at Wells Fargo, for example, some employees complained that earlier reports to ethics hotline and ombudsman about the sales practices had gone unanswered.

Integration can take a number of different forms, depending on the organizational culture and the ultimate goals of the process. One of the most determinative elements of integration is communication, since without it, there is no clarity of purpose, priorities, or process. Communication of culture must be incorporated into the firm’s vocabulary, habits, and attitudes to become an essential element in the corporate life, decision making, and determination of success.

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To explore the effectiveness of a corporation’s integration process, consider whether incentives are in the right place to encourage ethical decision making and whether ethical behavior is evaluated during a worker’s performance review. It is difficult to reward people for doing the right thing, such as correctly filing an expense report, but incentives such as appropriate honors and positive appraisals are possible. But how does communication about ethical issues occur? The fact of the matter is that reporting ethically suspect behavior is a difficult thing to do. More ominously, individuals often pay a real cost when they report unethical behavior, especially if the people involved are workplace superiors.

Again, Wells Fargo and Facebook provide example of disincentives for ethical behavior. Wells Fargo rewarded employees who achieved unreasonably high sales targets even if unethical sales practices were used. Wells Fargo disciplined or fired employees who complained or filed reports against the practice. Whistle-blowers at Facebook described the serious barriers they faced when trying to call attention to problems from within the firm.

“Whistle-blowing” is a common topic in business ethics and will be examined in more depth in chapter 7. Whistle-blowing involves the disclosure of unethical or illegal activities to someone who is in the position to take action to prevent or punish the wrongdoing. Whistle-blowing can expose and end unethical activities, but it can also seem disloyal, it can harm the business, and it can extract significant costs on the whistle-blower. Whistle-blowing can occur internally, as when a Wells Fargo employee complained to their ethics hotline about sales practices, or it can occur externally as when Frances Haugen disclosed internal Facebook documents to the Wall Street Journal and later gave an interview to CBS’ 60 Minutes.

Because whistle-blowing to external groups such as the press and the legal authorities can be so harmful to both the whistle-blower and the firm itself, internal mechanisms for reporting wrongdoing are preferable. But the internal mechanisms must be effective, they must allow anonymity, and they also must protect the rights of the accused party. In addition to, or as part of the responsibilities of ethics officers and compliance officers, many firms have created ethics ombudsmen and ethics hotlines. These mechanisms allow employees to report wrongdoing and create procedures for follow-up and enforcement.

Assessing and Monitoring the Corporate Culture: Audits

Unfortunately, if one cannot measure something, it often declines in importance. Such is the result with regard to culture. If we cannot measure, assess, and monitor culture, it is difficult to encourage others throughout the organization to pay attention to it. Yet, monitoring and an ongoing ethics audit allow organizations to uncover silent vulnerabilities that could pose challenges to the firm later, thus serving as a vital element in risk assessment and prevention. By engaging in ongoing assessment, organizations are better able to spot these areas before other stakeholders (both internal and external) spot them. But how do you detect a potentially damaging or ethically challenged corporate culture—sometimes referred to as a “toxic” culture? The first clear sign would be a lack of any generally accepted base values for the organization, as previously discussed. In addition, there are warning signs in the various component areas of the organization. How does the firm treat its customers, suppliers, clients, and workers? The management of its internal and external relationships is critical evidence of its values. How does the firm manage its finances? Of course, a firm can be in a state of financial disaster without engaging in even one unethical act (and vice versa), but the manner in which it manages and communicates its financial environment is telling.

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Reflections on the Chapter Discussion Case

Fraud at Wells Fargo involved employees from entry level to senior management and even board members. It is difficult to imagine how such unethical behavior as could be so widespread without a corporate culture that, at best, looked the other way to allow, or at worst, actively encourage, cheating and fraud.

As many other companies pursue internal means for addressing these problems and preventing them from reoccurring, it is worth reflecting on what has worked in this case. After all, the fraud was discovered and stopped, and individuals and organizations were held accountable. Learning from what worked can be used to prevent future cases.

In some cases, courageous individual whistle-blowers stepped forward to report unethical behavior. Internal whistle-blowers at both Facebook and Wells Fargo played a role in uncovering unethical behavior, so internal mechanisms to support and encourage internal reporting can be effective. (We will consider the ethics of whistle-blowing later in chapter 7.) More commonly, however, it was government agencies, often working in conjunction with private groups such as journalists and consumer advocates, who first identified and then prosecuted these misbehaviors. We should keep these examples in mind and reflect back on the discussions about government regulation and stakeholder responsibility that were presented in chapter 3. Without stakeholder involvement and government regulation, would market pressure alone have succeeded in weeding out these wrongdoings in an effective and timely manner?

Chapter Review Questions

1. To help understand an organizational culture, think about some organization to which you belong. Does your company or school or fraternity/sorority have its own culture? How would you describe it? How does it influence individual decision making and action? Would you be a different person had you attended a different school or joined a different fraternity or sorority? How would you go about changing your organization’s culture?

2. Consider how you evaluate whether a firm is “one of the good guys” or not. What are some of the factors that you use to make this determination? Identify one firm that you believe to be decent or ethical and make a note of the bases for that conclusion. Next identify a second firm that you do not believe to be ethical or with questionable values and write down the bases for that conclusion. Now, using the Internet and other relevant sources, explore the firms’ cultures and decisions, checking the results of your research against your original impressions of the firms.

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Changing a corporate culture is very difficult. Imagine that you are asked after their recent scandals to help move a firm like Wells Fargo toward a more ethical culture. How would you begin to set the stage for this transition? What reasons would you use to support the change? How would you change attitudes and values?

4. One element that surely impacts a firm’s culture is its employee population. While a corporate culture can shape an employee’s attitudes and habits, this will be more easily done if people with those attitudes and habits already developed are hired in the first place. How would you develop a recruitment-and-selection process that would most successfully allow you to hire the best workers for your particular culture? How would you, and should you, get rid of employees who do not share the corporate culture?

5. Put yourself in the position of someone who is establishing an organization from the ground up. What type of leader would you want to be? How would you create that image or perception? Do you create a mission statement for the firm, a code of conduct? What process would you use to do so? Would you create an ethics and/or compliance program and how would you then integrate the mission statement and program throughout your organization? What do you anticipate might be your successes and challenges?

Endnotes

- 1James Collins and Jerry Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperCollins, 1994), p. 73.

- 2Raymond Gilmartin, “Ethics and the Corporate Culture,” Raytheon Lectureship in Business Ethics (November 10, 2003).

- 3Ibid.

- 4James Collins and Jerry Porras, “Building Your Company’s Vision,” Harvard Business Review (September–October 1996).

- 5James Collins and Jerry Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperCollins, 1994).

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Chapter 5

The Meaning and Value of Work

Learning Objectives

After reading this chapter, you will be able to:

- Examine the goals and values of your own career and workplace decisions;

- Explain the variety of meanings and values attributed to work;

- Explain business’s responsibility for providing employees with meaningful work;

- Describe a framework for evaluating business’s ethical responsibilities to employees;

- Describe a framework for evaluating the rights and responsibilities of employees.

DISCUSSION CASE: Work–Life Balance After a Pandemic

In a letter to corporate CEOs in early 2022, BlackRock CEO Larry Fink observed that: “No relationship has been changed more by the pandemic than the one between employers and employees.” BlackRock is the world’s largest investment management company with over $10 trillion in assets, and Fink’s statements were part of his annual letter to CEOs of companies in which BlackRock is a major shareholder. The letter offers BlackRock’s vision of the present economic environment and advises CEOs about what BlackRock expects of the firms in which they invest.

Fink acknowledged the changing relationship between employers and employees as one of the most significant trends in the present economy. A large part of that change involves what some observers have identified as the “Big Quit,” or the “Great Resignation.” This was the phenomenon in which record numbers of employees left their jobs, even during one of the most uncertain labor markets in history. Between April and September 2021, an all-time high number of Americans, more than 24 million, left their jobs.[1]

Recognizing a “changing” relationship between employer and employee raises the question of what that relationship should be.

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A traditional model for that relationship, in both economics and ethics, is that of a mutually beneficial contract. Two parties agree to work together for an exchange of value, labor is exchanged for wages. Economically, this makes sense because cooperation leads to increased efficiency in production. Ethically, this would make sense as long as both parties freely agree to the exchange—which respects the ethical principle of autonomy—and both parties do benefit as a result—which attains the utilitarian goal of maximizing benefits.

Fink would seem to agree that this model applies, even during this unusual time when workers are demanding more. “Workers demanding more from their employers is an essential feature of effective capitalism. It drives prosperity and creates a more competitive landscape for talent, pushing companies to create better, more innovative environments for their employees–actions that will help them achieve greater profits for their shareholders. Companies that deliver are reaping the rewards. Our research shows that companies who forged strong bonds with their employees have seen lower levels of turnover and higher returns through the pandemic.”

But what are workers demanding in return for their labor? At first glance, increased wages would appear to be the answer. Real wage growth, when adjusted for inflation, has barely improved in the past forty years, so workers, understandably, are interested in higher pay. But the evidence demonstrates that higher wages is only one part of the explanation.

Fink suggested to CEOs what else workers were demanding. Employees expect “more flexibility and more meaningful work.” Other research adds to this conclusion. In a study published by the MIT Sloan Management Review, five separate areas explain workforce attrition more than low wages: a toxic workplace culture in which workers felt disrespected; job instability and organizational restructuring; high rates of innovation and organizational change; failure to recognize performance and contributions; and poor response to the COVID-19 pandemic. Other studies identified increase stress and anxiety caused by such things as working from home, lack of childcare, and tensions arising from fear about COVID-19.

Even before the pandemic, there had been growing calls for businesses to take greater responsibility for helping employees achieve a better work–life balance. The call for a greater work–life balance first came to wide attention in the later decades of the twentieth century, at a time when women were increasingly entering the job market. During that period, there were still strong cultural demands made on women to assume traditional female roles in the home while also fulfilling workplace demands on their time, and, as a result, many early calls for a better work–life balance had a notable gender dimension. Women were expected to continue carrying the primary responsibilities for maintaining a home and raising children, and balancing these home demands with work became a near impossible task.

In the late 1980s, this discussion was often framed in terms of a “mommy track.” There were calls that business should find ways to accommodate women who were seeking to balance the often competing demands of home and work. Some businesses responded to this call for work–life balance by creating positions for women with more schedule flexibility and fewer hours. However, at the time critics charged that this practice tracked women into lower paying jobs with fewer opportunities for promotion under the guise of providing a more flexible work schedule.

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Recent calls for work–life balance have emphasized a more general claim that the contemporary workplace demands more and more time from all employees. Especially with the advent of work-related e-mails, text messaging, smartphones, and online meetings, some have claimed that employers now expect employees to be available for work-related activities nearly every waking hour. This reality became even more pronounced during the pandemic when millions of employees switched to a work-from-home model. These increasing workplace demands can create increased levels of stress and anxiety in the lives of employees.

In response, some businesses have developed policies to help employees achieve a better work–life balance. Some firms advise or require employees to avoid e-mail during weekend hours. Some firms create flexible work schedules, for example, to allow parents to leave work early to attend a child’s school or athletic activity. Telecommuting and work-from-home days are other means for achieving a more flexible work schedule. Many firms have created a workplace wellness program, which supports employees with such things as nutrition education, exercise or yoga at work programs, health care clinics and immunizations, and counseling services. Increased vacation or personal leave time has been promoted as another contribution to work–life balance. Some firms also allow time away during the workday for religious prayer or meditation.

But a number of criticisms have been raised against such work–life balance practices, and many of the criticisms have an ethical component. Some critics argue that the entire work–life balance movement makes an assumption about work that is not valid for all people and all workplaces. The assumption is that work is something undesirable or objectionable or is in some ways a threat to “life,” which is assumed to be more desirable, beneficial, and healthier. A “better” work–life balance almost always means less work and more “life.” But, of course, for many people, their work is their life and that is not necessarily a bad thing. Work can be a central part of someone’s identity and it can have significant benefits for people. “Life” outside of work can be as unhealthy or stressful as life at work, and work can be as joyful as leisure time.

Some critics also worry that work–life balance movement can be unfair to co-workers, to employers, and to people who hold jobs, typically low-pay and low-skill positions, that lack the bargaining power to demand them. During the pandemic, many professional and skilled employees were given the flexibility to work from home and therefore were further reduced their chances of exposure to COVID-19. Many other works—often in lower paid positions—were dubbed “essential workers” and were expected to show up at work, therefore increasing their exposure to the virus.

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Other criticisms focus on the unfair aspects that these practices can have for employers. From this perspective, demand for such policies can appear to be the selfish demands from employees who want it all. Some employers would point out that the labor market should play a role in establishing such policies. Employers make a job offer with certain work expectations and, in return, they offer a salary and benefit package. If the market for labor creates a demand for these policies, then smart employers will create them. But if the market does not demand them, that is, if employers can hire sufficient workers without them, then the demand for such policies creates an unfair burden on employers. Employees who demand greater workplace flexibility or leave policies, for example, should expect lower salaries and benefits or fewer promotion opportunities in return.

Still, other criticisms claim that work–life balance programs tend to privilege those who already enjoy positions with relatively generous benefits. Some jobs can be done with flexible work schedules or from home via telecommuting. But many others cannot. A department manager or professional position can easily be made flexible, but it is impossible for a check-out clerk or stock person at a grocery store or custodian can do their work from home.

Discussion Questions

1. Could you ever envision a point in your own life before retirement when you would be willing to trade wages and income for more leisure time? Besides taking time away from work to raise a family, what other reasons might lead you to consider such a decision? Do you know anyone who has done this?

2. What factors other than wages would influence you to change jobs? To take a job? To quit a job? Other than wages, what are the three most important aspects of any job you would seek? If not for wages, why work? If you were granted extra time each day, would you choose to spend any of it at work?

3. What would make work more “meaningful” for you?

4. Do you think that work from home makes work more or less attractive?

What changes, post-pandemic, do you think employees will most demand?

5. If you worked in HR for a company seeking to hire, what would you recommend to attract workers who have left during the “Great Resignation”?

6. Do you think that providing “meaningful work” should be understood as a duty of employers, or is it simply one benefit that can be offered if an employer chooses?

7. Do you agree with Larry Fink that employers who do deliver in providing more meaningful and flexible workplaces will reap the rewards of greater economic performance? Can you think of any jobs or industries in which this is more, or less, likely to occur?

5.1 Introduction

As described in chapter 1, philosophy asks us to step back from our everyday lives to reflect on and examine our decisions. Why do we do the things we do? Chapter 1 began with the very self-reflective question: Why study business ethics? But such questioning can be extended further. Why are you taking the courses that you do? Why are you enrolled in school? To answer such questions, many students reason as follows. I am taking this course because it is required for my major. I am enrolled in this major because it will help me get a good job when I graduate. I want a good job so I can make a lot of money. I want to make a lot of money so that I can be happy.

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Most, if not all, of our everyday thinking fits this means-ends reasoning pattern. We do something (enroll in a course, major in a certain subject, accept a particular job) as a means to some other end (a college degree, a job, money, happiness). Many times our thinking about work fits this model as well. We work as a means to an end: income, health insurance, prestige, and respect. Much of the conversation regarding work–life balance seems to assume that the end is “life” and work is merely a means to that end. But can work itself ever be an end, rather than only a means? What is, and what ought to be, the nature of work, and what values are served by working? What are the responsibilities for business as a place of work?

Previous chapters have considered “business” in a very general sense. Beginning with this chapter, we will look more closely at the ethical responsibilities of specific operations of business institutions. Perhaps most importantly for most of us, businesses are the places where we work. Along with producing goods and services, providing employment is the most important social function of business. In chapters 5, 6, and 7, we will examine a wide range of ethical issues that arise within the workplace.

This present chapter will consider two basic and related topics about work and value. Each of these topics raises a range of ethical questions about work and employment. In the opening sections, we will examine various understandings or models of the meaning of work: What is the value, or point, or end of work? Later, we will consider the question of meaningful work: How can work activities bring meaning and value to a person’s life? What responsibilities does a business have for making employment meaningful for their employees?

We are all familiar with stories about people who win multimillion dollar lottery prizes and then claim that they intend to continue working at their present job. Most of us find these stories fascinating because such an attitude goes against the common wisdom that we work only to get paid. This more common attitude was captured some years ago by the Chicago Tribune columnist Mike Royko:

Why do you think the lottery is so popular? Do you think anybody would play if the super payoff was a job on the night shift in a meat packing plant? People play it so if they win they can be rich and idle… like I told you years ago—if work is so good, how come they have to pay us to do it?[2]

Many people think of work with this type of ambivalence. Work is a very important part of our lives and it is not something that we easily would, or could, abandon. Yet, the very idea of work seems to suggest drudgery and toil, something to be avoided whenever possible. Work seems a necessary evil.

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From the earliest times one can trace a continual human fascination with the nature and meaning of work. This fascination is often divided between glory and contempt. Work can be exalting, uplifting, fulfilling and degrading, tedious, troublesome. In Genesis, work was seen as a curse and punishment for original sin, yet humans were also called forth to work the land, to subdue the earth, to till and keep the garden.[3] The Greek philosopher Aristotle recognized work as necessary for the good life, yet he also disparaged work because of this very necessary, and therefore “slavish,” nature.[4] Martin Luther, John Calvin, and Benjamin Franklin all acknowledged the drudgery of work, yet each emphasized how this very toilsome nature can be put to work for a higher cause.[5] Jean-Jacques Rousseau’s romantic view of the self-reliant craftsman developing human creativity was tempered by a recognition that within society mankind is “everywhere in chains.” For Karl Marx, labor had the potential to express our very humanity but, in modern capitalist societies at least, labor is alienated from this end.[6]

The two sides of this ambivalence raise distinct questions for business ethics. Work can provide opportunities for valuable, meaningful, and uplifting human activity, and work can be dehumanizing, degrading, and oppressive. To the degree that work can be uplifting, business ethics is challenged to articulate the vision of good work and the good workplace. To the degree that work is a burden that we all must endure, business ethics is challenged to articulate and defend the conditions under which work can be made less burdensome and more fair, just, and humane. Much of the work–life balance discussion involves just these types of questions. How can work be structured to make it less of a burden on the lives of workers?

This chapter will examine a variety of theories about the meaning and value of work. How we conceptualize work has a significant impact on how we structure and organize the workplace. In the following chapter, we will examine a variety of workplace rights. Employee rights would offer protection of important human interests within the context of a situation in which those interests are jeopardized by the necessity of work.

5.2 The Meanings of Work

Our understanding of the nature of work can have a significant impact on ourselves as individuals and on the institution of the workplace. Psychologically, the very attitude with which we face each day can be greatly influenced by our understanding of work in general, and of our own jobs in particular. For employees, the meaning and value found in work can contribute significantly to self-esteem as well as physical and mental health. For managers, how employees think about work will influence everything from performance and productivity to employee turnover, and from wages and benefits to absenteeism. As testimony to the importance of such questions, one need to only look at the prevalent discussion of topics such as job satisfaction, work–life balance, and worker morale in the field of business management and human resource management.

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So, what does work mean? At first glance, we should recognize that we use “work” with a variety of meanings, both as a verb and as a noun. As a verb, work refers to activities that involve perseverance, discipline, toil, usually performed with a degree of seriousness and concentration. The verb to work is contrasted with being idle, relaxing, playing. Sitting here at my computer, I might be working on a book, or I might simply be playing on the Internet. This afternoon, I may go out to play a round of golf, or I might go to the practice range to work on my game.

As a noun, work can refer to particular accomplishments (e.g., a work of art), any general undertaking or task (e.g., homework), or a job or employment. Our focus in this textbook on business ethics will be on work done in exchange for wages, “work” in the sense of a job or employment.

But even with this focus, it is important not to ignore the variety of work. People work as executives in large corporate institutions, on assembly lines in a factory, at temporary or full-time jobs, or at several jobs. People work for government agencies, as artists and craftspeople, in construction, or in teaching. Some work for corporations, others are self-employed, most work for small businesses; some commute or travel continuously, others work at home. Particularly when we are considering the value and significance of work, it is crucial that we do not operate with too narrow a focus.

For example, social programs such as Social Security and unemployment insurance, and many public policies concerned with marriage and divorce, have systematically undervalued or ignored the value of housework and childcare. Since the women who typically filled such roles were not engaged in work for wages, their status under Social Security and tax law was dependent upon their husband’s employment. Women who were engaged full-time with childcare and homemaking were described, and often disparaged, as not working. Alternatively, when women are employed in the workforce, social expectations can hold them responsible for the “work” of childcare and household duties. As we noted in the opening discussion case on work–life balance, women can be expected to be the “super mom” who works a full-time job and still manages a household.

Even when we use “work” to refer only to those activities performed in exchange for wages and compensation, we find an assorted and distinct range of meanings. “Work” can suggest a job, profession, career, trade, labor, occupation, vocation, or calling. In an important study of American culture and values, sociologist Robert Bellah and his co-authors of Habits of the Heart offer some insightful observations concerning various meanings of work and their relations. The authors distinguish between a job, a career, and a calling.[7] Each is distinguished by the degree to which the identity of the person filling the role is determined by the role itself.

What does it mean to say that one’s identity is determined by work? Consider that “What do you do?” is a very common first question we ask when introduced to someone. People identify themselves to others by their work. “I am an accountant.” “I manage a small business.” “I am a college professor.” “I work for the state social services department.” What we do determines who we are. When you tell me that you are a computer programmer, you have identified yourself in terms of your work. We come to know others by knowing what they do. But we also come to think about ourselves, we develop our own self-image, in terms of our work. Sometimes our work can contribute to a strong positive self-image, as when someone introduces themselves as “I am vice president for marketing at a large international corporation.” Sometimes our work, or lack thereof, contributes to a low self-image. “I’m unemployed” or “I work the night shift at the meat packing plant.”

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In Habits of the Heart, a job is described as work in which self-identity is independent of the activity. A job is simply a role that one steps into and out of as a means for earning money. “I just happen to work a job at this fast-food restaurant, but tomorrow I may change jobs and take a job working construction.” Jobs have no meaning other than the instrumental value as a means for earning wages.

A career involves a developing relationship between the self and the activity. One might say that “after graduation I intend to begin my career in public relations” or “I am pursuing a career in real estate.” A career suggests an ongoing activity that is defined in terms of wider social institutions that establish standards of achievement and advancement. One develops throughout a career, not in the sense of moving from one job to another, but in the sense of mastering various stages and advancing to new levels. This sense of development means that careers involve social status and self-esteem in ways that jobs do not. With careers, we hear echoes of the traditional crafts system in which one progresses from apprentice to master and with this progression one gains in status and self-esteem.

A calling also returns to an earlier tradition of work in which a person’s identity and activities were “morally inseparable.” Who you are was determined fully by what you do. Traditionally, the professions, artisans, and farming were understood this way. “I am a minister,” “I am a musician,” “I am a farmer” tells us a great deal about both the person and their work. Perhaps less common today than in years past, individuals thought of themselves as “called” to a life of medicine, military service, or teaching.

This categorization is not intended as absolute or exhaustive, but rather as a helpful way to understand the complexity of work. Work has the potential to be intimately connected to our deepest values, for better or for worse. When the time comes to reflect back upon your entire life and judge its worth, what work you did and how you did it will play a significant role in deciding how worthwhile your life has been. The meaning and value of work, both actual and potential, will therefore have important implications for the structure and operation of the workplace.

5.3 The Value of Work

Before reviewing various models of work, it will prove useful to consider some of the values that work can hold. “Why work?” and “What is work good for?” may seem obvious or trivial questions to some, but upon slight reflection we can discover a wide variety of values associated with work.

Clearly work has significant value as the means for attaining an income and, through that income, many other ends that we need and desire. One works in order to buy food, pay the mortgage, buy clothing, and/or pay for a child’s education. I am fortunate to have a job that also provides health and life insurance, educational benefits, and a retirement program. Work has high instrumental value; by working one is able to attain many other goods. Because it is necessary for obtaining so many other goods, work can be said to have an exceptionally important instrumental value.

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The extent of the instrumental value of work can be understood when we ask if we would continue working if we attained all the other goods. If more efficient substitutes can be found for some activity with only instrumental value, we have no reason to continue the activity. For example, if I work only to make money and I inherit a fortune, I would stop working. But there are also some values that can only be attained through work in the sense that work is not a means to an end, but is the end itself.

To determine if there are other values in working, I often ask my students what they would do if they won a multimillion dollar lottery. During one class, a student answered that he would spend all his time playing golf. I asked if he would simply play or if he would work on his game to improve. He admitted that he would likely get bored if he continued shooting high scores and never improved his game. He readily acknowledged that he would be willing to work on his game with the goal of eventually shooting par. He would work on his golf game, but he would not continue to work for a living.

I then asked students to think about why someone such as Bill Gates, Warren Buffett, Jeff Bezos, or Mark Zuckerberg continued to work years after they had acquired unimaginable wealth. To the cynic who suggests that these individuals worked only to continually increase their wealth, I point out that each of them (as virtually all people of enormous wealth do) gave away significant amounts of money. If financial greed was their only motivation for working, they could have stopped giving away their money and worked less.

Clearly there is more to work than simply earning money. As the golfing example suggests, people will work to attain many ends including, but not limited to, the feelings of satisfaction that come from achieving challenging goals. When employment can provide these other goods, people will continue working even if they no longer need the income. Thus, the instrumental value of work involves many goods other than wages and benefits. Think about why people do the work required to run a marathon, to teach a child with learning disabilities, to care for a dying patient, to run their own business, or to be a police officer.

What goods, other than wages and benefits, come from working? While we cannot hope to be exhaustive, we can offer a general categorization of some goods. First, work is a means to attain goods other than income. Many of these goods have value that cannot be priced and therefore cannot be achieved solely through the money earned by working. They are what we might call various psychic goods associated with work. These include feelings of personal satisfaction and self-worth, achievement, self-esteem, and happiness.

Work also can be an expression of a person’s deepest attitudes and character. Work can be an expression of the character traits, or virtues, that make our lives worth living. Many work because, simply, that’s the type of person they are; for many people, their character is made manifest through work. People are industrious, motivated, earnest, active, and creative. A creative and industrious person not working is as unlikely as a lethargic and lazy person enthusiastically heading off to work.

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Work can also have social meaning for many people. With work comes social status, honor, respect, companionship, and camaraderie. Aristotle described humans as social beings, and work can be a major activity through which our social nature is expressed. Consider the many reasons why someone might choose to be a teacher rather than an accountant, or a social worker rather than work in sales. Sometimes work can be associated with an entire lifestyle such as work in farming and in the military.

A personal story illustrates one way in which work can have deep social meaning and value. My wife is the fourth generation of her family to own and operate a small business. She had been successful at a previous job in a large corporation. She seemed well poised to advance up the corporate ladder when her father reached retirement age and sought to sell the business. The business had been started by her great-grandfather and had been open for nearly 100 years. Rather than allowing the business to close or be sold to a stranger, she chose to leave her corporate career and purchase the family business.

In terms of mere instrumental value, this work decision had many costs: a lower salary (alas), much longer hours, more headaches and stress, and greater responsibilities. But this work also provides other important values, not the least of which is the fact that she is carrying on a legacy begun by her great-grandfather. This is what we might mean by the “social value” that work can have. Bill Gates’ or Mark Zuckerberg’s dedication to the companies they founded likewise can explain why they continue to work when they have no financial need to do so.

Finally, some work is more valuable and worthwhile to society than others. Many people choose to work as nurses, day-care providers, social workers, police, or military personnel because these are positions in which they can make an important contribution to their community. These are important jobs that any stable community must fill. For many people, this alone is reason enough to pursue such work. Other work, such as the performance of artists and musicians or work in crafts or agriculture, is valuable either in its own right or for the product that results. Much of this work is valuable not only for the product, but also for the quality of the product.

For example, I have a friend who is a potter. His work can be extraordinarily dirty (he works with wet clay all day) and sweaty (as he stokes a roaring fire within his kiln). The hours are very long and the pay very modest. Yet, he produces some of the most beautiful and exquisite pottery imaginable. He also produces it in an environmentally sensitive and sustainable way. His work has significant value because of what is produced and how it is produced. This work is a significant part of his identity. These values by far transcend the income he receives from this work.

In a classical essay, Douglas McGregor defended a management theory (what he called Theory Y) that recognized the many diverse values attained through work. Among these, McGregor mentioned survival, security, acceptance by others, association with others, friendship, self-esteem, status, respect, creativity, and self-development.[8]

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Perhaps this is a good point at which to reiterate an earlier distinction. Work can refer both to an activity performed with diligence and perseverance and it can refer to employment. While there are values involved in any diligent activity that we might call “work,” the values described above are also attainable through, and sometimes only through, employment. But if this is so, if work can be so valuable, why, as Mike Royko asks, “do they have to pay us to do it?”

We might venture a preliminary answer. Some jobs can hold so much value that people would do them for little or no pay. Some jobs provide their holders with significant meaning and worth. Others can be made valuable depending upon their circumstances. Working conditions such as the structure of the job, salary and benefits, its privileges and responsibilities, job security, its institutional setting, and its social status can add to or detract from a job’s value. But for many people, work is necessary to make a living, and because it is necessary, the possibility of attaining other values often gets lost in the pursuit of income.

So what might be the goal of an ethical workplace? If work is so important for so many reasons, should every person have a moral and legal right to a job? Is it possible to provide all workers with meaningful, worthwhile, and highly valued jobs? If not, are there steps to be taken to make work more rather than less meaningful? Does business have a responsibility to provide employees with meaningful work, or is business’s responsibility complete when it pays a fair wage for a fair day’s work?

These questions take on added significance when we recognize three common aspects of the contemporary work scene. First, few workers have significant choices and alternatives open to them in the workplace. Given the significant instrumental value that work has as the means of making one’s livelihood, few people are in the position where they put their job in jeopardy. This means that people may be put in situations where they must accept less than ideal working conditions.

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REALITY CHECK Work From Home Flexibility: A Two-Way Street

Balancing the demands of work with the responsibilities of one’s private life has always been the reality for employees. Work can take us away from our personal and family responsibilities, yet one of the ways that we fulfill our familial responsibilities is by bringing in the wages and benefits work provides.

During the 1980s and 1990s, there was wide discussion of what was then called the “mommy track.” The phrase called attention to the reality that many women faced at work when they sought to balance childcare responsibilities (perhaps an even more gendered role than today) with career aspirations. Many companies created separate career tracks for women with childcare duties, often allowing them greater work-at-home opportunities, flexible schedules, and part-time work. While at first glance this seemed beneficial to women, critics were quick to point out its harmful effects. Women who took advantage of this flexibility loss many of the career benefits of full-time work, including advancement, pay increases, and other job-related opportunities. This separate work track easily became an unequal work track.

Yet the desire for a proper work–life balance has not disappeared, and technology can easily aggravate the situation. As discussed in the Discussion Case that opened this chapter, the ever-present smartphone means that few employees are ever out of reach of their employer. Employees can be expected to be available at any time and any day. This reality became even more complicated during the move toward work-at-home that emerged during the pandemic.

On one hand, flexibility of scheduling and location can provide significant help to employees trying to balance work with home responsibilities. We earlier described a study in which lack of job flexibility was among the biggest reasons why employees left their positions during the “Great Resignation.” When we recognize that the same pandemic causing an increase in work-at-home also closed schools and day-care centers, we can understand the added pressures that existed for many employees to find a stable work–life balance. Some parents found it helpful to have the flexibility to tend to childcare needs at times during the day, and then turn to work in the evening after the children were in bed.

On the other hand, this increased flexibility blurred the line between work and home even more than it had been by the increasing use of technology alone. In the most general sense, that line was blurred by the fact that colleagues and clients were being invited into one’s home, if only virtually, for meetings and conversations. For many people, this meant creating a “workspace” at home. (There was even an online meme on social media called a “room rater” that rated people’s home background that was visible during a video call.) But the same flexibility that allows a parent to care for their child during the day, can create expectations that that parent will be working after “normal” workhours. Instead of a better balance, some employees found that increased flexibility created only more stress and anxiety.

Some jobs can maintain a clear line between work and personal life, others less so. What are your expectations for your own job?

Two further points concern what seem to be emerging trends in the contemporary economy. People today seem more likely to work many jobs over their lifetimes than they were in the past. Job mobility is more a fact of work life today than it was for our parents and grandparents. Sometimes this is a matter of choice, but often it is the result of factors over which employees have no control. Technology, automation, and the exporting of jobs have all contributed to job turnover and job mobility. This suggests that at least some of work’s values, income stability, and self-esteem among others, may be at greater risk today than in times past. The “Great Resignation” that followed the recent pandemic only emphasizes the reality of this job mobility.

A second trend is the growth in what is sometimes called contingent work. More jobs today are temporary, part-time, or subcontracted out to third parties. In some cases this can be a value-added component to work, as when an individual is able to work part-time while also going to school or providing childcare. Driving for Uber is an example of this contingent work. But just as often this can mean that the values and benefits of work are more conditional and uncertain. Many of the social values of work, such as camaraderie and social status, can be lost or unavailable to part-time and temporary workers.

Before we turn to business’s responsibilities in this regard, let us consider some major models of work.

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5.4 Conventional Views of Work

Journalist and social observer Studs Terkel’s 1974 book Working chronicled the state of blue-collar work in America. The book opens with a statement that captures what we shall identify as the conventional view of work.

This book, being about work is, by its nature, about violence—to the spirit as well as to the body. It is about ulcers as well as accidents, about shouting matches as well as fights, about nervous breakdowns as well as kicking the dog around. It is above all (or beneath all) about daily humiliations. To survive the day is triumph enough for the walking wounded among the great many of us.[9]

Work is seen as something that must be endured. It is difficult, arduous, laborious. The very words work and labor carry this negative connotation in ordinary language. Certainly this conventional view accurately characterizes work for many people. The essence of this conventional view is that work is something to be avoided whenever possible and endured when we must.

We can distinguish two trends within this conventional viewpoint. One perspective, with roots traceable to classical Greek thought, holds that there are higher and more meaningful human activities than work. Work is to be avoided so that one can pursue these more valuable and refined goods. The good life for humans would be a life of contemplation and a life spent enjoying the higher pleasures of art, politics, and culture. This view is implicit in the writing of those who find fault with the role of consumerism in contemporary society. From that perspective, living a more simple and frugal lifestyle will free people from an unending cycle of work and spend so that they might pursue more meaningful goals.

This classical interpretation of work conceives of humans as intellectual beings, yet work is physical. Humans are free beings, work is a necessity. Work thus involves a constant diminishing of human nature and human potential. In the classical world, work was left to slaves. Cultured and civilized people avoided work as undignified.

The Roman philosopher Plutarch portrays this classical view in the following quotation:

Gentlemen enjoy the contemplation of the sculptor’s masterpieces, but he would never himself use hammer and chisel and get covered with sweat and dust.[10]

Twentieth-century philosopher Yves Simon echoes Plutarch’s sentiments on the relative value of work:

The rise of the working class in modern history has led to the glorification of work and the reduction of virtually all human activity to a species of work, while leisure becomes identified with idleness. … [G]ive work its due but recognize that true culture thrives on immanent activities of contemplation and joy that transcends both social utility and time.[11]

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Another twentieth-century philosopher, Hannah Arendt, opens her influential book, The Human Condition, with similar sentiments.

In the modern age … laborers are about to be freed from the fetters of labor, and this society no longer knows these higher and more meaningful activities for the sake of which this freedom would deserve to be won.[12]

The second version of the conventional model is much more common in the contemporary world. What we’ll call the hedonistic interpretation understands work as a necessary means for obtaining life’s pleasures. One works so that one can buy those things that will make one happy. Work is the price we have to pay in order to get both the necessities of life and the many other things that make life enjoyable and pleasurable. Whereas the classical interpretation defends a very specific content for human happiness, the hedonistic interpretation allows individuals to choose whatever ends they desire. Happiness for the classical model is the enjoyment of various cultural activities. Happiness for the hedonistic model is simply getting whatever one wants. While the classical model would see the hedonistic version as disreputable, they both agree that the drudgery of work prevents humans from obtaining happiness.

The hedonistic model’s emphasis on happiness as want-satisfaction makes this view quite compatible with the assumptions of neoclassical economics. Individuals are free to choose their own preferences, and the goal of economic activity is to satisfy preferences. Individuals exchange their labor in the market as a means for obtaining satisfaction. Work, for the most part, is simply a means to obtain our ends. Perhaps it is not surprising, therefore, that in a world greatly influenced by neoclassical economics, the most common view of work shares its assumption about human happiness. It is also perhaps not surprising that a workplace structured and administered according to the principles of neoclassical economics—a workplace in which employees work simply to earn wages and employers treat them simply as means to productive ends—is a workplace that gives rise to feelings of resentment and disaffection. From that perspective, work has no value in its own right; it is simply a necessary price that must be tolerated to achieve other ends.

5.5 The Human Fulfillment Model

The second approach we shall call the human fulfillment school. From this perspective, work is the primary activity through which people develop their full potential as human beings. In some ways, this is the opposite of the classical model. Both perspectives would agree that the good life involves the development and flourishing of the human potential. But while the classical model views work as hindering the development of human potential, the human fulfillment school views work as a primary means for this development.

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Thus, the philosophical roots of this school also lie with the classical Greek philosophers, who argued that humans had a natural potential, or telos, and that the good life was a life spent developing or fulfilling that telos. This general approach is called teleological ethics, and it is a tradition that was carried on through the great Christian philosophers of the medieval period. The contemporary slogan of the U.S. Army to “Be all that you can be” reflects the same ethical attitude. Humans have a potential that they don’t always fulfill; the good life is a life in which this potential is actualized. The human fulfillment school believes that work can be the process through which this potential is fulfilled.

But what is this “potential” that can be fulfilled through work? Again, let us return to the distinction between work as any general activity requiring perseverance, diligence, and concentration (work as opposed to play) and work as employment. Let us also come at this question by asking what is lost if we do not work. First, let us consider what type of person we would become if we never engaged in activities requiring perseverance, diligence, and concentration. We can then turn to the question of what happens to individuals when they become unemployed.

Consider the student golfer example mentioned earlier. What happens to a person who plays golf but never works to improve his game? While some people might continue to play and enjoy the game, this student admitted that he would get bored, frustrated, and eventually lose interest. The golfer becomes apathetic, passive, and lethargic, and the game of golf would lose its value. Generalizing from this example, we might say that virtues of diligence, perseverance, and concentration improve whatever talents and abilities to which we apply them. Our intellectual skills are improved when we focus our attention, and think through what is required for performing a task. Diligence, perseverance, and concentration are character traits, what chapter 2 described as virtues, that contribute to the improvement of human well-being. You are improved as a person when you have the ability to approach tasks with such a temperament. Conversely, people who do not work at any task risk becoming lazy, careless, and apathetic. Developing good work habits contributes to a character that is capable, competent, effective, and skillful. Parents, for example, seek to instill such good work habits in children to provide them with important lifelong skills. One study by psychologists George and Caroline Valliant concluded that “the willingness and capacity to work in childhood is the most important forerunner—more important than native intelligence, social class, or family situation—of mental health.”[13]

But what about work as employment? Certainly unemployment has costs far beyond the loss of income. The psychic costs of unemployment are well-documented. Loss of self-esteem and self-respect, stress, anxiety, depression, isolation, and apathy are common consequences. The social costs of unemployment are also high. Employment has largely disappeared from the poorest neighborhoods in most large cities. The results of chronic unemployment can literally destroy a community.[14]

Conversely, work can provide the worker with the opportunity for such psychological goods as high self-esteem and self-respect as well as both stable mental and physical health. Work can also provide workers with social goods such as friendships, companionship, a sense of belonging, and a sense of purpose.

The human fulfillment model suggests that these psychological and social benefits are more than merely subjective and personal preferences. These are not simply goods that an individual chooses to value. The character traits developed and the ends achieved through work are connected to living a fulfilled and meaningful human life. They are connected to attaining the human telos.

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The human fulfillment model acknowledges that not every job contributes to the development of human potential. However, the proper kind of work and the right kind of workplace can contribute to this development. This model also claims that individuals and work exist in a reciprocal relationship. Individuals exercise control over their jobs, but jobs also influence and shape individuals. Thus, under this model, the challenge for business ethics is to articulate the type of work that can foster the full development of human potential.

Contrast this with the hedonistic model of work. From that perspective, work is simply a means to further human ends. Work’s value is merely instrumental and a worker’s guiding question is “What will this work do for me?” The human fulfillment model challenges us to ask further questions: “What will this work do to me? What kind of person will I become through this work?” Even work that does good things for me (by providing an income) may do bad things to me (e.g., by lowering my self-esteem, harming my mental and physical health, etc.).[15]

In developing this point, economist E. F. Schumacher details how work can do bad things to workers and hints at what the corresponding good work would be. Bad work is “mechanical, artificial, divorced from nature, utilizing only the smallest part of man’s potential capabilities; it sentences the great majority of workers to spending their working lives in a way which contains no worthy challenge, no stimulus to self-perfection, no chance of development, no element of Beauty, Truth, or Goodness. …”[16]

The idea that there exists a human potential (or telos, in the language of classical philosophy) that can be either drawn out or repressed by the nature of modern work in Karl Marx’s concept of alienation. In general terms, alienation is the result of work that prevents the full development of human potential. In such situations, humans are separated, or alienated, from their true selves (their potential). Part of Marx’s critique of capitalism was based on the claim that under capitalist systems of production, workers inevitably faced a life of alienation. Marx suggested that workers face several types of alienation that occur within capitalist systems: from the products of their work, from the creative process of work itself, and from their very essence as social creatures.[17]

In his early writings especially, Marx understands humans as social beings who both create and express themselves through their labor. Through work, humans create not just products, but also the very social world in which they live. Work is essentially a social activity and, as social beings, humans have the opportunity to express this humanity through work. Because these social structures also shape and influence human attitudes, beliefs, and values (what work does to people), work also serves to create our own character. According to Marx, in capitalist economic systems—particularly in the division of labor, assembly-line production characteristic of industrial capitalism—workers are alienated from the products of their labor, from the activity of work, and from their fellow humans. Workers (or human resources in the contemporary phrase) and the products of their labor are treated as mere means to the end of profit. Workers are separated from what they produce, they lack control over both the products and the productive activity itself, and they exist as mere cogs in a machine.

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A similar view of work was presented in 1981 by the Catholic Pope John Paul II in his Encyclical Letter, Laborem Exercens.[18] Integrating some themes found in Marx with more traditional Catholic theology, the Pope claimed that “work is one of the characteristics that distinguish humans from the rest of creatures.… Only humans are capable of work, and only humans work.” Citing the Genesis story in which humans are created “in the image and likeness of God” and in which humans are called forth “to subdue the earth,” the Pope argues that work is an essential part of human nature. These Biblical passages suggest that humans are meant to be co-creators (made in the image of God the creator) in shaping the earth and using it to maintain their life on earth.[19]

Once again, this perspective emphasizes the fact that humans and their work exist in a reciprocal, dialectical relationship, with each side influencing and shaping the other. Humans create work in order to attain their needs and wants; but work also shapes humans. In the words of commentator Gregory Baum, “It is through labor that people create their world, and it is through the same labor that in a certain sense they also create themselves.”[20] Humans “must transform a portion of nature through labor to have food and shelter. In order to improve the conditions of survival, people must invent a division of labor, a social organization, and a system of authority. Labor creates society.” But in doing so, humans are creating the social and cultural world that socializes them, creates their consciousness, attitudes, beliefs, values, and interests. In this sense, through labor humans are creating themselves by determining what kind of person they become.[21]

In summary, then, what are the human potentials that work can help fulfill? From this brief discussion, we can mention four. Through work we exercise our freedom and autonomy in making choices and directing our lives. Work also provides the occasion for developing our talents and exercising our creativity. Through work, humans create their own society and culture and thereby create their own identities. Finally, work is an expression of our nature as social beings; it prevents us from falling into a solipsistic and egocentric life.[22]

Philosopher Al Gini offers this summary of the human fulfillment model:

Descartes was wrong. It isn’t Cogito ergo sum, but, rather, Laboro ergo sum. We need work, and as adults we find identity and are identified by the work we do. If this is true then we must be very careful about what we choose to do for a living, for what we do is what we’ll become. To paraphrase the words of Winston Churchill—first we choose and shape our work, then it shapes us.[23]

5.6 The Liberal Model of Work

What we will call the liberal model of work can be thought of as occupying a middle ground between the conventional model and the human fulfillment school. Like the conventional model, liberals hold that individual workers choose to work for many reasons and may willingly accept undesirable jobs simply as a means to earn money. Liberals value the freedom to choose the type of work one desires. Liberals deny that there is some single human end that all work should serve.

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Nevertheless, like believers in the human fulfillment school, liberals recognize that humans can be significantly influenced by their work and argue that we should make ethical assessments of work on the basis of how work affects workers. Liberals part company with the fulfillment school when they specify the grounds on which that assessment is made. The human fulfillment school makes that judgment on the basis of some teleological vision of what makes a good, meaningful human life. Liberals make that judgment in terms of how work affects a worker’s ability to make free and autonomous decisions about their own life.

Philosopher Norman Bowie provides a good example of a liberal theory of work. Bowie explains his own Kantian theory of meaningful work as a middle ground between those who think the value of work is to be left to the whim of workers and those who defend an “objective normative definition” of meaningful work.[24]

I have always believed that one of the moral obligations of the firm is to provide meaningful work for employees. However, just what constitutes meaningful work has been a contentious matter. Is “meaningful work” to be defined as nothing more than what the employees say it is? Or would the term “meaningful work” be given an objective normative definition which would permit managers to provide it even if the employees do not agree? A standard problem with the [former] approach is that it is subjective and individualistic. … Why should management have a duty to provide each employee meaningful work as they define it? On the other hand, a standard problem with the objective approach is that it has been difficult to find a justification for any objective normative definition that can be given.[25]

Let us consider Bowie’s arguments. If we conclude that the meaning and value of work is whatever the worker determines it to be, as at least the hedonistic version of the conventional model would hold, then we cannot say that workers have any right to, nor management any duty to provide, meaningful work. Such an open-ended conception of worker rights would render the concept meaningless by failing to distinguish rights from mere desires. It also would imply a range of management duties that would be impossible to fulfill.

Of course defenders of this hedonistic model, especially those sympathetic to the more libertarian versions of free markets, would conclude that this means only that workers have no right to meaningful work. Bowie’s belief that business has a moral obligation to provide meaningful work is, from that perspective, simply mistaken. The meaning and value of work, like all the conditions of work, should be left to the free choices that emerge from individual bargaining between employee and employer.

Liberal approaches to work, such as Bowie’s Kantian theory, reject this view as too impoverished an understanding of human freedom. Individuals may well choose to work tedious, difficult, depressing, low-paying, even dangerous jobs. But if there are few alternatives available, we shouldn’t honor this as a “free” choice. Bowie would argue that the more people are compelled to work, the greater the responsibility to ensure that workplace conditions are as humane as possible. In such cases, the very necessity of work obligates us to investigate what work does to workers. What kind of people are being created in the workplace?

Unlike the human fulfillment model, however, liberals do not believe that there is some substantive, objective norm to determine the kind of person everyone should be. Bowie argues that even if there were such objective norms, managers could not be ethically required to impose them on workers. Should we design workplaces that force people to be creative, or sociable, or that force them to fully develop their talents and abilities? Who would decide such matters?

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This conclusion mirrors the reluctance that liberal political philosophy has always had about concepts such as the human telos or common good. Liberal theories of justice argue that individual freedom is a fundamental and necessary element of social justice. Liberals have always rejected classical political theories that specify some common, specific, and particular way that all people should live. Even if we could specify what that life should be, it would seem that the only way to achieve it would be by forcing individuals to live lives other than the ones they choose. On the other hand, most liberals also reject the subjective and relativistic implication of more libertarian versions. It is not good for humans to do just anything they want. Some ways of living are morally better than others.

Liberals resolve this tension by reference to such general characteristics and goods as autonomy, rationality, and physical and mental health. Sometimes called primary goods, these are goods that are necessary in order to achieve whatever other goods an individual chooses to pursue. Consistent with the assumptions of the conventional model, work may simply be valued as a means for attaining whatever ends an individual chooses. However, if in the process of work these primary goods are destroyed or undermined, individuals have little chance of attaining their other ends. Thus, the liberal model argues that individuals have certain rights in the workplace and that these rights function to protect certain central and primary goods.

What are these goods to be protected by worker rights? Philosopher Adina Schwartz defends a classical liberal answer when she argues that highly routinized jobs in which workers passively and blindly fill roles determined by others fail to respect the autonomy of individuals. Failing to recognize such jobs as unjust

… is fundamentally at odds with the widely held view that a just society respects all its members as autonomous agents. If we care about the free development of all members of society … we must demand that no one be employed at the sorts of jobs that have just been described. We must also advocate a certain alternative to the current arrangement of industrial employment and must ask for government measures to effect this rearrangement.[26]

5.7 Business’s Responsibility for Meaningful Work

This brief overview of differing theories concerning the nature and value of work can now provide us with a helpful way to conceptualize the ethical responsibilities that business has to make work meaningful. The classical model would argue that, to the degree that work is necessary and physical, work cannot be made meaningful and therefore employers have little responsibility to make it so. To the degree that work can be intellectual, leisurely, and free, work can be meaningful; but it would be unlikely that employment and wage labor can ever attain these conditions.

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The hedonistic approach argues that work is meaningful when it is used to attain the goals of the worker. Following Bowie’s critique, however, it would be difficult to hold a business responsible for such an open-ended goal. Surely workers might desire many things that a business cannot—perhaps should not—provide. At best, the hedonistic theory would encourage employees and employers to bargain over workplace conditions, wages, and benefits. This contract model might provide workers with the best chance for attaining workplace happiness, but, presumably, business’s only responsibilities would be those freely accepted within the contract.

The boundary between the human fulfillment school and the liberal model offers more fruitful directions for thinking about the responsibility to provide meaningful work. In effect, liberals argue that business has a range of responsibilities derived from such primary goods as autonomy, freedom of choice, rationality, and physical and mental health. The range of employee rights and responsibilities that we will survey in chapters 6 and 7 is an admittedly liberal conception of employee rights and employer responsibilities. This list might include such rights as participation (voting), due process, healthy and safe working conditions, fair wages and benefits, training and education, and privacy. Such goods might be said to be primary in the sense that they are necessary for any realistic opportunity to exercise autonomous, rational, and free choice.

Remember that Bowie argues that anything more substantive than this minimal list might involve employers forcing employees to accept conditions that they choose not to. Bowie argues that employers cannot have the responsibility to make employees better people, particularly against the wishes of the employees themselves.

But now consider the example offered by Adina Schwartz. Imagine that workers preferred to work highly routinized, unchallenging, and boring jobs. Do employers have a responsibility to eliminate such jobs, even if there are some employees who would be willing to fill them? Two options are open for liberals at this point. They could argue that as long as no one is forcing employees to work such jobs, as long as they are free from external constraint, employers have no responsibility to eliminate such jobs. This answer would reduce the liberal position to a narrower libertarian understanding of freedom in the workplace. But it also would accept the ethical legitimacy of employment conditions that tend to frustrate the very fundamental values—autonomous and free choice—that liberals hold dear. Social conditions of routinized, unchallenging, boring jobs tend to suppress the human faculties of rational and autonomous choice. On the other hand, if liberals argue that employers do have a responsibility to eliminate such jobs, then they acknowledge that employee choice alone is not the final factor for determining what constitutes an ethical workplace. This is to acknowledge that the conditions that create an ethical workplace are those that tend to encourage and advance the human good, at least as understood in minimal terms of the ability to make reasoned and autonomous choices. This conclusion opens the door to a wider discussion of those conditions necessary or conducive to the good of employees. Such conditions can be identified as a liberal theory of employee rights and employer responsibilities. Chapter 6 considers several of these potential rights.

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This chapter has examined various models for understanding the nature and value of work. These models provide a framework for evaluating business’s responsibilities to employees, as well as the rights and responsibilities that employees owe to the businesses that provide jobs. The nature and value of work also has implications for what we, as citizens in a democratic society, can expect of both private business and government regulation of the workplace. Work provides individuals with the means for satisfying their basic needs and desires. Work can provide good things, or bad things, for us. But work can also do good things, or bad things, to us. How the workplace gets structured, how we understand the rights and responsibilities of both employers and employees, will determine the ethical status of what work does both for, and to, us. In chapters 6 and 7 we will look in more detail at the ethical rights and responsibilities that exist in the workplace.

Reflections on the Chapter Discussion Case

Debates about a proper work–life balance often make valued assumptions about both work and life. This chapter has suggested that work can mean many things to many people, and it can hold widely different values for different people. It would be difficult to even imagine a single standard for what a proper work–life balance would involve.

As we reflect on balancing the values and demands, the benefits and costs, of both work and life outside of work, it is advisable to filter these reflections through a number of categories. Certainly, the type of job involved will play a significant role in determining a proper balance. The work demands and rewards of being a college professor are significantly different than those of being college groundskeeper. The employer and the firm’s culture is another important variable to consider. As described in the opening discussion case, gender surely also plays a big role. Gender roles and expectations might be especially significant for workers living outside of developed economics of the United States, Canada, and the European Union. Surely, social and economic class is another crucial factor to consider. Workers who have a range of other employment opportunities, which are often highly correlated with such things as education level, income, and wealth, face very different work–life balance environment than do those with few other opportunities. As demonstrated during the pandemic, “essential workers” were often people in low-paying jobs, with fewer options, facing greater demands and risks during a pandemic. A cynic might conclude that identifying someone as “essential” was only a means for forcing greater work on those least able to resist.

Given this range of factors, and given the suggestion that there is no one, single model of a proper balance, it might be tempting to think that these issues should be left to each individual employee to figure out for themselves. Especially, if we conceive of work–life balance as just one employment benefit among others, it is tempting to leave this issue to individuals to bargain for with their employers. One ethical question to keep in mind is whether there might be some workers and some jobs where the risks to achieving a proper balance between the demands of work and the social, health, psychological, and cultural demands of life outside of work are so great that certain workers should claim a right to such benefits. On such a view, work–life balance is more of an employee right than it is simply one benefit to be traded off against others. The following chapter will explore in greater depth the notion of employee rights.

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Chapter Review Questions

1. Explain at least three different meanings of the word work. Do any of these meanings include some value component?

2. How would you distinguish a job from a career from a calling?

3. What are the two different trends within the conventional view of work?

4. How does the Greek philosophical notion of a telos relate to the human fulfillment theory of work?

5. How can work become meaningful under the liberal model of work?

6. How might a defender of the liberal model criticize the human fulfillment model of work?

Endnotes

1The case was developed from the following sources: “The Power of Capitalism, “Larry Fink’s Annual Letter to CEOs,” https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter# (accessed Jan. 19, 2022). “Toxic Culture Is Driving the Great Resignation,” by Donald Sull, Charles Sull, and Ben Zweig, MIT Sloan Management Review (January 11, 2022). “Job Openings and Labor Turnover Survey,” U.S. Bureau of Labor Statistics, accessed January 20, 2022, www.bls.gov. “For Most U.S. Workers, Real Wages Have Barely Budged in Decades,” by Drew Desilver, Pew Research Center, August 7, 2018, https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ (accessed Jan. 20, 2022). “Quitting is Just Half the Story: The Truth behind the ‘Great Resignation’,” by Rashida Kamal, The Guardian, January 4, 2022, https://www.theguardian.com/business/2022/jan/04/great-resignation-quitting-us-unemployment-economy (accessed January 12, 2022). “Who Is Driving the Great Resignation?” by Ian Cook Harvard, Business Review, September 15, 2021, https://hbr.org/2021/09/who-is-driving-the-great-resignation (accessed January 12, 2022).

2Mike Royko, “Silver Spoon Fits, Why Not Wear It?,” Chicago Tribune (November 11, 1985), sec. 1, p. 3. Quoted in It Comes with the Territory, edited by A. R. Gini and T. J. Sullivan (New York: Random House, 1989).

3Genesis, 1, 28; 2, 15; 3, 17–19.

4Aristotle, Politics 1256 a 30, 1253 b 25.

5An interesting and helpful overview essay on work is “Work: The Process and the Person” by Gini and Sullivan, chapter 1 of It Comes with the Territory, op. cit., pp. 1–36. For a more in-depth treatment of the ethical and philosophical issues concerning the nature and value of work, see Al Gini, My Job, My Self: Work and the Creation of the Modern Individual (New York: Routledge, 2000) and Joanne Ciulla, The Working Life: The Promise and Betrayal of Modern Work (New York: Times Books, 2000). These insightful books provide excellent resources for further thinking about work.

6For Rousseau, see especially Emile, translated by Allan Bloom (New York: Basic Books, 1979). For Marx, compare “Estranged Labor” in The Economic and Philosophic Manuscripts of 1844, translated by Martin Milligan (New York: International Publishers, 1964), and “The German Ideology,” edited and translated by Loyd Easten and Kurt Guddat, in Writing of the Young Marx on Philosophy and Society (New York: Doubleday, 1967).

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7Habits of the Heart: Individualism and Commitment in American Life, by Robert Bellah, Richard Madsen, William Sullivan, Ann Swidler, and Steven Tipton (New York: Harper & Row, 1985), pp. 65–66.

8Douglas McGregor, “The Human Side of Enterprise,” originally published in The Management Review 46, no. 11 (1957), reprinted in Leadership and Motivation: Essays of Douglas McGregor (Cambridge, MA: MIT Press, 1966).

9Studs Terkel, Working (New York: Pantheon Book, 1974), p. xi.

10Plutarch, Lives (New York: Modern Library, 1932), p. 132.

11Yves Simon, Work Society, Culture, edited by Vukan Kuic (New York: Fordham University Press, 1971), p. 78.

12Hannah Arendt, The Human Condition (Chicago: University of Chicago Press, 1958), p. 5.

13George E. Valliant and Caroline O. Valliant, “Natural History of Male Psychological Health: Work as a Predictor of Positive Mental Health,” American Journal of Psychiatry 138 (1981), pp. 433–440, as quoted in Robert Lane, The Market Experience (Cambridge, United Kingdom: Cambridge University Press, 1992), p. 247.

14The downward spiral of unemployment, poverty, and crime characteristic of many cities is forcefully portrayed in William Julius Wilson, When Work Disappears (New York: Alfred Knopf, 1997).

15For two insightful discussions that rely on the distinction between what work does for and to individuals, see E. F. Schumacher, Good Work (New York: Harper Colophon Books, 1980), and the American Catholic Bishops’ pastoral letter, Economic Justice for All (Washington, DC: National Conference of Catholic Bishops, 1986).

16Schumacher, Good Work, p. 27.

17Karl Marx, The Economic and Philosophical Manuscripts of 1844, edited with an introduction by Dirk J. Struik. Translated by Martin Milligan (New York: International Publishers, 1964).

18Laborem Exercens, reprinted in Gregory Baum, The Priority of Labor (Ramsey, NJ: Paulist Press, 1982). I rely on Baum’s excellent and extensive interpretive commentary for much of this section.

19Laborem Exercens, in Baum, pp. 95–102.

20Baum, p. 65.

21Baum, pp. 68–72.

22See Schumacher, Good Work, pp. 3–4 and Al Gini, “Work, Identity and Self: How We Are Formed by the Work We Do,” Journal of Business Ethics 17 (1998), pp. 707–714.

23Gini, p. 714.

24Norman Bowie, “A Kantian Theory of Meaningful Work,” Journal of Business Ethics 17 (1998), pp. 1083–1092. As will become clear, I take Bowie’s “Kantian” theory, based on an overriding commitment to individual autonomy, as a clear example of a “liberal” approach.

25Bowie, p. 1083. Bowie’s characterization of the first alternative as subjective and individualistic reasonably captures the more libertarian versions of the conventional model of work. His reference to an “objective normative definition” captures the essence of the human fulfillment model’s understanding of a single human good, or telos.

26Adina Schwartz, “Meaningful Work,” Ethics 92 (July 1982), pp. 634–646.

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Chapter 6

Moral Rights in the Workplace

Learning Objectives

After reading this chapter, you will be able to:

- Distinguish moral rights from legal and contractual rights;

- Explain and examine various meanings of a right to work;

- Analyze arguments supporting an employee right to due process, participation, health and safety, freedom of expression, and privacy;

- Distinguish due process from the legal doctrine of employment at will.

DISCUSSION CASE: Workplace Privacy and Employee Monitoring

In the Discussion Case for chapter 1 we quoted Apple CEO Tim Cook on privacy. Cook described a new feature of Apple’s iOS operating system as giving consumers “a choice on how apps use and share your data—data like your age, location, health information, spending habits, and your browsing history, to name a few—they collect thousands of pieces of information about you to create a digital profile that they sell to others. This has been happening without your knowledge or permission. Your information is for sale. You have become the product. That’s why iPhone users will now be asked a single, simple question—allow apps to track you or not? We believe that you should have a choice. App Tracking Transparency—a simple new feature that puts your data back in your control.” During another interview, Cook promised that Apple was “not going to traffic in your personal life. I think it’s an invasion of privacy. Privacy, to us, is a human right. It’s a civil liberty.”

As consumers, we may have grown comfortable with our activities being tracked on a minute-by-minute basis. Yet, as the quotes from Cook suggest, not everyone is comfortable with this loss of privacy. We will return to this question of consumer privacy in the Discussion Case for chapter 9, but first let us consider privacy as it might exist in the workplace. As consumers we may be comfortable with companies collecting our data, but how comfortable are we if our employers are tracking our activities, our locations, and who we are communicating with? If privacy is a human right or civil liberty, are employers violating our rights when they collect personal data about employees?

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Monitoring employee behavior is nothing new of course. There is an old management adage that says that one cannot manage what one cannot measure, and measuring employee activities has direct implications for management. From such simple tools as a timecard for punching in and out, to a supervisor watching shop-floor production, monitoring employees has been a workplace norm from the beginning of workplaces. Employers would not be able to manage employees if they lacked information about employees’ behavior.

But it has only been in recent years that electronic resources have provided the tools for an unprecedented increase in workplace monitoring. There have been cases in which employees have been fired when the employer discovered sexually explicit material on company computers, or e-mails critical of company policies or personnel. Some companies rely on software programs that search for key words relating to pornography, fantasy football, or drugs. Software can search for such activities as online shopping, gambling, or certain websites and e-mail domains, and can monitor keystrokes as a measure of productivity. Software can also remotely disable the computer or smartphone if it detects such proscribed activity. There have been cases in which drivers were fired when GPS tracking devices showed that they stopped at bars, took extended lunch breaks, or simply failed to drive the most direct route to their destination.

As electronic monitoring tools have become more sophisticated and as employees are relying on personal devices more than ever, the range of potential workplace monitoring is greatly expanding. For example, some companies use electronic wristbands and other devices to monitor employee locations, productivity, and even employee communications, including who they communicate with and for how long.

One company, called Humanyze, specializes in these types of “people analytics.” The company describes its mission as “redefining the future of work through science-backed analytics and data-driven insights that help companies make continuous workplace improvements.” The Economist explained how this process might work:

“Its employees mill around an office full of sunlight and computers, as well as beacons that track their location and interactions. Everyone is wearing an ID badge the size of a credit card and the depth of a book of matches. It contains a microphone that picks up whether they are talking to one another; Bluetooth and infrared sensors to monitor where they are; and an accelerometer to record when they move.”

“Every aspect of business is becoming more data-driven. There’s no reason the people side of business shouldn’t be the same,” says Ben Waber, Humanyze’s boss. The company’s staff are treated much the same way as its clients. Data from their employees’ badges are integrated with information from their e-mail and calendars to form a full picture of how they spend their time at work. Clients get to see only team-level statistics, but Humanyze’s employees can look at their own data, which include metrics such as time spent with people of the same sex, activity levels, and the ratio of time spent speaking versus listening.”

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Needless to say, this is an image of the workplace that would shock former generations. But perhaps it is not as surprising to a generation accustomed to the ordinary daily tracking done by Facebook, Google, and the like. However, significant questions might be asked about employee monitoring at a time when substantial numbers of employees are working from home. It is one thing to track employee activities, communications, and e-mail when the employer is in an office and working on a company’s computer or smartphone, but it is different if they are working at home and using their own technology.

Or is it?

A company might reasonably claim that employees working from home create greater concerns for protecting confidential information and proprietary data. While the company likely has sophisticated cybersecurity systems to prevent hacks and online attacks, they have little if any control over this for employees working from home. While the company can limit who has access to computers and files in the workplace, it has little control over who might have access in an employee’s home.

Discussion Questions

1. Do you agree with Tim Cook that privacy is a human right? How do we determine what counts as a right?

2. Are there other human rights—for example, free speech, freedom of religion—that you think might be in jeopardy in the workplace?

3. Do you think that people care less about their privacy now than they did in the past? Have you become comfortable with the amount of personal information that business has about you?

4. If you are not doing anything wrong, why should you worry about what activities are being monitored by your employer?

6.1 Introduction: Employee Rights

Chapter 5 reviewed some of the many values that work can hold for people. Even for those who disparage it, work is valued as a necessary means to other crucial goals. Simply put, work is one of the most important and highly valued human activities in large part because it is necessary for so many other central human goods.

But just as work is inescapable for most people, it is as likely to be something controlled by others. This fact highlights a real vulnerability: Work is something that we need and value, yet it is also something that other people control, including whether we work at all. As we discussed in chapter 2, the idea of moral rights is relevant in just those circumstances when important human interests are jeopardized by the actions of others. So, for example, the question of employee rights to free speech is raised in a situation when someone’s job is put at risk because they have expressed a political opinion. This chapter will examine a range of potential moral rights in the workplace.

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As an initial step, let us clarify the meaning of moral rights in the workplace, or employee rights, that we will be using in this chapter. Three senses of employee rights are common in business. First, there are those legal rights granted to employees on the basis of legislation or judicial rulings. Thus, employees have a right to a minimum wage, to equal opportunity, to bargain collectively as part of a union, to a workplace that is free from sexual harassment, and so forth. Second, employee rights might refer to those contractual rights that employees are entitled to on the basis of agreements with employers. In the sense of a contractual right, a particular employee might have a right to a specific health care package, paid holidays, pension funds, and the like. Finally, employee rights might refer to those entitlements to which employees have a claim independent of any particular legal or contractual factors. Such rights would originate with the respect owed to them as human beings and thus are typically referred to as human rights. While both legal and contractual rights will be relevant for our discussions in this chapter, our primary focus will be on the understanding of employee rights as moral or human rights that are independent of both legal and contractual acknowledgment.

To expand on this understanding, consider how legal and contractual rights interact. In general, both parties to an employment agreement bargain over the terms and conditions of work. Employers offer certain wages, benefits, and working conditions and in return seek worker productivity. Employees offer skills and abilities and seek wages and benefits in return. However, certain items are legally exempt from such negotiation. An employer cannot make a willingness to submit to sexual harassment or acceptance of a wage below the minimum established by law a part of the employment agreement. In effect, legal rights remove certain goods from the employment contract. Such legal rights set the basic legal framework in which business operates. Philosophers sometimes refer to rights as side constraints, and in the employment situation they function as constraints or limits to what can be agreed upon in the employment contract. They are, in this sense, part of the price of doing business.

But, in the case of both contractual rights and legal rights, these rights are contingent upon contracts and law. What is created and protected by a contract or law, can be taken away by a contract or law. In this way, different jobs, different employers, and different legal jurisdictions will result in different contractual or legal rights.

Employee rights as understood in this chapter will be understood to stand on their own, without dependence on contracts or law. Like legal rights such as the minimum wage and protection against sexual harassment, moral employee rights lie outside of the bargaining that occurs between employers and employees. But unlike minimum wage, moral rights are justified by moral, rather than legal, considerations. We will understand employee rights as those goods that employees are entitled to (or protection from certain harms that they are entitled to) within the workplace. They establish the basic ethical framework for employer–employee relations.

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To the degree that there are such rights, employees cannot be asked to forgo these goods to get a job or to gain an increase in employment benefits. Employee rights function to prevent employees from being placed in what would be a fundamentally coercive position of having to choose between these basic moral goods and their job.[1] Again, to use the examples from the discussion case, if an employee had a right to privacy, then an employer could not deny someone from their job on the basis of what they do in their time off-work.

Thus, the moral rights examined in this chapter fit within the liberal model of work introduced in chapter 5. While many conditions of work are open to negotiation between employers and employees (thus respecting the freedom and autonomy of each), some fundamental constraints on that negotiation are necessary to ensure that employees are not put in the fundamentally coercive position of having to choose between important human goods (e.g., health, safety, privacy, free speech) and their job. The goods protected by such constraints fall within a traditional liberal understanding of freedom, equality, and autonomy.

6.2 The Right to Work

One potential employee right that is crucial to all others is the right to work itself. If work is necessary to secure such central primary goods as food, clothing, and shelter, a right to work might seem an obvious candidate for being a moral right. There are indeed many who do argue that all people should have a right to work, including most believers in what the previous chapter identified as the human fulfillment school, who see work as an essential part of human well-being. But there can be confusions about what is involved in an alleged right to work, so as a first step in evaluating this potential right, let us consider some various understandings.

In many contemporary political and legal contexts, the right to work refers to a right to work without being required to join a local union. Several U.S. states have passed “right to work” laws with this meaning. As part of many collective bargaining agreements, unions will stipulate that all employees must join the union upon being hired. This requirement is seen as an essential means to protect the viability of the union by prohibiting “free riders,” who reap the benefits of union membership without sharing the burdens. This also protects the entire collective bargaining system by preventing employers from hiring only those workers who promise not to join the union. Several states have passed legislation that prohibits such a requirement, and this legislation is often referred to as a right-to-work law.

While this sense of a right to work is not our primary focus here (it is more a legal question than a philosophical one), we can consider the soundness of this reasoning. Should new employees be required to join a union when they enter a unionized workplace? The “free rider” argument is to be based on a reasonable understanding of fairness. If one receives benefits from a process that entails costs, it seems only fair that you share the costs. Especially if there is evidence that workers would receive lower wages and benefits without the union, mandatory union membership allocates the benefits and burdens of union membership in a fair and equal manner.

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A second consideration cites the traditional rationale for collective bargaining. Defenders of right-to-work laws argue that wages and benefits are more appropriately determined through a process of individual bargaining between employee and employer. In response, the traditional rationale for collective bargaining argues that few individual employees can bargain with employers on an equal basis. Except in very unusual circumstances, an employer can get along without any particular employee, but most employees do not have comparable choices available. Bargaining is fair only when the parties are equal, meaning that each party is equally free to accept or reject the employment conditions. Only in this case is an agreement guaranteed to be mutually beneficial and optimally satisfactory. However, without the ability to bargain collectively, employers have little or no incentive to compromise with any single employee when they can continue to negotiate with all other employees individually. This suggests that there are good reasons for denying that in industries in which collective bargaining exists, individual employees do not have a “right to work” in this sense.

A more interesting meaning of right to work implies that employees have a right to a job. This position has had many defenders, ranging from the tradition of Catholic social philosophy to the U.N. Declaration on Human Rights.[2] There are two primary rationales for this claim, corresponding to two primary accounts of the significant value of work. Given the important instrumental value of work—that work is a primary means to such ends as food, shelter, clothing, and health care—some argue that we should recognize a human right to a job. Others, reflecting the human fulfillment school, argue that because work is part of the expression of a fulfilling human life, each individual has a right to work. The type of work implied by these approaches might be different. In the first case, one would have a right to any work that supplies a living wage no matter how tedious or unchallenging. The latter would require the type of work that is capable of elevating and humanizing workers.

In response, critics cite the distinction between rights and merely desirable states of affairs. Not everything that is valuable and highly desired can be claimed as a right. The key point here seems to be that rights imply some responsibility on the part of others to provide what is claimed by the right. If every human has a right to a job, someone or some institution must have the responsibility to supply that job. By the same token, whoever is said to have the responsibility to provide a job must be in the position to be able to do so. A reasonable and standard philosophical observation is that “ought implies can.” We can reasonably be said to have a responsibility only for those things that we can accomplish. But who should and who could supply jobs to every person?

Placing this responsibility on the shoulders of private employers surely is too burdensome in both an economic and ethical sense. Without significant limitations, such a right claimed against private employers would result in economic chaos. Would private employers be obligated to hire just anyone who applied for work? Would qualifications be relevant? Would this right depend on an employer’s profit status? Providing any and all people with jobs is simply not something that a private employer can do and remain economically viable. An unprofitable business cannot continue to provide jobs to any employees. Further, the rights of employers also provide counterarguments to this view. Such considerations as employers’ property rights (which, admittedly, are not absolute), freedom, and their own right to work would clearly limit significantly any responsibilities that an employer could be said to have for providing jobs to others.

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Defenders of a right to a job might respond by placing the responsibility in the hands of government rather than private employers. Government could provide jobs either through incentives and subsidies to private employers (as many governments already do in the case of former welfare recipients) or by providing direct employment.

Government is certainly better situated to fulfill this responsibility than private business. This proposal would not, after all, threaten the rights of “owners” as it would as it would if private employers had this responsibility. Governments have direct responsibilities to their citizens in ways that private employers do not. However, this approach can face many of the same challenges faced by the private employment option. Directly providing jobs to any citizen who desired one could lead to inefficiencies in government as easily as it could in private business. Although economic efficiency is clearly not the primary criteria by which we judge governments, too much inefficiency can create both economic and political turmoil. Simply put, government could not provide every citizen with a job. Since rights claimed against the government should (at least within a democracy) be held equally by all citizens, and since not every citizen could be employed by government, citizens cannot claim a right to a job from the government.

Of course, few defenders of a right to a job will claim that governments should supply every citizen with a job. A modified version would claim that government has the responsibility to provide jobs compatible with qualifications to those who are able to work but unable to find jobs in the private sector. Government would be the employer of last resort. Something like this seems to have been operating at least implicitly in many industrialized democracies through the latter half of the twentieth century. Something similar to this was also used by the U.S. federal government as a response to the Great Depression of the 1930s.

This modified version is on better ethical and economic grounds. It is difficult to imagine goods more worthy of government protection than those associated with work. The economic challenges to this version are more a matter of degree than principle. At one extreme, government would supply jobs to so many people that government spending drains money out of private markets, which leads to an economic downturn, which leads to more unemployment, which leads to more government employment, which continues to cycle further downward. At the other extreme, government provides no economic help for the unemployed. Even among those who would argue on economic grounds against government directly supplying jobs to the unemployed, there is a strong consensus that government has a responsibility to provide a social “safety net” of economic support. The remaining question seems to be, is this support better provided in the form of jobs, in the form of incentives to the private sector to hire the unemployed, or in the form of such payments as unemployment insurance, food stamps, and health insurance?

Something of a consensus, in theory if not always in practice, seems to be emerging within Western democracies (at least) in this regard. Governments have a responsibility to encourage, through such things as fiscal and monetary policy and tax incentives, private sector employment for all its citizens. As a last resort, and especially for hard-core unemployed, government has a responsibility to provide jobs for its citizens. In this restricted sense, then, it can be reasonable to claim that people have a right to a job.

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Perhaps the most significant ethical objection to claiming a right to a private sector job is the burden that this would place upon private employers. We could not require private employers to employ just any and all people without imposing grave and serious restrictions on that employer’s freedom and property rights. We certainly can and should require that private sector employers provide an equal opportunity to work for all, but it is unreasonable to expect them to provide jobs for all. This, essentially, would be the position defended by the liberal theory of work.

But there is another sense to a right to work that can be claimed against private employers. This interpretation holds that the right to work is not a right to a job, but the right, once hired, to hold that job with some degree of security. Once one has a job, this would be the right to keep that job or, in other terms, the right not to be fired without just and sufficient cause. Comparable to legal restrictions on the authority of governments, we will identify this as a right to due process.

The remainder of this chapter examines what a workplace might look like if it respected the ethical rights of employees. To provide a context for this examination, we will begin by reviewing an important legal doctrine that effectively denies the validity of employee rights. That doctrine is known as employment at will.

6.3 Employment At Will

Much employment law within the United States has developed against a background of nineteenth-century, laissez-faire legal perspective on economic transactions. In general, courts were reluctant to recognize any obligations other than those explicitly agreed to by the parties concerned. Thus, unless there was an explicit employment contract that specified the length and conditions of employment (a very unusual event even today), all employees were employed “at will.” An “at will” contract is one that exists only so long as both parties consent or, conversely, can be broken at the discretion of either party. Employment at will means that employees are free to quit their job at any time for any reason and employers are free to terminate an employee at any time and for any reason. In the words of an early court decision establishing this precedent, “all may dismiss their employee(s) at will, be they many or few, for good cause, for no cause, or even for cause morally wrong.”[3]

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If employment at will governs the workplace, if employees can be dismissed for morally wrong reasons without violating the law, then the concept of employee rights is, at least in the legal sense, meaningless. An employee right would be a legitimate claim to certain goods (or to protect against certain harms) in the workplace. To say that employees have a legitimate claim implies that they ethically cannot be placed in the position of having to choose between these goods and their job. If, for example, an employee has the right to be protected against sexual harassment in the workplace, then an employer cannot force an employee to choose between her job and accepting harassment. The interests that are protected by rights are, in effect, exempted from the bargaining between employers and employees that establishes the conditions of work. Yet, if employment at will holds sway, then no interests are protected in this way.

But even within the United States the legal doctrine of employment at will was limited from the very beginning. Over the past century, a growing consensus in both law and business practice has recognized the ethical deficiency of this doctrine. A brief review of the erosion of employment at will as a legal doctrine will set the stage for our examination of the ethical rights of employees.

From the very start, employment at will applied only to private sector, noncontractual employees. Federal and state constitutions grant government employees numerous rights against the government, which in this case is the employer. Union employees, protected as they are by union contract and federal and state legislation, are also exempt from the at-will rule.

Over the past century, a number of federal and state laws restrict the ability of employers to dismiss their employees. Civil rights laws protect employees from being fired on the basis of race and sex, for example. Employers are also prevented from firing employees because of union support, health or safety complaints, or disability by the Wagner Act, the Occupational Safety and Health Act, and the Americans with Disabilities Act. Federal and state laws also protect employees who blow the whistle on certain illegal or unethical acts committed by their employer.

Aside from these legislative restrictions, state and federal courts have created a wide range of judicial exemptions to employment at will. Many courts have recognized a “public policy” exemption that protects an employee’s job when the dismissal would violate an important public policy. For example, some jurisdictions protect employees from being fired for serving on a jury, for reporting a crime, or for refusing to participate in a fraudulent business practice. Some courts have also recognized an “implied contract exemption” and provide employees with protections that are implied in such employer documents as employee handbooks, job descriptions, and job advertisements. Finally, some courts have created a more general “implied covenant of good faith” exemption, which is a more open-ended protection against employment practices that violate a “good faith” condition. Thus, for example, firing an employee as a means for avoiding payment of an earned annual bonus was judged an illegal violation of an implied covenant of good faith.

Despite this legislative and judicial erosion, the employment-at-will rule remains as the background legal doctrine. The legal burden of proof rests with employees who believe that they have been unjustly fired. The employees must prove that they have been fired for an illegal reason and absent such proof, employers are free to dismiss employees at will. The ethical concept of due process, to which we now turn, seeks to reverse this burden of proof. Due process would require that employees can be dismissed only for just cause and the burden for establishing this cause rests with the employer. This, then, returns us to the third meaning of a right to work described in the previous section. Once hired, employees have a right to keep their job and can be fired only for good reasons.

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6.4 Due Process In The Workplace

The legal principle of due process is often traced to the Magna Carta’s doctrine of per legem terrae (“by the law of the land”), which established limitations of the authority of the king. The essential idea was that while the barons recognized the legitimate authority of the king, they demanded that his authority be limited. Due process can be defined as limitations that offer protection against arbitrary uses of authority. This concept is seen in such modern legal guarantees as the right to a trial by jury, legal representation, the Miranda rights to remain silent, and so forth. The philosophical idea that underlies this legal concept is that even legitimate authority cannot be used in just any manner. While courts, legislatures, and police have legitimate authority over citizens, that authority can only be exercised in certain sorts of ways. Courts cannot decide guilt by flipping a coin, a legislature cannot pass legislation without voting, and the police cannot obtain confessions by torture or coercion.

Due process in the workplace would mean that employees have a right to be protected from the arbitrary use of managerial authority. Due process would mean that while employees can be dismissed for “good cause,” they cannot be dismissed “for no cause, or even for cause morally wrong.” Due process right would establish the procedures (the “process”) that an employer must go through to ensure that the dismissal is not arbitrary.

What might such procedures involve? One approach would be to specify the acceptable reasons for dismissal. Such factors as incompetent job performance, intoxication, inordinate absenteeism, theft, fraud, and economic necessity would be obvious candidates. This approach seeks to establish just cause conditions for dismissal. However, specifying every possible acceptable reason and distinguishing them from unacceptable reasons beforehand might well be impossible. As a result, typical due process policies outline a procedure through which employers must go before they can dismiss an employee. Consider the following Reality Check: “Fired over a Zoom Call” to examine the conditions that might apply to just procedure for dismissal.

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Reality Check: Fired Over a Zoom Call

As described in the previous chapter, the pandemic changed the relationship between employers and employees and dramatically changed the very nature of work. Millions of employees spent months and years working from home, relying on Zoom and other platforms to meet with co-workers and customers. Many work activities that were traditionally in-person, quickly moved online.[4]

On December 1, 2021, 900 employees of the online mortgage company Better.com were asked to attend an online Zoom call with CEO Vishal Garg. Garg began the meeting by announcing that he had “no great news.” “We are laying off about 15 percent of the company for a number of reasons — the market efficiency and performances, and productivity. If you’re on this call, you are part of the unlucky group that is being laid off. Your employment here is terminated effective immediately.”

Soon after the call copies of the video went viral on social media and Garg received widespread criticism for his actions. Within a week he issued an apology in which he shared with remaining employees. “I failed to show the appropriate amount of respect and appreciation for the individuals who were affected and for their contributions to Better. I realize that the way I communicated this news made a difficult situation worse. I am deeply sorry and am committed to learning from this situation and doing more to be the leader that you expect me to be.” Garg said he “owned the decision” to lay-off the 900 employees, but said he regretted how it was done. He then announced that he would be “taking time off effective immediately” to reflect on his own leadership.

One month later, on January 18, 2022, Better announced that Garg had returned to work as CEO. In a public statement, the Better board explained that he had worked with an executive coach during the time away and promised that he would “reconnect with the values that make Better great,” and that they were confident that “he is committed to making to provide the type of leadership, focus and vision that Better needs at this pivotal time.”

Few would dispute that Garg had the authority to fire the 900 workers and few think that his methods were right. In your opinion, what exactly was the problem with his method of firing people over a Zoom call?

The Miranda rights in criminal law developed as a means to create procedures that would guarantee just cause. The Miranda rights are familiar to all who watch police dramas on television when, at the time of arrest, a suspect is reminded that “you have the right to remain silent, you have the right to speak to an attorney,” and so on. This procedure resulted from a Supreme Court decision in which the court concluded that it could not and would not attempt to specify every type of illegitimate police tactic. Instead, it required police to follow a particular process—reading the Miranda rights—and concluded that a citizen’s rights would be protected as long as this process was followed.

In the workplace, such a procedural account of due process might include such things as prior warning, documentation, written performance standards, probationary periods, a process by which decisions can be appealed, an opportunity to respond to allegations, and prior determination of punishment that is proportionate to the infraction. Thus, an employee should know what is expected of her, know the consequences of failing to meet those expectations, be given a warning when any problem is first recognized, have an opportunity to change and respond to the warning, and have a right to appeal any decision to an impartial judge. Similar to the Miranda decision, an employee’s right to due process would be respected as long as these procedures were followed.

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The strongest defense of an employee’s right to due process appeals to the fundamental ethical concepts of respect and fairness. To understand this defense, consider a distinction, essential to political theory, between authority and power. Power might be defined simply as the ability to impose one’s will on another. Authority exists when that power is justified or legitimate. A gunman has the power to take your money; the Internal Revenue Service has the authority to do so. Imposing one’s will on another without justification is ethically wrong since it is to treat that other as a mere means to one’s own ends. It violates the autonomy of that individual, and it denies her the respect that she is due as an autonomous person. Institutions, such as the criminal justice system or the workplace, that allow people to impose their will upon others without justification are fundamentally unfair and unjust.

Due process demands nothing more than that the exercise of power be justified or authorized. A business manager has the ability to impose her will on employees. That is, she has power. Society should sanction that ability, should allow this authority, only to the extent that the manager can provide a justification. Due process rights in the workplace establish the criteria for that justification either by outlining just cause conditions (“an employee can be fired for reasons a, b, or c”) or by creating procedural safeguards (“before terminating an employee, employers must do a, b, and c”). Without due process in the workplace, society is sanctioning an institution that allows individuals to exercise the power they have over others without restraint.

There are four major counterarguments to the right of due process: freedom, fairness, property rights, and efficiency. The first claims that due process involves an illegitimate restriction on the freedom of individuals to establish the conditions of their own work. The second argues that if employees are free to quit their job for any reason, it is only fair that employers be free to fire employees for any reason. The third claims that due process is an illegitimate restriction on the property rights of business owners. The fourth argues that without the fear of dismissal as motivation, the workers will likely become inefficient and unproductive. Against due process, these counterarguments would defend the employment-at-will rule. These arguments would most likely be proposed by free market defenders.

The first argument is familiar from our previous examination of the free market approach to corporate social responsibility. The free market approach to social policy claims that employers and employees should be left alone to bargain individually over the conditions of work. Employees who desire due process protection should be free to bargain for it and should be willing to give up something, presumably wages, in return. Employees who prefer higher wages should be free to forgo the job security that due process provides. A competitive labor market will eventually find an equilibrium point where each employee gets as much job security and wages as they decide.

The second argument also begins with an appeal to freedom. It claims that restricting the freedom of an employee to quit at any time for any reason would border on slavery. Since employees are given the freedom to quit without just cause, fairness demands that employers have the equal freedom to fire without just cause.

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Philosopher Patricia Werhane responds to these two arguments by pointing out a significant inequality between employees and employers.[5] Except in very unusual circumstances, employees are harmed more by the loss of their job than employers are harmed when they lose an employee. (In those unusual circumstances when this is not the case, employers typically have such key employees under contract.) A fired employee is further harmed by having future employment jeopardized by having been previously fired. An employer’s ability to hire new employees is seldom harmed by the fact that former employees have quit. This inequality between employees and employers puts employees at a disadvantage in their bargaining with employers since the threat of being fired is more coercive than is the threat to quit. This inequality also means that it is not unfair to limit an employer’s freedom more than an employee’s.

Werhane also responds to the third counterargument to due process. She points out that property rights in the workplace do not include ownership of employees. While employers may have rights over material possessions, they do not have similar rights over employees. Humans are not resources that one can dispose of at will. Further, property rights are not absolute and can be legitimately restricted by other ethical considerations. Due process is the simple requirement that due consideration be given to such factors by articulating the ethical restrictions on the use of one’s property.

The final counterargument to due process claims that employment at will would be a more efficient arrangement of the workplace. Due process requirements will interfere with the efficient functioning of business, will prevent both employers and employees from getting what they most prefer, and will only function to protect unqualified and unproductive workers.

Three responses to this are worth making. First, we should recognize that this is a utilitarian argument, which, even if valid, would not justify the violation of employee rights. For example, it might turn out that a system of slavery or child labor is more efficient economically than the alternatives. But it would be unethical to adopt such a system nonetheless. So, too, with rights to due process. If the cost of economic efficiency would be the violation of employee rights to respect, autonomy, and fairness, then we must conclude that efficiency be sacrificed.

Second, lack of productivity and qualifications are exactly the types of reasons that would provide a just cause for dismissing an employee. Due process does not grant any and all workers an unqualified right to a job. It requires only that good reasons be given before an employee loses a job. In fact, due process might contribute to efficiency by preventing managers from terminating qualified and competent employees.

Finally, efficiency is an empirical claim that needs to be verified by the facts of worker productivity. This debate calls to mind the debate within management theory between the hierarchical scientific management theory of Frederick Taylor and the Theory Y view of management associated with Douglas McGregor. For present purposes, we need only recognize that there is significant evidence that workers who are provided with job security and due process can be more productive than those without. Decent and ethical treatment can be a more effective management tool than threats and control.

In summary, a strong ethical case can be made for recognizing due process rights in the workplace. Without such protections there is no guarantee that employees will not suffer unfair harms by the exercise of managerial power.

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6.5 Participation Rights

If, like political authority, managerial authority ought to be constrained by due process rights, we should ask if it makes sense to extend the analogy further. Let us return to the distinction between power and authority to consider the question of managerial authority. Our discussion of due process assumed the legitimacy of managerial authority and focused on the limitations of that authority. In this section we ask perhaps a more fundamental question: What gives business owners and managers authority, rather than mere power, over employees?

Within democratic societies, the criterion for justifying political power is consent of the governed. Just political institutions are committed to equal respect for each individual as an autonomous agent. If the analogy is valid, we should conclude that managerial authority also ultimately rests upon the consent of employees. But is the analogy between politics and business valid? Is workplace democracy justifiable?

Both business and government are major social institutions in which select people have the power to coerce others to do as they say. This coercive power derives from the ability of the institution to grant or deny very important goods. Institutional roles decide who has and who lacks power. In either case, social justice demands that this coercive power be justified. In societies in which individuals are respected as autonomous and free decision makers, justification of authority is derived from the consent of the governed.

Philosopher John McCall has offered a strong defense of employee rights to participate in managerial decisions. McCall argues that managerial authority must also be derived from the consent of the governed, in this case the employees. McCall offers five arguments to defend his claim that employees should have a right to participate in managerial decision making. Two arguments, based on ethical principles of respect and fairness, imply a strong managerial duty to allow employee participation. Three arguments, more utilitarian, anticipate beneficial consequences that would follow from participatory management.[6]

McCall argues that the fundamental right to be treated with respect implies that individuals be treated as autonomous decision makers, free from coercive interference by others. Human dignity is tied to the ability of humans to guide their own lives and control their own activities. Any other option risks treating individuals as mere objects and means, rather than as subjects and ends in themselves. Within the workplace, respect for this dignity prohibits workers from being treated merely as replaceable resources in the production process. Instead, employees should have rights to co-determine any policy that has a significant impact on their work lives.

The second principle-based argument cites “the fundamental objective of any morality—the impartial promotion of human welfare.”[7] Every individual has a fundamental right to impartial and fair treatment. When decisions are made, the interests of every party affected by that decision must be given due consideration. The most effective means to guarantee that each affected party is represented is to allow each party to represent their own interests by participating in the decision.

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McCall also argues that employee participation is likely to have several beneficial utilitarian consequences. First, participatory management will create conditions of self-respect for employees. Institutions that encourage and honor employee participation will foster the important psychological goods of self-worth and self-respect among employees. Second, McCall believes that employees who participate in and contribute to decision making are less likely to suffer the mental and physical harms of alienation and burnout. Employee participation can be an effective means for bringing meaning and value into one’s work life and this can counter both physical and psychological harms. Finally, McCall cites the political danger of voter apathy and indifference. In the United States, for example, fewer than 50 percent of the eligible voters turn out for most elections. This means that 25 percent of eligible voters can determine elections and 30 percent can constitute a landslide victory. McCall believes that one effective means to counter this political apathy is to create social institutions that encourage rather than discourage individual participation. Since the workplace occupies half of our waking lives, democratic workplaces will likely foster an environment in which political participation becomes the norm rather than the exception.

Opponents would offer three major objections to proposals for employee rights to participate in business decision making. Employer property rights, managerial expertise, and considerations of efficiency are values that can all be raised against workplace democracy.

To respond to the challenge based on property rights, it is helpful to distinguish those businesses that are privately owned from publicly traded incorporated businesses. A private business owner does have property rights that include rights to manage and direct the business. However, as we have seen several times previously, property rights are not absolute and can be legitimately restricted by the rights of others. I surely cannot manage my property in ways that cause significant harm to others. For example, while I own my own home, zoning laws prohibit me from using it as a business location or as a boarding house, and regulate such things as the size, shape, and location of my house. Likewise, I cannot claim the right to manage my business property in ways that harm my employees. If arguments for workplace democracy such as those offered by McCall are valid, then ownership rights alone are not sufficient to overcome employee rights not to be treated as mere human resources to be managed for the economic benefit of owners.

Corporate ownership raises different issues. In general, owners of corporate business do not have a legitimate claim on directing and managing the day-to-day operation of the business. In corporate settings, the owners have already surrendered to management their claim to control corporate property. Thus, objections to worker participation coming from stockholders must be based on some right other than an alleged right to control and manage one’s property. Presumably, that claim would be the owner’s interest in profiting from the business. Only if employee participation threatens a stockholder’s investment would stockholder rights raise a relevant objection. Indeed, if workplace democracy increased corporate profits, then these very same owner interests would demand the surrender of managerial authority to workers. This, then, leads us to consider objections based on managerial expertise and efficiency.

The second objection to employee participation claims that workers lack the expertise and knowledge to manage a business competently. But this is an empirical claim that may not be supported by the facts.[8] We also need to distinguish different forms of employee participation. In some cases, employees may have exactly the expertise needed to improve decision making. But even in cases where employees may lack the relevant expertise (detailed issues of finance and corporate strategy come to mind here), nothing prevents employee representatives who do possess the expertise from participating. Just as managers come to rely on the expertise of financial, accounting, and legal advisors, so, too, could employee interests be represented by experts.

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A third objection argues that employee decision making will be inefficient. In one sense widespread consultation and participation could hinder and delay decision making, thus leading to higher costs. Employee participation is also inefficient in the sense that employees will tend to make decisions for their own benefit rather than for the benefit of the firm. But again, employee participation need not involve direct democracy in which every employee must be consulted on every decision. A democratic business could adopt a more hierarchical pyramid management structure, as long as the decision makers represented employees. Further, while conflicts can exist between the interests of the firm and the interests of employees, this is a valid objection to employee participation only if such conflicts are more likely to occur than similar conflicts between the interests of managers and the interests of the firm. Conflicts of interests can occur under any decision-making structure, but evidence suggests that employees are no more likely to run a business into the ground than are traditional managers.

6.6 Freedom Of Expression

Let us begin consideration of other specific rights with the example described in the following Reality Check. Those examples describe two situations in which employees lost their jobs as a result of expressing their political views. Employees within the United States do not legally have an employee right of free expression. But do they have a moral right, and should they have a corresponding legal right?

Reality Check: Freedom of Expression in the Workplace

On August 7, 2017, James Damore was fired from his job as an engineer at Google for violating the company’s code of conduct. A month earlier, Damore had circulated a memo titled “Google’s Ideological Echo Chamber” to an internal Google mailing list. The memo alleged widespread company bias concerning diversity and inclusion at Google’s Mountain View, California campus. Damore was fired from Google when his memo became public.

According to Damore’s memo, Google’s culture was characterized by a political bias that attributed any disparity among men and women within the technology profession to oppression and that silenced anyone who dared to disagree. The result was an “echo chamber” in which only discussions deemed politically correct were allowed. This, according to Damore, created an authoritarian “cancel culture” in which unfair and divisive discrimination against white males was the accepted means to address workplace disparity. Damore asserted that “Only facts and reason can shed light on these biases, but when it comes to diversity and inclusion, Google’s left bias has created a politically correct monoculture that maintains its hold by shaming dissenters into silence.”

Damore’s memo then went on to cite the “facts and reason” that he believed explained the workplace disparity between men and women. Damore claimed that “men and women are biologically different in many ways.” These biological differences, in turn, explain personality differences, which are the best explanations for workplace inequality, especially in such fields as software engineering.

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According to the memo, women are more “directed toward feelings and aesthetics rather than ideas.” They “have a stronger interest in people rather than things,” and this explains why women “prefer jobs in social or artistic areas.” On the other hand, “men may like coding because it requires systemizing and even within SWEs [software engineering], comparatively more women work on front end, which deals with both people and aesthetics.” Damore went on to claim that women are more gregarious than men, who tend to be more aggressive, and that this “leads to women generally having a harder time negotiating salary, asking for raises, speaking up, and leading.” Finally, Damore claimed that women characteristically have higher levels of “neuroticism (higher anxiety, lower stress tolerance)” and that this “may contribute to the higher levels of anxiety” and to the “lower number of women in high-stress jobs.” In contrast, men have “a higher drive for status that makes them more tolerant of longer work hours and a high-stress work environment.”

Sundar Pichai, Google’s CEO, and Danielle Brown, Vice President for Diversity, defended their decision to fire Damore on grounds of their commitment to equal opportunity in the workplace. They explained that while Google was committed to protecting free speech and diverse opinions, they had a stronger commitment to treating all employees equally and providing a workplace that was free from discrimination. In their judgment, Damore’s memo violated that commitment.

On a Saturday morning in October 2017, Juli Briskman was bicycling near her home in Virginia when she was passed by the presidential motorcade. As President Trump’s vehicle passed her, she responded by raising her middle finger to flip off the president. That act was captured by a photographer traveling in the motorcade and soon appeared online where it went viral.

When she later saw the photograph, Briskman used it as the background for her personal Facebook and Twitter pages, neither of which mentioned her employer. However, early the following week she was fired by her employer, Akima, for violating the company social media policy prohibiting obscene and inappropriate content. Akima, which does extensive business with the U.S. government, acknowledged that they feared that the government might retaliate against them by denying future contracts. Citing her right to free speech, Briskman filed a lawsuit against Akima for unjust dismissal in April 2018. That lawsuit was dismissed by a judge who pointed out that employees have no First Amendment protection against the actions of private employers.

The James Damore and Julie Briskman cases were not the only high-profile cases in which employees were adversely affected at work because of the political nature of something they said or did. During the fall of 2017, following deadly protests in Charlottesville, Virginia, a person identified as a white nationalist who had participated in the protests was fired from his job. During 2016 and 2017, a number of professional athletes in the National Football League demonstrated their concern with racial injustice by refusing to stand for the national anthem. At least one player, quarterback Colin Kaepernick, was unable to find a team willing to hire him after his protests. Following the January 6th insurrection at the U.S. Capitol, numerous people who participated in that insurrection were fired when their employers learned of their participation. All of these cases involve situations in which people lost their job, or were unable to find a job, because they were outspoken in their political speech.

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Within the United States (and many other countries), citizens do have a legally and constitutionally protected right of free expression. But those rights are rights granted in law against the government; that is, these rights imply a duty on the government’s part to respect a citizen’s political speech. But neither the law nor the Constitution grants this right against private employers in the workplace. Unlike governments, private employers have no duty to respect a person’s political speech. (Had Damore or Briskman worked for the government, they could not have been fired for expressing their views.)

How should we analyze these situations? In terms introduced in chapter 2, these cases can be described as a conflict between various rights claims. On the one hand, employees claim that they have a right to freely express their opinions. On the other hand, employers claim that they have a right, ultimately based on the right of private property, to manage their businesses as they see fit. What are the ethical foundations for these rights claims?

Philosophically, the right of free expression, especially as it applies to political opinion, has two basic ethical foundations. First, respect for freedom of expression follows from the respect that is owed to the dignity of each individual. Free expression is part of what it means to be an autonomous individual with personal ideas and opinions that are distinctive. The opposite of free expression is conformity, denying one’s individuality in favor of the norms and expectations established by others. Free expression is a way in which I exhibit and display my individuality. To respect me as an individual is to recognize, and allow the expression of, my own personal opinions and beliefs.

Freedom of expression also has strong utilitarian roots. In the classic defense of liberty, John Stuart Mill argued that society always benefits from the promotion of free expression of opinions. Mill argued that the opinion being expressed must be either true, partially true, or false. In each case, society benefits by allowing it to be expressed. If it is true, then society gets the benefit of true beliefs. If it is partially true, then society benefits by the engagement of having to sort through the true and the false. But even if the opinion being expressed is false, society benefits by the challenge of false beliefs. Without the challenge of contrary beliefs, Mill argued that true beliefs can become complacent and self-righteous.

In the particular case of political expression, this right also receives a strong utilitarian defense. The very idea of democracy is predicated on the belief that each individual has the right and duty to fully participate in social and political decision making. Democracies flourish when citizens freely express their views. Authoritarian governments thrive by preventing dissent, closing newspapers, jailing opponents, and otherwise undermining the free exchange of ideas, especially including critical and opposing points of view.

How do these ethical reasons stack up against the claims of business managers seeking to limit employee expression? Consider the Damore and Briskman cases. Google claimed that freedom of expression was an important corporate value that it otherwise defends and promotes. However, in this case, they judged that the opinion expressed had the effect of creating a hostile workplace for its women employees. In effect, they judged that Damore did have an employee right of free expression, but that his right was overridden by the rights of other employees to a workplace free from harassment and discrimination.

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The Briskman case differs in that her employer justified their decision based not on the rights of others, but upon business considerations. Thus, this case involves a claim that financial (utilitarian) consequences override an employee’s rights claim. Briskman was fired because, in her employer’s judgment, the firm might suffer a financial loss as a result. Now, if suffering a financial loss means only that the business incurred a cost, that in itself would not seem to justify the dismissal. After all, if that were an acceptable justification, then we would excuse business from any decisions that incur costs. We would not say that a business should be free to ignore duties to prevent sexual harassment, for example, or to conduct equal opportunity job searches, simply because these actions increase costs. The employer’s defense needs to be stronger than this.

In similar cases, some employees have been disciplined not because of what they had said but because they had used business resources (e.g., e-mail, computers, facilities, or doing it on company time) to say it. But these cases would be more about misallocation of business funds and resources than about freedom of expression. In any case, Briskman had not used business resources and she had not identified herself as an Akima employee. The protests of the NFL players were different in this regard. Their political speech occurred at the workplace, while in work uniforms, and a plausible case could be made that they had direct business implications in the loss of viewers and sponsors. (Of course, other business considerations, not the least of which included the talent of the players involved, might mitigate against sanctions.) So the question remains, was Akima justified in dismissing Briskman out of a fear that they might suffer financial losses as the result of her political expression against the president?

In analyzing cases in which utilitarian considerations count against a right claim, the general philosophical claim is that all other things being equal, rights override consequences. There is a strong philosophical presumption that respecting free expression is an important part of respecting the dignity of each individual. While significantly harmful consequences might justify limiting free expression, for example, the famous case of yelling “fire” in a crowded theater, the burden of proof is on those seeking to restrict freedom. Given that Akima’s decision was based more on the fear of retaliation rather than any actual evidence of it (evidence of which, it might turn out, would be unlawful and unethical behavior on the government’s part), it is difficult to conclude that their decision was ethical.

6.7 Employee Health And Safety

Protecting employee health and safety is certainly one of the business’s major ethical responsibilities. At first glance, there is a wide consensus that employees have a right to a safe and healthy workplace. But this issue gets quite complicated upon closer examination. Not only is the very meaning of workplace health and safety in dispute, there is also significant disagreement concerning the best policies for protecting health and safety. Perhaps no time in history have these issues been as widely and publicly debated as they were during the COVID-19 pandemic.

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Like work itself, health and safety are goods that are valued both as a means for attaining other valuable ends and as ends in themselves. When we are healthy and safe, we are much more likely to be able to attain whatever other goods we desire. Health and safety have a very high instrumental value. Yet health and safety are also valuable in and of themselves. They have intrinsic value as well as instrumental value.

But what does it mean to be healthy? When is a workplace safe? When is it unsafe? If healthy is taken to mean a state of flawless physical and psychological well-being, no one is perfectly healthy. If safe means completely free from risk, no workplace is perfectly safe. If health and safety are interpreted as such impossible-to-realize ideals, then it would be unreasonable to claim that employees have a right to a healthy and safe workplace. Employers cannot be responsible for providing an ideally safe and healthy workplace.

Instead, most discussions about employee health and safety will tend to focus on the risks faced by workers and the level of acceptable workplace risk. From this perspective, a workplace is safe if the risks are acceptable. Judging which risks are acceptable, in turn, would seem to require that workplace risks be compared to other risks. Thus, discussions of employee health and safety often turn into discussions of acceptable risks and relative risks.

So, for example, are the risks employees face from exposure to the COVID-19 virus while at work acceptable? Who should decide? Does it depend on the job? The location? The age of health of the employee? Is the risk higher or lower than the risk of a vaccine itself? Who decides and on what basis are those decisions made? What responsibilities does an employer have for protecting employees, and customers, from risks associated with COVID-19?

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Reality Check: Can You Be Fired (or not hired) Because of Your Vaccine Status?

During the COVID-19 pandemic, a person’s vaccine status became part of wider political debates. People who refused to be vaccinated defended their choice on diverse grounds. Some cited bizarre conspiracy theories about microchips being hidden within the vaccine, while other cited a general ethical principle that individuals ought always have the freedom to choose, or refuse, medical treatment. This question spilled over to the workplace: Should employers have the right to require vaccination as a condition of employment?

Within the U.S. legal system, the answer is generally, yes. Consistent with the employment at will doctrine described earlier, employers have great latitude in setting the terms and conditions of work. Employers therefore have the legal right to require vaccines as a condition of employment. Those who refuse can be denied jobs or dismissed from their work. There are some narrow exceptions of course: Vaccine policies cannot be applied in a discriminatory manner, or a contract or union rules might prohibit it. Some states might pass laws restricting it. But as long as the policy is fairly applied and not prohibited contractually, employers may require it. Legal protections of privacy (e.g., the Federal HIPAA standards) restrict what employers can do with medical information, for example, the employer is not at liberty to disclose that information publicly, but they do not prevent employers from making vaccine status a condition of employment.

Independently of the law, we can still ask about the ethical status of vaccine requirements. The freedom to use or refuse medical treatment is an important principle in medical ethics. What of the employee’s right to refuse vaccination? What of the employee’s freedom? In general, ethical analysis concludes that a person’s freedom ends where the well-being of others begins. For example, I have the freedom of speech, but I cannot use my speech to harm you through libel or slander. Likewise, I may choose to go unvaccinated, but I cannot expect my employer to allow co-workers being put at increased risk by my actions.

But we should note a subtle yet important shift that occurs when we focus on acceptable risks rather than on health and safety. Risks are defined as the probability of harm, and relative risks would entail comparing the probabilities of harm involved in various activities. Thus, both risks and relative risks are things that can be determined and measured by compiling data about various types of harms. It is an easy step from this to certain conclusions about acceptable risks. If it can be determined that the probability of harm involved in a specific activity (for example, taking a vaccine) is less than the probability of harm from some more common activity (being exposed to the public with a general background rate of infection), then it would be easy to conclude that this activity faces an acceptable level of risk. In turn, this suggests that determining an activity as safe (in the sense of involving an acceptable level of risk) is something that can be determined by experts rather than the actual individuals involved in facing the risks.

Consider an example offered by philosopher Mark Sagoff. Sagoff offered an example where he attended a conference addressing potential health hazards faced by neighbors of a toxic waste dump. Citizens had learned of a high rate of leukemia among area residents. Government and corporate officials responded that these fears were irrational because the risks involved in living near this waste site were much lower than the risks faced by smokers. Because people commonly accept the risks involved with smoking, and because experts could show that risks of living near the waste site were lower than those, the government and corporate experts could assure the citizens that they faced an acceptable level of risk.[9]

Imagine if we generalize this and set all workplace health and safety standards in this manner. Such an approach would place the responsibility for workplace safety solely on management or government regulation. Business would hire safety engineers and other experts to determine the risks faced within their workplace. These experts would know the risk levels that are otherwise accepted throughout the society. These might involve the risks involved in driving a car, in eating high-fat food, in smoking, in jogging, and so forth. Comparing these to the risks faced in the workplace, safety experts could perform a risk assessment and determine the relative risks of work. If the workplace was less risky than other common activities, management could conclude that they have fulfilled their responsibility to provide a healthy and safe workplace.

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Something along these lines occurred during the COVID-19 pandemic when many employers mandated masks and vaccines. Scientific data could establish the risks associated with exposure to the virus and compare them with the risks associated with masks and vaccines. In turn, these risks could be compared relative to similar cases of the flu and flu vaccine, or diseases and vaccines for such as polio, measles, and mumps. It would be easy to conclude that requiring masks and vaccines in the workplace is an ethically and rationally responsible policy.

However, there are problems with an approach that allows employers alone to decide what health and safety risks employees will face. First, this can treat employees disrespectfully by ignoring their input. Such paternalistic decision making effectively treats employees like children and makes crucial decisions for them. Second, it can assume an equivalence between workplace risks and other types of risks that employees choose to take. But, unlike many daily risks, the risks faced in the workplace may not be freely chosen, nor are the risks faced in the workplace within the control of workers. Perhaps most importantly, unlike daily risks, the risks faced at work can be controlled by others and particularly by others who may stand to benefit by not reducing them.

An alternative approach is to leave workplace health and safety standards to the normal contractual bargaining that exists between employers and employees. Individual bargaining between employers and employees would be the approach to workplace health and safety favored by defenders of the free market and the classical model of corporate social responsibility. On this account, employees would be free to choose the risks that they are willing to face by bargaining with employers. Employees set their own risk versus wage preferences and decide how much risk they are willing to face for various wages. Those who demand maximum safety presumably would have to settle for lower wages; those willing to take higher risks presumably would demand higher wages. In a competitive and free labor market, such individual bargaining would result in the optimal distribution of safety and income. Of course, the market approach can also sanction compensatory payments to injured workers when it can be shown that employers were negligently liable for causing the harms. The threat of compensatory payments also acts as an incentive for employers to maintain a reasonably safe and healthy workplace.

But similar to the challenges to the free market approach we discussed previously, there are a number of serious problems with this stance on workplace health and safety. First, labor markets are not perfectly competitive and free. Most employees do not have the kinds of free choices that the free market theory would require in order to attain optimal satisfactions. Risky jobs are often also the lowest-paying jobs held by people with the fewest employment choices rather than the higher-paying, freely chosen jobs that the market would suggest. For example, theoretically, coal miners in West Virginia have a choice to refuse to work in dangerous or unhealthy mines, but in real life, the choice is more likely one between working or not working. More recently, some of the people determined to be “essential workers” during the pandemic, and therefore people who faced greater risks of COVID exposure, worked low-wage jobs with no options for working from home.

Second, employees seldom if ever possess the kind of perfect information required by efficiently functioning markets. If employees do not know the risks involved in a job, they will not be in a position to freely bargain for appropriate wages. This is a particular concern when we recognize that many risks faced in the workplace are not obvious. An employee may understand the dangers of heavy machinery or a blast furnace, but few employees can know the toxicity or exposure levels of workplace chemicals, airborne contaminants, or a virus.

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Such market failures can have deadly consequences when they involve workplace health and safety issues. Of course, market defenders argue that markets will, over time, compensate for such failures. Over time, employers will find it difficult to attract workers to dangerous jobs and, over time, employees will learn about the risks of every workplace. But this raises what is sometimes described as the first generation problem. The means by which the market gathers information is by observing the harms done to the workers first exposed to imperfect market transactions. Thus, workers learned that exposure to lead is dangerous when women workers exposed to lead suffer miscarriages and their children are born with serious birth defects. We learn that workplace exposure to asbestos, or coal dust, or benzene, or cotton dust is dangerous when workers die from lung disease. In effect, markets sacrifice the first generation in order to gain information about safety and health risks.

The final problem with individual bargaining has also been discussed previously. Important questions of social justice and public policy are ignored if we approach questions solely from the point of view of an individual. We used the example of COVID-19 vaccines in chapter 3 to make this point. At the height of the COVID-19 pandemic in late 2021, the death rate for unvaccinated individuals in the United States was in the range of 20 people per 100,000. The death rate for fully vaccinated people was just over 1 in 100,000. As an individual considering these numbers, especially if I am young and otherwise healthy, I might judge that the increased risk from 1 in 100,000 to 20 in 100,000, was so small that it was insignificant. The reality is that I would be unlikely to die from COVID-19.

But consider these risks not from an individual perspective, but from the point of view of a public health official who is looking at the entire U.S. population of 350 million people. The death rate of 1 in 100,000 for vaccinated people means that, for a population of 350,000,000 people, 3,500 people would die. Increase that number by twenty times, and there would be 70,000 more deaths than if no one was vaccinated. A wide range of policy options could close the gap between 70,000 and 3,500 deaths, and therefore leaving public health policy to the decisions of individuals would seem to be an unwise approach.

The point is that these questions would never be asked if public policy relied exclusively on the individual bargaining to determine workplace health policy. Might there be standards such as maximum exposure levels that would reduce the number of COVID infections? Might some public policies such as mask or social distancing requirements reduce infection rates? These questions of public health policy, questions that after all will affect human lives, would never even be asked by an individual facing the choice of working at a risky job. To the degree that these are important questions that ought to be asked, individual bargaining will fail as an ethical public policy approach to worker health and safety.

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In response to such concerns, government regulation of workplace health and safety appears more appropriate ethically. Mandatory government standards address most of the problems raised against market strategies. Standards can be set according to the best available scientific knowledge and thus overcome market failures that result from insufficient information. Standards prevent employees from having to face the fundamentally coercive choice between job and safety. Standards also address the first-generation problem by focusing on prevention rather than compensation after the fact. Finally, standards are fundamentally a social approach that can address public policy questions ignored by markets.

In 1970 the U.S. Congress established the Occupational Safety and Health Administration (OSHA) and charged it with establishing workplace health and safety standards. Since that time, the major debates concerning workplace health and safety have focused on how such public standards ought to be set. The dominant question has concerned the appropriateness of using cost-benefit analysis to set health and safety standards.

When OSHA was first established, regulations were aimed to achieve the safest feasible standards. In practice, this would involve a determination by scientists and medical experts of the toxicity of the specific chemical. Specifically, these experts would determine the exposure level at which impairment of some physical function occurs. OSHA then determines if it would be technologically and economically feasible, on an industrywide basis, to attain this level. Technologically feasible means that the technology exists to meet the standards. Economically feasible means that the standards could be met without putting the entire industry out of business. If the answer is yes, then OSHA establishes the standard at this point. If the answer is no, OSHA then establishes the standard at the lowest level at which it is technologically and economically feasible. If an individual firm is unable to meet the standards that are attainable within the industry, the standard still applies. In effect, the standard becomes part of the costs of doing business and uncompetitive firms suffer in the market.

This feasibility approach allows OSHA to make some trade-offs between health and economics, but it is prejudiced in favor of health and safety by placing the burden of proof on industry to show that high standards are economically unfeasible. Health and safety standards are not required no matter what the consequences; but an industry is required to meet the highest standards attainable within technological and economic reasons. This corresponds to the philosophical view that holds that rights can be overridden by significant harmful consequences, but that the burden of proof is on utilitarians who seek to override rights.

Some critics charge that this approach does not go far enough and unjustly sacrifices employee health and safety. From that perspective, employee rights are so important that industries that cannot operate without harming the health and safety of their employees should be closed. But the more influential criticism has argued that these standards go too far. Critics in both industry and government have argued that OSHA should be required to use cost-benefit analysis in establishing such standards. From this perspective, even if a standard is technologically and economically feasible, it would still be unreasonable and unfair if the benefits did not outweigh the costs. These critics argue that OSHA should aim to achieve the optimal, rather than highest feasible, level of safety.

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Using cost-benefit analysis to set standards, in effect, returns us to the goals of the market-based, individual bargaining approach. Like the market approach, this use of cost-benefit faces serious ethical challenges. The use of cost–benefit analysis in setting workplace health and safety standards commits us to treating worker health and safety as just another commodity, another individual preference, to be traded off against competing commodities. It treats health and safety merely as an instrumental value and denies its intrinsic value. Cost–benefit requires that an economic value be placed on one’s life and bodily integrity. Typically, this would follow the model used by the insurance industry (where it is used in wrongful death settlements, for example), in which one’s life is valued in terms of one’s earning potential.

Perhaps the most offensive aspect of this approach is the fact that since, in feasibility analysis, health and safety is already traded off against the economic viability of the industry, a shift to cost-benefit entails that health and safety is traded off against profit margin. Since feasibility analysis is willing to compromise standards to ensure the viability of the industry, and since profitability is a necessary condition for viability, cost-benefit aims only to improve the profit margin. In effect, critics of feasibility are arguing that employee health and safety should be sacrificed to increase profits in an already (as guaranteed by the economically feasible criteria) profitable industry.

We should note, however, that rejecting cost–benefit analysis in setting standards is not the same as rejecting cost-effective strategies in implementing those standards. A commitment to cost-effectiveness would require that, once the standards are set, we adopt the least-expensive and most-efficient means available for achieving those standards. Cost-benefit, in contrast, uses economic criteria in setting the standards in the first place. It is cost-benefit, not cost-effective, analysis that is ethically problematic.

The policies that have emerged by consensus within the United States seem to be most defensible. Employees have a legitimate ethical claim on mandatory health and safety standards within the workplace. To say that employees have a right to workplace health and safety implies that they should not be expected to make trade-offs between health and safety standards and job security or wages. Further, recognizing that most mandatory standards reduce rather than eliminate risks, employees should also have the right to be informed about workplace risks. If the risks have been reduced to the lowest feasible level and employees are fully aware of them, then a society that respects its citizens as autonomous decision makers has done its duty.

6.8 Privacy In The Workplace

With the tremendous increase in communication technology in and out of the workplace, calls for greater protection of privacy have increased in recent decades. Yet there is widespread disagreement across society concerning the nature, extent, and value of privacy. The popularity of social networking sites such as Facebook, Twitter, Instagram, TikTok, and LinkedIn demonstrates a surprising willingness of people to reveal a great deal of personal information to others. Technologies for monitoring employees described in this chapter’s opening Discussion Case show how employers are increasingly willing to use surveillance technology in the workplace.

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Few other countries acknowledge a legal right to privacy as is recognized within the United States, and even within the United States, there is significant disagreement about privacy. The U.S. Constitution, for example, makes no mention of a right to privacy and the major Supreme Court decisions that have relied on a fundamental right to privacy, Griswold v. Connecticut and Roe v. Wade, remain highly contentious and controversial.[10]

Two general understandings of privacy can be found in the legal and philosophical literature on this topic: privacy as a right to be “let alone” within a personal zone of solitude and privacy as the right to control information about oneself. Each interpretation is problematic, but each has important implications for business.

The right to be “let alone” with some personal “zone of privacy” has had the longest history within the U.S. legal system. This understanding of privacy is traced to an 1890 Harvard Law Review article by Samuel Warren and Louis Brandeis. Warren and Brandeis argued that increasing population and technological advances (e.g., photojournalism) was increasing the threat to the solitude of individual citizens. In their view, the law should recognize a right to “be let alone.” Seventy-five years later in Griswold v. Connecticut the U.S. Supreme Court relied on a similar understanding in recognizing a constitutionally guaranteed right to privacy. This case invalidated a Connecticut law that prohibited the use, sale, and prescription of contraception.

Critics have claimed that this understanding of privacy is too broad. Surely no one living in a social setting can expect to be “let alone” in any full sense. In a fundamentally social and cooperative activity like work, privacy in this meaning certainly would make little sense. But a closer look at the major legal cases shows that courts have not claimed that individuals should be completely left alone. Rather, courts have concluded that individuals ought to be left alone only in certain very personal decisions, such as those involving family, reproduction, sexuality, home life, and life-sustaining medical treatment. A reasonable interpretation of these judicial decisions suggests that certain decisions are so fundamental to establishing and shaping our own identity as individuals, that they ought to be protected as rightfully private. But even these cases are coming under increasing criticism within the United States.

Concerns that privacy as the right to be let alone is too broad have led some to defend an understanding of privacy as involving the control of personal information. From this perspective, the clearest case of an invasion of privacy occurs when others come to know personal information about us, as when an employee reads your e-mail or accesses your Facebook page. But, again, this might be too broad an understanding if we are to claim a right of privacy. Surely there are many occasions when others, particularly within an employment context, can legitimately know even personal information about us.

Philosopher George Brenkert has argued that the informational sense of privacy involves a relationship between two parties, A and B, and personal information X about A.[11] Privacy is violated only when B comes to know X and no relationship exists between A and B that would justify B knowing X. Thus, whether my privacy is violated or not by a disclosure of personal information depends on my relationship with the person or persons who come to know that information. My relationship with my mortgage company, for example, would justify that company coming to know my credit rating while my relationship with my students would not justify them getting that information. Limiting access of personal information only to those with whom one has a personal relationship is an important way to preserve one’s own personal integrity and individuality. This understanding of privacy will prove helpful when we turn to the employment context and consider the relationship between employer and employee.

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What are the implications of this for the workplace? How would privacy understood in this sense impact employee monitoring technologies described in the opening Discussion Case? Answering these questions requires us to think about the relationship between employer and employee. The nature of that relationship will help determine the appropriate boundary between employers and employees and therefore the decisions and information that ought to remain rightfully private within the workplace. On one hand, if employees work totally “at will” and are fully subject to the demands of employers, it might well be that employees have no legitimate expectation of privacy within the workplace. On the other hand, if we adopt something more like a contractual model of employment, where the conditions and terms of employment are subject to the mutual and informed consent of both parties, then legitimately private decisions and information should be exempt from employer concern.

We might summarize this contractual perspective by saying that employee privacy is violated whenever: (1) employers infringe upon personal decisions that are irrelevant to the employment contract (implied or explicit), or (2) whenever personal information that is irrelevant to that contract is collected, stored, or used without the informed consent of the employee. Further, since consent plays a pivotal role in this understanding the burden of proof rests with the employer to establish the relevancy of personal decisions and information at issue.

We could rely on the ethical conditions for valid contracts to establish the limits of informational privacy within the workplace. In general, we can say that a valid contract must be voluntary, informed, and consensual. The parties must freely enter into it, they must understand it, and they must agree to its conditions. The informational sense of privacy is violated, therefore, whenever personal information is collected or used without the informed and voluntary consent of the employee. Using this framework, we can offer an initial account of what information can be known, who ought to have access to it, how it can be used, and what methods for collecting personal employee information are appropriate.

Information required to make an initial job offer, for example concerning the employee’s past work experience, education, and abilities is surely job-relevant. So, too, is information required by law (e.g., social security number) or necessary for employee benefits such as health care and insurance. Information about marital status, family plans, religion, and other personal issues seems irrelevant. Further, given the central role of consent, employees ought to be allowed to inspect, challenge, and be informed about any information that employers possess or gather about them. Employers ought not to use personal information for any purposes for which employees have not given their consent. So, for example, employers ought not sell employee information or use it for any marketing or economic purposes.

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Finally, perhaps the most interesting aspect of employee privacy concerns the methods by which employers might gather information about employees. In recent years, polygraph and drug-testing, surveillance, third-party background checks, and psychological testing have all been used as means to gain information about employees. More recently, electronic monitoring and surveillance has raised privacy issues in the workplace. Typically, but not always, such techniques are used to investigate misconduct such as employee theft. In addition, genetic screening of potential and present employees suggests that this new technology will keep employee privacy concerns in the public eye for many years to come.

A useful exercise would involve examining each of these information-gathering techniques and deciding what conditions, if any, should be placed upon their use in order to protect employee rights. First, we should require that the information sought through such techniques be job-relevant and legitimately knowable by the employer. For example, genetic screening to gather medical information that would then be used to disqualify people from work would be unjustified. To ensure fully voluntary consent we might also require that employees be given prior notification before any of these methods are used. There is no reason that employees not be fully informed of the uses for such things as blood or urine samples. Random or blanket use of such methods typically would be unjustified, and should be used only when a reasonable just cause is established. For example, drug testing only employees involved in accidents is preferable to mandating that all employees submit to random testing. The guiding question for such an exercise should be: Has the employee given her or his fully informed and voluntary consent to the loss of personal information? Finally, such intrusive information-gathering methods as secret surveillance, and blood, urine, or genetic sampling should be used only as a last resort and all other less-intrusive techniques have been used or rejected.

Reflections on the Chapter Discussion Case

The ability to fire an employee gives employers significant authority, some would say power, over another person. As this chapter’s discussion of due process points out, the distinction between authority and power rests upon the ethical justification of the control over another. A large part of justifying employer authority over employees stems from the claim that employees have, explicitly or implicitly, consented to the terms and conditions of the workplace. Thus, ethical issues of due process and participation lie in the background of all employee rights discussions.

Beyond the philosophical questions of what responsibilities an employer has to employees and what legitimate expectations employees can have of employers lies a practical question. Are there policies or practices that a business might adopt that would prevent such disputes from happening? As employee monitoring increases in the workplace, it will be helpful to think about how we might determine what expectations an employer might legitimately have for employees, and how those expectations might be formed. To do this, let us apply these question to the freedom of expression cases described at the start of the previous section.

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In the Damore case, Google executives pointed to a corporate code of conduct, which committed to an equal opportunity workplace that was free from discrimination. Thus, Google would claim that Damore should have known that what he did was wrong because he had prior notice, in the form of a written corporate policy. A written corporate code of conduct would be one element of a due process policy in the workplace. Do you think that the code provided sufficient prior warning to Damore?

The situation was slightly different for Akima. Their corporate social media policies prohibited “obscene” or “inappropriate” content and a case could be made that Briskman’s gesture was obscene or inappropriate. But, whereas Damore circulated his memo within Google’s offices, Briskman’s post was on her private Facebook and Twitter accounts, and she never identified herself as an Akima employee. Should an employer’s authority to establish corporate policies or monitor employee activities extend to actions done outside of the workplace? Is there an ethical difference between public and private actions?

Compare Briskman’s case with several cases in which people who lost their jobs after being identified as participants in the white supremacist rally in Charlottesville, Virginia or the January 6th insurrection in Washington, D.C. In these cases, employees expressed a political view that others found offensive. Some employers argued that as a result, the firm risked losing potential customers. How are these cases similar to the Briskman’s case? How are they different? Suppose a firm adopted a corporate policy that prohibited employees from committing any act, or taking any political stance, that brought financial risk to the firm. This would seem to make a person’s job contingent on the political opinions of their employer’s customers. Would this be appropriate grounds for dismissing an employee?

Chapter Review Questions

1. Explain the difference between an employee’s legal, contractual, and moral rights.

2. Explain three different meanings of a right to work. Which, if any, do you think should be among the moral rights of employees?

3. What is the legal doctrine of employment at will? Explain three different legislative or judicial limitations on this doctrine. Do you think any are unreasonable?

4. What is the definition of due process? How does this relate to the concept of just cause?

5. Explain and evaluate four major counterarguments to due process rights in the workplace.

6. Explain what you take to be the strongest argument in defense of an employee’s right to participate in managerial decision making. Explain what you take to be the strongest argument against such a right.

7. Explain how individual bargaining between employer and employee would be the preferred method of the economic model of corporate social responsibility for establishing a healthy and safe workplace. Describe at least two objections to this approach.

8. Explain how the nature of the employer–employee relationship helps to determine the extent of privacy in the workplace.

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Endnotes

- 1For an early version of this conception of employee rights, see “A Defense of Employee Rights” by Joseph DesJardins and John McCall, Journal of Business Ethics 4 (1985), pp. 367–376.

- 2For example, Article 23 of the U.N. Universal Declaration of Human Rights states: “Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.” The right to work in the tradition of Catholic social teaching is discussed in Economic Justice for All: Pastoral Letter on Catholic Social Teaching and the U.S. Economy, U.S. Catholic Bishops, 1986; and Pacem in Terris (Peace on Earth), Pope John XXIII, 1963. The right to a job has always been more controversial within the United States. The closest this issue ever got to becoming policy was the Full Employment and Balanced Growth Act of 1978 (usually referred to as the Humphrey-Hawkins Act after its sponsors Senator Hubert Humphrey and Representative Augustus Hawkins), which directed that federal monetary and economic policy take full employment as one of its major objectives.

- 3Payne v. Western & A.A.R. Co., 81 Tenn. 507 (1884).

- 4Elisha Fieldstadt, Ali Gostanian, and Bianca Britton, “900 Better.com employees learn their jobs are being eliminated in a Zoom call” NBC News (December 6, 2021), https://www.nbcnews.com/business/business-news/900-bettercom-employees-learn-jobs-are-eliminated-zoom-call-rcna7738 (accessed February 12, 2022) and “Better.com CEO apologizes after laying off 900 employees via Zoom call,” Reuters (December 8, 2022), https://www.reuters.com/markets/deals/bettercom-ceo-apologizes-after-laying-off-900-employees-via-zoom-call-2021-12-08/ (accessed February 12, 2022).

- 5Patricia Werhane, “Individual Rights in Business,” in Just Business: New Essays in Business Ethics, ed. Tom Regan (New York: Random House, 1984), pp. 107–126.

- 6John McCall, “An Ethical Basis for Employee Participation,” in Contemporary Issues in Business Ethics, 4th ed., eds. DesJardins and McCall (Belmont, CA: Wadsworth Publishing, 1996), pp. 199–206.

- 7McCall, p. 200.

- 8For example, McCall cites the cases of Volvo and Donnelly Mirrors, and the legally mandated co-determination practices in Germany, as evidence that employee participation can increase a business’s competitiveness.

- 9Mark Sagoff, “At the Shrine of Our Lady of Fatima or Why Political Questions Are Not All Economic,” Arizona Law Review 23 (1981), p. 1283.

- 10Griswold v. Connecticut (1965) found privacy within the “penumbra” of rights established by the First, Third, Fourth, and Fifth Amendments. Criticism of this decision as a vague, judicially created right was a major factor in the U.S. Senate’s rejection of the nomination of Robert Bork to the Supreme Court. Only eight years later the Supreme Court relied on this same understanding of privacy rights in reaching the still-controversial abortion decision in Roe v. Wade.

- 11George Brenkert, “Privacy, Polygraphs, and Work,” Business and Professional Ethics Journal 1, no. 1 (1981), pp. 19–35.

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Chapter 7

Employee Responsibilities

Learning Objectives

After reading this chapter, you will be able to:

- Explain the nature and range of employee responsibilities;

- Explain the agency view of employee responsibilities;

- Understand the role of business professionals as gatekeepers;

- Explain managerial responsibilities;

- Explain and examine the concept of conflicts of interest;

- Analyze the responsibilities of trust and loyalty in the workplace;

- Analyze responsibilities for honesty in business;

- Analyze the ethical responsibilities concerning whistle-blowing and insider trading.

DISCUSSION CASE: Trust in Business

Trust is at the center of several important business professions, including attorneys, auditors, accountants, and financial analysts. These professionals often function as economic “gatekeepers” or “watchdogs,” ensuring that those who enter the marketplace are conforming to the rules that guarantee the market functions as it should. For example, a core requirement of efficient and fair markets is that they must be free from fraud and deception. Ensuring that these conditions are met is an important internal requirement of market-based economic systems. Similar to how referees or umpires function in sports, these watchdog professions have a responsibility to safeguard the system itself so that the rules are followed and the system works the way it should. Every participant in the market trusts these professionals to do their job.

Financial and investment advisors fill a similar professional role between financial firms seeking to market investment products and the customers who buy these products. These professionals have a responsibility to offer advice and make decisions that are in the best interests of their clients, who generally lack the knowledge and expertise needed to make wise investment decisions themselves. But, as we saw in the Wells Fargo case, not every financial firm adopts this trust-based, fiduciary model of their professional responsibilities.

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Breach of this professional trust has played a significant role in every major business scandal in recent decades. Time and again, lawyers, auditors, accountants, financial analysts, and engineers have proven untrustworthy. The most common explanation for why this happened lies in the conflicts of interest that exist between their professional responsibilities and their own personal interests. Professionals with a duty stemming from their professional role have too often failed in that role because of pressure placed on them by their employer. Just as an umpire or referee would face a conflict of interest if they were paid by only one team, professionals face conflicting interests when they are paid by the very people they are designed to regulate.

For example, the infamous Enron case of the early twenty-first century provided a classic example of the failure of trust. Enron’s accounting firm, Arthur Andersen, was hired both to perform Enron’s audit but also to act as Enron’s management consulting advisors. This dual role, which ultimately led to the collapse of Arthur Andersen, had accountants and lawyers advising Enron on its questionable accounting practices while at the same time certifying the legitimacy of Enron’s financial statement. Andersen’s auditors knew that their employer was paid millions of dollars by Enron and faced great pressure to certify Enron’s financial statements. Investors and financial firms that trusted the auditors of Arthur Andersen ended up losing their investments.

A second case involved the subprime mortgage crisis, which was a major factor in the 2008–2010 global economic collapse. A near complete meltdown of the global financial system, marked by the collapse of such major financial firms as Lehman Brothers, Countrywide Financial, Bear Stearns, and Merrill Lynch, brought about the global economic downturn of 2008–2010. Much of the fiscal troubles of these financial institutions can be traced to risky lending practices, particularly in the real estate mortgage sector. Corruption among financial analysts and credit rating firms played an important role in these events.

At the heart of these scandals were mortgage-backed securities. Traditional lending practices make mortgages very attractive investments. Lending institutions make a loan for the purchase of a home and the loan is secured by the value of the home itself—if the person defaults the bank takes possession of the house. Further, lenders require additional steps to reduce the risk and ensure the security of the loan. It is not unusual to require a 20 percent down payment, as well as requiring that the loan applicant have a steady job likely to provide a steady income, some savings, and a good credit rating. These steps reduce the chances that the applicant will default and, even if a default does occur, the 20 percent down payment plus the security of the home itself shields the lender from further loss.

Because these loans are financially sound, it is common for financial institutions and investment banks to buy a large number of mortgages and package them together as an investment security. In the middle of this process were credit rating firms such as Moody’s, Fitch, and Standard and Poor’s, which provide independent ratings for the risk and security of these investments. Mortgage-backed securities regularly had the highest, AAA, credit rating.

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For a variety of reasons, mortgage-backed securities became increasingly risky in the early years of the twenty-first century. Riskier, “subprime” mortgages became a regular part of this financial market. In theory, the market is self-regulating as long as gatekeepers such as financial analysts, credit rating institutions, auditors, and bank examiners fulfilled their roles. Riskier securities should have received lower credit ratings which should have slowed investment in this area, which should have slowed the housing boom and real estate market. In practice, it turned out that many of these gatekeepers were untrustworthy. Analysts and credit ratings firms continued to give riskier investments high credit ratings, and when these investments began to fail, the entire real estate market collapsed.

In hindsight, this was perhaps not surprising, since credit rating firms were hired by the investment banks and financial institutions that were selling the mortgage-backed securities. Lower credit ratings would have made them more difficult to sell. In effect, if the rating agency is paid by the firm selling the security, the investor can no longer rely on the credit rating as impartial and accurate. Critics charge that this situation is a classic conflict of interest: The credit agency and their analysts have a responsibility to issue accurate ratings that are necessary for the market to function correctly, but their own financial interests incline them to produce ratings that favor the seller rather than the buyer. Evidence suggests that financial analysts and rating agencies systematically failed to exercise their professional responsibilities and earn the trust that had been placed in them. Their artificially strong credit ratings proved deceptive when risky mortgages began to default and the investment firms that backed them collapse and the entire economy followed.

But professionals working within business are not the only watchdogs with responsibility for the integrity of the financial system. Recent years have seen public attention focus on the failure of politicians and judges to avoid conflicts of interest and violate the trust that has been placed in them.

This issue received close public scrutiny when several U.S. senators were criticized for stock trades they made during the early days of the COVID-19 pandemic. At the time in January 2020, Congress was receiving regular nonpublic briefings about the spread of COVID-19 from the executive branch. Before the stock markets dropped as much as 3 percent as news of the pandemic took hold, four senators who had been part of those briefings sold significant amounts of stock in companies likely to suffer during a pandemic (e.g., airlines and hospitality industry) and purchased stock in companies likely to benefit from the pandemic (e.g., pharmaceutical and teleconferencing software companies).

Senators Richard Burr of North Carolina, Kelly Loeffler of Georgia, Dianne Feinstein of California, and James Inhofe of Oklahoma faced public criticism for what appeared to be insider trading. They, or members of their families, sold stocks that would soon be hit hard by the pandemic news. Burr, who was Chairman of the Senate Intelligence Committee at the time, was subject to an FBI and Department of Justice investigation. He admitted to selling a substantial portion of his personal stocks in thirty-three separate stock trades soon after being briefed on the rise of COVID, but before this information became public. Investigators discovered that on that same day, Burr’s brother-in-law also sold substantial amounts of his stocks. Eventually, Burr was not charged with a crime, but he resigned his position as committee chair and announced that he would not seek re-election.

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In September 2021, the Wall Street Journal reported that their investigation had identified more than 130 federal judges who had overseen cases involving companies on which they or their family owned stock. In two-thirds of those cases, the judged ruled in ways that were favorable to the companies involved. Both federal law and judicial ethics require judges to recuse themselves in such cases, but none of the 130 had.

Discussion Questions

1. Reflect on all the ways in which you trust others during your daily life. How would your life change if you could not trust others? What institutions do you trust? What and who do you not trust?

2. Who is harmed when gatekeepers failed in their duties? For example, who is harmed by misleading audits? Who benefits?

3. What strategies are available for requiring professionals to fulfill their professional duties when these run counter to the interests of their employers?

4. Should a principle of “buyer beware” be the standard in the financial advisory and financial services industries? Why or why not?

5. In what ways do elected officials and judges function as gatekeepers or watchdogs?

7.1 Introduction

Chapter 6 considered a range of potential rights that employees might claim within the workplace. Rights are understood as claims that an individual has against others to be treated in certain ways or to receive specific goods. My rights determine what is owed to me by others. We now turn to the question of responsibilities, or what I owe to other people.

In chapter 2, we explained that to claim something as a right, must mean something stronger than simply that I want it or desire it. There must be some ethical basis for saying that it is a central interest, that it serves some important central aspect of human well-being, and that I suffer in some significant way if my right is violated. Respect, liberty, equal treatment, health and safety, privacy are examples of such central interests that would qualify as rights.

Similarly, our duties and responsibilities must be something more than merely things that others desire of us or expect of us. I may desire that you give me some money, help me do my yardwork, run an errand for me, but you do not have a duty or obligation to do those things. Simply because I desire something, does not mean that you have a duty or responsibility to do it. There must be a sense of obligation for something to become a duty: You owe me money because I sold you something, you should help with the yardwork because you are my son and I am old, you should help me because you promised.

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So what duties and responsibilities do we have? A moment’s reflection suggests that this question is very broad. The most reasonable answer would be that it depends; it depends mostly on the relationship I have with the other party. My duties and responsibilities to my children are different than the duties and responsibilities that I have to my neighbor, which are different still from what I owe to a stranger. Within the workplace, duties depend on my role or job in that workplace, the duties that I have taken on in my employment agreement, and even the firm and the industry I work in. For example, as a teacher I have responsibilities to my students, my department, and my college, but also to own field of study (philosophy) and my profession (what some call a duty to the “academy”).

For some observers, the nature and extent of workplace responsibilities might seem simple enough. Workers are employees and the employment relationship establishes the responsibilities that employees owe to their employers. As an employee, you have the responsibility to do what your employers asks. We can reflect back on an earlier quotation from Milton Friedman to see this view most clearly:

In a free-enterprise, private property system a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.… [T]he key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation… and his primary responsibility is to them.[1]

But as the opening discussion case demonstrates, this view is too simplistic. A business manager certainly is an agent of the corporation and therefore does have specific responsibilities to the stockholders. But a manager also has responsibilities to customers, employees, the law, and the community. A manager also has responsibilities to the firm itself, which is different than responsibilities to stockholders. A manager may also be a professional (e.g., an engineer, a lawyer, a physician, an auditor, or an accountant) who has professional responsibilities as well. The lawyers and auditors at Enron and the financial professionals at the heart of the subprime mortgage crisis were not only employees of their firms, they were also auditors, accountants, lawyers, compliance officers, and investment advisors.

Every stakeholder of a business relies on the decisions made within the firm. Every stakeholder trusts that managers, executives, and professionals will fulfill their responsibilities. Indeed, the economic and financial system itself trusts the people within business to make responsible decisions. Being trustworthy is perhaps the most general responsibility that one can have in business.

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7.2 Trust And Business

Few values play as significant and wide a role in business as trust. Indeed, trust is an essential element in most social interactions and it would be difficult to imagine a society in which trust did not exist. We trust others because no one has the ability to live a fully self-sufficient life alone, nor the time to try. What role does trust play in business?

Trust exists all around us in everyday business situations. I trust that every company with access to my financial information--from Venmo to my App Store, and from my credit card company to my music streaming site--to have rigorous security and encryption in place to protect that information from hackers. I trust that the food delivery service will arrive at the scheduled time. I trust that Facebook, Twitter, and Instagram will not disclose my personal information without my approval. I trust that the encryption and virus protection software on my laptop and phone perform as advertised, and I trust the Uber or Lyft driver who picks me up will be a sober, safe, and reliable driver. I trust Amazon to send the product I ordered and accept a return if it is unsatisfactory, and I trust my paycheck will not be returned because of insufficient funds.

On the other hand, I am less trustful of product reviews I read on Amazon, movies reviews I read on Rotten Tomatoes, or pop-up adds that appear in my Google search results. I trust not at all the medical advice I find on my Facebook’s News Feed or political ads I see on television.

Trust is relevant to several topics we have already discussed. In Chapter 1, we considered the importance of trusting experts when determining the facts. Trust was listed among the ethical virtues discussed in Chapter 2 and among the characteristics desired of both corporate leaders and employees discussed in Chapter 4. Trust is part of the definition of a fiduciary duty that was introduced in the Wells Fargo case of Chapter 4.

So, what is trust? Trust can be thought of as the reliance on someone (the “trustee”). When we say that someone is trustworthy (an ethical virtue), we are saying that they are reliable and that we (the “trustor”) have a reason to depend on them. But because I have a reason to rely on them, trust also involves an element of risk in the sense that if the trustee does not act as expected—if they prove untrustworthy or unreliable—those who trusted them can be harmed in some way. To trust in someone is to be dependent on them and therefore trust involves being vulnerable if they prove untrustworthy or unreliable. This means that trust involves some responsibility or duty on the part of the trustee. The trustor is vulnerable to the actions of the trustee and if that trust is violated, the trustee has betrayed that trust and done something unethical. (We described this trusting relationship as part of the “fiduciary model” as described in the Wells Fargo case in Chapter 4.)

We can see how trust occurs in most social and business interactions. We rightly rely on other people all the time, we trust others to act in certain ways and this trust makes us vulnerable to their behaviors. This makes sense because none of us has the time or ability to do own medical, financial, and legal research in any way near as competently as my doctor, financial planner, or lawyer. I trust the approaching driver to stop at the red light, so I continue driving into the intersection. I trust scientists and the FDA to adequately test vaccines. I trust the advice of my family doctor, my financial advisor, my lawyer. I trust judges to be impartial and I trust elected officials will put the public trust before their own financial interests.

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Making the case for trust would highlight several ethical values we have considered previously. As an ethical virtue, cultivating the habit of being trustworthy can play a big role in leading a good life. Being a reliable and trustworthy person will make social relationships easier, deeper, and more fulfilling. There is also the reality that trust is reciprocal. Being trustworthy to others is likely to make them more trustworthy to you. Being able to trust and rely on others makes everyone’s life better.

Within business, trust in others allows each of us to accomplish more of our own goals. For a financial system itself, the presence of trust not only increases efficiency, but it also ensures fairness and integrity throughout. Both utilitarian goods and ethical principles are served by the social value of trust.

7.3 The Narrow View of Employee Responsibilities: Employees as Agents

If our responsibilities are a function of the nature of relationship we have with others, we need to consider the employee–employer relationship to understand workplace responsibilities. The quotation from Milton Friedman used in an earlier section is an example of a narrow view of employee responsibilities. Business managers are the agents of business owners and therefore have a responsibility to maximize profits. The view that underlies this perspective has roots in the common law concept of agent–principal, and we can begin our analysis of an employee’s ethical responsibilities with this legal concept.

In general, an agent is a person who acts on behalf of another person. Not all agents are employees. For example, your real estate agent or investment advisor is your agent but not your employee. An investment advisor employed by your local bank is an employee and agent of the bank, even when offering financial advice to the bank’s customers. This common law tradition has historically treated all employees as agents of employers (the “principal”). As an agent, the employee is hired to perform certain tasks and has a duty to act on behalf of the principal. While this “fiduciary” relationship creates responsibilities on both sides, the primary responsibilities lie with the employee, who owes to the employer legal duties of loyalty, obedience, and confidentiality, among others.

Agency relationships vary in the amount of latitude an agent possesses in decision making. The legal tradition views nonmanagerial employees as having very little discretion in the workplace. In fact, the law has traditionally described the normal employer–employee connection as a “master–servant” relationship. In such a relationship, the employer exercises a great deal of control over the nature and terms of employment. The servant is understood as lacking any special expertise and, thus, needing direct and constant supervision. For example, a secretary or factory worker is hired to perform specific tasks within regular hours for specified wages and under close supervision. The “servant’s” responsibility is to obey the employer’s direction and the employer’s responsibility is to pay the agreed-upon wages.

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Managerial employees have greater discretion and a greater responsibility to act in the best interests of the employer. Managers are understood to have special expertise that owners must rely on, and this expertise justifies greater responsibility. Thus, a manager has the legal authority to act on behalf of the firm—to spend its money, commit it to contracts, hire and fire its employees—and has greater autonomy in making such decisions. In general, managers are understood to have a strong fiduciary duty to act in the best financial interests of the owners. And along with this increased responsibility, managers are free from close day-to-day oversight by owners.

The implications of this agent–principal model of employer–employee relations are significant for the range of employee responsibilities. The law holds that employee-agents owe legal duties of loyalty, trust, obedience, and confidentiality to the employer-principal. These responsibilities override the personal interests that an employee might bring to the workplace. This seems to be what Friedman has in mind when he says that a manager’s “primary” responsibility is to the owners of the business.

Of course, no one would argue that an employee’s legal responsibility to obey an employer overrides all other ethical and legal responsibilities. Even Friedman acknowledges responsibilities to obey the law and conform to other ethical customs. So the real issue is to determine the extent to which competing responsibilities limit the duty to employers. In this narrow view, there are very few such responsibilities to override the primary duty to follow the desires of the business owner. Even managers who have greater freedom from the day-to-day supervision by owners have a primary responsibility always to act in accord with their desires.

But is this narrow view ethically defensible? Perhaps the most basic question to ask concerns the ethical foundations for the narrow view. Why would anyone think that an employee should have an overriding responsibility to obey the desires of an employer? Two answers, reminiscent of the discussions in chapters 2 and 3, suggest themselves. First, because managerial employees play a particular role within the economic system, and because that economic system works to everyone’s benefit, the special role-specific responsibilities that employees take on within that system override other ethical considerations. This is a version of the utilitarian argument reviewed previously. The second defense appeals to the property rights of owners and prevention of the economic harms they might suffer at the hand of employees. But as we also saw in chapters 2 and 3, these two ethical approaches face serious challenges. To consider this issue further, let us approach this question by considering nonmanagerial and managerial employees separately.

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As applied to nonmanagerial employees, the narrow view would require that an individual’s normal responsibilities, including what I would call the responsibility to be responsible, be left at the door of the workplace. We normally wouldn’t excuse someone from responsibility just because they were obeying the commands of someone else. (Think of the case of war-crime trials as the most dramatic example where this defense is universally rejected.) Defense of the narrow view will need to identify something distinctive about the employee–employer relationship that justifies this unusual requirement.

At first glance, the narrow view would seem to have a ready rationale. Employees consent to obeying employers when they take a job. Since they agree to this condition when they come to work, they are not truly abandoning their own responsibility when they follow the commands of employers. But this response is not persuasive. First, consent alone is not sufficient to excuse someone from other responsibilities. For example, as the war-crime case demonstrates, volunteering for military service doesn’t mean that one must blindly obey every order. A blanket obligation for all employees to obey their employers no matter what is an unreasonable abdication of personal responsibility. It makes little sense to claim that an employee has an ethical responsibility to obey an unethical directive issued by an employer, for example.

The unreasonableness of this response is only increased by the fact that most employees are in a vulnerable position when dealing with employers. Even if voluntarily taking a job would create some responsibility to obey one’s employer, we would still need to examine the question of how free employees are in this relationship. The choice of obeying someone’s command or jeopardizing one’s job is a fundamentally coercive situation and thus the consent involved is not fully free. Because employers have the authority to fire employees, and because such authority makes employees vulnerable to the acts of employers, employees deserve protection from arbitrary use of that authority. This is a point made previously in our discussion of employment at will and employee rights to due process. The discussion of due process in chapter 6 gave us one way to think about nonarbitrary uses of employer authority.

A more reasonable conclusion for nonmanagerial employees is that they have a responsibility to obey the directives of an employer when those directives are job-related, reasonable, and do not violate legal or ethical duties. To claim that they must be job-related prevents employers from turning employees into personal servants. An employer’s authority exists only within the employment relationship and thus extends only to work-related issues. This condition would mean, for example, that employees have no responsibility to run personal errands for employers. The condition that employer directives be reasonable means, among other things, that an employee be capable of carrying out the directive (“ought implies can” in the language of ethics), that the directive be within the normal job responsibilities of the employee, and that it doesn’t place the employee at risk. Finally, the third condition means that an employer cannot require that an employee violate the law, cause harm to anyone, or commit any act that violates the employee’s own ethical integrity. It is surely unreasonable to hold that an employee has an ethical responsibility to act unethically.

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Finally, against this background, we should consider what a nonmanagerial employee owes the employer in terms of work effort. Do employees have a responsibility to work as hard and as much as an employer desires? Are employers free to establish any standards for the amount and quality of work? Do I violate my responsibility as an employee when I put forth something less than full effort full-time?[2]

Certainly employers desire that employees perform at an optimal level at every moment at work. But just as certainly, this expectation is unreasonable, particularly for those who would otherwise cite the market as the final arbitrator of social policy. The labor market, to the degree that it is efficient, would do a good job of establishing acceptable work effort levels. If my employer can get another employee to work harder and longer than me for my wages, I will lose my job in a competitive labor market. In general, employees have the responsibility only to put forth a fair day’s effort for a fair day’s pay.

Reality Check: Can the “Agency Problem” Be Solved?

According to many observers, there is a deep problem at the heart of modern capitalist economies. Modern economies rely on individuals, legally known as “agents,” who work for the best interests of others, the “principals.” For the system to work, agents must be loyal representatives of their principal’s interests, even in those situations when their own personal interest is at stake. In other words, agents have a duty to avoid conflicts-of-interests.

For example, a member of a board of directors may act as an agent for the stockholders, executives act as agents for the boards, and attorneys and accountants act as agents for their clients. This agent–principal model assumes that individuals can put their own interests on hold and be sufficiently motivated to act on behalf of another. But this would seem to run counter to a view of human nature that is assumed by much of modern economic theory: Individuals are self-interested—thus, the “agency problem.” How can we trust self-interested individuals to act for the well-being of others in cases where to do so their own self-interest must be sacrificed?

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Many of the ethical failures described in this chapter can be seen as examples of the agency problem. These are precisely those situations where boards have failed to protect the interests of stockholders; executives have failed to serve their boards; and accountants, lawyers, and financial analysts have failed to act on behalf of their clients. These are all situations in which individuals were entrusted with a responsibility and proved unworthy of that trust.

Economics and management theorists have offered several solutions to the agency problem. Some argue that the best solution is to create incentives that connect the agent’s self-interest with the self-interest of the principal. Linking executive compensation to performance by making bonuses contingent on stock price, for one example, means that an executive gains only when stockholders gain. Placing representatives of major stockholders on corporate boards, as happened at Volkswagen prior to its diesel scandal, is another approach to align corporate interests with stockholder interests.

Another approach is to create structures and institutions that restrict an agent’s actions. Strict legal constraints would be the most obvious version of this approach. Agents have specific legal duties of loyalty, confidentiality, and obedience and face criminal punishments if they fail to uphold those duties. Professional or corporate codes of conduct and other forms of self-regulation are also versions of this approach.

These two most common answers share a fundamental feature: The agency problem can be solved by connecting motivation to act on the principal’s behalf back to the agent’s own self-interest. In the first case, motivation is in the form of the “carrot,” and the agent benefits by serving the principal; in the second case, motivation is in the form of the “stick,” and the agent suffers if she fails to serve her principal.

A third answer to the agency problem denies that there truly is a problem by denying that self-interest dominates human motivation. This third approach points out that, in fact, humans regularly act from loyalty, trust, and altruism. Human relationships are built on trust and reliability; and these motivations are just as basic, just as common, as self-interest. Thus, this approach would encourage corporations to look to moral character and corporate culture to develop policies and practices that reinforce, shape, and condition people to want to do the right thing and that would justify the trust placed in them.

1. Can you think of examples in your own experience where someone is required to work as an agent for another, or when you were involved as an agent? How is the agent motivated in this particular case?

2. If you were asked to design a policy that would provide a solution to the agency problem in the company for which you work, where would you begin?

3. Review the section on virtue ethics in chapter 2 and explain how the agency problem would be viewed from that perspective.

4. Under what circumstances, or for what kinds of tasks, do you think agency problems are most likely to be a challenge?

Shifting to the case of managerial employees, the narrow view of employee responsibilities is more plausible when the employees hold positions of managerial authority. In this case, managers have the legal authority to act on behalf of employers (often, but not always, corporations). This authority is justified by the fact that managers possess expertise that the employer lacks. The inequality of expertise, and the corresponding responsibility to act on behalf of the employer, is the crucial idea that lies at the heart of agency theory. In general, one hires an agent (e.g., a real estate agent or a lawyer) when you need a special expertise to accomplish your goals. Since you lack and your agent possesses the requisite knowledge, you are in a vulnerable position. This is the reverse of the situation with the nonmanagerial employee, where employers have greater authority over employees. As suggested in chapter 6, in that case employees deserve protection offered by employee rights and employers have specific responsibilities to employees. The principle in both cases is the same: to protect vulnerable parties from potential harm by those who can exercise some control over them; the party with greater power and authority has greater responsibility to the vulnerable party. In the case of managerial employees, to protect the employer-principal from potential harm that this vulnerability might cause, the law creates responsibilities for the agent to act on the employer’s behalf.

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This model makes ethical sense in many situations. If I grant someone the power of attorney to enter into contracts in my name, or the power to invest my retirement savings, I am made vulnerable by that relinquished authority. If I open my financial records to an outside accountant, I am at risk that this information might be used against me. From this, it follows that these individuals do have a strong obligation to act on my best interests and not use that authority for their own interest at my expense. Their expertise is, after all, what they bring to the contract and what I have agreed to purchase. In general, business managers do have an ethical responsibility to act in the best interests of their employer. But, as even Friedman admits, this responsibility to act on behalf of the employer-principal is not unlimited. Once again, the real question focuses on the limits of this responsibility. When and under what conditions do the responsibilities of managers as business agents override their other ethical responsibilities?

There are cases in which normal ethical responsibilities are overridden by role-specific duties. Physicians and lawyers, for example, have specific professional responsibilities of confidentiality and loyalty that override their personal interests and may sometimes override such normal ethical considerations as honesty and truthfulness. It would be unethical for an attorney to divulge details of her client’s defense strategy, and it would be unethical for a physician to sell patients’ medical records to a pharmaceutical company. Similarly, auditors have explicit legal responsibilities that override, at least in theory, the responsibilities they have to clients. But should business management be considered as having similar professional role-specific responsibilities? Does the role of a business manager, like the role of a physician or lawyer or auditor, for example, serve social ends important enough that people in those roles can sometimes be exempt from normal ethical responsibilities? Rather than try to answer this question in general, it is advisable to consider this question in more specific terms. What specific responsibilities do business managers have to their employers? What happens when these responsibilities conflict with other interests and responsibilities?

One important area of conflicting managerial responsibilities occurs when a manager is also a professional. Lawyers and auditors, for example, have specific professional responsibilities that can override both their own personal interests and the interests of their business employers. Before turning to the question of whether or not business managers might have professional responsibilities that override the financial interests of their employers, let us turn to an examination of the role of professionals and professional responsibility in business.

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7.4 Professional Ethics and The Gatekeeper Function

There are many cases in which a person’s professional duties override what are normally considered to be one’s ethical responsibilities. Lawyers, for example, have a duty to hold in confidence information about their client, even if doing so allows other people to be misled or deceived. An attorney may know that her client actually did commit a crime, but she has a professional duty not to reveal that information to the prosecutors. A journalist knows who leaked confidential government information to the press, but he has a professional duty not to reveal the name of the whistle-blower. A family member might want to know the nature of a patient’s illness, but a physician has a professional duty to hold such information in confidence. As an employee of a hospital, a nurse has a responsibility to follow management directives, but as professionals, nurses have a responsibility to advocate for patients’ interests even at the expense of the hospital’s financial interests.

The discussion that opened this chapter pointed out that our responsibilities are a function of the relationships that we have with others. In general, these relationships can be understood in terms of the roles that we play: as parent, spouse, friend, teacher, and so forth. One’s social role is determined by the web of relationships we have with others, and, thus, some responsibilities are role-specific. Within contemporary societies, many such roles are associated with certain professions. Typically, one thinks of doctors, nurses, engineers, and lawyers as professionals. Within business contexts, auditors, accountants, financial analysts, investment advisors, and insurance brokers are often considered professionals.

Professions are distinguished from other jobs in that a profession involves some very specialized knowledge or expertise (e.g., the law, medicine, engineering). Typically this is knowledge that serves the public good, and as a rule work as a professional must be certified by some public agency. Professionals may enjoy certain legal or social privileges (e.g., only doctors can write prescriptions, only lawyers can practice law, only engineers can certify building plans), and often, but not always, they are well compensated for their work. Importantly, for our purposes, professions have particular duties and responsibilities.

In general, we can think of professional duties as flowing from the special knowledge or expertise that professions have. Because this special expertise serves the public interest and because, lacking this expertise, others are made vulnerable by this disparity, society imposes special responsibilities on the professional. Ordinarily, an employee has a responsibility not to harm the employer’s financial interests.

Within the business and economic context, some professions have evolved to serve very important functions within the economic system itself. It is universally recognized that markets must function within the law, they must assume full information, and they must be free from fraud and deception. Ensuring that these conditions are met is an important internal function for market-based economic systems. Several important business professions—for example, attorneys, auditors, accountants, and financial analysts—function in just this way. We described such professions as “gatekeepers” or “watchdogs” in that their role is to ensure that those who enter into the marketplace are playing by the rules and conforming to the very conditions that ensure that the market functions as it ought. These professions are intermediaries, functioning between the various parties in the market. Auditors verify a company’s financial statements so that investors’ decisions are free from fraud and deception. Analysts evaluate a company’s financial prospects or creditworthiness so that banks and investors can make informed decisions. Attorneys function to ensure that decisions and transactions conform to the law. Indeed, even boards of directors can be understood in this way. Boards function as intermediaries between a company’s stockholders and its executives, and they should ensure that executives act on behalf of the stockholders’ interests.

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Unfortunately, as was described in the opening discussion case, many of these professional intermediaries are paid by the business that they watch over. As these cases demonstrate, this can create real conflicts between a professional’s responsibility and financial interests. Certified public accountants have a professional responsibility to the public. But, they work for clients whose financial interests are not always served by full, accurate, and independent disclosure of financial information. Thus, real conflicts exist between professional duties and a professional’s self-interest.

In one sense, the ethical issues regarding such professional responsibilities are clear. Because professional gatekeeper duties are necessary conditions for economic legitimacy, they should override whatever responsibilities an employee might otherwise have. Having a fiduciary duty to act in a client’s best interests might work against an employer’s interest in marketing a particular investment vehicle. But knowing what one’s duties are and actually acting to fulfill those duties are two separate issues.

In explaining this point, philosophers sometimes distinguish between two different meanings of having a reason to do something. In one sense, a reason refers to the legitimacy or justification for acting in a certain way. On this account, having a reason means to be justified in doing what one does. To return to a case mentioned previously, the software engineers at Volkswagen had a good reason, that is, they were justified, to blow the whistle on Volkswagen’s deceptive emissions results. But in another sense, having a reason means something more like being motivated to act in a certain way. Reason in this sense is less a logical issue than it is a psychological one. While those engineers had a reason to act, there were many reasons that explain why they did not.

Much of philosophical ethics is concerned with the justificatory sense of reason and less on the explanatory sense. But we still want to ask why, given that there was an ethical justification for doing so, didn’t the engineers do as they ought to have done? Answering this question returns us to the discussion in chapters 1 and 2 of personal morality, social ethics, and virtues.

As a matter of personal morality, we must recognize that acting on principle sometimes can require real courage, discipline, or willpower. It is exactly for this reason that virtue ethics encourages the development of personal habits and character that will make it easier to act in ways that we know are ethically right. When they agreed to create fraudulent customer accounts, perhaps the employees at Wells Fargo lacked the courage of their convictions, perhaps they feared for their job, or perhaps they simply didn’t care about their responsibilities. Courage, fear, and caring are all matters of character. It would seem that our ethical judgment about whistle-blowers is less a matter of what they knew or didn’t know than it is a matter of their character. It was not as if engineers don’t know that fraud is wrong. They knew it was wrong, but lacked the motivation and character to act accordingly.

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While each of us individually is responsible for our own character, virtue ethics also emphasizes the importance of moral development and moral education. Our habits are developed over time and they are greatly influenced by our surroundings. Thus, one lesson to be drawn from such consideration is that businesses must be conscious of the culture and surroundings in which employees work. If VW or Wells Fargo had had a different corporate culture, a culture in which principles were respected and individuals encouraged to act ethically, perhaps their employees would have been more likely to act according to their professional duties.

There are also implications of this for social ethics. If we recognize that the gatekeeper function is necessary for the very functioning of economic markets, and if we also recognize that it can be difficult for individuals to fulfill their gatekeeper duties, then we have a responsibility to make changes at a broader social level. For example, as long as auditors are paid by the clients on whom they report, there will always be an apparent conflict of interest between their duties as auditors and their own financial interests. This is a good reason to make structural changes in how public accounting operates. Perhaps it ought to be boards rather than management who hire and work with auditors. Perhaps public accounting ought to be paid for by public fees. Perhaps legal protection or sanctions ought to be created to shield professionals from conflicts of interest. Perhaps the law should prohibit audit firms from working as consultants to the very firm they audit. From the perspective of social ethics rather than personal morality, certain structural changes would be the more appropriate response to the accounting scandals of recent years.

This discussion has emphasized the professions as conventionally understood to point out that business managers often have conflicting responsibilities. We turn now to the more general ethical responsibilities that a person, in their role as professional manager, might have.

7.5 Managerial Responsibility and Conflicts Of Interest

What specific responsibilities do business managers have to their employers? To answer this question we first need to consider the interests of the business principal, described variously as the owner, the employer, the investor, the stockholder, or the firm itself. These diverse terms suggest that this issue may not be as simple as it at first appears. Surely there are some clear cases in which the interests of the principal determine the agent’s responsibility unambiguously. If I hire a real estate agent, my interest is in having my property sold to a qualified buyer at the highest price in the shortest time. But what interests should be served by a corporate manager? The answer suggested by the narrow view of managerial responsibility (as represented by Milton Friedman) is to conduct the business in accordance with the “desires of the owners,” which is “to make as much money as possible.”

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This apparently simple answer disguises a variety of issues. In a corporate setting, the “owners” range from institutional investors representing thousands of individuals and institutions to day traders seeking a fast profit from slight changes (up or down) in stock price. Consider who you would identify as the owners of any large corporation. Besides thousands of individual investors, a company’s stock can be owned by employees through their 401(k) retirement plans, senior executives, mutual funds, IRAs, retirement and pension plans from many states and institutions, and numerous other institutional investors such as banks and insurance companies. Stock was also used as collateral for loans and other business ventures involving various partners.

These diverse stockholders have equally diverse desires. Some individual investors buy stock because they believe in the company and its products; some are playing the stock for short-term gain. Some see their stock ownership as an investment in a company and its technology; some see it as a long-term investment for personal retirement and security; some see it as a game for short-term profit. Some are willing to take higher risk in return for short-term profits; others prefer less risk and longer-term profitability. Given this variety, it is clear that the desires of owners can and do conflict. Most obviously, long-term fiscal stability for a business can be attained only when managers wisely reinvest in the corporation itself. But reinvesting in capital, labor, and research and development comes at a price: lower returns, at least in the short term, for stockholders. On the other hand, managing a business solely with an eye toward increasing share price can undermine the stability and security of the firm. This is what Fortune magazine called the “cult of the shareholder” and identifies as the “single biggest reason” behind such major accounting scandals as Enron and Arthur Andersen.[3]

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Reality Check: What Do Leading CEOs Think of Shareholder Primacy?

In August 2019, the Business Roundtable, an organization comprised of CEOs of many of the world’s largest corporations, issued a statement on the purpose of a corporation. For over twenty years, the Business Roundtable had endorsed the principle of shareholder primacy as the fundamental corporate purpose. Shareholder primacy, of course, is another way of expressing the perspective that this chapter identifies as the economic model of CSR, or managerial capitalism. As captured in the quotation from Milton Friedman, this perspective argues that the primary purpose of a corporation is to serve shareholders by maximizing profit.

The revised statement on corporate purpose represents a dramatic change away from that perspective. The new statement replaces shareholder primacy with a “fundamental commitment” to serve all stakeholders. The new statement affirms the principle that the purpose of a corporation is to create value for all stakeholders, including customers, employees, suppliers, and communities. Shareholders are included among all stakeholders, of course, but no longer function as the primary focus of corporate responsibility. The statement recognizes that all stakeholders are essential for a corporation to exist and that, therefore, corporate managers have equal responsibilities to all stakeholders.

The statement commits corporate leaders to serve customers by “meeting and exceeding their expectations”; to serve employees by providing fair pay and benefits, adequate training, and a diverse and respectful workplace; to serve suppliers by treating them “fairly and ethically”; to serve their communities by protecting the environment and engaging in sustainable practices; and to serve shareholders by providing long-term value and transparent communication.

The statement reaffirmed the commitment for the “free market system” but acknowledged that business must play a central role in guaranteeing that the free market system serves the entire society. In releasing the statement, Jamie Dimon, the Business Roundtable chair and CEO of JPMorgan Chase, stated: “These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”

The statement was signed by the CEOs of 181 of the largest corporations in the world, including Jeffrey Bezos of Amazon, Tim Cook of Apple, and such prominent corporations as GM, Ford, Best Buy, Target, Walmart, 3M, Xerox, Visa, Mastercard, UPS, and IBM.

Source: Business Roundtable, “Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans,’” press release (August 19, 2019), https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans.

For a more adequate model of the owner–manager relationship, we can return to the discussion of stakeholder theory from chapter 3. That discussion distinguished between owners and investors and concluded that managers have responsibilities to a variety of stakeholders. The corporation is not simply the personal property of private stockholders to do with as they choose. It is a social institution that serves a variety of individual and institutional stakeholders. In this view, business managers have a responsibility to represent the best interests of the company, not just the financial desires of investors. In general, the interest of the company is to survive as a fiscally stable enterprise providing goods and services to consumers, wages and benefits to employees, business opportunities for suppliers and bankers, and a competitive rate of return on investment to stockholders.

As a contrast to this model, consider the transition of Wells Fargo as described in the discussion case for chapter 4. At one time, the entire Wells Fargo seemed to follow the fiduciary model, in which the interests of clients came first. But over time, Wells Fargo transitioned to a more transactional, customer model in which the company sought to maximize profits for itself, even at the expense of clients’ best interests. By succumbing to the principle of maximizing profits at all costs, Wells Fargo became corrupt and lost its integrity.

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Consider these issues in slightly different terms. Every decision that a business manager makes imposes costs on someone. As any economic textbook suggests, costs are understood as opportunities forgone, things given up. Any decision, by definition, involves giving up some alternatives in favor of others. That is, every business decision involves imposing costs. An ethical and competent manager will impose costs—make decisions—that serve the end of maintaining a fiscally stable enterprise. A responsible manager will do this by balancing the competing demands of various stakeholders. This is the expertise that managers bring to business and this is the expertise that should not be sacrificed for the narrow interests of only one group of stakeholders. Managerial decisions will sometimes impose undesired costs on stockholder/investors, as they sometimes will for employees, consumers, and other stakeholders. Such decisions are ethically responsible, contrary to what the narrow view of managerial responsibility would hold, when they are done for the best interests of the firm itself.

Of course, there can be cases in which managers impose costs upon stockholders (and other stakeholders) unethically. Conflicts of interest occur when the personal interest of managers interfere with the professional judgments of managers. Since the primary responsibility of a manager is to exercise their professional judgment conscientiously, an unethical conflict of interest occurs when personal interests hinder that judgment. In effect, the vulnerability that characterizes the principal–agent relationship is exploited for the personal benefit of the agent.

Another clear case of an unethical conflict of interest occurs with the case of kickbacks—illegal payments that occur when a portion of some payment is paid back (kicked back) to the payer as an incentive to make the original payment. So, for example, a manager who awards a contract to a construction company might receive money or other benefits back from that company as a condition of receiving, and an incentive for awarding, the contract. Since this personal benefit interferes with the professional judgment of the manager by improperly influencing the decision, kickbacks are unethical conflicts of interest.

Consider, as an example, what is referred to as soft money within the securities industry. According to critics, a widespread practice in the securities industry amounts to little more than institutionalized kickbacks. Soft money payments occur when financial advisors receive payments from a brokerage firm to pay for research and analyst services that, in theory, should be used to benefit the clients of those advisors. Such payments can benefit clients if they are used by the advisor to improve the advice offered to the client. The practice gets abused, becomes an unethical conflict of interest, when the money is used for the personal benefit of the advisor. In 1998, the Securities and Exchange Commission released a report that showed extensive abuse of soft money. Examples included payments used for office rent and equipment, personal travel and vacations, memberships at private clubs, and automobile expenses. In such cases, the client could no longer trust the integrity of the professional judgment of their financial advisor.

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This example again points to the importance of trust in the relationships of business managers with various stakeholders. While trust is an important aspect of any contractual relationship (I trust that you will deliver the product I purchased from you), it is particularly important in situations such as the principal–agent relation when one party is vulnerable to the acts of the other. If a manager can legally commit a business to innumerable obligations, the stakeholders of that business must be able to trust the judgment of that manager. They must be able to trust that the manager will place the interests of the company over their own personal interests. In legal terms, they must be able to trust that the manager remains loyal to the firm, even in cases in which her own interests might suffer. We turn now to the question of loyalty in the workplace.

7.6 Trust and Loyalty in The Workplace

The central role that trust plays in business has been implicit throughout much of this chapter. The gatekeeper and watchdog functions filled by such professionals as lawyers, accountants, and auditors demonstrate how much the system trusts these professions. Employers must trust their employees, principals must trust their agents, stockholders trust management, customers trust the firm’s products. It is fair to say that few values play as significant and wide a role in business as trust. Indeed, trust is an essential element in all social interactions and it would be difficult to imagine a society in which trust did not exist. We trust others because no one has the ability to live a fully self-sufficient life alone, nor the time to try.

So, what is trust? Trust can be thought of as the reliance on someone (the “trustee”). When we say that someone is trustworthy (an ethical virtue), we are saying that they are reliable and that we (the “trustor”) have a reason to depend on them. But because I have a reason to rely on them, trust also involves an element of risk in the sense that if the trustee does not act as expected—if they prove untrustworthy or unreliable—those who trusted them can be harmed in some way. To trust in someone is to be dependent on them and therefore trust involves being vulnerable if they prove untrustworthy or unreliable. This means that trust involves some responsibility or duty on the part of the trustee. The trustor is vulnerable to the actions of the trustee and if that trust is violated, the trustee has betrayed that trust and done something unethical. (We described this trusting relationship as part of the “fiduciary model” as described in the Wells Fargo case.)

We can now see how trust occurs in most social interactions. We rightly rely on other people all the time, we trust others to act in certain ways and this trust makes us vulnerable to their behaviors. This makes sense because none of us has the time or ability to do own medical, financial, and legal research in any way near as competently as my doctor, financial planner, or lawyer. I trust the approaching driver to stop at the red light, so I continue driving into the intersection. I trust scientists and the FDA to adequately test vaccines. I trust the advice of my family doctor, my financial advisor, my lawyer. I trust judges to be impartial and I trust elected officials will put the public trust before their own financial interests.

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Trust exists all around us in everyday business situations. I trust that every company with access to my financial information—from Venmo to my App Store, and from my credit card company to my music streaming site—to have rigorous security and encryption in place to protect that information from hackers. I trust that the food delivery service will arrive at the scheduled time. I trust that Facebook, Twitter, and Instagram will not disclose my personal information without my approval. I trust that the encryption and virus protection software on my laptop and phone perform as advertised, and I trust the Uber or Lyft driver who picks me up will be a sober, safe, and reliable driver. I trust Amazon to send the product I ordered and accept a return if it proves unsatisfactory, and I trust my paycheck will not be returned because of insufficient funds.

But reliance on others is not without unlimited. I am less trustful of product reviews I read on Amazon, movie reviews I read on Rotten Tomatoes, or pop-up adds that appear in my Google search results. I mistrust the medical advice I find on my Facebook’s News Feed, political ads I see on television, and e-mails notifying me that I have won the lottery in Belarus.

Trust is relevant to several topics we have already discussed. In chapter 1, we considered the importance of trusting experts when determining the facts. Trust was listed among the ethical virtues discussed in chapter 2 and among the characteristics desired of both corporate leaders and employees discussed in chapter 4. Trust is part of the definition of a fiduciary duty that was introduced in the Wells Fargo case of chapter 4.

Making the ethical case for trust would highlight several values we have considered previously. As an ethical virtue, cultivating the habit of being trustworthy plays an important role in leading a good life. Being a reliable and trustworthy person will make social relationships easier, deeper, and more fulfilling. There is also the reality that trust is reciprocal. Being trustworthy to others is likely to make them more trustworthy to you. Being able to trust and rely on others makes everyone’s life better.

Within business, trust in others allows each of us to accomplish more of our own goals. For a financial system itself, the presence of trust not only increases efficiency, but it also ensures fairness and integrity throughout the system. Both utilitarian goods and ethical principles are served by the social value of trust.

A related workplace responsibility is a duty of loyalty. Loyalty is understood as a willingness to make personal sacrifices in the interest of the organization. Consistent with the model of agency law in which agents have a legal duty of loyalty, it is often claimed that all employees have an ethical responsibility to be loyal employees.

To what degree do any employees have a responsibility to make personal sacrifices for the firm? In one sense, the duty of loyalty is at the center of the ethics of conflicts of interests. The duty of putting the interests of the organization above my own personal interests is often construed legally as the duty of loyalty to that organization.

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Consider the following case as a means to understand loyalty, and disloyalty, in the workplace. Early each summer a large bank hires a dozen recent college graduates for credit analyst positions. As often happens in corporate hiring, these new employees go through several months of intense training. In the case with which I am familiar, the bank hired several finance and accounting professors from a distinguished university to teach specialized and advanced courses to these trainees. In effect, the bank pays these new employees a salary while they receive state-of-the-art training in finance and banking. When these employees completed this training they became highly marketable in the local banking community. Several of these employees were soon offered jobs at competing banks at salaries well above what they were earning at the original bank. Did these employees have a duty of loyalty to remain at the bank that had paid for their training? Did they have a duty to sacrifice their own personal interests to remain loyal? Would these employees be disloyal if they resigned to take a position at a competing bank?

Philosopher Ronald Duska argues that employees have no responsibility of loyalty to their employers.[4] Duska characterizes loyalty as a willingness to sacrifice that is based on relationships of mutual enrichment. One can be loyal only to those persons and institutions with whom one is engaged in a project of common benefit. In Duska’s view, the employment relationship is simply a contractual arrangement that serves the individual self-interests of the parties. Because the overriding goal of business is profit, “companies are not the kind of things that are properly the objects of loyalty.” It follows that employees have the responsibility only to uphold their end of the contract and have no responsibility to make sacrifices beyond that. If, in the banking case, the employees had no contractual commitment to the original bank, they would be free to leave their position and work for a competing bank. Loyalty or disloyalty is simply irrelevant to situations in which both parties seek their own self-interest.

Duska is particularly concerned that loyalty in business too often is a one-way street. “Loyal” employees are expected to sacrifice for the firm, but seldom is a firm willing to sacrifice for employees. Just as the bank would be willing to fire those trainees who performed poorly, employees should be free to leave a job to improve their salary. The lack of reciprocity between employers and their employees is what underlies Duska’s claim that a company is an inappropriate object of loyalty.

One can quibble with Duska’s definition of loyalty. Perhaps he makes too much of the notion of sacrifice. While a willingness to sacrifice might be a part of loyalty, it would seem the devotion and faithfulness to a common goal is both more essential to loyalty and what explains the willingness to sacrifice. Perhaps Duska also underestimates the possibility that some businesses are committed to the benefit of their employees. Finally, Duska may also underestimate the willingness of business to sacrifice for employees. One could also point out the sacrifice that the bank made in paying for the training that its employees were now selling to competitors.[5] Nevertheless, Duska’s general point is well taken. Claims for loyalty can sometimes be little more than a disguised way to exploit employees’ willingness to make sacrifices for the firm. As happened at so many firms that collapsed during the financial crisis of 2008–2009, there are few things more tragic in business than long-term loyal and devoted employees losing their jobs when managerial decisions go awry. Loyalty can be a risky thing for nonmanagerial employees. Unless and until the firm has demonstrated a willingness to sacrifice on behalf of employees, those employees have little reason to demonstrate loyalty to the firm.

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But once again, the case may be different for managerial employees. The firm, after all, has placed trust in managerial decisions and as a manager the employee has assumed the firm’s interests as their own. The firm and all its stakeholders rely on the manager to protect their interests. Thus, being faithful to those interests and being willing to sacrifice personal interests for that goal does seem more appropriate than in the case of nonmanagerial employees. This is not to say, however, that managers have a duty to be totally devoted to the firm. The firm’s interests themselves, even the wide interests implied by a stakeholder model, must always be balanced against other ethical concerns.

Consider the case of a CEO who is in the midst of negotiating a major contract for her firm and is offered a more attractive position elsewhere. Assume the contract can secure the business’s financial stability for many years and depends a great deal on both the negotiating skills of this CEO and her abilities and reputation as an effective manager. If she were to walk away now, there is a likelihood that the deal would fall through and the firm would be harmed considerably. Does she have a responsibility to remain loyal to the firm and pass up the alternative position? On Duska’s view, she does not. This would simply be a case of the self-interest of the employee conflicting with the self-interest of the firm, but with no particular duty to sacrifice. Because the firm would never be willing to sacrifice its self-interest (profitability) out of loyalty to the CEO, the CEO has no responsibility to sacrifice her self-interest for the firm.

Yet, there is something ethically troubling with that option. The firm, and its many stakeholders, trusts the actions of its CEO and is vulnerable to harm that only the CEO can prevent. Unlike the Enron case, this is a harm that is undeserved and that the firm can rightfully expect the CEO to minimize, if not prevent. It can rightfully expect that because, at least implicitly, the CEO has made a commitment to do so.

This suggests a reasonable conclusion regarding employee loyalty. If loyalty means a willingness to sacrifice one’s own interests by going above and beyond ordinary employee responsibilities, then, as Duska suggests, we ought to be suspicious of calls for employee loyalty. Yet we also must recognize that some employees commit themselves to make such sacrifices when they agree to act as the legal agents of business. In this perspective, perhaps workplace loyalty is better understood as a willingness to remain faithful to one’s commitments even at the cost of lost personal benefits. A business firm ought to be able to trust that employees will keep their commitments, but it has no ethical basis to expect employees to go beyond this and sacrifice for the firm.

7.7 Responsibilities to Third Parties: Honesty, Whistle-Blowing, and Insider Trading

The focus of this chapter so far has been on the responsibilities that employees have to the firm. But this does not exhaust the range of employee responsibilities. Beyond the normal responsibilities that all people have and the responsibilities that we have as employees, employees can also have responsibilities to third parties outside the workplace. We will look at three topics that involve employee responsibilities to parties other than their employers.

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Honesty

It might seem obvious to claim that employees have an ethical responsibility to be honest. Nevertheless, there are some who think that business has many occasions on which something less than full honesty is, if not required, at least tolerated. One such occasion, in advertising and marketing, will be examined in greater detail in the following chapter. But there are many other occasions on which a person working in business has an incentive to be dishonest to co-workers, to customers, to competitors, and to employers. At this point we will consider a more general claim that bluffing in business is ethically permissible.

In an essay that became a classic within business ethics, Albert Carr argued that deception and bluffing are acceptable strategies within business.[6] Carr argued that business has the impersonal character of a game and, like such games as poker, business has its own rules and standards. Bluffing, lying, deception, and manipulation are all, in Carr’s view, part of successful business strategy and are perfectly permissible within business. Carr’s argument is an argument from analogy; business is relevantly like poker and just as the game of poker is exempt from the ordinary requirements of morality so, too, is business:

Poker’s own brand of ethics is different from the ethical ideals of civilized human relationships. The game calls for distrust of the other fellow. It ignores the claim of friendship. Cunning deception and concealment of one’s strength and intentions, not kindness and openheartedness, are vital in poker. No one thinks any the worse of poker on that account. And no one should think any the worse of the game of business because its standards of right and wrong differ from the prevailing traditions of morality in our society.[7]

Significant and persuasive challenges can be raised against Carr’s argument. He overestimates the prevalence and acceptability of dishonesty within business, for example. There are also major disanalogies between business and games such as poker that weaken the conclusions drawn from that analogy. Finally, even if business did have its own set of ethical conventions, that fact alone would not exempt business from ordinary ethical evaluations. Nevertheless, there can be some business situations in which dishonesty is common and apparently acceptable. Consider the case of bluffing during contract negotiations. One party leads the other to believe something that is not true (i.e., I will take another job if you don’t improve the offer, we will go on strike unless our wages are increased, we will sell this product to another customer if you don’t agree to the sale today). Is such bluffing unethical?

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Three general reasons, corresponding to the three major ethical traditions presented in chapter 2, are typically cited to explain the ethical responsibility to be honest. A utilitarian rationale concludes that dishonesty undermines the ability of people to communicate and thus will have adverse social consequences. Honesty and the trust that it creates are essential preconditions for all cooperative social activities. The Kantian tradition in principle-based ethics argues that dishonesty treats others as a means to our own ends and thus disrespects the dignity of other persons. A third perspective, arising from the virtue ethics tradition, looks not to dishonesty’s effect on others, but to what dishonesty does to the dishonest person. A dishonest person must maintain two identities: (1) the one shown to the “victim” of the dishonesty and (2) the one who carries out the deception and remains hidden from the victim. But this practice, especially if practiced habitually, undermines a person’s own integrity. Integrity involves a moral wholeness, authenticity, and coherence. Integrity plays an important role in establishing one’s own identity and self-worth. The dishonest person, by necessarily maintaining two personas, lacks the virtue of integrity.[8]

If these are the three major explanations of the value of honesty, dishonesty and bluffing in business can be ethical only if they adequately respond to these concerns. In general, it is plausible to claim that some dishonest acts can have beneficial social consequences that do not threaten the stability of underlying social practices. It would be harder to claim, however, that routine dishonesty would not erode the trust that does seem essential to social cooperation. A view such as Carr’s might also be able to respond to some of the Kantian concern. Carr suggests that “a falsehood ceases to be a falsehood when everyone involved knows about it” and this implies that some dishonest acts would not manipulate others and treat persons as mere means. But this assumes that the victims know that they are being bluffed and that they consent to participating in the practice. While both assumptions might sometimes be true in some business situations, it is unlikely that they occur commonly. A bluff can work as a bluff only if the person being bluffed believes that it is true—that is, only if the person is deceived. Furthermore, unlike poker games, individuals often have no choice but to participate in business practices. Finally, while perhaps an occasional dishonest act doesn’t threaten one’s own integrity, a social practice that encourages and endorses dishonesty certainly would.

Consider the public reassurances that many financial advisors and analysts made during the early days of the 2008 financial collapse. Some financial institutions such as Goldman Sachs, Countrywide Financial, and Lehman Brothers issued statements that downplayed the risks of falling prices. On the one hand, it would be easy to interpret these actions as a business strategy aimed at bluffing investors in a way that Carr might approve. If enough people believed that their investments were stable and stopped their selling, the market would stabilize and both investors and the investment firms would recover. On the other hand, we could also interpret this as a strategy to protect the individual firm from taking responsibility for their bad decisions. Would such a bluff be justified?

No doubt, some would argue that it was. Because the collapse of the subprime mortgage market would harm many people, a bluff aimed at keeping the company afloat would serve the “greater good.” However, this would be a disingenuous application of the utilitarian principle of attaining the greatest good for the greatest number. Anyone who bought or held on to these mortgage-backed securities as a result of this bluff would, at the very least, be taking a much greater risk than they believed. A successful bluff on this occasion would have achieved the greater good of some (i.e., those, like Goldman Sachs itself, who were looking to sell these securities) at the expense of many others.

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Whistle-Blowing

A whistle-blower is an employee or other insider who informs the public or a government agency of an illegal, harmful, or unethical activity done by their business or institution. The full effects of many of the most egregious ethical scandals in business might have gone unnoticed if not for the decisions of whistle-blowers.

The complete story of the Enron case would not have been known had it not been for the actions of Sherron Watkins, a VP who first called attention to what she described as “shady accounting practices" and warned the CEO of a coming “implosion.” Wells Fargo employees who spoke to journalists helped uncover the full extent of the fraud occurring at the bank. Another case is the example of Christopher Wylie, the software engineer who testified against Cambridge Analytica’s use of the Facebook data. Wylie revealed to both U.S. and U.K. officials that Cambridge Analytica had used consumer data to try to influence the “Brexit” vote in 2015, and the 2016 U.S. presidential election.

An even more recent case of whistle-blowing also involves Facebook. As described in the Discussion Case of chapter 1, Facebook whistle-blower Frances Haugen disclosed thousands of documents to the Securities and Exchange Commission and to the Wall Street Journal to call attention to the corruption she witnessed at Facebook. Haugen later spoke to the news program 60 Minutes and testified before the U.S. Congress, the U.K Parliament, and the EU Parliament.

The language of “blowing the whistle” comes from sports, where a referee or umpire blows a whistle to stop play and call attention to illegal or improper conduct. Whistle-blowing raises ethical concerns because, unlike the neutral umpire in sports, employees are considered by some people to be team members whose loyalty to the team should preclude blowing the whistle. In Frances Haugen’s case, she disclosed thousands of Facebook documents that plausibly violated her duty of confidentiality. Since work documents belong to the employer, she was also plausibly guilty of stealing from her employer. While U.S. federal law offers whistle-blowers legal protection for revealing information to government authorities such as the SEC, that law would not apply to revealing documents to newspapers or television news. Thus, whistle-blowing places responsibilities to third parties (those potentially harmed by the business’s activities) against employees’ responsibility to their employer.

Because whistle-blowing also puts the whistle-blower at risk, it raises concerns about the employee’s responsibility to self and to one’s dependents. Balancing these competing types of responsibilities—to the public, to one’s employer, to one’s profession, and to one’s own commitments—sets the ethical context for whistle-blowing. The ethical issue of whistle-blowing thus involves both its permissibility and its obligatoriness. Is it permissible to blow the whistle on one’s employer? Is it ever ethically obligatory to do so?

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Philosopher Richard DeGeorge has developed a persuasive analysis of the ethics of whistle-blowing.[9] DeGeorge argues that three conditions must be met before whistle-blowing can be ethically permissible. First, there must be a real threat of serious harm that the whistle-blowing seeks to address. Since the act of whistle-blowing itself can cause harm to the firm and its other employees, the harm that whistle-blowing seeks to prevent must override the harm that it does. Second, the whistle-blower should first seek to prevent the harm more immediately through channels internal to the firm. This condition seeks the most efficient means to prevent harm while minimizing the other harms that it can cause. Third, if possible, the whistle-blower should exhaust all internal procedures for preventing the harm. DeGeorge recognizes that there can be occasions when internal mechanisms are inappropriate, but in general potential whistle-blowers should make good-faith efforts to work within the firm. When such efforts are made and the potential harm is real, whistle-blowing is ethically permissible.

DeGeorge argues that whistle-blowing becomes ethically obligatory when two further conditions are met. First, the whistle-blower must have documented evidence to convince impartial observers of the firm’s role in causing the harm. Without such evidence an employee has no obligation to take the risks inherent in blowing the whistle. Finally, the whistle-blower must have good reason to believe that blowing the whistle will prevent the harm. One cannot have an ethical obligation to take significant risks in order to achieve doubtful benefits.

Consider the Frances Haugen case of whistle-blowing. Haugen disclosed documents to the SEC, the Wall Street Journal, and later testified to the U.K. Parliament and the U.S. Congress. Using DeGeorge’s criteria, we might conclude that Haugen was justified and even obliged to blow the whistle on her employer. First, evidence showed that Haugen had exhausted internal means for addressing the problems. She made numerous efforts to use internal mechanisms to address the problems. As she testified, “The thing I saw at Facebook over and over again was there were conflicts of interest between what was good for the public and what was good for Facebook. And Facebook, over and over again, chose to optimize for its own interests, like making more money.”

Second, she provided ample documentation to support her allegations and persuade numerous third parties of the seriousness of her allegations. Finally, the documents showed Facebook’s knowledge about and actions regarding such problems as sex trafficking, drug cartels, election interference, COVID misinformation, vaccine misinformation, hate speech, and harmful impacts on children. There was a real potential of serious public harm from not speaking out. A reasonable conclusion is that, on DeGeorge’s grounds, Haugen had an ethical obligation to blow the whistle on Facebook’s activities.

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Insider Trading

Insider trading generally refers to the practice of buying or selling securities (stocks and bonds) on the basis of nonpublic information that one has obtained as an “insider.” The clearest example would be a case in which a business manager or director buys (or sells depending on the likely effect of the information) a large quantity of the firm’s stock based on inside information just before that information is made public. By buying (or selling) the stock at a price below (or above) what the market will demand when the information is made public, the insider seemingly has benefited inappropriately from inside information. That insider has profited personally from inside information in a way that the law says is illegal and most people think to be unethical. Insider trading raises interesting ethical questions concerning one’s responsibilities to the firm, to stockholders, and to financial markets.

One recent case highlights the issue of insider trading. In early September 2017, Equifax, one of three major credit reporting agencies, announced that their computer system had been hacked. As a result, the credit information of more than 120 million consumers, including such information as Social Security and driver’s license numbers, had been stolen. The day before this announcement, Equifax stock was trading at more than $140 a share. A week later, the stock’s value had fallen to $90.

Equifax itself had learned of the hack weeks before the public announcement. In the time between first learning and informing the public, several Equifax executives sold large amounts of the stock. One person, Chief Information Officer Jun Ying, sold more than $1million in Equifax stock the week before the announcement, thus avoiding hundreds of thousands of dollars in potential losses. In March 2018, Ying was charged with the federal crime of insider trading.

More recently, Elon Musk has been involved in cases of alleged insider trading. In November of 2021, Musk’s brother Kimbal sold more than $108 million of his Tesla stock at a price of $1,229 per share. The next day, Elon Musk tweeted to his 82 million followers that he was considering selling some Tesla stock and his decision to sell or not would be determined by whatever his followers voted for in an online poll. As the poll results came in and the vote favored selling, Tesla stock began to fall. Within days, Musk eventually would sell $16 billion of Tesla stock which, by early 2022, had fallen to just over $800 per share.

The Securities and Exchange Commission began an investigation of both Musk brothers, but the legal standard for insider trading is quite high and it seems unlikely that Elon Musk will face charges. The legal issue revolves around the question of whether his decision to sell stock was personal information, in which case it is not insider trading, or company information, in which case it could be. But the question of whether or not the stock price was manipulated remains open.

Other cases of insider trading were discussed in the Discussion Case that opened this chapter concerned several U.S. senators who were criticized for stock trades they made during the early days of the COVID-19 pandemic. At the time in January 2020, Congress was receiving regular nonpublic briefings about the spread of COVID-19 from the executive branch. Before the stock markets dropped as much as 30 percent as news of the pandemic took hold, four senators who had been part of those briefings sold significant amounts of stock. Senators Richard Burr of North Carolina, Kelly Loeffler of Georgia, Dianne Feinstein of California, and James Inhofe of Oklahoma faced public criticism for what appeared to be insider trading. They, or members of their families, sold stocks that would be hurt by the pandemic news, and bought stocks that would benefit.

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Despite appearances that insider trading is unethical, some observers argue that it is ethically appropriate. Such arguments are usually market based and contend that insider trading is an efficient means to disseminate accurate information that, in turn, moves stock prices closer to the point that reflects their true value. Large purchases (or sales) of stock efficiently provide information to financial markets that will react quickly in the direction of equilibrium. The sales of insider stock sent the correct message to the market: Insiders are selling, and that gives others a good reason to follow suit. The price of the involved stocks quickly sought the equilibrium that accurately reflected their worth. Others argue that allowing insider trading would provide strong incentives for insiders to work to benefit the firm.[10]

But neither of these arguments is ethically persuasive. Critics charge that even if insider trading moved financial markets toward efficiency, it would do so only by unfair and unethical means. Anyone who bought the Equifax stock sold by Ying and his associates were straightforwardly defrauded. Similarly, people would rightly feel cheated if they bought stocks that were being sold by members of Congress who knew in advance that these stocks would be hurt by forthcoming pandemic news. Critics also point out that an insider can benefit by trading on bad news as well as good news and thus might well have an incentive to work against the firm’s best interests. Again, as the Equifax case clearly demonstrates, employees can use inside information to sell a stock before bad news becomes public.

Three arguments, each relying on a particular understanding of employee responsibilities, are cited in ethical criticisms of insider trading. Some argue that insider trading is unfair to other security traders since those outsiders lack the same information and thus are unfairly disadvantaged in the marketplace. A second critique claims that the information used in insider trading is the property of the firm. Thus, when insiders use it without permission and in ways that harm other stockholders, they have done something unethical. A third argument claims that insider trading violates the trust implied by the fiduciary relationship between a firm and its employees.

The unfairness argument may not be as convincing as it first appears. As an individual investor I would certainly feel mistreated if I bought/sold stock at a high (or low) price to someone who knew in advance that the price was about to fall (or rise). But have I been treated unfairly? Does the other party have a responsibility to me to disclose the information it possesses? Perhaps not. Unequal information is not, in itself, unfair. Suppose another person had simply conducted more diligent and extensive research than I and as a result was able to benefit at my expense. There seems no ethical problem if they use that unequal information to their advantage (and my disadvantage) in a stock transaction. The unfairness claim is more persuasive when I am disadvantaged by inside information to which I lack equal and fair access. What seems unfair is the advantage that one gets by virtue of being an insider. It is not just unequal information, but it is unequal in a way that even due diligence cannot equalize.

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But, do insiders have a responsibility to provide other traders with equal access to inside information? To whom do insiders owe responsibility? When an insider such as Ying trades on inside information, there are two other types of investors who might claim to be harmed. One is the person, let’s call them the potential investors, who claim that, if they had the inside information, they could have benefited as much as the inside trader. Thus, they were harmed in the sense of being denied a possible windfall. But this person has little legitimate ethical claim on what could have been. Neither insiders nor outsiders have a legitimate claim on gains from stock sales that take advantage of others.

A second type of investor, let’s call her an actual investor, is the person who sells her stock to (or purchases it from, in the case of future detrimental information) the insider without knowing what the insider knows. In this case, the stock transaction is a zero-sum game, where one person’s gain is another’s loss. This transaction is more troubling and begins to look a lot more like a case of fraud.

Again, consider the Equifax case of insider trading. Senior managers knew that the data breach was about to become public, and in anticipation of this news, they began selling large amounts of stock (or exercising options). In the following weeks, the stock price did collapse and they benefited accordingly. Potential investors (or sellers) who did not have an equal opportunity to reap similar windfalls cannot claim to have had any legitimate right violated. It does not seem that the insider has harmed this potential investor in any ethically relevant way. But the actual investor, the person who bought her stock from the insiders, suffers a harm that is more real. Specifically, this harm stems in large part from the fact that the stockholder was harmed by someone—company insiders—who had a responsibility to act on her behalf.

Thus, insider trading violates responsibilities that corporate agents have to their principals, and this suggests that the ethical criticisms of insider trading are based on property rights and fiduciary duties are connected to the unfairness claim. The inside information is not, by definition, public. It is private information that rightfully belongs to the firm. Managers have a fiduciary responsibility to the firm that prohibits benefiting personally at the expense of the firm. Trading on inside information involves misappropriating private resources for personal gain in a way that harms the firm’s investors. Because investors rely on managers to represent their interests, insiders who trade on inside information violate that trust and defraud the very people they have a responsibility to represent. While some unspecified future investors may benefit from more efficient and accurate stock prices as a result of insider trading, actual investors are denied benefits to which they had legitimate ethical claims.

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Reflections on the Chapter Discussion Case

This chapter reminds us of how common it can be in business for people to face real conflicts of interests. On one hand, countless individuals within business have duties to act on behalf of others. Whether one serves as a manager or executive, or works as a professional lawyer, auditor, accountant, engineer, or financial analyst, many have duties that require one’s self-interest to be put aside. On the other hand, business provides multiple opportunities for an individual to benefit personally, whether in terms of salary and benefits, career advancement, or such vague but real motivations as ego, pride, power. The balance between these competing interests is a constant challenge for individuals, organizations, and the law.

When it collapsed in 2001, Enron became a synonym for corporate greed and corruption. But, as it turned out, this case was only the start of a wave of corporate and accounting scandals that have continued to the present. While Enron gathered most of the public attention and criticism, the collapse of its accounting firm Arthur Andersen offered a more significant lesson in the importance of ethical behavior in business. It was a lesson that, in light of the more recent financial failures leading to the 2008–2010 economic collapse, was ignored by the finance and accounting professions.

It is difficult enough that auditors are regularly placed in a position that is ripe for conflicts of interests. Their professional duties require them to produce an independent and accurate financial portrait. Yet they are paid by firms, and hired by executives, who may not want full and accurate disclosure. When executive compensation is tied to bonuses based on share price, and when share price tumbles with bad financial news, it obviously is in the executive’s interest to seek to control what information is contained in the company’s audit.

It can be tempting to look for a single cause when reflecting on these conflict-of-interest scandals. Was it individual greed? Did people just not understand what they were doing? Did they not know right from wrong? Was it a failure of government oversight? Lack of managerial leadership? The hope is that if the cause can be identified, changes can be made to prevent such things from occurring again.

Identifying the causes of corporate scandals and creating strategies to prevent them is an important part of business ethics. As described in chapter 1, philosophical ethics involves issues of both personal morality and social ethics. Using this framework, we can assess corporate scandals at three levels: in terms of individuals, in terms of organizational structure and practices, and in terms of governmental and social institutions.

Examining these cases from the point of view of an individual raises a number of questions. Some questions involve ethical justifications: What would you have done if you were an accountant or financial analyst working at a financial institution that was aggressively marketing high-risk mortgages? Would you have acted differently than the actual people in those circumstances? The individual perspective also challenges us to think about personal motivation: Why did these people act as they did? How could they have acted differently? How do we explain the difference between people who succumb to temptation of riches and those who resist it?

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From an institutional perspective, these scandals have given rise to significant activity within corporations. Human resource departments now take ethics training seriously in a way they never did previous to Enron and the 2008 financial meltdown. Many businesses now have ethics officers and ombudsmen on staff to encourage employees to act responsibly and to provide them with opportunities to report unethical activities. The topic of corporate culture has drawn significant attention from managers seeking to encourage ethical behavior by setting high ethical expectations. What did the organizations involved in these scandals do wrong as organizations? What structural changes could have been made that might have prevented the subprime mortgage crisis or insider trading? How do employees learn a company’s norms and values? How can high ethical standards be transmitted from theory to practice?

But from another institutional perspective, what is the role of professional societies and governing boards? Should professionals themselves, in the form of their licensing boards and professional organizations, establish stricter standards and punishments? Should the accounting profession or the financial services industry set higher standards than government regulators?

Finally, from a governmental perspective the recent scandals have resulted in significant legal action. Following the Enron collapse, the U.S. Congress passed the Sarbanes–Oxley Act in 2002. Major provisions of that law include a requirement that financial reports be certified by a company’s CEO and CFO; a ban on personal loans to executive officers and directors; faster reporting of trades by insiders; prohibition on insider trades during pension fund blackout periods; and criminal and civil penalties for securities violations, including significantly longer jail sentences and larger fines for corporate executives who misstate financial statements.

Chapter Review Questions

1. Explain how responsibilities can depend upon the relationships one has with other people.

2. How is the relationship between a person and a real estate agent or lawyer similar to the relationship between an employer and employee? How are they different?

3. How might the narrow view of employee responsibilities be defended ethically? What are its shortcomings?

4. What is a conflict of interest and when and under what conditions are they unethical? Do the dual roles of an employee of a financial institution and a financial advisor constitute an unethical conflict of interest?

5. Define trust and loyalty. Do all employees have a responsibility to be trustworthy? To be loyal? Why does Duska believe that loyalty is inappropriate in the workplace?

6. In what way is business like poker? In what way is it different?

7. What conditions does DeGeorge suggest are necessary to make whistle-blowing ethically permissible? When is it ethically required?

8. Explain at least two ethical objections to insider trading. What, exactly, was wrong (if anything) with insiders selling Equifax stock prior to the disclosure of a data breach?

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Endnotes

- 1Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” New York Times Magazine, September 13, 1970.

- 2Such a view is used by those who claim, for example, that employers have a right to test employees for drug use. Drug use presumably prevents an employee from performing at an optimal level. Because, from this perspective, employers have a legitimate expectation that employees do perform at such levels, they have a legitimate claim to know about and prevent employee drug use. See Joseph DesJardins and Ronald Duska, “Drug Testing in Employment,” Business and Professional Ethics Journal 6, no, 3 (1987), for a refutation of this claim.

- 3Readers should review the discussion of the classical model of corporate social responsibility from chapter 3 for a fuller analysis of this issue. The perspective emerging from this chapter parallels the emergence of stakeholder theory described in chapter 3. See also, “Dirty Numbers,” Fortune, February 18, 2002, pp. 75–84.

- 4Ronald Duska, “Whistle-blowing and Employee Loyalty,” originally published in Joseph DesJardins and John McCall, eds., Contemporary Issues in Business Ethics, 2nd ed. (Belmont, CA: Wadsworth, 1990), pp. 142–146.

- 5This banking case is based on a situation with which I was personally familiar. Interestingly, a bank manager explained that the bank saw the training simply as an investment. They knew in advance that only a certain percentage of the trainees would remain with the bank long term and that these losses were already built into the salaries and training expenses. He didn’t see the training expenses as a sacrifice and was unwilling to characterize those who left as disloyal.

- 6Albert Z. Carr, “Is Business Bluffing Ethical?” Harvard Business Review 46 (January–February, 1968).

- 7Ibid., p. 9.

- 8See Joseph Kupfer, “The Moral Presumption against Lying,” Review of Metaphysics 36 (1982), for an insightful discussion of the harmful effects lying has on the liar’s own character.

- 9Richard DeGeorge, Business Ethics, 5th ed. (Upper Saddle River, NJ: Prentice Hall, 151999), ch. 10.

- 10For good summaries of the arguments for and against insider trading, see Jennifer Moore, “What Is Really Unethical about Insider Trading?” Journal of Business Ethics 9 (1990), pp. 171–182; and Patricia Werhane, “The Ethics of Insider Trading,” Journal of Business Ethics 8 (1989), pp. 841–845.

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Chapter 8

Marketing Ethics: Product Safety and Pricing

Learning Objectives

After reading this chapter, you will be able to:

- Understand a range of ethical issues that arise in marketing;

- Apply an ethical framework for evaluating marketing ethics;

- Explain the ethical dimensions of product liability law ranging from caveat emptor to strict product liability;

- Explain the ethical issues surrounding the concept of negligence;

- Provide an ethical analysis of strict product liability;

- Explain the ethical issues involved in product pricing.

DISCUSSION CASE: Social Harms: Obesity and Opioids

Standard cases of product liability involve consumers being harmed by a product that was negligently designed, inspected, or manufactured. In such cases, a business can be held liable for damages if the consumer can show that the harm was caused by a product defect or negligence on the part of the manufacturer. Thus, in a recent example, Monsanto Corporation (since 2018, owned by the German company Bayer) was found liable for cases of non-Hodgkin’s lymphoma, a type of cancer, caused by their herbicide Roundup. In another case, Johnson & Johnson was found liable for damages caused by trace amounts of asbestos contained in their talcum powder.

The legal and ethical analyses of these products liability cases are well developed, and this chapter will examine these issues in some depth. But the question of business liability is more complicated in cases in which the connection between consumer harm and the product or a business action is less direct. The examples of the obesity epidemic and opioid addiction are cases in point.

According to the Center for Disease Control (CDC), more than 42 percent of all adults in the United States suffer from obesity. Childhood obesity rates have more than tripled since the 1970s. These percentages are the highest in the world and an all-time high for the United States. The global average for obesity is nearly 30 percent of the population, equivalent to more than 2 billion people. Just over 19 percent of U.S. youth aged two to nineteen, more than 14 million young people, are obese. Obesity rates within the United States have increased by more than 30 percent since 2000, despite widespread government and public initiatives to counter obesity.

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Obesity is highly correlated with a variety of seriequivalent to 11 teaspoons, of sugar. A single one-cup serving of a particular raisinous health risks, including heart disease, strokes, diabetes, high blood pressure, high cholesterol, osteoarthritis, mental illness, depression, and some forms of cancer. As obesity rates have skyrocketed, these associated diseases have increased proportionately. The CDC estimated that obesity tripled the risk of hospitalization for people infected by the COVID-19 virus. As a result, obesity is the most dominant underlying cause of preventable death in the United States. The CDC estimated that obesity costs the United States more than $170 billion annually in associated health care costs. These facts have led many health care advocates to identify this as an obesity epidemic.

There are many causes of obesity. Genetics, poor nutrition, especially overindulgence of high-fat and high-sugar foods, some diseases, lack of exercise, and a sedentary lifestyle all contribute to obesity. In the most general terms, the cause of obesity is that caloric intake is greater than the amount of calories burned through exercise and activity. Thus, a deeper analysis of the causes of obesity would look at both the quantity and quality of food consumed. What leads to an increase in caloric intake? Why do people consume the amount and the type of food that they do consume?

These questions have led some observers to conclude that the food and beverage industry, including the fast-food industry, plays a major role in the increasing obesity rates and the corresponding health problems associated with obesity. Critics argue that the food and beverage industry should be held responsible for their role in causing the obesity epidemic.

Nutrition experts recommend a daily calorie intact of about 2,000 calories for an average adult female, 2,500 calories for males, and 1,500 calories for adolescents and teenagers. Recommended maximum daily sugar consumption for adults is 25 grams, and 15 grams for teenagers. Recommended daily total fat consumption for an average adult female is 65 grams, of which no more than 20 grams should be saturated fats. For males, the corresponding recommendations are 80 grams of total fat, 25 for saturated fats, and for teens, 50 total grams, of which no more than 20 grams should be saturated fats.

Nutritionists often distinguish between calories that are part of a healthy diet and “empty calories” that provide no nutritional benefits. For example, sugars found in fruits and vegetables are naturally contained in a food that is providing a wide range of important nutrients. Sugar that is artificially added to processed food and drinks adds to the daily caloric intake without providing any corresponding nutritional benefits.

One study found that almost 75 percent of the food sold in supermarkets, essentially all foods other than fresh fruits, vegetables, dairy, and meat, contain added sugars. These sugars take many forms and are labeled with different names, including high-fructose corn syrup, corn sweetener, dextrose, fructose, and fruit juice. A 12 oz. soft drink, for example, can contain as much as 46 grams, equivalent to 11 teaspoons, of sugar. A single one-cup serving of a particular raisin bran cereal, despite a label advertising “all natural ingredients” and “no high-fructose corn syrup added,” contains 20 grams, or 5 teaspoons, of added sugar. Similar examples can easily be found throughout any grocery store. Students are encouraged to conduct an Internet search, or simply read labels, on any food product they buy to learn more about added sugars in common food products.

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The fast-food industry provides many other examples of high-calorie, low-nutrition foods. A typical meal at a fast-food restaurant easily reaches or exceeds all of the daily nutrition guidelines. For example, a McDonald’s meal consisting of a quarter pounder with cheese, a side order of french fries, and a medium coke contains over 1,200 calories, 55 grams of total fat, 22 grams of saturated fat, and 67 grams of sugar. A teenager who eats this meal has almost met his total daily calorie limit and surpassed the recommended limits of fat, saturated fat, and more than quadrupled his recommended daily sugar intake. Many fast-food restaurants offer choices with much worse numbers. It is easy to find comparable meals containing more than 2,000 calories at such restaurants as Sonic, Burger King, Wendy’s, Arby’s, and Chipotle. In addition, it is also common for fast-food restaurants to promote low-priced “super-sized” options, especially for high profit-margin fries and soft drinks, thereby increasing calorie, fat, and sugar content even further.

Critics fault the food and beverage industry not only for the content of the food and drinks they sell but also for how this food is marketed and promoted. Knowing that added sugars, high-fat, high-calorie, and high-salt foods contribute to obesity and other health problems, companies nevertheless aggressively promote and market them to consumers and often target their ads particularly at young consumers.

Another social problem that is identified as a health epidemic is the abuse of opioids. In 2017, the U.S. Department of Health and Human Services declared opioid use a national public health emergency. According to the National Institute of Drug Abuse, in May 2018, as many as 115 people died each day in the United States from an opium overdose. While illegal drugs such as heroin play a major role in this epidemic, prescription drugs such as fentanyl, hydrocodone, oxycodone, codeine, and morphine play a bigger role. More than half of the overdose deaths are attributed to commonly prescribed opioid medications.

Significant increases in opioid addiction can be traced to the 1990s. During this period, pharmaceutical companies heavily promoted new oxycodone and hydrocodone drugs such as OxyContin and Vicodin, and they informed medical prescribers that these drugs were not addictive. Medical professionals prescribed these drugs for pain relief associated with a variety of medical conditions, including surgery, dental work, injuries, and some cancers. Also during the 1990s, the U.S. federal government relaxed regulations and allowed direct to consumer advertising for prescription drugs.

By 2013, more than 250 million opioid prescriptions were written in the United States, equivalent to almost one prescription for every American. The highest rates of opioid prescriptions are in Alabama, Tennessee, West Virginia, Kentucky, and Oklahoma, and the lowest rates are in Hawaii, New York, California, Minnesota, and New Jersey.

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The pharmaceutical industry involves three types of firms. Pharmaceutical companies design, market, and manufacture the drugs. Distribution companies act as the middle agent to transfer the drugs from the manufacturer to the pharmacies and medical offices that eventually sell them directly to consumers. Within the United States, three major distribution companies, Cardinal Health, McKesson, and AmerisourceBergen, account for more than 90 percent of the drug distribution market.

Medical professionals who write the actual prescriptions have a responsibility to function as gatekeepers to limit drug use and supply only to those patients who have a demonstrated medical need. Of course, many opioids that are initially obtained legally and ethically can end up being used illicitly through theft and/or illegal sales. Nevertheless, critics point to the role that both pharmaceutical companies and distribution companies have played in the great increase in opioid use and abuse.

Pharmaceutical companies heavily market their drugs both to health care providers and, since the 1990s when federal laws changed to allow it, directly to consumers. Evidence shows that the pharmaceutical industry spends more money marketing their drugs than they do on research and development of new drugs. The companies also promoted the new generation of opioids as having fewer side effects, including being less addictive, than other opioids such as morphine.

The distribution companies also market their opioids directly to pharmacies. While they have a legal responsibility to report about pharmacies or medical providers with unusually high opioid purchases, evidence suggests that these reporting requirements were lax. For example, congressional investigations revealed that between 2008 and 2015, pharmaceutical distributors sent more than 20 million oxycodone and hydrocodone pills to two pharmacies, just four blocks apart, in one small town with a population of 3,000 people along the West Virginia and Kentucky border. In another West Virginia town, in 2007 and 2008, drug distributors shipped almost 9 million hydrocodone pills to one pharmacy in the town of Kermit, having a population of 392. A West Virginia newspaper reported that “In six years, drug wholesalers showered the state with 780 million hydrocodone and oxycodone pills, while 1,728 West Virginians fatally overdosed on those two painkillers.”[1]

The obesity and opioid epidemics are cases in which significant social harms are caused by products that generate billions of dollars annually for business. But these situations differ from more standard cases of product liability. First, it is near impossible to trace any particular case of obesity-related health harm such as diabetes or stroke to a particular food or drink. It is very difficult although more possible to trace a particular opioid-related overdose to a specific prescription. Further, businesses can claim that consumer decisions regarding use and misuse play a deciding factor in obesity and opioid addiction. Business claims that when used properly and in moderation, neither unhealthy foods nor opioids cause the social harms of obesity or opioid addiction. Finally, while many specific individuals are harmed by obesity and opioids, the wider society also suffers harms, particularly in terms of higher health care costs and, in the case of opioids, increased costs associated with law enforcement and criminal prosecution.

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Yet, critics argue that these cases are relevantly similar to earlier products liability cases involving asbestos and tobacco. The asbestos case involved a situation where those harmed by inhaling asbestos dust had no way to connecting their disease to any particular asbestos-related business. Nevertheless, courts allowed those harmed to recover damages from the entire asbestos industry. The famous tobacco cases involve situations in which tobacco companies defended themselves by citing the fact that consumers chose to take the risk associated with tobacco. Again, courts were not persuaded by this defense, especially in light of the addictive nature of tobacco and the marketing done by tobacco companies to encourage smoking and minimize tobacco’s harmful effects.

Discussion Questions

1. What public policy approach would be most reasonable to protect consumers from harmful products? Should governments regulate the sale of high-sugar and high-fat food and beverages? How might market and economic forces play a role in protecting consumers?

2. What responsibilities do fast-food restaurants and soft-drink manufacturers have for the quality of food and drinks that they sell? Do they have any responsibility for the obesity epidemic? Why or why not? Do these foods “cause” obesity?

3. Is obesity and opioid addiction the sole responsibility of the individuals who choose to eat unhealthy foods or use opioids? Why or why not?

4. What responsibilities do pharmaceutical companies, drug distribution companies, and pharmacies have for the opioid epidemic? What responsibility do these companies have for knowing about, and therefore taking steps to prevent, misuse of opioids?

5. An old adage in legal investigations is to “follow the money.” This suggests that the best way to identify the culprit is to identify the agent who benefits financially from the harm. Many businesses in the food and beverage industry profit from high-calorie, unhealthy food and drinks. Many businesses in the pharmaceutical industry have profited from the significant increase in opioid sales. Does the fact that a company benefits financially from a social problem create a responsibility to address the problem? Why or why not?

8.1 Ethical Issues In Marketing: An Overview

Chapters 8 and 9 turn to issues in marketing ethics. Marketing is a major subdiscipline within business and it includes a wide range of activities. A traditional characterization describes marketing as concerned with the “four Ps”: product, pricing, promotion, and placement. This present chapter will examine ethical issues concerning the safety and responsibility for products and for pricing those products. Chapter 9 will examine a range of issues concerning how products are promoted, advertised, and targeted for particular markets.

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We can take the model of a single exchange between two individuals as a useful way to introduce an ethical framework for marketing ethics. The simple situation in which two parties freely agree to an exchange is prima facie ethically legitimate. The utilitarian tradition would take their agreement as evidence that each is better off than they were prior to the exchange and thus conclude that overall happiness has been increased by the exchange. The Kantian tradition in principle-based ethics would see it as upholding respect for individuals by treating them as autonomous agents capable of pursuing their own ends.

This assessment is only prima facie ethical because, like all agreements, certain conditions must be met before we can conclude in fact that mutual benefit has been achieved or that autonomy has been respected. Thus, for example, we would need to establish that the agreement resulted from an informed and voluntary consent, and that there was no fraud, deception, or coercion involved. If these conditions are violated, mutual benefit is not attained and autonomy is not respected. Furthermore, even when such conditions are met, other values may override the freedom of individuals to contract for mutually beneficial purposes. Thus, for example, the freedom of drug dealers to pursue mutually agreeable ends is overridden by society’s concern to maintain law and order.

In general, therefore, it will be helpful to keep three concerns in mind as we approach any ethical issue in marketing: To what degree does the transaction provide actual as opposed to merely apparent benefits to all parties? To what degree are market participants respected as free and autonomous agents rather than being treated simply as means to the end of making a sale? What other values might be at stake in the transaction? Let us consider these three issues in more detail.

The first ethical concern looks to the alleged benefits obtained through market exchanges. It is common to find economics textbooks assuming that consumers are benefited, almost by definition, whenever their preferences are satisfied in the market. The assumption is that people are better off whenever they get what they want in an exchange. But this assumption won’t bear up under close scrutiny. There are many purchases that do not result in actual benefit. For example, impulse buying, and the many marketing techniques used to promote such consumer behavior, cannot be justified by appeal to satisfying consumer interests. The ever-increasing number of individual bankruptcies suggests that consumers cannot purchase happiness. Empirical studies provide evidence that suggest that greater consumption can lead to unhappiness, a condition called by some “affluenza.”[2] Consider also the opening cases of obesity and opioid addiction. In these cases not only are individuals harmed rather than benefited when they satisfy their consumer desires but the overall good of society is also harmed when people choose to consume unhealthy food or drugs. So, if simple consumer satisfaction is not a conclusive measure of the benefits of market exchanges, one must always ask about the ends of marketing. What goods are attained by successfully marketing this product or service? How and in what ways are individuals and society benefited from the product?

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The second ethical concern is consumer autonomy. It is not always easy to determine if someone is being treated with respect in marketing situations. As a first approximation, we might suggest two conditions. First, the person must freely consent to the transaction. But how free is “free”? Surely transactions completed under the threat of force are not voluntary and therefore are unethical. But there are many degrees of voluntariness. For example, a consumer facing a life-threatening illness or excruciating pain may choose to take drugs with serious side effects that a healthier person would find unacceptable. A patient receiving an opioid prescription from her physician may not be in a position to request a nonopioid pain reliever. From this perspective, the more a consumer needs a product, the less free they are to choose and therefore the more protection they deserve from unsafe products or unscrupulous manufacturers. The history of prescription drug regulation is witness to this fact. A person with limited income or limited food choices may choose the convenience of packaged or fast food, but there may be few other real choices available.

Or consider the anxiety and stress that accompany any illness or medical condition. When marketing practices exploit that anxiety to sell unnecessary drugs or to downplay the potential side effects, it is not at all clear that the consumer has made a fully voluntary choice. More dramatic cases of price gouging, price fixing, and monopolistic pricing clearly raise the issue of freedom in marketing. The EpiPen case described in chapter 2 indicates how easy it is for the price of some medical products to be raised without regard for how that might affect consumer demand. Practices aimed at vulnerable populations such as children and the elderly also raise questions of voluntariness. Thus, an adequate analysis of marketing ethics challenges us to be sensitive to the many ways in which consumer choice can be less than fully voluntary.

A second aspect of respect requires that the consent be not only voluntary, but also informed. Informed consent has received a great deal of attention in the medical ethics literature, which shows that patients are at a distinct informational disadvantage in situations dealing with health care professionals. Similar disadvantages can occur in marketing situations. Outright deception and fraud clearly violate this condition and are unethical. But there can also be many more nuanced cases of deception and misleading marketing practices. The complexity of many consumer products and services can also mean that consumers may not understand fully what they are purchasing.

Consider as an example all that would be involved for a consumer to determine what amount of saturated fat or high-fructose corn syrup is a healthy daily dosage. Or, consider the many people who have very weak mathematical skills. Imagine such a person trying to decide on the economic benefits of whole life versus term insurance, or a forty-eight-month auto lease versus a five-year purchase loan at 2.9 percent financing. In general, while some businesses claim that an “informed consumer is our best customer,” many others recognize that an uninformed consumer can be an easy target for quick profits.[3] Serious ethical questions should be raised whenever marketing practices either deny consumers’ full information or rely on the fact that they lack relevant information or understanding.

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The third set of factors that must be considered in any ethical analysis of marketing are values other than those served by the exchange itself. Such primary social values as fairness, justice, health, and safety are just some of the values that can be jeopardized by some marketing practices. For example, a bank that offers lower mortgage rates in affluent neighborhoods than it does in inner-city neighborhoods might be involved only in deals that are mutually beneficial since they do not, in fact, sell mortgages in the inner city. But such contracts would violate important social norms of equal treatment and fairness. There may be a very strong market for such things as rhinoceros horns or endangered species. There is also, unfortunately, a market for children. But just because someone wants to buy something and someone else is willing to sell it does not mean that transaction is ethically legitimate. An adequate ethical analysis of marketing must ask who else other than the two parties involved might be affected by the transaction. How, if at all, are their interests represented? What social goods are promoted, and which are threatened, by marketing this product?

ETHICAL ISSUES IN MARKETING: A Framework

Market Exchange is prima facie ethically legitimate because of two ethical considerations:

- Respect for the autonomy/freedom of individuals

- Mutual benefit that occurs for each party to the exchange

But this ethical judgment is conditional because:

- The transaction must be truly voluntary.

- Informed consent of each party is needed.

- Benefits might not occur.

- Other values might conflict.

These four conditions therefore imply the following four questions, each of which requires considering several factors:

1. Is exchange “voluntary”?

- The consumer must have real alternative choices available

- Anxiety and stress in some purchasing situations

- Price-fixing, monopolies, price gouging, etc.

- Targeted and vulnerable consumers

2. Is consent to exchange really “informed”?

- Lack of information

- Deception

- Complicated information

3. Are people truly benefited?

- Impulse buying, consumerism

- Injuries, unsafe products

- “Contrived” wants

4. Do competing values override?

- Justice—e.g., “redlining” mortgages

- Market failures (externalities) that harm others

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One must also ask about the true costs of production. An adequate ethical analysis of marketing must consider externalities, those costs that are not integrated within the exchange between buyer and seller. Externalities show that even if both parties to the exchange receive actual benefits from the exchange, other people external to the exchange might be adversely affected. One thinks of the environmental or health impact of marketing products such as SUVs, pesticides, and tobacco as examples in which significant social costs would be ignored by a simple model of individual consumer exchange. Both unhealthy foods and opioids are other products where parties external to the exchange can be harmed. With these issues in mind, we can now turn in this chapter to a closer examination of two major aspects of marketing ethics: responsibility for product safety and pricing. Chapter 9 will examine two additional areas of marketing ethics: responsibility for how business markets and promotes its products, particularly in the age of digital marketing.

8.2 Ethical Responsibility for Products: From Caveat Emptor to Negligence

What responsibilities does a business face for harms caused by the products that it brings to the marketplace? Historically, the U.S. law has taken two general approaches to harmful products: forcing the responsible business to pay for damages, and establishing regulations to prevent harms from occurring. Products liability law provides the means to compensate consumers who have been harmed by a product, as well as providing the possibility for punitive damages to punish companies if their actions were especially egregious or reckless. Government regulation provides the standards aimed at minimizing or preventing harms from occurring in the first place.

As detailed in chapter 7, although the concept of responsibility plays a major role in ethical discussions, it is not a clear and unambiguous notion. There are at least three common uses of the term responsibility that are relevant to an examination of a business’s responsibility for its products: responsibility as cause, as liability, and as accountability. Consider what one might be asking by the question: “Who is responsible?”

Imagine you come upon a traffic accident in which an SUV has rolled over into a ditch. You ask a group of people standing to the side: “What happened? What is responsible?” In the first sense of responsibility, you would be asking about the cause of what you see: who, or what, caused this accident to happen? In this causal sense, we can imagine the driver answering, “The defective air bag caused this crash. I was driving when the air bag suddenly deployed causing me to lose control and crash.”

A second sense of responsibility involves assigning blame or fault. To ask “Who is responsible?” in this sense is to inquire about who is to be held liable for the harm. If the accident were caused by icy roads, for example, we would identify the ice as the cause but it would make little sense to say that the ice was at fault. In this way, something might cause some wrong but not be liable or at fault for it. On the other hand, had the accident been caused by the driver losing control while reaching to dial a cell phone and taking his eyes off the road, we would hold him responsible both as the cause and as being at fault.

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There is a third sense of being responsible that involves neither cause nor liability but means something closer to “taking care of” or being accountable. Thus, we speak of being responsible for a child’s school expenses or assuming responsibility for an elderly parent’s medical bills. One might be assigned responsibility for certain chores or be described as a responsible person. For group projects in class, one student is responsible for research, another for typing, another for presenting to the class. This sense of responsibility shows that one can be held accountable without suggesting that someone is at fault or to blame.

Each of these senses of responsibility is relevant to issues of product safety and marketing ethics. When examining the obesity crisis or opioid epidemic, we might ask all three versions of responsibility: What is the cause? Who or what is at fault? Who should be held accountable?

One of the first, and often most difficult, questions of product safety concerns determining the cause of any harms. Thus, for example, starting in 2013, there were widespread reports of airbags unexpectedly exploding, causing injuries and deaths. Honda cars were among the very first cars to experience this problem, and both Takata, the airbag manufacturer, and Honda had to confront the question of what was causing the explosions. Did design or manufacturing problems at Takata cause them to explode? Were there problems with their installation during Honda’s manufacturing process? Was it some combination of both design and installation, or something else? Initial reports from Takata cited excess moisture and humidity as the cause.

Once the cause has been established, the legal process turns to the question of negligence. The concept of negligence, both an ethical and legal concept, is the primary standard by which ethical or legal fault is assigned (intentionally or recklessly causing harm would be other ways). Thus, manufacturers who fail to inspect their products before sending them to the market, or who rush them to market without adequate testing, can be held liable (at fault) for harms caused by this negligence. For example, in 2016, numerous Samsung Galaxy Note 7 phones caught fire and exploded. The cause was traced to overheated batteries. Samsung eventually acknowledged fault when it was discovered that negligent design and installation caused the overheating problem.

Most legal cases of products liability focus on the concept of negligence as the means to establish fault. These cases involve both responsibility as cause and responsibility as liability or fault. A second concept, strict product liability, is more a doctrine of no-fault accountability. In this case, a manufacturer can be held accountable for damages even if no one was negligent for causing the harm. The focus for much of the discussion of business’s responsibility for product safety is on assigning liability (fault) for harms caused by products. The legal doctrine of strict product liability is ethically controversial exactly because it holds a business accountable for paying damages in cases where it was not at fault.

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The cases of obesity and opioid abuse raise questions of both types. Are food processing companies or fast-food restaurants negligent in marketing products that cause harm if those foods and drinks contribute to obesity? Should they be held accountable for damages, even if they are not negligent? Is a pharmaceutical distributor liable for opioid abuse when they sell millions of pills to a small pharmacy in a small West Virginia town? Should they be held accountable even if they were not negligent? We will consider the case of strict product liability in more detail in the following section. But first, let us examine the caveat emptor and negligence standards for determining liability for harms caused by products.

Caveat Emptor

The caveat emptor approach, associated with market-based ethics and policy, understands marketing on a simple model of a contractual exchange between a buyer and a seller. From this perspective, business has only the responsibility to uphold its end of the bargain by providing a good or service at an agreed-upon price. Unless a seller explicitly warrants a product as safe—unless, in other words, the seller promises otherwise—buyers are liable for any harms they suffer. Every purchase was assumed to involve the informed consent of the buyer and was therefore assumed to be ethically legitimate. Thus, the caveat emptor approach would strongly suggest that consumers who choose to eat unhealthy foods or use opioids are liable for whatever harms they suffer as a result.

As both cases of high-fat foods and prescription drugs suggest, however, there were problems with this approach. In part, caveat emptor assumes that consumers adequately understand and judge products so that they can reasonably be expected to protect themselves. As suggested in the market ethics overview at the start of this chapter, consumers don’t always understand products fully and they are not always free to choose not to purchase some things.

Starting in the 1960s, a number of important legal cases began to shift attention away from this contract model of business and consumers. These changes shifted the burden from what consumers agreed to, to what producers were implicitly promising. The law began to assume that by bringing goods and services to the market, producers were implicitly promising that their products were safe under normal use. The ethical basis for this decision is the assumption that consumers would not give their consent to a purchase if they had reason to believe that they would be harmed by it when used in a normal way.

However, as long as the marketing relationship was understood on the contract model, there was an easy way for manufacturers to escape responsibility. If courts were going to assume that consumers had been given an implied warranty of safety, manufacturers could avoid responsibility by expressly limiting or denying any warranty. Thus, limited or expressed warranties could shelter manufacturers from legal responsibility for their products. Consumers could only recover damages as outlined by the producer. All too often, such limitations are explained in small print at the bottom of a sale agreement and typically in language that only lawyers can understand. Thus, despite appearances that consumers were consenting to such limitations, a more fair and accurate interpretation is that such one-sided agreements fail to meet the standards of truly informed consent.

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Negligence

Negligence, a concept from the area of law known as torts, provides a second avenue for consumers to hold producers responsible for their products. The distinction between contract law and tort law calls attention to two different ways to understand ethical duties. Under a contract model, the only duties that a person owes are those that have been explicitly promised to another party. I have duties to the mortgage company, for example, because I have agreed or promised to do certain things. On what is sometimes called the social contract model of ethics, our only duties are those that have been taken on voluntarily. Otherwise, I owe nothing to anyone.

The ethical perspective that underlies tort law holds that we all owe other people certain general duties, even if we have not explicitly and voluntarily assumed them. Specifically, I owe other people a general duty not to put them at unnecessary and avoidable risk. Thus, although I have never explicitly promised anyone that I will drive carefully, I have an ethical duty not to drive recklessly. Negligence is a central component of tort law. As the word suggests, negligence involves a type of ethical neglect, specifically, neglecting one’s duty to exercise reasonable care not to harm other people. One can understand many of the ethical and legal issues surrounding manufacturers’ responsibility for products as the attempt to specify what constitutes negligence in their design, production, and sale. What duties, exactly, do producers owe to consumers?

One can think of possible answers to this question as falling along a continuum. On one extreme is the contractarian answer: Producers owe only those things promised to consumers in the sales agreement. At the other extreme is something closer to strict liability: Producers owe compensation to consumers for any harms caused by their products. In between these extremes is a range of answers that vary with different interpretations of negligence. We have already suggested why the strict contractarian approach is not convincing. In the next section, we shall examine the pros and cons of strict product liability. The remainder of this section will examine the important concept of negligence.

Negligence can be characterized as a failure to exercise reasonable care or ordinary vigilance that results in injury to another. In many ways, negligence simply codifies two fundamental ethical precepts: “one ought not harm others,” and “ought implies can” (we cannot reasonably oblige someone to do what they cannot do). People have done an ethical wrong when they cause harm to others in ways that they can reasonably be expected to have avoided. Negligence includes acts of both commission and omission. One can be negligent by doing something that one ought not (e.g., speeding in a school zone) or by failing to do something that one ought to have done (e.g., neglecting to inspect a product before sending it to market).

Consider a case that received a good deal of media attention some years ago. In 1992 a seventy-year-old woman was severely burned when a cup of coffee she had just purchased at a McDonald’s drive-through window spilled on her lap. She apparently held the cup between her legs and tried to pry off the lid as she drove away. The coffee was hot enough (185 degrees) to cause third-degree burns, which required skin grafts and ongoing medical care. A jury held McDonald’s liable for damages and awarded this woman $2.86 million, $160,000 for compensatory damages, and $2.7 million in punitive damages. Should McDonald’s be held liable for these injuries? Were they negligent in serving such hot coffee at a drive-through window? Was the consumer negligent in her own actions?

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Negligence involves the ability to foresee the consequences of our acts and failing to take steps to avoid the likely harmful consequences. The standards of foreseeability, however, raise interesting challenges. One standard would hold people liable only for those harms that they actually foresaw occurring (actual foreseeability). Thus, as happened in the famous Ford Pinto case, for example, a car manufacturer would be acting negligently if, on the basis of engineering tests, they concluded that a fuel tank placed behind the rear axle would puncture and explode during crashes at speeds below 30 miles per hour, yet still brought the car to market.

But this standard of actual foreseeability is too restricted. If someone actually thinks that harms are likely to result from their acts and proceeds nonetheless, they have committed a serious wrong and deserve harsh punishment. Such a case seems more akin to recklessness or even intentional harm than negligence. This standard would also imply that unthoughtful people cannot be negligent, since one escapes liability by not actually thinking about the consequences of one’s acts. “I never thought about that” would be an adequate defense if we used this standard of negligence. Yet this surely is part of what we are after with the concept of negligence. We want to encourage people to be thoughtful and hold them liable when they are not.

A preferable standard would be reasonable foreseeability, which would require people to avoid harms that, even if they haven’t actually thought about, they should have thought about had they been reasonable. For example, presumably McDonald’s did not actually think that their customers would be severely burned by coffee. But had they thought about what people who are driving cars when served coffee might do to hold their cups when they drove away from the window, they could have foreseen the likelihood of spills. The fact that McDonald’s had received over 700 prior burn claims about their coffee suggests that a reasonable person would have concluded that this was a dangerous practice. This “reasonable person” standard is the one most often used in legal cases and seems to better capture the ethical goals of the very concept of negligence. People are expected to act reasonably and are held liable when they do not.

But even the reasonable person standard can be interpreted in various ways. On one hand, we expect people will act in ways that would be normal or average. (See the Reality Check on “Digital Natives” in the next chapter for a similar situation with the reasonable consumer standard in digital marketing.) A “reasonable” person does what we could expect the ordinary, average person to do. There are problems using this standard for both consumer and producer behavior. It may turn out that the ordinary average consumer is not as smart as we might hope. The average person doesn’t always read, or understand, warning labels, for example. A reasonable consumer might understand what a label description of 36 grams of saturated fat means, an average consumer might not. The ordinary and average person may thoughtlessly place a cup of very hot coffee between her legs as she drives out of a parking lot and into traffic. The average person standard, when applied to consumers, risks exempting many consumers from taking responsibility for their own acts. When applied to producers, the average person standard sets the bar too low. We can expect more from a person who designs, manufactures, and sells a product than average and ordinary vigilance. While an average person might not understand healthy levels of saturated fat, a food producer who is creating such a product should.

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Reasons such as these can lead us to interpret the reasonable person standard more normatively than descriptively. In this sense, a “reasonable” person assumes a standard of thoughtful, reflective, and judicious decision making. The problem with this, of course, is that we might be asking more of the average consumers than they are capable of giving. Particularly if we think that the disadvantaged and vulnerable deserve greater protection from harm, we might conclude that this is too stringent a standard to apply to consumer behavior. On the other hand, given the fact that producers do have more expertise than the average person, this stronger standard seems more appropriate when applied to producers than to consumers.

8.3 Strict Product Liability

As described previously, the negligence standard focuses on the actions of the people involved. Specifically, either or both the consumer and producer can be held responsible when they have acted negligently. In the McDonald’s coffee case, for example, the jury concluded that the consumer should also be held partially liable for her own injuries since she did not exercise reasonable care when she held hot coffee in her lap while driving. McDonald’s itself was also negligent because they should have taken steps to prevent the sort of accident that was easily foreseeable.

Strict product liability, on the other hand, focuses not on the actions of the people involved but rather on the performance of the product itself. Some harms occur in ways that can only be described as an accident—that is, there was nothing anyone could have done otherwise that could have prevented the harm. Neither the producer nor the consumer acts negligently, but the consumer is injured nonetheless. The question then arises: In the absence of fault who should bear responsibility, who should be accountable, for paying damages? The strict product liability standard assigns this responsibility to producers.

It is crucial to understand that despite the language of “product liability” these cases do not involve assigning blame or fault. If someone was at fault, this would be a case of negligence and that standard would be applied. But in these cases, no one was at fault, no one could have reasonably been expected to have acted differently. Yet harms have occurred and someone must assume responsibility (in the sense of accountability) for these damages. In this sense, perhaps the legal language of “product liability” should be replaced with the language of “product accountability.”

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There are really only three options in this case. First, consumers can be made accountable for their own harms. Second, society can be held accountable. Third, the product manufacturers can be held accountable. Holding the consumer accountable, what is sometimes called the tough luck standard, seems overly severe. Not only would the consumers suffer the injury itself, but they would bear the financial costs as well. Making the consumer suffer in both ways seems cruel, especially since in these cases we know what caused the injury and we know that others have benefited from the fact that the consumer bought the product that caused their injury.

Holding society in general accountable is an option, but would commit us to a more socialized insurance system. If we hold society accountable for injuries and disease caused by consumer products, we would be hard pressed to deny social accountability for all injuries and disease (why favor only those caused by products?).

Considerations such as these lead many to conclude that the only reasonable option is producer accountability, which is the strict liability standard in place within the United States at present. But critics charge that this system is unfair, costly, and socially unwise. It is unfair because it holds producers responsible for things over which they had no control (since there was no negligence involved, there was nothing they could have done otherwise). It is costly because it adds significant hidden costs to every consumer product and places domestic producers at a competitive disadvantage with foreign businesses. It is socially unwise because it discourages product innovation and encourages frivolous and expensive lawsuits.[4]

But these criticisms are not persuasive. Philosopher John McCall argues that strict liability is no more unfair than it would be to hold the injured consumers accountable.[5] If business should not be penalized for harms that were beyond their control to prevent, neither should consumers be penalized for harms that they could not prevent. Thus, it cannot be argued that strict liability should be rejected as unfair if the alternative of consumer liability is equally unfair for the same reasons. McCall also argues that empirical evidence suggests that the strict liability standard is not as costly, nor as likely to generate frivolous lawsuits, as critics suggest.[6]

McCall argues that assigning the costs for injuries caused by defective products to other consumers of the product and to the shareholders of the company is more appropriate than assigning the costs to the injured consumer or to society at large. By holding the manufacturer liable, the costs are passed on, ordinarily through increased liability insurance costs, to those who stand to benefit from the product (i.e., product users and stockholders). This is only fair because it means that the full cost of the product (every opportunity forgone in the production and sale of the product) is paid by those parties involved. Injured consumers have not voluntarily accepted the injury as part of the cost they are paying for the product. These injuries are externalities that fairness requires to be internalized into the exchange. That is, the injuries should be paid for by those who benefit from the exchange, other users of the product, and stockholders in the company. McCall understands strict liability more as a process of compensation for undeserved harms, than liability in the sense of assigning fault or blame. Parties that benefit from an exchange in which one party is undeservedly injured owe compensation to the injured party.

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Consider how this analysis might be applied to the cases that opened this chapter. The social harms of obesity and opioid abuse are significant. Who should be held accountable for them? Who should pay to associated costs, particularly the significant medical costs, of obesity and opioid abuse? One could argue that the individuals who suffer the harms of obesity and drug abuse should be accountable for whatever harms they suffer, including all the associated social and medical costs. One counterargument holds that this “tough luck” standard is unnecessarily cruel, especially given that those individuals are already suffering significant personal and health-related harms. A second counterargument would examine the demographics of people who suffer from obesity and opioid addiction and suggest that the distribution of these harms raise real questions of social justice. Income, education level, race, and ethnicity are all statistically significant factors in determining who suffers from obesity and opioid addiction. Ethically, this raises a significant challenge to the justice of holding individuals fully accountable.

A second perspective would be to leave all such social costs to society. A strong utilitarian case can be made for this alternative, in that widely dispersing the costs of social harms minimizes the harm that any particular individual suffers. Yet this would seem to endorse a socialized approach to insurance for any harm, and that seems excessive to many observers. Further, the particular “society” that pays the costs for such harms as obesity-related health problems and opioid addiction are the local communities, the local first responders, local hospitals, that provide direct care. Sadly, all too often, these social institutions lack the resources to provide adequate care.

On McCall’s view, holding the businesses that market unhealthy foods and opioids accountable offers a more fair distribution of costs. Not only do the businesses in these markets profit substantially from these products, they are also best positioned to pass on the costs to all the consumers who choose to use the products. This alternative allocated the risks to the entire market, which benefits from the product but not beyond. Further, the increased costs that would likely follow as producers raise their price would, if economists are correct, create a disincentive for the product, thereby reducing its use and associated costs.

8.4 Ethics and Pricing

What values should determine an ethically legitimate price? In this chapter’s overview of ethical issues in marketing, three general ethical concerns were introduced as guiding principles: provision of actual benefits to the parties involved, respect for individual autonomy, and values other than those served by the exchange itself. These three concerns also provide a focus for ethics and pricing.

On the surface, a fair price is a price that both parties to an exchange agree upon. Thus the values of autonomy and mutual benefit to the parties involved underlie an ethics of pricing. But a product’s price can also affect third parties, including competitors who might be priced out of the competition and retailers who must live with manufacturers’ corporate pricing policies. Thus, values such as fairness and equal opportunity also are relevant to pricing ethics.

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Let’s start with a simple case of one buyer and one seller. A fair price would be a price that both agree to, with the consent of each party establishing the limits of what the other can expect. In a competitive market, both buyer and seller are protected by the availability of other buyers and sellers who move the price toward an equilibrium that seems fair to both sides. A seller cannot raise the price too high if there are competitors willing to sell lower, and the buyer can’t drive the price too low if there are other buyers willing to pay a higher price.

But the real world seldom matches this idealized marketplace, and the ways in which actual markets fall short of this ideal provide a helpful way to think about fair pricing. Consumers, of course, are not always fully informed or fully free in the marketplace. Thus, informed consent, a necessary condition for respecting autonomy, can be missing in some pricing situations. Pricing for such things as prescription drugs and other health care products are seldom products that consumers fully understand or for which they have alternatives available.

Three major ethical issues in pricing involve situations in which markets fail to ensure a fair price in this way. Price gouging, monopolistic pricing, and price fixing are all cases in which consumers lack the freedom to negotiate what is required to ensure fair market pricing. Price gouging occurs when the buyer, at least temporarily, has few purchase options for a needed product and the seller uses this situation to raise prices significantly. A local hardware store that doubles the price of a portable generator after a hurricane has taken unfair advantage of consumer needs. The night of the tragic attacks at the World Trade Center and the Pentagon there were numerous reported cases in which gasoline stations doubled and tripled their prices when some consumers rushed to buy gas in near panic. The EpiPen case that opened chapter 2 raises similar questions of price gouging. In such cases, the seller exploits a lack of freedom on the buyer’s part to extract extraordinarily high prices. Such practices are unethical because consent to the transaction is fundamentally not free, and the seller exploits the buyer’s limitations.

Monopolistic pricing and price fixing are similar unethical practices. In these cases, either individual companies or a group of conspiring companies use their market power to force consumers to pay a higher price than they would have if there were real competition in the marketplace. Microsoft’s Windows operating system, gasoline, airline travel, and credit card interest rates have all been alleged to be guilty of monopolistic pricing or price fixing. In general, two factors must be considered when judging whether a price is fair to consumers: consumer freedom and available competition. The greater freedom a consumer has to walk away from a product, the less likely it is that the seller can set an unfair price. Second, the greater the competition within a market, the less likely that unfair pricing can occur. If consumers have alternatives available, unfair pricing is less likely. Of course, the more one finds uniformity of prices within an industry—and credit card interest rates, prescription drugs, and air travel come immediately to mind—the less likely it is that real competition exists.

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These pricing issues have all involved the value of respect for the autonomy of consumers and their relative freedom in accepting a price. But a second, more utilitarian, value involved in pricing concerns the actual benefits that consumers obtain through pricing. It may seem surprising to suggest that there are any ethical issues involved in this aspect. After all, it would seem that consumers are benefited from low prices so that the only ethical issue from this more utilitarian perspective is balancing the benefits to buyers from low prices with the benefits to sellers of high prices. Thus, as the market would hold, any pricing that is mutually agreed on can be considered a price that optimally satisfies all parties.

But could consumers ever be benefited from higher prices than they could otherwise pay? Consider what can happen when a large national chain begins to operate in a small community. Such companies as Walmart, Home Depot, and online automobile brokers are well-known examples, but restaurant chains, grocery stores, clothing stores, and fast-food stores provide similar situations. In many cases, the immediate benefit to consumers is lower prices. For all the obvious reasons (and some not so obvious), larger national chains can often sell the same products at lower prices than local smaller firms. Some critics of the market consolidation that occurs in these situations argue that consumers are not benefited from the lower prices provided by these businesses.

Some economic evidence suggests that money spent with local businesses remains in the community to create more economic growth than money spent with national retailers. Locally owned businesses are more likely to reinvest in their community, hire locally, rely on local suppliers, and use such local professional services as banking, legal advice, accounting firms, and advertising agencies. Local businesses are more likely to offer personalized service and make greater contributions to local charities and community events than are national firms. Locally owned firms are more likely to remain loyal to the local community. As a consumer, one might benefit from slightly lower prices for a gallon of milk at Walmart than the local family-owned grocery store. But as a citizen, one might receive greater benefits by paying more for some consumer products and supporting local businesses. Or, consumers who benefit from low food prices at fast-food restaurants might end up paying higher health care costs. The economic model that suggests that individuals are better off whenever they pay lower prices may be too simplistic on both economic and ethical grounds.

An ethical analysis of pricing should also move beyond the two parties involved in the exchange. Ethical issues can also arise with respect to parties that are external to the exchange, particularly as they affect competitors, partners in the distribution channel such as suppliers and retailers, and potential consumers who can be priced out of the market. Especially important in such cases are the values of fairness and equal opportunity that other businesses experience. Further externalities, like those suggested by the obesity and opioid crises, are not reflected in the price charged for food and prescription drugs, and thus the prices do not reflect a full accounting of utilitarian costs and benefits.

Firms compete in many ways, of course, including competition through price, quality, and service. More importantly, they can compete fairly or unfairly. Unfair price competition can occur in several ways. Predatory pricing occurs when a product is temporarily priced below the actual costs as a means of driving competitors out of business. So, if a large national chain can sell a gallon of milk at below costs for a long enough period of time, it can drive smaller family-run grocery stores out of business. The size of the chain store allows it to absorb the losses, perhaps even indefinitely, in a way that is unavailable to the smaller store. Consumers may benefit from lower prices, but the larger community may suffer from fewer choices and lost competition.

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There are difficult ethical questions raised by this practice. On one hand, some will claim that there is nothing unfair about this competition. If a large store can sell some products below cost, so much the better for consumers. All the efficiency benefits of large retailers should be passed on to consumers and there is nothing unethical if smaller stores cannot compete. After all, a competitive market should drive out uncompetitive firms by driving prices down. On the other hand, we need to recognize that competition is ethically legitimate only as long as it is fair and as long as it does not cause undeserved harms. We also need to recognize that values other than economic efficiency and consumer preferences can be at stake. The “price” of economic efficiency may involve social and political “costs” to the wider community.

One concern with this is the utilitarian and economic one mentioned above. Lower prices might be a tactic employed to drive out competition and, over the long term, will only result in higher prices. Thus, the (long-term) consumer interests are best served by restricting (short-term) low prices. But even if the long-term price can be held low and consumers therefore benefit long term, low prices can be part of a more general unfair competition. Society generally benefits economically by price competition. But it can be the case that some parties to the competition are unfairly denied an equal opportunity to compete. Consider two examples.

Some automobile manufacturers have long desired to consolidate the automobile distribution system, in some cases even seeking to own and operate retail stores themselves. Most automobile dealerships are privately owned businesses that operate as a franchise of the manufacturer. Most automobile manufacturers also consistently use price incentives and other rebates to stimulate sales. It is not unusual for these rebates to be tied to certain sales targets. For example, in what are called stair-step programs the dealer may receive a $200 rebate per car sold for the first 10 units sold, $500 per car for the next 10, and so forth. The result of this is that larger retailers effectively pay a lower price per unit than smaller retailers. Perhaps not coincidentally, smaller dealers therefore face greater competition and are driven from the market, which results in the consolidation of distribution points that many manufacturers seek. A real ethical question must be raised. Does such price discrimination constitute unfair competition among retailers? Even if consumers benefit from lower prices, the benefit may be achieved by causing undeserved harm to small businesses.

Consider also cases in which government subsidies affect price. The U.S. federal government grants huge subsidies to the nuclear power industry, for example, by limiting the liability that the industry would face in the event of an accident. The federal government also subsidizes the coal, natural gas, and oil industries by granting below-market prices for access to federal lands, tax support for building pipelines and by paying for the military protection to secure access to foreign oil supplies. One result of this is that consumers pay lower energy prices in the United States than they would if the price were set by a fully free and competitive market. Another result is that the alternative energy industry has a more difficult time competing on price.

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These same issues can also appear on a broader global scale. Recent debates about global free trade, national tariffs, and international trade agreements are centered on the same issues of fair pricing, equal opportunity, free and fair trade, and mutual benefits. Some will argue that free global trade is the best means for providing overall benefits through low prices. Others argue that hidden subsidies, lower safety, employment, or environmental standards results in prices that do not reflect full costs. Others argue that global markets do not capture all the values at stake, with important goods such as jobs and wages for citizens and even national security threatened by the pursuit of lowest prices.

The crucial lesson to be drawn from these examples is not one of assigning blame or praise. We should recognize that whichever side one supports, one is acknowledging that the lowest, mutually acceptable, price alone is an insufficient basis for determining the ethical legitimacy of pricing policies. If you support alternative energy industries, you would say that even though consumers pay a low price for energy, the competition that establishes that price is unfair. If you support subsidies for the nuclear and fossil fuel industries, you would likely claim that other social values (e.g., economic growth, energy independence, and so forth) are so important that the price of some goods should not be left to the free market to establish. If you support global free trade, you need to acknowledge that the full costs might be loss of jobs at home.

A final concern picks up from this point. Low, mutually acceptable prices play a role in an economic system. But, as we have seen several times throughout this text, that economic system is itself a part of a broader social and political system. Values that are rooted in the social and political system can sometimes lead to an ethical rejection of low prices. Consider an example mentioned previously. A lending institution might make a decision to offer lower mortgage rates in a high-income, predominantly white neighborhood than it offers in a lower-income, predominantly African American neighborhood. Given the inequality of wealth, one could make the case that this is a prudent decision on financial grounds. But such discriminatory pricing would also be judged ethically unacceptable. Or consider pricing for such public goods as public lands, national parks, and wildlife. A true market price, based on the willingness of consumers to pay, might well result in national parks being sold to development companies, and endangered species being sold to big-game hunters. Market price, alone, would not adequately reflect the true value of such things. When there are social costs involved in a transaction, costs not reflected in the price agreed upon by the two parties to the transaction, then the price agreed to would be neither fair nor socially beneficial.

This chapter has examined a variety of ethical concerns raised by product safety and pricing. Chapter 9 will examine the two remaining core topics of marketing ethics: advertising and target marketing.

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Reflections on the Chapter Discussion Case

Consider some of the most fundamental questions that a business needs to answer before any new product is brought to market. Does this product fit our business plan? Is there a market for this product? If not, can a sufficient market be created and shaped by marketing? At what price could the product both satisfy consumers and be profitable? How ought the product be designed? What materials or ingredients should be used in the production? Where should the product be manufactured? How should the product be distributed?

The cases of obesity and opioids suggest that there are further questions that should be asked for any product. Even if there is a market for the product, we should consider if it actually does provide benefits either to those who consume it or to the wider society. The fact that there might be a market for a product does not in itself imply that the product is good. Is there a market for high-fat, high-sugar, high-sodium food products? Undoubtedly there is, especially if they are heavily promoted and priced low. But a responsible business should also ask about the foreseeable longer term and wider social consequences. A business that fails to ask such questions, or that acts despite a reasonable idea of those consequences, should not be surprised if society later determines that the company should be liable for harmful consequences.

The food and beverage industry is a sophisticated and mature part of the modern economy. The companies engaged in this industry hire experts in nutrition, human physiology, neuropsychology, and chemistry. They know how, and in what amounts, fat, sugar, and sodium affect human appetites and desires. They are also experts in advertising and promoting their products. Given this knowledge, and given the explicit and intentional decisions made in this industry, real questions can be asked about the responsibility of the food and beverage industry for the harms associated with unhealthy diets. What harms can these experts reasonably foresee as a consequence of marketing high-fat, high-calorie, high-sugar, high-sodium foods?

The pharmaceutical industry knows that their opioid products are addictive. The drug manufacturers, the distributing companies, the health care professionals, and the pharmacies all serve as gatekeepers and have strong professional duties to control opioids. Yet, all of these businesses profit from the sale of opioids and know the full extent of the present drug crisis. Given that they have earned profits from the sale of opioids and given that the abuse continues despite widespread efforts to control it, a case could be made that these companies should be held accountable for at least some of the costs of the opioid crisis.

Chapter Review Questions

1. Explain three general ethical concerns that should be raised in marketing ethics.

2. Describe several ways in which consumers are less than free in making choices about which products to purchase.

3. Explain why caveat emptor would be the ethically preferred product safety approach of the free market economic theory.

4. Explain the concept of negligence and offer an ethical defense of the claim that drug manufacturers should be held liable for negligent testing or production of their products.

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To what extent should manufacturers be held liable for harms caused by their products?

6. Evaluate three different ethical arguments used to justify the policy of strict product liability.

7. Explain three ways in which the lowest price might not be the ethically best price.

Endnotes

- 1The quotation is taken from “Drug firms poured 780M painkillers into WV amid rise of overdoses,” https://www.wvgazettemail.com/users/profile/Eric%20Eyre By Eric Eyre, West Virginia Gazette Mail, Dec 17, 2016. Other sources used in this case are: Sugar Science Institute at the University California at San Francisco, http://sugarscience.ucsf.edu/hidden-in-plain-sight/#.WvRKVUxFyM8 (accessed May 10, 2018); Center for Disease Control, “Opioid Use” https://www.cdc.gov/drugoverdose/opioids/prescribed.html (accessed May 10, 2018); Understanding the Opioid Crisis, U.S. Department of Health and Human Services, https://www.hhs.gov/opioids/about-the-epidemic/ (accessed May 10, 2018).

- 2See, for example, Affluenza: The All-Consuming Epidemic by John de Graaf, David Wann, and Thomas Naylor (San Francisco: Berrett-Koehler Publishers, 2001). A 1997 PBS television show of the same title, produced by KTCS Television and Oregon Public Television, is a useful classroom tool and is available in videotape format from Bullfrog Films.

- 3An informal Internet search found over a hundred companies advertising with this slogan. They ranged from real estate companies to antique dealers, and from long-distance phone providers to water filtration systems dealers. Presumably those who disagree do not advertise that fact.

- 4For a detailed development of these and other criticisms of the strict products liability standard, see Peter W. Huber, Liability: The Legal Revolution and Its Consequences (New York: Basic Books, 1988).

- 5John McCall, “Fairness, Strict Liability, and Public Policy,” in Contemporary Issues in Business Ethics, 4th ed., edited by Joseph DesJardins and John McCall (Belmont, CA: Wadsworth Publishing, 2000), pp. 328–329.

- 6See “Assessing Product Liability Alternatives,” Introduction to chapter 10 in Contemporary Issues in Business Ethics, pp. 308–310.

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Chapter 9

Marketing Ethics: Advertising and Digital Marketing

Learning Objectives

After reading this chapter, you will be able to:

- Analyze the ethics of manipulation and deception in marketing and sales;

- Explain the regulatory standards governing advertising;

- Analyze the arguments concerning marketing that violate consumer autonomy;

- Evaluate the ethics of consumer privacy and data records;

- Explain the ethics of target marketing;

- Analyze the ethics of marketing to vulnerable people and populations.

DISCUSSION CASE: Digital Marketing and “Dark Patterns”

It is fair to say that marketing has undergone dramatic changes in recent years as a result of digital technology. Two factors in particular have contributed to this change. First is the tremendous increase in mobile devices, smartphones, and tablets. These devices do three things of value to marketers: They are typically associated with one unique individual; they are used by individuals almost constantly throughout the day and night precisely because they are mobile; and they are heavily reliant on apps, small self-contained programs that have proven to be unrivaled in delivering consumers to business, and advertisements to consumers.

The second, and related, factor is the global popularity of search engines such as Google, and social networks such as Facebook, Instagram, and Twitter. The amount of personal information available about individuals now accessible by others would have been inconceivable just a few years ago. Of course, the point of collecting this information is that it is a commodity that can be bought and sold, or “monetized.” As a business, search engines such as Google and social networks such as Facebook make their money by selling access to the information they collect about you to advertisers and others willing to pay for that access.

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It is worth asking how the ethical principles and guidelines that were appropriate for evaluating traditional marketing techniques are still relevant in the age of digital marketing. Deception, manipulation, unfairness, and loss of privacy are among the most common concerns that have been raised against traditional advertising and marketing techniques. Consider how these concerns might apply to the following digital marketing activities.

On January 24, 2022, the attorney generals of three U.S. states and the District of Columbia filed a lawsuit against Google claiming that Google’s use of “dark patterns” in its design features can deceive, manipulate, and violate the privacy of consumers. “Dark Patterns” refer to webpage design features that subtly lead the viewer to certain activities that benefit the company. The term was coined over a decade ago by IT consultant Harry Brignull as: “A dark pattern is a user interface carefully crafted to trick users into doing things they might not otherwise do, such as buying insurance with their purchase or signing up for recurring bills.”

From the earliest days of marketing, it has always been understood that some design features rather than others can attract attention and influence behavior. Human psychology is such that bright colors, larger fonts, louder volume, and reassurance from trusted sources can be effective marketing tools. Sometimes these features can be helpful to consumers by calling their attention to and directing them to important information that they need or desire. But these same features can be used in ways that deceive or manipulate consumers.

Examples of dark patterns might include features as simple as the use of very small font size for website links such activities as unsubscribing from a mailing list or for learning about a drug’s harmful side effects. Other examples mimic misleading techniques that are common with traditional marketing schemes. “Bait and switch” occurs when a consumer shows interest in one product but is switched to another during the process. For example, a Windows pop-up window encouraged users to “click to update” Windows 7 software but then directed the user to an “upgrade” page for a new, and costly, Windows 10 software purchase. Hidden costs are common in digital marketing, as they were in traditional marketing. The user orders a product at one cost, and only later learns of additional costs for such features as shipping and delivery, taxes, and unspecified “surcharges.”

Yet other examples of dark patterns seem especially likely with online and digital ads. “Forced continuity” occurs when the marketer makes it very easy to begin a relationship, for example, a “free subscription for a limited time," but disguises the fact that a paid subscription will continue until and unless specific and often hidden steps are taken. Similarly, a “roach motel” technique makes it easy to enter, but difficult to leave. For example, one-click free online subscriptions end with multistep, perhaps requiring a phone call, cancellations.

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Obscure, misleading, or deceptive check boxes are common dark patterns, perhaps most often used for “opt-in” and “opt-out” choices. Consumers are told that they must opt-in for “enhanced,” “more personalized,” and “improved” experiences, or warned that unless they do so, the website might not function properly. The “enhanced“ or “improved” functioning means more targeted ads and greater personal information shared with the company. Some websites use unclear language and double negatives that confuse consumers. One example occurs when users who start to cancel a subscription are presented with a pop-up box asking if they are certain, and then given a choice to “confirm your choice” (that is, to continue canceling the subscription), or to “cancel,” that is, to stop the process of cancelling the subscription. Or, an example for an early Apple operating system (iOS6) gave users the choice to opt-out of ad tracking. To do that, the user needed to navigate their way from settings > general > about > advertising where they would find a heading “limit ad tracking” with the “off” option listed as the default. Easy to conclude that ad tracking is “off” correct? Wrong, what is “off” is the limiting of tracking, not the tracking itself.

In the 2022 lawsuit, Google was charged with using dark patterns in ways that deceived and manipulated users. The states’ attorney generals claimed that Google continued to track, collect, store, and sell user location data even when users had opted-out of, or thought they had opted-out of, the location sharing feature. They argued that consumers would be deceived by the fact that other Google-related apps such as YouTube or Google Maps were collecting data even after opting-out of the location history option on the Google account.

Some observers thought that the lawsuit faced a difficult challenge, especially in light of an opinion that a judge had given in a similar suit in Arizona. In that earlier case, the judge expressed his skepticism of the case by saying, “A reasonable or even an unsophisticated consumer could conclude that his location information is being collected or used in some manner, even if [location history] is never enabled.”

Discussion Questions

1. Compare some of these “dark pattern” marketing techniques to phishing and other online or robocall scams. How are they alike? How are they different? Do you reach the same ethical conclusions about all of these?

2. Courts sometimes use the “expectation of privacy” as a test for limiting governmental monitoring. Thus, for example, the police can monitor your behavior without a warrant when you are in a public place but not when you are talking on your phone. What expectations of privacy do you have when you are surfing the web or using Google or Facebook ? Ordering something from Amazon or Netflix?

3. Physically stalking someone can be a crime. Are there parallels between physically stalking someone and regularly monitoring their activities and location on the web? How are they similar? How are they different?

4. Most online tracking is done through the use of “cookies,” small files stored on a computer or mobile device that provide information about past browsing history. Should consumers have a right to opt out, or should their explicit consent be required before cookies are installed?

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The judge quoted in the Google case described above thought that “even unsophisticated consumers” would know that they are being tracked by Google Apps. Do you think this is correct? Does it matter if a consumer is “sophisticated” or “unsophisticated”?

6. Are you troubled by the fact that so much information about you is available for purchase? Is personal information about you that is collected by businesses a commodity that they should be allowed to sell to others? Why or why not?

7. Do you believe that people can become addicted to digital technologies? Do you believe that online and digital behavior can be controlled? Marketers have always relied on insights from psychology to influence human behavior. How, if at all, is the use of psychology and neuroscience by digital marketing any different?

8. Do you agree that the more information someone has about you, the better able they will be to predict your behavior? Do you believe that if they are able to predict your behavior, they will be able to control your behavior?

9.1 Introduction

In this chapter, we examine the ethics of advertising and digital marketing. It is fair to say that marketing has undergone revolutionary changes in the past few decades. In the recent past, the primary media by which marketers reached their audience were television, radio, newspapers and magazines, direct mail, and billboards. These techniques were identified as indirect marketing because they relied on broad-based media that reached a general audience, a portion of which was thought to include potential customers. Because the audience was general, the ad content itself had to be fairly generic. As the marketing profession became more sophisticated, advertisers were able to rely on more direct marketing techniques to better identify potential customers and thereby direct more targeted and specific ad content to them.

Mass marketing seeks to promote one’s product to the widest possible audience, with the assumption that sales will increase in proportion to the number of people exposed to the advertisement. Beginning in the early twentieth century, print media first enabled marketers to reach a wide national and international audience. Later, the rise of radio in the 1920s and television in the 1950s created the first truly mass media, which revolutionized the advertising and marketing industries. For the first time, a single advertisement had the potential of reaching millions of people. A similar revolution has occurred in the last few decades with the advent of digital marketing.

Against the mass marketing background, business always recognized that direct marketing targeting a smaller market segment that was already inclined toward a product is a much more efficient means of reaching buyers. Thus, even within mass media, advertisements would be targeted to specific magazines, radio stations, and television programs. In parallel, media companies themselves could market their services by conducting demographic research on their audiences, thereby making their platforms more attractive to specific advertisers. Today, digital technologies give marketers the ability to segment markets down to the level of specific individuals.

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Cell phone companies, search engines, ISPs, cable providers, and social networks also compile huge amounts of information on consumer behavior. They know what calls are being made, which websites are being visited, the duration and activity of each website visit, what products have been viewed, and which programs are being watched. In many cases, the information is only aggregated overall data, but in other cases it is individualized and can be traced to individual mobiles, computers, or social network accounts. Typically, this tracking is done anonymously so that consumers seldom know that it is occurring and have little understanding of what information is being compiled and how it is being used.

Two factors in particular have contributed to this explosion of personal information being available for use by marketers. First is the tremendous increase in mobile devices, smartphones, and tablets. These devices do three things of value to marketers: They are usually associated with one unique individual; they are used by individuals almost constantly throughout the day and night precisely because they are mobile; and they are heavily reliant on apps, small self-contained programs that have proven to be unrivaled in delivering consumers to business and advertisements to consumers, and gathering information about consumers.

The second, and related factor, is the global popularity of social networks such as Facebook, Twitter, Instagram, TikTok, and LinkedIn. Hundreds of millions of people are themselves supplying personal information to businesses through the use of personal social media accounts. The amount of personal information available about individuals that is now accessible by others because of social networking would have been inconceivable just a few years ago.

Not only can this information be used to target potential customers but, as many companies have learned, this information itself is a commodity that can be bought and sold, or “monetarized” as it has come to be termed. While it might appear that the product of Google, Bing, or Yahoo is a search engine or the product of a Facebook is a social network, in fact searches are free and joining Facebook is free. As a for-profit business, search engines such as Google and social networks such as Facebook make their money by selling access to the wealth of information they collect to advertisers and others willing to pay for that access. (As an example, spend some time viewing a particular product on a shopping site such as Amazon. Follow this by randomly surfing a number of unrelated websites and conducting some unrelated searches. Track how long it takes before an ad for the shopping item appears on a page that you are viewing.)

Digital marketing raises many ethical questions that are similar to those raised by traditional advertising, and the ethical principles and guidelines appropriate for evaluating traditional techniques remain relevant in the age of digital marketing. Deception, manipulation, and unfairness are some of the common concerns raised against traditional advertising and marketing that remain relevant to the ethics of digital marketing.

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For example, deceptive or misleading product endorsements have always been a concern with marketing, as when actors portraying doctors endorse the alleged health benefits of a diet supplement or support one brand of acetaminophen over another. Today, similar issues confront consumers who consult user reviews on Internet sites such as TripAdvisor or Amazon, “likes” on social media sites like Facebook, or reviews found in blogs, tweets, or on message boards. While misleading or fake products reviews can exist more easily on digital sites than in traditional mass media, the ethical issues remain the same. A digital marketing firm hired to promote a particular product is as capable of misleading product endorsements through a fake user review as was a traditional marketing company who used actors to portray a doctor.

Search engine optimization can also be deceptive. Consumers may believe that the first result to appear in a search is either random or that it simply reveals the most popular result. But, companies can pay to have search results enhanced with their own ads that appear whenever a consumer uses a search engine or have their website appear first whenever consumers search for a product or a competitor’s site. In fact, browser-based tacking cookies may have instantaneously identified the consumer’s browsing history to a real-time auction among marketing firms and in milliseconds awarded the top-level banner ad to the auction winner. Again, cases of misleading or deceptive practices may occur differently with digital techniques, but the underlying ethical issues are similar.

But some ethical concerns that arise from digital marketing go beyond what was possible just a few years ago. In particular, some digital marketing practices raise concerns about personal privacy and manipulation at levels that were simply not possible for traditional marketing techniques. Consider, first, issues of personal privacy.

Digital technologies significantly differ from traditional marketing practices in terms of the amount of information collected, what information is collected, how and by whom that information is used, and the means through which the information is collected. Traditional marketing had access to general demographic information about purchasing behavior based on such things as age, gender, and income, and, especially if the company had an existing relationship with a customer, they would also have specific identifying information such as name, address, and phone number. Thus, as early as 2012, Target was able to predict whether a customer was pregnant based on her purchasing history.

Today’s digital marketing has access to all this demographic information, plus such things as your present location, your search history, including how often you clicked on a pop-up ad, which blogs you read and which twitter feeds you follow, what website are most popular right now with people matching your demographics, when and how often you have responded to e-mail solicitations and robocalls, what website or ads you clicked on to bring you to this website, a history of your past shopping searches and purchases, and how often you return a product after purchasing it online. Even a person’s genetic information is available online.

In more general terms, reflect for a moment on the amount of information about you that exists in digital form. (Perhaps a greater challenge is to think of the information about you that does not exist in digital form!) Next, consider how much of that information exists outside of your control, on digital devices, in databases at such institutions as schools, banks, hospitals, and doctors’ offices, search engines, phone companies, social media sites, online shopping sites, government agencies, in the cloud, and so forth.

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Reality Check How is Your Digital Information Used by Business?

In 2012, Forbes magazine published a story on how Target analyzes customer data. Forbes reported that by using purchasing history for twenty-five specific products, Target analysts created a “pregnancy prediction” score that would indicate not only if a customer was pregnant but would also provide a strong indication of the due date. Based on that prediction, the store would then send coupons and sales promotions for pregnancy and baby products to customers who scored high on the pregnancy prediction metric. The Forbes story contained an anecdote about a father who first learned about his daughter’s pregnancy after complaining to Target about a mailer promoting pregnancy and baby products sent to his teenage daughter. According to the Forbes report, Target recognized that some customers might become uneasy if they learned that the company was using their private information. As a result, later promotions for pregnancy and baby products were embedded within more generic promotions to disguise the fact what Target knew about the pregnancy.

A number of for-profit and not-for-profit organizations provide DNA tracking information so that individuals can learn about their own ancestry. By submitting samples of DNA material or by uploading DNA profiles, an individual can be connected to a family tree and receive contact information about people with whom they are genetically related. All of these organizations maintain huge DNA databases, and the business model of the for-profit organizations is built on selling access to this information.

In April 2018, police in California announced that they had arrested a man suspected of being the “Golden Gate killer,” a serial murderer and rapist suspected of committing more than fifty rapes and a dozen murders in California between 1974 and 1986. Police confirmed that they relied on DNA profiles provided by an ancestry website to solve the thirty-year old case. A distant relative of the accused murderer had used the website and was identified as a match to a DNA sample police had collected from a crime scene. Police acknowledged using an open-access website to trace their suspect, so they were able to conduct this search of the database without a warrant.

Some retail stores use location-based services known as “beacons” to know when particular people enter their store. Beacon technology relies on low-powered Bluetooth signals that can be detected within a few hundred feet. A common use is to install this technology in a company’s app that, like most apps, regularly collects browsing and shopping information about the consumer. When that consumer is near the retail store, ads and enticements specifically targeted to that consumer based on past online behavior can be instantly sent to their mobile device. This practice has been updated with the use of face recognition software, which allows the store to identify customers as they walk in, trace and record their in-store shopping habits, and immediately send promotion information to their smartphones. The same technology, of course, is also used as part of the store’s security system.[1]

Reflect on some of the examples in the accompanying Reality Check to consider the relationship between the information and the third party that controls it. Why do they have this information? How did they get it? Did individuals provide the information directly to this party? If so, did they do so voluntarily, consciously, and intentionally? For what purposes did they provide the information? If they did not provide it, how and for what purposes was it acquired? How is the information being used? What incentives and disincentives exist for the party who controls personal information to share it with others? Do you know if your information has been sold to others? For what purposes?

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Beyond the issue of privacy, digital technologies also raise ethical issues about consumer autonomy and manipulation. The issue of digital addiction points to activities by technology companies that are aimed at manipulating consumers so that they stay online. There is, of course, a direct correlation between digital engagement and revenue for digital marketers. The more often people visit a site and the longer they are kept online, the more revenue is generated for online advertising. Thus, it is in the interest of online platforms, social media companies, search engines, and all the companies that use these technologies for marketing to keep people online. That is, there is money to be made from digital addiction.

The following section will examine the ethical issues of manipulation and deception, issues raised by both traditional and digital marketing. Remaining sections turn to issues of privacy and autonomy, ethical concerns particularly at stake in the age of digital marketing.

9.2 Ethics Of Manipulation And Deception

The goal of all marketing is sale, the eventual exchange between marketer and consumer, and the major purpose of marketing function is to influence the buyer to complete a purchase. But, there are ethically good and bad ways for influencing others. As marketers have always known, the more they know about a potential customer, the better positioned they are to influence the customer’s decisions. So, for example, women more than men tend to emphasize safety issues in a car purchase. Men, more than women, tend to look for performance or speed. Given this general information, an automotive salesperson would emphasize safety when speaking with a female customer but horsepower when speaking with a male.

Consider how this situation changes in the age of digital technology. An automotive store can know that a potential customer who is presently on its website came from a competitor’s website where they viewed several used cars in the $20,000 range and spent most time viewing a specific 2015 model. With various digital technologies, that company could immediately reformat its own website as a personalized webpage for that customer, highlight its used car inventory in that price range, and feature an ad for a comparable model at a lower price than the competitor. Imagine that when the customer moved their mouse toward the back button or to close the page, a specialized pop-up appeared offering a discount on that very car if purchased today. Or, imagine when that customer returns to a search engine to find the original store and car, an ad for the second store featuring its lower priced car appears at the top of the first search result. In many cases, marketing and sales people can know more about a person than the individual him- or herself. (Consider: Do you remember what website you visited immediately before the last time you searched for a product on Amazon? You likely do not know the answer, but Amazon does.)

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Given this increasing ability to influence a person’s buying decisions, questions arise as to whether that influence has gone beyond what is ethically acceptable. Does the use of digital technology give marketers the ability to manipulate customers? The concept of manipulation, and its subset of deception, is central to the ethical issues explored in this chapter. Review the examples of “dark pattern” techniques described in the Opening Discussion Case. Which, if any, are manipulative? Which, if any, manipulate consumers on an unethical way?

To manipulate something is to guide or direct its behavior. Manipulation need not involve total control, and, in fact, it more likely suggests a process of subtle direction or management. Manipulating people implies working behind the scenes, guiding their behavior without their explicit consent or conscious understanding. Thus, sending promotions for pregnancy or baby products to someone you believe is pregnant but disguising that within a more general advertisement so that she will not suspect that you do know about her pregnancy could be described as manipulative.

Manipulation is contrasted with persuasion and other forms of rational, autonomy-respecting influence. When I manipulate someone, I explicitly do not rely on their own reasoned judgment to direct their behavior. Instead, I seek to bypass their autonomy (although successful manipulation can be strengthened when the persons manipulated believe that they have acted of their own accord).

One of the ways in which we can manipulate someone is through deception, one form of which is an outright lie. I need not deceive you to manipulate you, although I would be happy if you falsely believed that you were not being manipulated. We can manipulate someone without deception, as when I get my son to mow the lawn by making him feel guilty about not carrying his share of family responsibilities. Or I might manipulate my students into studying more diligently by hinting that there may be a quiz during the next class. These examples raise a very crucial point because they suggest that the more I know about your psychology—your motivations, interests, desires, beliefs, dispositions, and so forth—the better able I will be to manipulate your behavior. Guilt, pity, a desire to please, anxiety, fear, low self-esteem, pride, and conformity can all be powerful motivators. Marketers rely on many of these factors to promote their products. Knowing such things about another person provides effective tools for manipulating their behavior.

We can see how this is relevant to marketing ethics. Critics charge that many marketing practices manipulate consumers. Clearly, some advertisements are straightforwardly deceptive, and some are outright lies. But there are more subtle ways to manipulate, and we can see how marketing research plays into this. The more one learns about customer psychology, the more one understands their desires and motivations, the better able one will also be to manipulate their behavior. Critics also charge that some marketing practices target populations that are particularly susceptible to manipulation and deception. Consumers suffering from medical conditions may be especially vulnerable to advertisements that suggest cures, pain relief, or other therapeutic benefits. Ads that target children, the elderly, and the poor often aim to exploit these vulnerabilities of these populations.

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But the ethics of these issues is not without controversy. While a strong ethical case can be made against lying and deception, it is less clear that all cases of manipulation are unethical. Is it unethical for me to exploit my son’s guilt in order to get him to mow the lawn? Do I manipulate someone whenever I appeal to their own motivations? For example, is it manipulation when I appeal to a male’s ego to sell a product that slows hair loss? Further, deciding on the boundaries of manipulation is quite a challenge. Do I manipulate students when I hint that a reading assignment might appear on the exam? Do I manipulate consumers when I promote high-interest credit cards to financially strapped college students? When, and under what conditions, is manipulation unethical? What, exactly, is the difference between persuading people by appealing to their interests (e.g., “You should study if you want to receive a high grade”) and manipulating them?

We will examine many of these questions in later sections. For the present, it will help to return to some of the ethical themes introduced previously. As discussed in chapter 8, the Kantian tradition in ethics would have the strongest objections to manipulation and deception. Market exchanges that respect individual autonomy and freedom are ethically responsible practices, while those that violate autonomy are unethical. Persuading, asking, informing, and advising are means for influencing others that respect autonomy. All these means of persuasion appeal to the rational decision-making ability of the other person. Threats, coercion, deception, manipulation, and lying are unethical means because they violate autonomy. They bypass the person’s own decision making. When I manipulate or deceive someone, I treat them as a means to my own ends, as an object to be used rather than as an autonomous person in their own right. Manipulation is a paradigm of disrespect for persons since it bypasses their own rational decision making. Because the evil rests with the intention to use another as a means, even unsuccessful manipulations are guilty of this ethical wrong.

As we might expect, the utilitarian tradition would offer a more conditional critique of manipulation and deception, depending on the consequences. There surely can be cases of paternalistic manipulation, in which someone is manipulated or deceived for their own good. But even in such cases, unforeseen harms can occur. Manipulation tends to erode bonds of trust and respect between persons. It can erode one’s self-confidence and hinder the development of responsible choice among those manipulated. In general, because most manipulation is done to further the manipulator’s own ends at the expense of the manipulated, utilitarians would be inclined to think that manipulation lessens overall happiness.

In market settings, manipulation and deception undermine the likelihood that a market exchange will lead to mutual benefit. Thus, on utilitarian grounds, manipulation and deception prevent markets from achieving their ethical purpose. A general practice of manipulation or deception, as critics would charge occurs in many sales practices, can undermine the very social practices (e.g., sales) that it is thought to promote as the reputation of sales is lowered. Used car sales or door-to-door sales are good examples of a practice that undermines its own effectiveness by gaining a reputation for deception.

A particularly egregious form of manipulation occurs when vulnerable people are targeted for abuse. Cigarette advertising aimed at children is one example that has received major criticism in recent years. Marketing practices targeted at elderly populations for goods and services, such as insurance (particularly Medicare supplemental insurance), casinos and gambling, nursing homes, and funerals, have been subjected to similar criticisms. Pharmaceutical marketing that targets people who are suffering from disease or chronic pain, or that targets parents of children suffering from a medical condition, also seems particularly troubling.

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We can suggest the following general guidelines for ethical marketing. Marketing practices that seek to discover which consumers might already and independently be predisposed to purchasing a product are ethically legitimate. So, for example, an automobile dealership learns from its manufacturer’s marketing department that the typical buyer of their car is a college-educated woman who enjoys outdoor activities and earns more than $40,000 a year. Sending a targeted direct mail piece to everyone within an area who matches these criteria seems an ethically legitimate marketing practice. Marketing which seeks to identify populations who are easily influenced or susceptible to manipulation, is not. Sales and marketing that appeal to fear, anxiety, or other nonrational motivations are ethically improper. For example, an automobile dealer who knows that an unmarried or widowed woman is anxious about the purchase and who uses this anxiety as a way to sell extended warranty insurance, disability insurance, theft protection products, and the like, is unethical.

Marketing research seeks to learn something about the psychology of potential customers. But not all psychological categories are alike. Some are more cognitive and rational than others. Targeting the considered and rational desires of consumers is one thing; targeting their fears, anxiety, and whims is another.

9.3 GovernmEnt Regulation Of Deceptive And Unfair Advertising

“Last year hospitals dispensed ten times as much Tylenol as the next four brands combined.” “Hospitals recommend acetaminophen, the aspirin-free pain reliever in Anacin-3, more than any other pain reliever.” Both of these statements were true when they were widely used in classic marketing campaigns for Tylenol and Anacin-3. But were they deceptive? What is not said in the Tylenol advertisement is the fact that Johnson & Johnson, the manufacturer of Tylenol, supplied Tylenol to hospitals at either greatly reduced costs or as free samples to physicians. American Home Products, the manufacturer of Anacin-3, did not disclose in its ads the fact that the particular brand of acetaminophen that hospitals recommended more than any other was, of course, Tylenol.

Within the United States, the Federal Trade Commission (FTC) is charged with regulating deceptive and unfair marketing practices. As long ago as 1944, the FTC was investigating manufacturers of aspirin products for deceptive sales practices. Because there is no chemical and, therefore, no medicinal differences between various brands of aspirin, acetaminophen, or ibuprofen (the three major nonprescription analgesic drugs), manufacturers can compete either through price or through marketing. The widespread availability of generic brands of these products shows how cheaply they can be sold. But the unwillingness of many consumers to purchase generic brands, and the high relative costs of name brands, shows the effectiveness of advertising.

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Critics charge that the history of the marketing campaigns for these products is filled with manipulative and deceptive practices. The “combination of highly proven and active ingredients” of Anacin was simply aspirin and caffeine, and no evidence supported such claims. Anacin was claimed to offer “fast, fast relief,” Bufferin was “twice as fast as aspirin,” St. Joseph’s aspirin was “faster than other leading pain relief tablets,” and Bayer offered the “fastest relief of pain.” The only active ingredient in each of these products was aspirin, and there was no chemical difference between the brands of aspirin. Thus, the claims of increased effectiveness or speed were simply false.

The FTC’s mandate is to regulate marketing practices that are deceptive or unfair. This regulatory stance is helpful because it shows how these two standards are connected. Consider why Tylenol would make the claim about the disproportionate amount of Tylenol dispensed by hospitals. What could their intention be? One could say that it is simply a truthful claim about Tylenol. Yet there are hundreds of other truthful things they could have said about their product, but they chose only this one. They certainly didn’t do it in order to call attention to the fact that hospitals were receiving the drug at deep discounts. The only possible explanation for this marketing campaign is that Tylenol intended consumers to be influenced by the appearance of an endorsement by hospitals. They wanted consumers to believe that hospitals were dispensing Tylenol in such large numbers because the medical profession believed that Tylenol (and not other brands of acetaminophen) was the best treatment for pain. That is, they hoped, intended, and took steps to ensure that consumers would believe something that was not true. They intended to deceive consumers, and through this deception, Johnson & Johnson sought to manipulate consumers.

Consumers are harmed by such deception when they end up purchasing a product that they might not otherwise have bought, often at a price higher than they might have otherwise paid. (Since the producer has chosen to compete through marketing rather than through price, we have some indication that consumers pay higher prices than they otherwise would have.) These commercial and economic harms are the result of the ethical harm of being manipulated and used as a means to another’s end. But, when a consumer is deceived, competitors get cheated out of the chance to compete fairly in the marketplace. A competitor loses because the deceptive practice has succeeded. Any marketing practice that is deceptive to a consumer is, by that very fact, unfair to competitors. The FTC standards of deception and unfairness are two sides of the same unethical coin.

Society, through its legal and ethical standards, has very good reasons to ban deceptive and unfair marketing practices. Protecting consumers from being cheated out of their money and protecting the integrity of fair competition in the marketplace are strong incentives for social sanctions against deception. But while there is near universal agreement that deceptive marketing practices are wrong, determining precise standards for what constitutes deception, and for how best to regulate it, is more challenging.

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Our ethical analysis of deceptive practices located a primary ethical wrong with deception in the intent of the deceiver. Intending to deceive people in order to manipulate their buying behavior is to treat them as a mere means to one’s own ends. As a consequence of this, one approach to regulating deception would target those marketing practices that are intended to deceive. Our ethical analysis also suggested that the ethical wrong caused by deceptive practices lies in the harmful consequences to consumers, competitors, and overall market efficiency. Thus, a second approach to regulation emphasizes marketing practices that actually deceive consumers, thereby focusing on the effect rather than intent of the practice.

There are strengths and weaknesses to both approaches. To regulate intended deception, the FTC would need to determine the state of mind of the marketers. In practice, this has the FTC evaluating the marketing practice in terms of expected deception, that is, determining the intent by judging what can be reasonably expected to result from the practice. So, for example, one would conclude that Johnson & Johnson intended to deceive consumers by judging that the Tylenol ad could reasonably be expected to deceive consumers. Critics charge that this approach has the undesirable consequence of allowing government regulators to punish businesses not on the basis of what they have actually done but on the basis of what bureaucratic judgment thinks might happen.[2] Defenders argue that it is preferable for government to prevent deceptive practices than to regulate only after the harms have been done.

On the other hand, regulating marketing practices that actually do, in fact, deceive people may be both too strong and too weak a standard. It might be too strong in the sense that it may well turn out that consumers are deceived by many relatively trivial marketing practices. Marketing scholar Ivan Preston told the story of a consumer who threatened a lawsuit over a beer ad that the consumer found deceptive.[3] The ad, for a holiday beer named Old Frothingslosh, described it as the only beer with foam on the bottom. The consumer was surprised to discover that this claim was untrue and the beer’s foam rose to the top! In recent years, an elderly man flew across the country, not once but twice, when he received a magazine sweepstakes mailing informing him that he had “already won $1 million” (in large print), if “his numbers matched the winning numbers” (in small print). It may turn out that more consumers are deceived than one would think. The actual deception standard may be too weak in the sense that it places the burden on consumers to take the initiative and come forth to prove the deception. Of course, there are many reasons for thinking that this is unlikely, not the least of which is the fact that a successful deception will not be revealed to the consumer. Many consumers may never know that they have been deceived since a necessary condition for being deceived is that, at least at one time, one doesn’t know that one is being deceived.

In addition to these two interpretations of the deception standard, there is another controversy concerning regulatory standards. As already suggested, the capacity to be manipulated or deceived is a function of one’s own psychology: one’s desires, motivations, thoughtfulness, beliefs, and so forth. This implies that some people are more easily manipulated and deceived than others. The Old Frothingslosh example cited earlier shows that some people can be deceived by some fairly trivial information. On the other hand, avoiding deception in financing or insurance for complex products such as cars and homes can require some pretty sophisticated analysis. Regulating deceptive practices will depend on whether we assume consumers are reasonable or relatively ignorant.

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Reality Check Digital Natives: Reasonable or Sophisticated Consumers?

A “digital native” is described as a person who grew up in the information age and therefore has been familiar with digital technology all their life. Should different standards apply to ethical judgments about digital marketing depending on whether the user is a digital native or not? For example, should standards of deceptive digital marketing differ for digital natives and their parents?

In the Opening Decision Point for this chapter, we discussed a case involving Google’s location tracking across its own platforms such as Android, Google Search, Gmail, Google Maps, and YouTube. Part of the case involved users who chose to disable the location history on their Google account. The questions was whether or not these users were deceived by the fact that even when the location history was disabled, Google used other features called Web App and Activity to collect and store data about their online activities, including their location.

The legal dispute depended, in part, on what we can assume about consumers. What deceives one person—a digital native, for example—might not deceive another—their parents, for example. In such cases, the law has relied on the idea of a “reasonable” consumer. If an ad would deceive a “reasonable” consumer, it would be judged deceptive. But it would not be judged deceptive if it would not deceive a reasonable consumer, even if, in fact, it deceives unsophisticated consumers.

In an earlier law suit against Google described in this chapter’s Discussion Case, a judge expressed his skepticism of the charge against Google by saying “A reasonable, or even an unsophisticated, consumer could conclude that his location information is being collected or used in some manner, even if [location history] is never enabled.”

1. Do you think that it is reasonable to think that your personal information is being collected by every website you visit? Is this true even if you have disabled that platform’s location history or tracking data feature?

2. Should even an “unsophisticated” user know this?

3. Regarding digital marketing techniques, do you consider yourself a reasonable or unsophisticated user? How about your parents? Grandparents? Does this matter?

Once again, there are strengths and weaknesses to either alternative. Adopting a “reasonable” consumer standard seems most fair and, well, reasonable. It assumes the best about consumers and doesn’t hold marketers to extreme and difficult standards. The cost of this approach is that it does abandon protection to those consumers who may well deserve the greatest protection, namely, those most vulnerable and susceptible to deception.

Combining these alternatives creates a range of possible standards, from cases in which ignorant consumers might be expected to be deceived (the most stringent standard on marketing but offering the greatest protection) to cases in which only proved deceptions of reasonable consumers are regulated (the most loose standard). It might well be most reasonable to apply different standards to different products, marketing practices, and/or targeted markets.

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9.4 Digital Marketing And Consumer Privacy

Let us now turn to consumer privacy, an ethical issue that has come to the fore with the rise of digital technologies. As described in this chapter’s introduction, digital technologies have increased to an unimaginable level the amount of information that marketers can gather about consumers; the speed at which that information can be collected, analyzed, and used; and the specificity of both who those consumers are, and the details of their behavior and psychology. This digital revolution has also created an enormous market and a massive new industry for a relatively new commodity: personal information. This new market and new industry have also raised important new questions of consumer privacy.

Chapter 6 examined the similar ethical issue of employee privacy. In that discussion, privacy was described as the right to control personal information and a framework was introduced to help analyze the implications of an employee’s right to privacy. That framework can be helpful with consumer privacy as well. Remember that privacy was described as involving three variables: a person A, another person B, and some information X about person A. Within that discussion, we suggested that person A’s right to control information X was a function of the relationship that existed between A and B. The example in chapter 6 showed that the different relationships with my mortgage company and with my students justifies one, but not the other, knowing information about my personal finances. In the present context, the questions involve the relationships that exist between consumers and businesses and the privacy rights that follow from those relationships.

To begin with, the relationship between a consumer and a business is best described as a commercial relationship. Both parties voluntarily enter the relationship for mutual benefit: The consumer benefits from obtaining some goods and services, the business by receiving payment. The ethical foundation of this relationship, as also previously described, rests in the principle-based ethics of respect for autonomy and the utilitarian ethics of increasing overall happiness. Given this framework, we can organize this ethical analysis around four questions: What information can be known? How can that information be used? How can that information be obtained? For how long and under what security conditions can that information be retained?

The ethical value of autonomy would suggest that the first question should be answered in terms of the information that is freely disclosed to the business. Thus, a consumer who reveals a good amount of personal information on Facebook would be consenting to Facebook possessing that information. Likewise, the information I disclose by using a search engine is information freely disclosed and therefore appropriately known by Google or Bing. Implicit within this framework is the assumption that the personal information is disclosed for the purpose of facilitating the commercial transaction. For example, I disclose my financial information to a bank for the purpose of obtaining a car loan or a credit card.

But this raises two important concerns in the age of digital technology. First, consumers themselves often freely disclose a great deal of personal information that goes well beyond what is needed for a simple commercial transaction. Second, the businesses that collect this information use it for purposes that were never intended by or are unknown to the consumer.

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Consider the amount of personal information that individuals freely disclose on social media platforms. People regularly freely share personal information, in amounts and details that would have been unimaginable of just a few years ago, with “friends” on Facebook, in tweets on Twitter, and in messages and photos on such platforms as Snapchat, TikTok, and Instagram. Because this information is freely shared, it would seem that the individual has foregone any claim of keeping this information private. In the U.S. legal system, for example, courts have often used an “expectation of privacy” standard to determine if a right to privacy has been violated. So, wiretapping a phone call violates privacy, but listening in to a call phone conversation by someone sitting next to me on a public bus does not.

But a concern remains about the purposes and intentions behind the disclosure of personal information. This raises our second major question about consumer privacy: How can information collected by a business be used? Most generally, can a business that collects consumer information within a business transaction rightly use that information as a commodity to be sold? Of course, this happens all the time, Facebook sells your information to advertisers, and Google sells your browsing history to marketers. Credit agencies sell your financial data to businesses doing a background check. But is this ethical? There is a very different relationship between the consumer and the business with whom they have a direct relationship, and the consumer and the secondary market business that purchases that information from that original firm. What ethical implications follow from these observations?

It might seem that this question has already been resolved in practice if not in theory. It happens, and it happens on such a grand scale that it might seem too late to reverse. No doubt, the general expectation of privacy seems to have loosened, if not been abandoned, in this digital age. But consider examples that do not involve digital information in quite the same way. Imagine a company that requires a drug test or a medical exam as a condition of employment. There is a major secondary market for personal medical information. Insurance companies and potential employers are just two examples of the type of business that would be interested in purchasing access to this information. Would it be ethical for that company to sell that information to a third party? Or, consider the DNA case described in the Reality Check, “How is Your Digital Information Used.” Would it be ethical for companies that collect DNA samples to help people track their ancestors to sell that access to that database to insurance companies? Is it ethical for Facebook to sell access to your data to organizations seeking to influence your political views? It is difficult to find a clear and plausible standard that would resolve all these questions. It seems impossible that all the personal information that already exist in multiple formats and multiple venues can ever be fully controlled and certainly never retrieved.

But perhaps some of these concerns can be addressed within the third question: How can personal information be obtained? What are the ethical criteria that should govern a business obtaining information about consumers? As suggested by the discussion above, these questions can be applied both to the company that originally acquires personal information (e.g., Facebook, Google, your ISP, or phone company) and third parties that get access to this information. Building on previous discussions, we might argue that the fundamental ethical standard rests on the consent of the individual. Information obtained with consent has been legitimately obtained, whereas information obtained without consent is at least prima facie suspect.

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This judgment is prima facie because there can be real practical challenges for obtaining consumer consent. But there is a reasonable compromise. We might argue that consumers must be informed, and companies must receive their consent, whenever personal information is originally obtained. They ought to be informed (a) that the information will be collected and stored; (b) how it will be used; (c) when, how, and under what circumstances it will be shared with third parties; and (d) how it will be protected. This transparency requirement already exists to some degree with legal requirements for privacy notifications, but business could be more clear and explicit in seeking consent. Further, an opt-in rather than an opt-out standard would offer consumer’s additional protection. Before using the personal information collected about consumers for any purpose other than that for which it was collected, a business should be obligated to obtain the expressed consent of the consumer, rather than assuming that they have that consent as long as the consumer does not opt-out.

The final question about consumer privacy raised the issue of data security. As all the major data breaches described in the opening discussion case demonstrated, billions of people have been harmed when their personal information was obtained through hacking of business databases. A strong claim can be made that business has an ethical obligation to prevent such security breaches and the harms that follow from them. This seems obvious and most businesses do take reasonable precautions to protect data, but some do not use the best available encryption and security technologies. Further, knowing that breaches can occur despite best efforts to prevent it, business has a duty to notify consumers of such breaches immediately and informing them of steps that can be taken to mitigate any harms. Any business that profits from selling that information might also be held liable, by reasoning that is parallel to the strict products liability issue described in chapter 8, to pay for any harms that consumers suffer as a result of a data breach, even if the company itself was not at fault.

9.5 Marketing Ethics And Consumer Autonomy

Defenders of advertising argue that despite cases of deceptive practices, overall advertising contributes much to the economy. The majority of advertisements provide information to consumers, information that contributes to an efficient function of economic markets. These defenders argue that over time, market forces will weed out deceptive ads and practices. They point out that the most effective counter to a deceptive ad is a competitor’s ad calling attention to the deception.[4]

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Beyond this question of what advertising does for people, a second important ethical question asks what advertising, specifically, and marketing in general, does to people.[5] Individuals may well benefit from business’s marketing of its products. People learn about products that they may need or want, get the information that helps them make responsible choices, and even sometimes are entertained. But marketing also helps shape culture, some would say dramatically so, and the individuals who develop and are socialized within that culture. Marketing can have direct and indirect influence on the very persons we become. How it does that, and the kind of people we become as a result, is of fundamental ethical importance. Critics of such claims either deny that marketing can have such influence or maintain that marketing is only a mirror of the culture of which it is a part.

The initial proposal in this debate was offered by economist John Kenneth Galbraith in his 1958 book, The Affluent Society. Galbraith claimed that advertising and marketing were creating the very consumer demand that production then aimed to satisfy. Dubbed the dependence effect, this assertion held that consumer demand depended upon what producers had to sell. This fact had three major and unwelcomed implications. First, by creating wants, advertising had the law of supply and demand on its head. Rather than supply being a function of demand, demand turns out to be a function of supply. Second, advertising and marketing tend to create irrational and trivial consumer wants and this distorts the entire economy. The “affluent” society of consumer products and creature comforts is in many ways worse off than so-called undeveloped economies because resources devoted to contrived, private consumer goods were therefore denied to more important public goods and consumer needs. For example, a society that cannot to provide essential funding, while parents drop their children off at school in $50,000 SUVs. A society that cannot guarantee vaccinations and minimal health care to poor children spends millions annually for cosmetic surgery to keep its youthful appearance, and billions of dollars each year on drugs to slow hair loss, to counteract erectile dysfunction, to lose weight, or to ease heartburn caused by overeating. Finally, by creating consumer wants, advertising and other marketing practices were violating consumer autonomy. Consumers who thought themselves free because they were able to purchase what they wanted are not in fact free if those wants are created by marketing. In short, consumers are being manipulated by advertising.

Such a claim, if true, would have overwhelming ethical implications. Individual autonomy, the central element of Kantian respect for persons, would be violated by the creation of wants. If consumers are manipulated to pursue trivial and contrived products, then market exchanges only appear to, but do not actually, increase overall satisfaction. If the law of supply and demand were reversed, then the democratic nature of markets, and the ability of consumer demand to limit the power of the owners of capital, would be a façade. The claim that supply follows demand is used by defenders of capitalist economies to explain the democratic nature of markets (they are only giving consumers “what they want”). It also is used to explain why the consolidation of wealth in the hands of a few is not dangerous, since if the owners of productive capital do not conform to consumer demand, they will lose their investment. But if Galbraith is correct, these two major political rationales are proven unsound. The “dependence effect” is a major issue indeed.

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Ethically, the crucial point was the assertion that advertising violated consumer autonomy. The law of supply and demand is reversed, and the economy of the affluent society is contrived and distorted, only if consumer autonomy can be violated, and consumers manipulated, by advertising’s ability to create wants. But can marketing violate consumer autonomy and, if it can, does this occur? What can advertising and marketing do to people and to society?

An initial thesis in this debate claims that advertising controls consumer behavior. Autonomy involves making reasoned and voluntary choices, and the claim that advertising violates autonomy might mean that advertising controls consumer choice. Psychological behaviorists and critics of subliminal advertising, for example, would claim that advertising can control consumer behavior in this way.[6] The earlier discussion of digital technology and digital addiction raises this very point in a contemporary setting.

But the ability to control behavior seems to be an empirical claim, and the evidence suggests that the evidence is mixed. For example, some studies show that more than half of all new products introduced in the market fail—a fact that should not be true if consumer behavior could be controlled by marketing. But there is a more subtle way in which consumer autonomy might be violated. Rather than thinking that marketing controls behavior, perhaps it might create the wants and desires on the basis of which consumers act. The observation shifts the focus to the concept of autonomous desires rather than autonomous behavior. This is much closer to the original assertion by Galbraith and other critics of advertising. Consumer autonomy is violated not when a consumer is made to behave in some way that they did not want, but when they do what they want, but those wants themselves have been manipulated.

For example, following the disclosure that Russian agents attempted to influence the 2016 presidential election, the political debate often focused on whether or not any votes were changed as a result. Defenders of former President Trump argued that there was no evidence that Russian interference changed any voter’s behavior or changed any votes. Citizens still voted for President Trump because that is what they wanted. But, shifting to the concept of nonautonomous desires, one would ask if the voters’ beliefs and wants, the basis of their behavior, were manipulated and therefore not fully autonomous. Viewing fake stories on Facebook about Muslims, about the Black Lives Matter movement, or about Hillary Clinton did not force anyone to act in any particular way, but the concept of nonautonomous desires raises the possibility that they were manipulated nonetheless.

A helpful exercise to understand how desires might be nonautonomous is to think of the many reasons people buy the things they buy, consume the things they do, and why, in general, people go shopping. These questions are reminiscent of some issues introduced in chapter 5 concerning why people work. After certain basic needs are met, there is a real question of why people consume the way they do. People buy things for many reasons, including the desire to appear fashionable, for status, to feel good, because everyone else is buying something, and so forth. The interesting philosophical questions at this point are: Where did these desires originate? How much has marketing influenced these non-necessity purchases?

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Surely, there can be such things as nonautonomous desires. These would be desires that are not voluntary, desires that we do not freely choose. A drug addict who desires more heroin would be a paradigmatic example of someone with a nonautonomous desire. So would the digital addict who cannot be away from their smartphone without feelings of anxiety and depression. The clearest examples of nonautonomous desires are found in addictions, as when an alcoholic “wants” another drink. This is something they desire, but the desire is not freely and rationally chosen.

We can understand this point better by introducing the notion of first-order and second-order desires. My first-order desires are those wants that I just happen to have at any given time. But rational and conscious human beings are also able to step back from their desires and reflect rationally upon them. By stepping back in this way, we can ask such second-order questions as: Why do I want what I want? Do I really want this? This ability to step back (what Socrates would have called leading an examined life) is a central component of autonomy because it is an essential part of rational decision making. It may turn out that, upon reflection, I do not want (second-order want) what I in fact want (first-order want). The alcoholic wants another drink in one sense, but would renounce that desire were it not for their addiction.

As a first approximation, we can say that an autonomous desire is one that is not rejected or repudiated upon rational reflection. Autonomous wants are first-order wants that are consistent with, and not denied by, second-order wants. Can marketing violate consumer autonomy by creating nonautonomous first-order wants? Philosopher Robert Arrington argues that it does not.[7] Arrington argues that marketing influences us by appealing to pre-existing and independent desires. Since marketing does not prevent consumers from renouncing those desires, we must assume that those desires are autonomous and conclude that marketing does not violate consumer autonomy.

Reality Check: Brain Hacks

In April 2017, the CBS news program 60 Minutes broadcast a story on “Brain Hacking.” Journalist Anderson Cooper interviewed a former Google engineer who described how Google and other tech companies programmed smartphones and software in ways that effectively cause addiction.

The engineer, Tristan Harris, likened a smartphone to a casino slot machine with its software programmed to make playing it fun, attractive, and addictive. Like a slot machine, there are bells, whistles, music, and cartoon characters to entertain you while you play. But, more importantly, there are rewards and those rewards are given out on a schedule that keeps you coming back and prevents you from leaving.

At a casino, the rewards are coins and tokens. On your smartphone, they are “likes,” emojis, retweets, new tweets, new videos, new followers, messages from and about friends and followers, and ongoing streaks. Further, even if you are not focused on the smartphone at the moment, notifications in the form of sounds, music, ringtones (that you have chosen because they appeal to you), or vibrations.

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Like a slot machine, your smartphone also knows something about the psychology of reward schedules. If they wait too long between rewards, the player might become bored and walk away. If you reward too frequently, the reward loses its significance. If the reward is on a regular schedule, the user will time their return to coincide with the next reward. So, the way rewards condition behavior—the way they create an addiction—is to be scheduled on an irregular basis. You never know when the slot machine will explode in sights, music, and the sounds of coins dropping into the plate. It just needs to occur often enough that you don’t walk away.

So, too, with your smartphone and the apps that you use. You won’t receive a notification every time someone “likes” your post, tweet, or video, or every time someone sends a message. Instead, the software will hold some of the rewards back, and then release them on a schedule that is guaranteed to keep you viewing and keep you coming back to check. How can it do that? By learning from your behavior.

During the 60 Minutes segment, Anderson Cooper interviewed another engineer whose company writes computer codes to keep users coming back. That engineer, Ramsay Brown, explained that the computer codes schedule rewards in ways that keep you coming back by provoking a neurological response. For example, by sending the rewards in a sudden burst of “likes” or notifications. Brown explained the strategy as follows: “They’re holding some of them back for you to let you know later in a big burst. Like, hey, here’s the 30 likes we didn’t mention from a little while ago. Why that moment? Because there’s some algorithm somewhere that predicted, hey, for this user right now who is experimental subject 79B3 in experiment 231, we think we can see an improvement in his behavior if you give it to him in this burst instead of that burst.”

While the goal for a casino is to get you to keep dropping coins into the machine, for these tech companies the goal is simply to get and keep your attention and this is where modern neuroscience comes in. So, for example, the fact that all of these programs rely on a continuous scrolling feature is derived from knowledge about what will keep someone’s attention. More generally, the software code is programmed to learn from your own activities. It has, in short, exploited the very habits that you have developed in your own online activities.[8]

Let us turn to digital addiction as an example. Critics might charge that the notification sound of an arriving text message violates my autonomy because it causes me to do something, namely, to immediately take out my smartphone and look at the screen. But Arrington would argue that this act is still autonomous because the desire to check for messages from friends is my own independent desire. The notification sound simply connects my pre-existing desire with the act of checking my smartphone. As long as I don’t regret and renounce my desire to stay in constant touch with my friends, the way an alcoholic would renounce the desire for another drink, I have acted autonomously.

A closer examination suggests that this issue is more complicated. Several critics point out that the failure to renounce a desire is not, alone, sufficient to demonstrate that desire is autonomous. A fuller account of autonomous desires is offered by the philosopher Gerald Dworkin.[9] Dworkin suggests two conditions for autonomy. The first, similar to Arrington’s discussion of renouncing one’s desires, is what Dworkin calls authenticity. A desire is authentic if it is not renounced or rejected by the person who has it. So, in our example, my desire to stay in touch with friends is authentic. That is, a first-order desire is authentic as long as there is no second-order desire that repudiates it.

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But Dworkin argues that in order for a desire to be fully autonomous, it must also be independently accepted by the individual. If an individual does not or cannot rationally reflect upon the first-order desires, then the fact that they don’t renounce it is not conclusive evidence that it is an autonomous desire. For example, the fact that I have no second-order desire to reject my strong motivation to check for text messages might be due to the fact that I have never thought about my smartphone use in a calm and thoughtful manner. To be fully autonomous, I need to critically reflect on my first-order desires. In Dworkin’s terms:

Autonomy is conceived of as a second-order capacity of persons to reflect critically on their first-order preferences, desires, wishes, and so forth, and the capacity to accept or attempt to change these in light of higher-order preferences and values.[10]

Let us apply this analysis more directly to marketing. Dworkin would hold that for a first-order consumer desire to be autonomous, two conditions must be met. First, the consumer does not, in fact, renounce or repudiate the purchase. Such a condition explains the rationale behind many state laws that allow consumers a two- or three-day cooling off period in which they can unilaterally repudiate a sales agreement. Recognizing that consumers can be pressured or manipulated into a purchase agreement, many states allow consumers to back out of the agreement if, upon reflection, they choose to renounce the desire expressed in the agreement.

A second condition on autonomous desires would require that consumers have the capacity to critically reflect on the desire and to accept it as their own. Consider the phenomenon that is described as therapeutic shopping, in which people go shopping to feel better or as a response to depression, or simply as entertainment. On such occasions, consumers purchase something because it makes them feel good or they like it. Of course, marketing plays a major role in designating shopping as entertainment or therapy. In Arrington’s view, the desire to feel good is autonomous as long as the consumer does not (soon?) come to regret the purchase and repudiate it much the way an alcoholic might wake up with a hangover and pledge “never again.” But Dworkin would argue that the desire is not fully autonomous unless the consumer critically reflects on that desire. A fully autonomous consumer would ask such questions as: Why do I shop to feel good? Is another consumer purchase really going to make me happy? Without asking such questions, the first-order desire to buy something is not fully one’s own and therefore not fully autonomous.

Of course, defenders of advertising and marketing will point out that even if this analysis is correct and some consumer choices are not fully autonomous, nothing in any of this has shown that advertising and marketing are responsible for violating autonomy. All that has been shown is that some consumers do not always act in a fully self-conscious and reflective way. What does this have to do with marketing ethics?

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Two things: First, some critics have charged that marketing is partially responsible for the inability of some consumers to step back and critically reflect on these desires. Second, some marketing practices seem to target and exploit consumers who lack the capacity, or who have a diminished capacity, for making fully autonomous choices. The following section examines the question of target marketing aimed at vulnerable populations.

9.6 Targeting The Vulnerable: Marketing And Sales

The opening section of this chapter spoke in general terms of ethical and unethical ways of influencing people. Unethical modes of influence seek to bypass the person’s autonomy and voluntary decision-making process. One way to bypass an agent’s autonomy is to appeal to psychological motivations such as fear and guilt. That section also spoke of ethical and unethical ways of target marketing. A marketing practice that targets pre-existing and considered desires was judged ethically appropriate. A marketing practice that targets potential customers on the basis of their fears, anxieties, or whims was attempting to manipulate the consumer and, therefore, was not ethical. This section will examine in more detail marketing practices that target vulnerable populations.

Consider two examples of target marketing. In one case, based on market research supplied by the manufacturer, an automobile dealer learns that the typical customer for a particular model is a single woman who is under thirty-five years, college-educated, has annual income in the $50,000–$60,000 range, and enjoys outdoor sports and recreation. Knowing this information, the dealer targets advertising and directs mail to this audience. Ads depict active young people driving the car brand and enjoying outdoor activities. A second targeted campaign is aimed at selling an emergency call device to elderly widows who live alone. This marketing campaign depicts an elderly woman at the bottom of a stairway crying out, “I’ve fallen and can’t get up!” These ads are targeted at elderly women and their families. Are these marketing campaigns on an equal ethical footing?

The first marketing strategy appeals to the considered judgments that consumers, presumably, have settled on over the course of their lives. People with similar backgrounds tend to have similar beliefs, desires, and values, and often make similar judgments about consumer purchases. We have no reason to believe that their consumer purchases are motivated by anything other than their considered judgments about their own interests. Target marketing in this sense is simply a means for identifying likely customers based on common beliefs and values. On the other hand, there does seem to be something ethically offensive about the second case. While there may well be a legitimate market for such devices, marketing directed to elderly women is not unethical in itself. This campaign aims to sell the product by exploiting the real fear and anxiety that many older people experience. This marketing strategy clearly tries to manipulate people by appealing to nonrational factors such as fear or anxiety rather than relying on straightforward informative ads.

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Yet it could be pointed out that no particular consumer is being exploited or manipulated, since each individual consumer is free to ignore the ads and not purchase the product. Further, defenders of this type of marketing might claim that the fear of falling while living alone is no more irrational than the desire of young women to drive sleek and sporty automobiles. Is there anything to the claim that elderly women living alone are more vulnerable than younger women and that this vulnerability creates greater responsibility to marketers? In general, do marketers have special responsibility to the vulnerable?

To answer these questions, we need first to consider the concept of vulnerability. To be vulnerable is to be susceptible to some harm. People can be vulnerable in many ways. High blood pressure can make someone vulnerable to a heart attack or stroke. Leaving the keys in one’s car makes you vulnerable to car thieves. In general, a person is vulnerable if there is some factor that predisposes that person to a greater risk of harm than what is faced by others. Deciding which factors makes one vulnerable is both an empirical and a conceptual question. For example, to discover which members of a population are most vulnerable to heart attacks, one might conduct an empirical study to find those factors most highly correlated with heart attacks. But beyond these empirical questions, we also need to answer the conceptual question of what we mean by identifying someone as particularly susceptible to harm.

Returning to our case, are elderly people living alone particularly vulnerable? The answer to this depends on what we mean by particularly vulnerable. In one sense, a person is vulnerable when they are susceptible to some specific physical, psychological, or financial harm. Elderly people living alone are susceptible to injuries from falls, to medical emergencies, to expensive health care bills, and to loneliness. Alcoholics are susceptible to alcohol abuse, the poor are susceptible to bankruptcy, single women walking alone at night are vulnerable to sexual assault, accident victims are susceptible to high medical expenses and loss of income, and so forth. What we can call general vulnerability occurs whenever someone faces unusual risk for harm. Pharmaceutical marketing, almost by definition, involves promoting drugs to people who are vulnerable in this sense.

There is a second sense of vulnerability in which a person is vulnerable as a consumer by being unable to participate as a fully informed and voluntary participant in the market exchange. Valid market exchanges make several assumptions about the participants: They understand what they are doing, they have considered their choice, they are free to decide, and so forth. What we can call consumer vulnerability occurs when a person has an impaired ability to make an informed consent to the market exchange. A vulnerable consumer lacks the intellectual capacities, psychological ability, or maturity to make informed and considered consumer judgments. Children would be the paradigmatic example of consumer vulnerability. The harm to which such people are susceptible is the harm of not satisfying one’s consumer desires and/or suffering the financial harm of losing one’s money. Elderly people living alone are not necessarily vulnerable in this sense.

From this we can see that there can be two types of marketing that target vulnerable populations. Some marketing practices might target those consumers who are likely to be uninformed and vulnerable as consumers. Marketing aimed at children, for example, aims to sell products to customers who are unable to make thoughtful and informed consumer decisions. Other marketing practices might target populations that are vulnerable in the general sense as when, for example, an insurance company markets flood protection insurance to homeowners living in a river’s floodplain. Are either, or both, of such targeting examples ethically legitimate?

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As an initial judgment, we must say that marketing that is targeted at individuals who are vulnerable as consumers is unethical. This is a case of taking advantage of someone’s frailty and manipulating that for one’s own advantage. Clearly, a portion of marketing and sales targets people who are vulnerable as consumers. Just as clearly, such practices are wrong. But targeting consumers who are vulnerable in the other sense, as when a pharmaceutical company targets a drug to people with high blood pressure, is not unethical.

Of course, there are difficulties in deciding who is vulnerable in this sense. Most marketing activities target populations, not individuals, and other than children there is perhaps no population that we can identify as essentially vulnerable. Suggestions that the poor or a particular ethnic group, for example, is vulnerable as consumers because the people in the group are poor or Hispanic or African American, can be insulting, patronizing, and empirically false on the face of it. Nevertheless, targeting certain groups when one has reason to believe that a percentage of that group is particularly vulnerable as consumers is ethically dubious at best. Good test questions to ask include: Why target this group? What about them makes one think that they are likely consumers for this product? High-potency malt liquor and other alcoholic beverages marketed in an impoverished neighborhood is a good test case. Why might residents, people who tend (on average) to be poor and disenfranchised from most positions of social influence and power, be a good market for high-potency alcoholic drinks? It is difficult to imagine an answer other than the fact that marketers recognize that many people in such a situation seek to deaden their despair with alcohol.[11]

One way that this issue plays out involves groups that are vulnerable in both senses. Often people can become vulnerable as consumers because they are vulnerable in some more general sense. The vulnerability that many elderly have with respect to injuries and illness might cause them to make consumer choices based on fear or guilt. A family member grieving over the death of a loved one might make choices in purchasing funeral services based on guilt or sorrow, rather than on a considered judgment. A person with a medical condition or disease is vulnerable, and the anxiety or fear associated with this vulnerability can lead to uninformed consumer choices. An inner-city resident who is poor, uneducated, and chronically unemployed is unlikely to weigh the full consequences of the choice of alcoholic beverage.

A number of marketing campaigns seem to fit this model. The most abhorrent (and stereotypical) example is the ambulance-chasing attorney seeking a client for a personal-injury lawsuit. An accident victim is vulnerable to many harms, and experiencing the stress of this situation is unlikely to make a fully informed choice about legal representation. Marketing campaigns that target the elderly for such products as supplemental medical insurance, life insurance, emergency call devices, funeral services, and insurance often target the fears, anxiety, and guilt that many elderly people experience.

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But just as there can be people who are made vulnerable as consumers because they are vulnerable to other harms, there can also be cases in which people become vulnerable to other harms because they are vulnerable as consumers. Perhaps this is the most abhorrent case of unethical marketing. Certain products—tobacco and alcohol are the most obvious examples—can make an individual vulnerable to a wide range of health risks. Marketing campaigns for these products that target people who are vulnerable as consumers seem ethically repugnant. This explains the particular public outrage directed at tobacco companies who target young people. It may also characterize marketing of alcoholic beverages in poor inner-city neighborhoods. Marketing malt beverages, fortified wines, and other alcoholic drinks to poor neighborhoods must acknowledge that many people in such situations are not fully autonomous consumers. (One might also think of marketing alcohol to young people in general and on college campuses in particular.) Many people in such situations drink to get drunk. They drink to escape; they drink because they are alcoholics.

The discussion so far has concerned marketing practices in general. Defenders of marketing might point out that marketing targets populations and not individuals. This means that marketers cannot be held liable for decisions that any individual makes because any individual may choose not to buy the marketed product. Defenders would point out that it is difficult to attribute any direct causal connection between a marketing campaign and an individual consumer’s choice to buy a product. One cannot hold marketing liable because one cannot “prove” that it caused the purchase.

Surely, such a claim would be disingenuous. If marketers really believed that marketing was causally ineffective in influencing consumer choice, they would undercut their own careers. If they truly believed this, then selling their services to businesses would be a straightforward case of fraud. The service that marketers sell to business either works or it does not. If it does work, if marketing can and does influence consumer choice, then marketing cannot disavow ethical responsibility for the consequences of those choices. If it does not work, and if marketers know that, then marketing professionals perpetrate a fraud on anyone who purchases their services. But even if there is some truth to the claim that marketers cannot be liable for individual choices that consumers make because they never target any individual consumer, a similar defense is unavailable in sales.

In a sales situation, an individual salesperson deals not with a general population but with individual customers. Thus, the causal connection between the customer’s choice and the sales activity can be evaluated much more directly than in mass marketing cases. If we discover a situation in which a salesperson relies on appeals to fear or anxiety, for example, then we can only assume that this is intended to manipulate the person into a purchase. Because salespeople have a range of sales tactics and strategies available, and because they usually deal directly with individual customers, we can assume that the choice of sales strategy is based on a salesperson’s judgment about what will likely prove influential with this particular customer.

Unlike what happens in the case of general marketing activities, sales occur in what we might call a feedback situation. In dealing with an individual, a salesperson (like anyone involved in an interpersonal exchange) continuously receives direct and tacit feedback from the potential customer. In light of that feedback, the salesperson can (and does if they are skilled in sales) adjust the sales pitch accordingly. Salespeople are explicitly trained to do this.

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The point of this is that a defense against unethical manipulation that might be used in marketing is unavailable in sales. The marketer might claim that any deception that occurs is unintentional; marketing aims at general populations and any deception that occurs was an unintended (although perhaps foreseeable) consequence. But sales practices that rely on deception, or that appeal to the nonrational fears, desires, and dispositions of customers, cannot make even this claim. Salespersons have a choice to stop the sales pitch if they reasonably believe that the customer is not fully autonomous in making the decision. They are better positioned to avoid manipulation and deception, and if they fail to do so, they should be accountable for that decision.

Reflections on the Chapter Discussion Case

At first glance, all the cases in the opening discussion section involved two parties: individual consumers and the business that had personal information about them. But these cases also involve important questions of public policy and, therefore, there is a third party involved: government. As described in previous chapters, there are two major governmental approaches available when consumers are threatened with harms as a result of business activities. Governments are able to set statutory and regulatory standards that set levels of expected business behavior. We discussed such standards as the OSHA regulations for employee safety and Consumer Products Safety Standards or Food and Drug Administration standards for consumer products. The second governmental approach relies on civil or criminal judicial remedies for harms done. In general, the standards approach aims to prevent harms from occurring, while the civil and criminal judicial remedies aim to compensate or punish harms after the fact. (Obviously, the threat of civil or criminal punishment can act as a deterrent that also prevents harms from occurring.)

Reflect on the examples presented in the opening discussion case and throughout this chapter to consider what, if any, government policy ought to be used to address the underlying issues. Consider also which market forces, if any, could address these issues. Would competition, stock price, or market demand act as a check on misuse of consumer data?

One approach, based both in regulations and civil law precedent, relies on user agreements and privacy notices to provide users with details about the relationship they are entering into when they begin an association with a company. Such statements describe the consumer’s rights, but they also detail the rights of the business and offer the business protection against future claims. In most cases, a consumer only gains access to the company’s website or digital product if they agree to the terms of the agreement by clicking to a link.

Facebook’s user agreement made the news in April 2018 when CEO Mark Zuckerberg testified before the U.S. Senate. After complaining about Facebook’s lack of transparency, Republican Senator John Kennedy told Zuckerberg, “Your user agreement sucks. The purpose of a user agreement is to cover Facebook’s rear end, not inform users of their rights .… I’m going to suggest you go home and rewrite it, and tell your $1,200 dollar an hour lawyer … you want it written in English so the average American user can understand.” In response, Zuckerberg admitted that most users do not read the agreement, and then concluded that: “But everyone has the opportunity to and consents to it.”

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Do you believe that such user agreements and other prior consent forms are effective ways to protect consumer privacy and rights? Can you think of other government standards that might? Can you think of other public policy strategies that might offer consumers greater protection?

Chapter Review Questions

1. Distinguish between manipulation, deception, and a lie. Does the ethical wrong with these practices depend most directly on the consequences or on the intent?

2. Distinguish between ethically acceptable means of influencing another and ethically improper means to influence another. Apply your answer to the case of advertisements for prescription drugs.

3. Explain how the FDA’s standards of deception and unfairness are related. How might an advertisement be both deceptive and unfair?

4. What things does advertising do for consumers? What does advertising do to consumers? In what ways has advertising done anything to you?

5. Explain the concept of consumer privacy. What information can a business legitimately come to know about a customer? What uses can they make of this information?

6. Distinguish between autonomous and nonautonomous behavior. Explain the difference between autonomous and nonautonomous desires. Do you have any desires that you would characterize as nonautonomous? What is the difference between first-order and second-order desires?

7. To what degree do you think that modern marketing has created a dysfunctional affluent economy in which irrational and trivial consumer demand has replaced personal and social needs?

8. Explain two ways in which a consumer could be described as vulnerable. What factors might make a person vulnerable in each sense? What are the ethics of marketing to the vulnerable?

Endnotes

- 1Information on the Target case can be found in “How Target Figured Out a Teenage Girl Was Pregnant Before Her Father Did,” by Kashmir Hill, Forbes, February 16, 2012. A discussion of how face recognition software is being used in retail stores can be found in “Revealed: How face recognition has invaded shops, and your privacy” by Chris Frey, The Guardian, March 3, 2016, https://www.theguardian.com/cities/2016/mar/03/revealed-facial-recognition-software-infiltrating-cities-saks-toronto (accessed June 3, 2018).

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2See, for example, James Miller, one-time FTC Commissioner, “Why FTC Curbs Are Needed” in Advertising Age, March 1982.

- 3See Ivan Preston, The Great American Blow-Up (Madison, WI: The University of Wisconsin Press, 1975).

- 4For a well-known statement of this view, see Theodore Levitt, “The Morality (?) of Advertising,” Harvard Business Review 48 (1970), 84–92.

- 5I adopt here the phrase used by the U.S. Catholic Bishops in their pastoral letter on the American economy, Economic Justice for All (Washington, DC: 1986). “Every perspective on economic life that is human, moral, and Christian must be shaped by three questions: What does the economy do for people? What does it do to people? And how do people participate in it?” p. 1.

- 6See, for example, Vance Packard, The Hidden Persuaders (New York: Pocket Books, 1958), and B. F. Skinner, Beyond Freedom and Dignity (New York: Alfred Knopf, 1971).

- 7Robert Arrington, “Advertising and Behavior Control,” Journal of Business Ethics I (1982), pp. 3–12.

- 8What is “brain hacking”? Tech insiders on why you should care, by Anderson Cooper June 11, 2017. https://www.cbsnews.com/news/what-is-brain-hacking-tech-insiders-on-why-you-should-care/ (accessed January 25, 2021).

- 9Gerald Dworkin, “Autonomy and Behavior Control,” in DesJardins and McCall, Contemporary Issues in Business Ethics (Belmont, CA: Wadsworth Publishing, 1985), pp. 159–166. Dworkin’s views are developed more fully in his The Theory and Practice of Autonomy (Cambridge, United Kingdom: Cambridge University Press, 1988).

- 10Dworkin, Theory and Practice of Autonomy, p. 20.

- 11This account of vulnerability differs from, but owes much to, George Brenkert’s analysis in “Marketing and the Vulnerable,” Business Ethics Quarterly, The Ruffin Series Special Issue No. 1, 1998, pp. 7–20. For an insightful analysis of marketing alcohol in the inner city, see George Brenkert, “Marketing to Inner-City Blacks: Powermaster and Moral Responsibility,” Business Ethics Quarterly 8, no. 1, pp. 1–18. Readers familiar with Brenkert’s writings will recognize how much of the present chapter has benefited from his work.

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Chapter 10

Sustainability and the Natural Environment

Learning Objectives

After reading this chapter, you will be able to:

- Describe standard understandings of corporate environmental responsibility;

- Explain the concepts of sustainable economics and sustainable development;

- Compare and contrast standard economic models with sustainable economics;

- Provide an analysis of market-based solutions to environmental challenges;

- Analyze arguments supporting a model for sustainable business;

- Describe the business model of natural capitalism;

- Describe the implications of natural capitalism for contemporary business.

DISCUSSION CASE: Business and Sustainability

“Sustainability” has become ubiquitous within business, with sustainable models and practices being developed in virtually every business division including management, marketing, investing, accounting, strategy, and operations. It is difficult to find a major corporation that does not issue an annual sustainability report; by one account 95 percent of the largest 250 global corporations issue annual sustainability reports. For many people in and outside of business, sustainability has become synonymous with business’s environmental responsibilities.

It is worth asking: Has the notion of sustainability become so common that it is no longer a meaningful guide to business?

The original idea behind the move to sustainability can be traced to a 1987 report, “Our Common Future,” by the United Nations World Commission on Environment and Development (the “Brundtland Commission”). This report called for a new model of global economic development, which they identified as “sustainable development,” and defined as that which “meets the needs of the present without compromising the ability of future generations to meet their own needs.” Thus, this original idea behind sustainability started out as a macroeconomic concept: a model for global economic activity that focuses on meeting human needs while not jeopardizing the natural environment’s long-term capacity to supply the resources for doing this.

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Sustainable development arose at a time in which evidence was mounting that global economic development, then understood almost exclusively in terms of GDP growth, was approaching the biophysical limits imposed by the ecosystems in which that growth occurred. The Brundtland Commission rejected this growth-based model of economic development because it was failing to address the real needs of hundreds of millions of people while at the same time placing long-term environmental productivity in jeopardy.

The originality of the Brundtland Commission’s model was that it connected economics with social justice and the natural environment. Brundtland recognized that global development inescapably had three major components, what has over time become identified as the “three pillars of sustainability.” There was an economic aspect of development of course, but Brundtland added both an ethical and an environmental aspect. Economic activity should focus on the ethical goal of meeting human needs of both present and future generations (rather than only aiming to satisfying present consumer demand) and it should recognize that there are biophysical limits to the earth’s capacity to meet human needs.

Business would have a variety of social and environmental responsibilities stemming from the Brundtland model of sustainable development. Perhaps most importantly, business has the responsibility to use natural and environmental resources only at rates at which they can continue to be equally productive over the long term. Energy resources would be major component to this, with renewables such as solar, wind, hydrogen replacing a reliance on fossil fuels. Another crucial natural resource creating significant responsibility for business is the earth’s capacity to absorb economic by-products such as greenhouse emissions and other pollutants.

But this original concept of sustainable development has now morphed into a wide array of different, and not always compatible ideas. Today, the adjective “sustainable” is often divorced from “development,” and regularly used to modify an innumerable range of distinct and diverse activities, ranging from “A” (agriculture and architecture) to “Z” (zoning and zoos). Similarly, when used as a noun, “sustainability” has become a generic stand-alone concept, and commonly modified by such diverse adjectives as economic, environmental, social, ecological, corporate, financial, global, human, and organizational.

As a stand-alone concept, “sustainability” means nothing more than the capacity to continue long term. To be sustainable in this descriptive sense is simply to be capable of continuing over an extended period. We could, for example, talk of the sustainability of predatory lending, of Ponzi schemes, of excessive executive compensation, or of a political advantage based on conspiracy theories.

This ambiguity helps us recognize a major problem with the present popularity of sustainability. The attractiveness that sustainability holds for many businesses lies in the fact that it is interpreted in this descriptive sense and thus interpreted as little more than a risk-management strategy for survival. A sustainable business in this descriptive sense is simply a business that can continue over the long term. But this is far from what Brundtland had in mind.

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One can find many such examples within a business context. For example, Ernst and Young promotes their sustainability consulting by appeal to “improved reputation,” “access to capital,” “increased efficiencies,” as well as “avoiding and mitigating environmental and social risks.” The Dow Jones Sustainability Index, as another example, is even more explicit in this regard.

“Corporate Sustainability is a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental, and social developments.

No doubt contemporary business is confronted with a broad range of environmental risks, ranging from climate change to resource depletion, and social risks, ranging from labor supply to corruption within a supply chain. Risk management is a challenge for all firms and effective managers analyze the environmental and social risks facing the firm.”

But managing risks to increase the likelihood of long-term financial success is an altogether different than what the Brundtland Commission envisioned. Depending on the firm and its activities, long-term economic survival may, or may not, contribute to sustainable development in Brundtland’s ethical sense. A descriptively sustainable business may, or may not, conform to sustainable development’s ethical norm of meeting needs without compromising ongoing environmental productivity to meet future needs. A sustainable business in this sense may, or may not, treat the natural environment in a sustainable manner. Treating sustainability as a risk management strategy therefore asks business to do too little in serving the ethical ends of sustainable development.

However, at the same time, the original ethical foundation of the Brundtland recommendations has also morphed into a much more general prescription for “social” responsibility. Under the guise of sustainability, this perspective can ask too much of business. Not every socially responsible act, (nor every environmentally responsible act), is a part of the Brundtland sustainability agenda. In fact, some real and unresolved tensions exist between the agenda of many mainstream environmentalists and the goals of sustainable development.

One can find many examples of this over-extension but consider one that comes from The Global Reporting Initiative (GRI). GRI is the foremost advocate for corporate sustainability reporting and it works closely with various United Nations programs to create tools for sustainability measurement. GRI’s Sustainability Reporting Framework aims to help business by providing metrics for measuring and reporting sustainability-related impacts and performance.

GRI adopts the common practice of dividing sustainability into the “three pillars” of an economic, environmental, and ethical dimension. But according to the GRI, the ethical dimension of sustainability includes the United Nations’ “Universal Declaration of Human Rights”; the “International Covenant on Civil and Political Rights”; the “International Covenant on Economic, Social, and Cultural Rights”; various International Labor Organization (ILO) declarations on workplace rights, as well as responsibilities to local community engagement, initiatives to counter corruption and anti-competitive behavior, commitments to product safety, ethical marketing, and ethical sourcing. Needless to say, this is a much broader concept than what was included in the original Brundtland model.

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How broad is this conception? The U.N. Declaration of Human Rights includes rights to, among other things, “rest and leisure,” and a right to “enjoy the arts,” and the International Covenant on Economic, Social, and Cultural Rights includes rights “to form and join labor unions,” a “right to strike,” a right to “free education,” “social security,” and “paid parental leave.” In short, the ethical dimension described by the GRI might fairly be described as a generic theory of corporate social responsibility and looks very similar to the range of topics covered throughout this textbook.

Further, not every environmental goal can be folded into the concept of sustainable development. At its core, the environmental pillar of sustainable development rests on a conservationist environmentalism which treats the natural world as a means to human ends, important ends to be sure, but human ends nonetheless. Not all environmentalists would agree with his. Environmental preservationists who believe that there are intrinsic values in the natural world, whether they lie in the moral status of animals, the aesthetic or spiritual values of wilderness areas, or in the diversity of species, reject the conservationist approach which values nature only as a means to human ends. Thus, a business could fully meet the goals of sustainable development as envisioned by Brundtland, yet ignore responsibilities to preserving endangered species, wilderness areas, and scenic lands.

Importantly, collapsing the Brundtland approach into a more general environmental sustainability will mask substantial conflicts that can have significant implications for business. These conflicts can be seen in a wide range of issues, ranging from preserving biodiversity and habitat, to hunting and wilderness preservation, and from industrial agriculture/farming/fishing to GMO foods.

This tension between the ethical dimension of sustainable development and a broader environmentalism is especially noticeable surrounding food and agriculture. Examples would include controversies about the production, distribution, and access to food and water, about food types (meat? beef? organic? local? processed?), and about such technologies as genetically modified organisms, synthetic biology, and use of synthetic fertilizers and pesticides. Meeting human needs, both at the present and in the future, may well require converting wild lands into farmland, open waters into fish farms and other aquaculture activities. It might also require continued or increased reliance on fossil fuels, synthetic fertilizers, and pesticides.[1]

Discussion Questions

1. The Brundtland Commission’s definition of sustainable development includes responsibilities to future generations of people. What responsibilities, if any, do we have to future generations? How might these responsibilities change contemporary business? Are future people stakeholders in the decisions of current business managers?

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Are there some businesses or industries that cannot or should not become part of sustainable economic development? In what ways can an oil company become sustainable? In what ways can it not?

3. Do you think that genetically modified foods should be part of a movement toward sustainable development? Are synthetic pesticides and fertilizers part of that future?

4. What is your understanding of the following: sustainable investing? sustainable agriculture?

10.1 Introduction: Business, the Environment, and Sustainability

For many years, environmental concerns were considered to be peripheral to business operations. At best, they were understood as external constraints that limited what business could do and how it could operate. Natural resources were generally thought of as unlimited, restricted only by the cost of extraction and processing. The capacity of the earth to absorb wastes, whether in the form of trash to be disposed or effluents sent into the air or water, seldom entered into business calculations. Beginning in the 1970s, government regulations began to establish limits on air and water pollution, but as long as business remained within the limits established by law, it was free to operate with little thought to the natural environment.

Over the past two decades, this mindset has changed radically. The idea of sustainability has become the primary model for understanding business’s environmental responsibilities. As described in the opening Discussion Case, the concept of sustainable business is traced to a UN report authored by then-prime minister Gro Brundtland of Norway. That report defined sustainable development as the ability “to meet the needs of the present without compromising the ability of future generations to meet their own needs.” The fundamental idea was that no economic activity could be sustained if we ignored the environmental context in which that activity occurs. The Brundtland Commission pointed to numerous examples where economic growth was already pushing up against the biophysical limits established by the natural world.[2]

In the 1990s, the concept of sustainability was far from the corporate mainstream. Sustainable business was seen, at best, as a fad with few practitioners and none among leading firms. By 2022, it is difficult to find a major corporation that is not involved in sustainability efforts and that does not issue an annual corporate sustainability report. It would not be an exaggeration to describe what is occurring as a sustainability revolution in contemporary business.

For example, Patagonia, the outdoor gear, equipment, and clothing company, has been one of the true leaders in this sustainable business movement. Because sustainability is very much a part of their business mission and strategic vision, Patagonia is also an excellent example of the strategic model of corporate social responsibility described in chapter 3. For them, profitability and sustainability merge rather than conflict.

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Begun as a company selling climbing gear and clothing, Patagonia soon grew to include a wide range of outdoor sports and activities, including hiking, skiing, surfing, paddling, and running. The people who started the company, the customers it serves, and the market in which it operates all helped shape Patagonia into one of the world’s most sustainable businesses. Sports such as climbing, hiking, paddling, and surfing are all, in the words of Patagonia’s mission statement, “silent sports” that bring participants into close connection with nature. Their mission statement continues: “For us at Patagonia, a love of wild and beautiful places demands participation in the fight to save them, and to help reverse the steep decline in the overall environmental health of our planet.”[3]

Patagonia’s commitment to sustainable business practices starts with the materials used in creating their products. Recycled synthetics and pesticide-free organic cotton are used in their clothing lines. They donate a minimum of 1 percent of their profits to environmental causes. Patagonia’s “common thread initiative” is described as a “partnership between Patagonia and our customers to reduce consumption and give our planet’s vital resources a rest.” This pledge seeks to reduce resource use, repair products to extend their life, reuse products by reselling or giving them to others, and recycle what cannot be repaired or reused—reimagining a world in which humans live in harmony with nature.

One of the most pioneering aspects of Patagonia’s commitment to sustainability is their “footprint chronicles,” a wide-ranging CSR project that aims for full transparency in their supply chain operations. This commitment includes an online disclosure of all the mills and production factories used to create Patagonia’s products. This interactive website allows anyone who visits the Patagonia website to view a global map that identifies all mills and manufacturing plants. By clicking on the site, anyone can view a photograph of the location and learn what products are made there, how many people are employed, the languages spoken, the percentage of male and female workers, as well as updated information from recent social audits of the facility.

From an ethical perspective, the question is whether a firm like Patagonia should be viewed as going above and beyond ethical duties and what is required, or should they be viewed as a model for what is ethically required of all businesses. Is the transition toward environmental sustainability an ethical duty, or is it good thing that can be left up to the decisions of individual firms? Should sustainability goals such as becoming carbon neutral be mandated for business in the ways that increasing fuel efficiency is mandated for the automobile industry?

10.2 Corporate Social Responsibility and the Environment

A helpful way to begin our analysis of business’s environmental responsibilities is to return to the models of corporate social responsibility described in chapter 3. Consider how the economic model of corporate social responsibility would account for business’s environmental responsibilities. In the economic model, business’s only responsibility is to maximize profit within the law. By doing this, business fills its role within a market system that, in turn, serves the greater overall (utilitarian) good of optimally satisfying consumer preferences (i.e., more people will get more of what they want) and respecting the property rights of business owners.

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Challenges to this narrow view of corporate social responsibility are familiar by this point. A variety of market failures, many of the best known of which involve environmental issues, point to the inadequacy of market solutions. One example is the existence of externalities, the textbook example of which is environmental pollution such as greenhouse gas emissions. Because the “costs” of such things as greenhouse gas emissions, air pollution, groundwater contamination and depletion, soil erosion, and nuclear waste disposal are typically borne by parties “external” to the economic exchange (e.g., people downwind, neighbors, future generations), free market exchanges cannot guarantee optimal results.

A second type of market failure occurs when no markets exist to create a price for important social goods. Endangered species, scenic vistas, rare plants and animals, and biodiversity are just some environmental goods that typically are not traded on open markets (when they are, it often is in ways that seriously threaten their viability, as when rhinoceros horns, tiger claws, elephant tusks, and mahogany trees are sold on the black market). Public goods such as a stable climate, clean air, and ocean fisheries also have no established market price. With no established exchange value, the market approach cannot even pretend to achieve its own goals of adequately meeting consumer demand. Markets alone fail to guarantee that such important public goods are preserved and protected.

A third way in which market failures can lead to serious environmental harm involves a distinction between individual decisions and group consequences. Important ethical and policy questions can be missed if we leave policy decisions solely to the outcome of individual decisions. Chapter 3 presented the case of individual choice and SUV purchasing as a classic example of such a market failure. (A similar challenge was raised in chapter 6 against market solutions to such health concerns as exposure to workplace chemicals.) The example demonstrated that the overall social result of individual calculations might be significant increases in pollution and such pollution-related diseases as asthma and allergies. A number of alternative policies (e.g., restricting SUV sales, increasing taxes on gasoline, treating SUVs as cars instead of light trucks in calculating corporate automobile fuel efficiency [CAFE] standards) that could address pollution and pollution-related disease would never be considered if we relied only on market solutions. Because these are important ethical questions, and because they remain unasked from within market transactions, we must conclude that markets are incomplete (at best) in their approach to the overall social good.

In other words, what is good and rational for a collection of individuals is not necessarily what is good and rational for a society. Defenders of the narrow view of corporate social responsibility and their economic theory have responses to these challenges, of course. Internalizing external costs and assigning property rights to unowned goods such as wild species are two responses to market failures. But there are good reasons for thinking that such ad hoc attempts to repair market failures are environmentally inadequate. One important reason is what was earlier called the first-generation problem. Markets can work to prevent harm only through information supplied by the existence of market failures. Only when fish populations in the North Atlantic collapsed, for example, did we learn that free and open competition among the world’s fishing industry for unowned public goods failed to prevent the decimation of cod, swordfish, Atlantic salmon, and lobster populations. That is, we learn about market failures and thereby prevent harms in the future only by sacrificing the first generation as a means for gaining this information. When public policy involves irreplaceable public goods such as endangered species, rare wilderness areas, and public health and safety, such a reactionary strategy is ill-advised.

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Reality Check: Climate Change as Market Failure

Few issues involve as complex an interplay of individual, organizational, and social action as climate change. Individual consumers often do not have environmentally beneficial choices available and, even when they do, individual acts do not have much of an effect. Yet, without consumer demand, business organizations have less reason to pursue more environmentally responsible actions. Governmental action seems paralyzed by partisan politics, especially in a time when science and facts can be ignored with impunity.

Greenhouse gas emissions and the resultant climate change is a paradigm example of what economists would call a commons problem. These problems occur when a common resource is available to all, and the narrow self-interest of each individual leads each person to exploit that resource in a way that harms everyone. The tragedy of the commons is solved only when groups act collectively to restrict what they, as individuals, would otherwise do. As long as there are no immediate costs for discharging greenhouse gases into the atmosphere, individual people and individual firms have little incentive to limit their own use of fossil fuels.

But as has been shown in several places in this text, both individuals and businesses often are motivated to act in ways other than what is prescribed by the narrow economic model of self-interest. Electric vehicles may be less convenient, and they may cost more than gas-powered cars. Yet many people still buy them.

Still, economic self-interest is a powerful motivation, especially for business and many environmental initiatives result from changing economic realities. The decline of the coal industry has been caused not by environmentalists or by overregulation but by the fact that cleaner burning natural gas has been more plentiful and therefore less expensive. As the costs of alternative energy sources such as hydrogen, wind, and solar continue to fall, in part driven by increasing demand and the efficiencies that come from increased production, we should expect that more businesses will replace gas with alternative power sources. But the question is will this happen soon enough, and widely enough, to prevent ongoing harms from climate change?

For many years, public policy was the obvious solution to commons problems. Driven by the facts uncovered by natural and social science, policy makers could create incentives, regulations, and targets to manage individual actions and avoid collective harms. Such was the assumption underlying the Paris Climate Agreement endorsed by 174 countries in 2015. The agreement set emission and other targets and gave individual countries great latitude to decide their own best strategies for achieving worldwide reduction of greenhouse gases. In 2017, President Donald Trump announced plans for the United States to withdraw from this Agreement because he was committed to “put America first.” That plan became official on November 4, 2020. Less than four months later, after his election, President Joe Biden reversed that decision and brought the United States back into that global agreement.

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Considerations such as these were behind the Brundtland Commission’s emphasis on responsibilities to future generations. Economic markets alone cannot account for the interests of future people because, obviously, future people cannot participate in present markets. Markets fail to calculate the welfare of future people.

A common alternative to this model argues that some goods are so important that they should be exempt from the preference-optimizing trade-offs that occur within markets. The needs of present and future people are obvious examples of what should be protected from market trade-offs. We’ve seen this approach before, for example, in our discussions of employee rights and consumer safety. This alternative would support limits, typically in the form of government regulation, on business’s economic goals. We turn now to a consideration of this regulatory approach to business’s environmental responsibilities.

10.3 Business’s Responsibility as Environmental Regulation

A broad consensus emerged in the United States in the 1970s that unregulated markets are inadequate to deal with environmental challenges. Instead, governmental regulations were seen as the better way to respond to environmental problems. Much of the most significant environmental legislation in the United States was enacted during the 1970s. The Clean Air Act of 1970 (amended and renewed in 1977), Federal Water Pollution Act of 1972 (amended and renewed as the Clean Water Act of 1977), and the Endangered Species Act of 1973 were part of this national consensus for addressing environmental problems. Each law was originally enacted by a Democratic Congress and signed into law by a Republican president.

These laws share a common approach to environmental issues. Before this legislation was enacted, the primary legal avenue open for addressing environmental concerns was tort law. Only individuals who could prove that they had been harmed by pollution could raise legal challenges to air and water pollution. That legal approach placed the burden on the person who was harmed and, at best, offered compensation for the harm only after the fact. Except for the incentive provided by the threat of compensation, U.S. policy did little to prevent the pollution in the first place. Absent any proof of negligence, public policy was content to let the market decide environmental policy. Because endangered species themselves had no legal standing, direct harm to plant and animal life was of no legal concern, and previous policies did little to prevent harm to plant and animal life.

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The laws enacted during the 1970s established standards that effectively shifted the burden from those threatened with harm to those who would cause the harm. Government established regulatory standards to try to prevent the occurrence of pollution or species extinction rather than to offer compensation after the fact. We can think of these laws as establishing minimum standards to ensure air and water quality and species preservation. Business was free to pursue its own goals as long as it complied with the side constraints these minimum standards established. The consensus that emerged was that society had two opportunities to establish business’s environmental responsibilities. As consumers, individuals could demand environmentally friendly products in the marketplace. As citizens, individuals could support environmental legislation. As long as business responded to the market and obeyed the law, it met its environmental responsibilities. If consumers demand environmentally suspect products, such as large gas-guzzling SUVs, and those products are allowed by law, then we cannot expect business to forgo the financial opportunities of marketing such products.

This approach is an improvement over the narrow view in that it acknowledges the legitimacy of exempting some environmental goals from market trade-offs. As citizens, we are free to create laws that regulate and restrict what we, as consumers, desire. Our beliefs and values, expressed through law as well as through consumer choices, establish an ethical context in which we can then pursue our economic ends. Thus, this approach would argue that citizens should rely on democratic processes to establish environmental goals. Citizens are also free to use their power as consumers to demand that business provide environmentally sound goods and services. But absent law or consumer demand, business has no particular environmental responsibility.

Several problems suggest that this approach will prove inadequate over the long term. First, it underestimates the influence that business can have in establishing the law. The CAFE standards mentioned previously provide a good example of how this can occur. A reasonable account of this law suggests that the public very clearly expressed a political goal of improving air quality by improving automobile fuel-efficiency goals (and thereby reducing automobile emissions). However, the automobile industry was able to use its lobbying influence to exempt light trucks and SUVs from these standards. It should be no surprise that light trucks and SUVs at the time represented the largest-selling, and most profitable, segment of the auto industry.

Second, this approach also underestimates the ability of business to influence consumer choice. To conclude that business fulfills its environmental responsibility when it responds to the environmental demands of consumers is to underestimate the role that business can play in shaping public opinion. Advertising is a $200 billion a year industry in the United States alone. We considered how effective marketing can be in shaping consumer demand in chapter 9. It is surely misleading to claim that business passively responds to consumer desires and that consumers are unaffected by the messages that business conveys. Assuming that business is not going to stop advertising its products or lobbying government, this model of corporate environmental responsibility is likely to prove inadequate for protecting the natural environment.

Third, if we rely on the law to protect the environment, environmental protection will extend only as far as the law extends. Yet, most environmental issues, pollution problems especially, do not respect legal jurisdictions. New York State might pass strict regulations on smokestack emissions, but if the power plants are located upwind in Ohio or even further west in the Dakotas or Wyoming, New York State will continue to suffer the effects of pollution. Similarly, national regulations will be ineffective for international environmental challenges. While hope remains that international agreements might help control global environmental problems, the failure of international global climate change agreements, such as the Paris Climate Agreement, suggests that this might be overly optimistic.

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Finally, and perhaps most troubling from an environmental standpoint, this regulatory model assumes that economic growth is environmentally and ethically benign. Regulations establish side constraints on businesses’s pursuit of profits and, as long as they remain within those constraints, accept as ethically legitimate whatever road to profitability management chooses. What can be lost in these discussions is the very important fact that there are many different ways to pursue profits within the side constraints of law. Different roads toward profitability can have very different environmental consequences. More recent approaches to business’s environmental responsibilities aim to better link economic and environmental goals.

10.4 Business Ethics and Sustainable Economics

A more comprehensive challenge to the ability of markets to set reasonable environmental policy has been raised in the work of economist Herman Daly and other economists working on sustainable development and ecological economics. Daly makes a convincing case for an understanding of economic development that transcends the more common standard of economic growth.[4] There are, Daly argues, biological, physical, and ethical limits to growth, many of which the present world economy is already approaching, if not overshooting. Unless we make significant changes in our understanding of economic activity, unless quite literally we change the way we do business, we will fail to meet some very basic ethical and environmental obligations. According to Daly, we need a major paradigm shift in how we understand economic activity.

We can begin with the standard understanding of economic activity and economic growth found in almost every economics textbook. What is sometimes called the circular flow model (Figure 10-1) explains the nature of economic transactions in terms of a flow of resources from businesses to households. Business produces goods and services in response to the market demands of households. These goods and services are shipped to households in exchange for payments back to business. These payments are in turn sent back to households in the form of wages, salaries, rents, profits, and interests. These payments are received by households in exchange for the labor, land, capital, and entrepreneurial skills used by business to produce goods and services.

FIGURE 10-1

Two items are worth noting. First, natural resources are undifferentiated from the other factors of production. In this model, the origin of resources is never explained. They are simply owned by households from which they, like labor, capital, and entrepreneurial skill, can be sold to business. In the words of Julian Simon, “As economists or consumers, we are interested in the particular services that resources yield, not in the resources themselves.”[5] Those services can be provided in many ways and by substituting different factors of production. In Simon’s terms, resources can therefore be treated as “infinite.”

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A second observation is that this model treats economic growth as not only the solution to all social ills, but also as boundless. To keep up with population growth, the economy must grow. To provide for a higher standard of living, the economy must grow. To alleviate poverty, hunger, and disease, the economy must grow. The possibility that the economy cannot grow indefinitely is simply not part of this model.

Three points summarize the challenges this model faces in the near future. First, a large percentage of the world population today lives in total privation. One recent estimate has over 600 million people, about 8 percent of the world’s population, living in abject poverty. More than 800 million people, of which more than 150 million are children, suffer from malnutrition. Obviously, current economic arrangements do not provide for the basic needs of hundreds of millions of people. One reasonable estimate is that the 25 percent of the world’s population living in industrialized countries consume 80 percent of the world’s resources. The current economic paradigm addresses this problem by promoting further economic growth in the developing world. Yet the world would require significant economic growth during the next few decades just to meet the basic needs of the other 75 percent of the planet’s population. According to some estimates, it would need to grow by a factor of five to ten over the next fifty years in order to bring the standard of living of present populations in the developing world in line with the standard of living in the industrialized world.[6]

Second, the world’s population during this period will continue to increase significantly, particularly in the most impoverished and already highly populated regions. Even assuming a reduced rate of growth, the worldwide population over the next fifty years likely will double, to about 11 billion people. Thus, economic activity to meet the basic needs of the world’s population in the near future will need to increase proportionately.

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Finally, the only sources for all this economic activity are the natural resources of the earth itself. Many of these resources—clean air, drinkable water, fertile soil, and food—cannot be replaced by the remaining factors of production. We cannot breathe, drink, eat, or grow food on labor, capital, or entrepreneurial skill alone. Because the world’s environment is already under stress from current economic activity, the future looks bleak unless major changes take place. Given these realities, we must create an economic system that can provide for the needs of the world’s population without destroying the environment in the process. This, according to some, is the role of sustainable economics and sustainable development.

Daly argues that neoclassical economics, with its emphasis on economic growth as the goal of economic policy, will inevitably fail to meet these challenges unless it recognizes that the economy is but a subsystem within Earth’s biosphere. Economic activity takes place within this biosphere and cannot expand beyond its capacity to sustain life. All the factors that go into production—natural resources, capital, entrepreneurial skill, and labor—ultimately originate in the productive capacity of the earth. In light of this, the entire classical model will prove unstable if resources move through this system at a rate that outpaces the productive capacity of the earth or of the earth’s capacity to absorb the wastes and by-products of this production. Thus, we need to develop an economic system that uses resources only at a rate that can be sustained over the long term and that recycles or reuses both the by-products of the production process and the products themselves. A model of such a system, based on the work of Daly, is printed as Figure 10-2.

FIGURE 10-2

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Figure 10-2 differs from Figure 10-1 in several important ways. First, there is a recognition that the economy exists within a finite biosphere that encompasses little more than a band a few miles wide surrounding the earth’s surface. From the first law of thermodynamics (the conservation of matter/energy), we recognize that neither matter nor energy can truly be created; it can only be transferred from one form to another. Second, energy is lost at every stage of economic activity. Consistent with the second law of thermodynamics (entropy increases within a closed system), the amount of usable energy decreases over time. “Waste energy” leaves the economic system continuously and thus new low-entropy energy must constantly flow into the system. Ultimately, the only source for low-entropy energy is the sun. Third, natural resources are no longer treated as an undifferentiated and unexplained factor of production emerging from households. Natural resources come from the biosphere and cannot be created ex nihilo. Finally, wastes are produced at each stage of economic activity and these wastes are dumped back into the biosphere.

The conclusion that should be drawn from this new model is relatively simple. Over the long term, resources and energy cannot be used, nor wastes produced, at rates at which the biosphere cannot replace or absorb them without jeopardizing its ability to sustain (human) life. These are what Daly calls the “biophysical limits to growth.”[7] The biosphere can produce resources indefinitely, and it can absorb wastes indefinitely, but only at a certain rate and with a certain type of economic activity. This is the goal of sustainable development. Finding this rate and type of economic activity, creating a sustainable business practice, is the ultimate environmental responsibility of business.

Figure 10-2 also provides us with a model for interpreting the four policy areas of environmental consensus presented previously. The consensus for eliminating pollution and wastes, for prudent use of resources, for preserving environmentally sensitive areas, and for biodiversity can be understood as requiring economic institutions to operate in a sustainable manner within the biosphere.

10.5 Business Ethics in the Age of Sustainable Development

Three criteria—the three pillars of sustainability—are often used to judge sustainable practices. Sustainable development must be economically, environmentally, and socially satisfactory. Economically, sustainable practices must be able, in the words of the Brundtland Commission to meet the “needs of the present without compromising the ability of future generations to meet their own needs.” Environmentally, they must do so without harming the ability of the biosphere to sustain life over the long term. Socially, they must address the real needs of people, particularly those hundreds of millions of people who lack adequate food, water, and other necessities. Three similar criteria can be used to judge models of business’s environmental responsibility. Business ought to be arranged in such a way that it adequately meets the economic expectations of society (i.e., jobs, income, and goods and services) in an efficient manner. Business ought also to be arranged in a way that supports, rather than degrades, the ability of the biosphere to sustain life, especially but not exclusively human life, over the long term. Business also ought to be arranged in a way that addresses minimum demands of social justice.

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As we begin to consider how business should be restructured in order to meet its environmental responsibilities, it is worth emphasizing a point made previously. We should not underestimate the range of managerial discretion. Business managers, rightfully, enjoy a wide range of decision-making discretion. We must move away from the view of environmental responsibilities as side constraints on the pursuit of profit, as if there is only one way to pursue profits, and ethical responsibilities are a barrier to that. Rather, we must recognize that some avenues to profitability are environmentally risky, and others environmentally prudent and sensible. Fortunately, we have some good models for environmentally sustainable business practices.

In Natural Capitalism, authors Paul Hawken, Amory Lovins, and Hunter Lovins provide a conceptual model for, and numerous examples of, sustainable business practices.[8] I will follow their work in sketching some specifics of an environmentally responsible business model.

Natural Capitalism offers four guiding principles for the redesign of business. First, the productivity of natural resources must and can be dramatically increased. This constitutes a further development of what is sometimes called ecoefficiency. A second principle, called biomimicry or closed-loop design, requires that business be redesigned to model biological processes. By-products formerly lost as waste and pollution must be eliminated, reintegrated into the production process, or returned as a benign or beneficial product to the biosphere. Third, traditional models of business as producer of goods should be replaced with a model of business as a provider of services. The old economy focuses on producing goods (e.g., light bulbs and carpets), when consumer demand really focuses on services (e.g., illumination and floor-covering). This shift can provide significant incentives for accomplishing the first two goals. Finally, business must reinvest in natural capital. As any introductory textbook in economics or finance teaches, responsible business management requires a reinvestment in productive capital. Because traditional economic models have ignored the origin of natural capital, they have neglected to include reinvestment in natural capital as part of prudent business practice. An environmentally responsible business must address this shortcoming.

Both ecoefficiency and biomimicry can be understood in terms of Figure 10-2. Ecoefficient management would discover ways to reduce the rate at which natural resources flow through the economic system. Natural Capitalism contains numerous examples in which managerial decisions regarding the design of both products and production methods have increased resources efficiency by a factor of 5, 10, and in some cases even 100. The standard growth model of economic development tells us that we can meet the needs of the poorest 75 percent of the world’s population by increasing economic growth by a factor of 5 to 10. Ecoefficient business practices aim for the same end by increasing efficiency, and therefore decreasing resource use, by a factor of 5 to 10.

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Examples of ecoefficiency can be found in many areas of business operations. Business managers must find ways to meet consumer demand with fewer resources. A simple example would be a housing developer who designs a neighborhood with cluster housing, green spaces, habitat corridors, and biking trails instead of the traditional “cookie-cutter” development pattern. Each development pattern can be profitable, but one is more environmentally destructive than the other. Energy demand is another particularly apt example for this responsibility. Natural Capitalism describes the redesign of an industrial pumping system at the carpeting manufacturer Interface Corporation. With an eye toward reducing energy demand, the redesign with larger and straighter pipes resulted in a 92 percent, or twelvefold, energy savings. Energy efficient windows, lighting, motors, and insulation in the design and upgrade of every building would greatly reduce overall energy use while still meeting present production targets.

Ecoefficiency alone is only part of the solution. The principle of biomimicry attempts to eliminate the wastes produced by even ecoefficient production processes. Business managers have a responsibility to seek ways to integrate former wastes back into the production system, transform wastes into biologically beneficial elements, or, minimally, produce wastes at rates no faster than the biosphere can absorb them.

The ultimate goal of biomimicry is to eliminate wastes altogether rather than reducing them. If we truly mimic biological processes, the end result of one process (e.g., leaves and oxygen produced by photosynthesis) is ultimately reused as the productive resources (e.g., soil and water) of another process (plant growth) with only solar energy added.

The evolution of business strategy toward biomimicry can be understood along a continuum. The earliest phase has been described as “take–make–waste.” Business takes resources, makes products out of them, and discards whatever is left over. A second phase envisions business taking responsibility for its products from the “cradle to the grave.” Sometimes referred to as life-cycle responsibility, this approach has already found its way into both industrial and regulatory thinking. Cradle-to-grave, or life-cycle responsibility, holds that business is responsible for the entire life of its products, including the ultimate disposal even after the sale. Thus, for example, the cradle-to-grave model would hold business liable for groundwater contamination caused by its products even years after they had been buried in a landfill.

Cradle-to-cradle responsibility extends this idea even further and holds that business should be responsible for incorporating the end results of its products back into the productive cycle. This responsibility, in turn, would create incentives to redesign products so that they could, efficiently and easily, be recycled. The environmental design company McDonough and Braungart, founded by architect William McDonough and chemist Michael Braungart, has been a leader in helping businesses reconceptualize and redesign business practice to achieve sustainability. Their book, Cradle to Cradle, traces the life cycle of several products, providing case studies of economic and environmental benefits attainable when business takes responsibility for the entire life cycle of products. Among their projects is the redesign of Ford Motor Company’s Rouge River manufacturing plant. This $2 billion redesign will introduce sustainable principles to one of the world’s largest industrial complexes. Reinvestment in productive capital is a basic economic responsibility for every business manager. Doing so in the way that Ford intends, in a way that addresses environmental and social concerns as well as economic ones, should be among the ethical responsibilities of every business manager.

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The third principle of sustainable business practice may require a greater paradigm shift in business management. Traditional manufacturing aims to produce goods; this new model shifts to providing services. This shift, according to Natural Capitalism, will reinforce principles of both ecoefficiency and biomimicry. Traditional economic and managerial models interpret consumer demand as the demand for products (e.g., washing machines, carpets, lights, consumer electronics, air conditioners, cars, and computers). A service-based economy interprets consumer demand as a demand for services (e.g., clothes cleaning, floor-covering, illumination, entertainment, cool air, transportation, and word processing). Natural Capitalism provides examples of businesses that have made such a shift in each of these industries. This change produces incentives for product redesigns that create more durable and more easily recyclable products.

Interface Corporation, a model of sustainable practices within the carpet industry, is a well-known innovator in this area. Interface has made a transition from selling carpeting to leasing floor-covering services. On the traditional model, carpet is sold to consumers who, once they become dissatisfied with the color or style or once the carpeting becomes worn, dispose of the carpet in landfills. There is little incentive here to produce long-lasting or easily recyclable carpeting. Once Interface shifted to leasing floor-covering services, incentives were created to produce long-lasting, easily replaceable, and recyclable carpets. Interface thereby accepts responsibility for the entire life cycle of the product it markets. Because it retains ownership and is responsible for maintenance, Interface now produces carpeting that can be easily replaced in sections rather than in its entirety, that is more durable, and that can eventually be remanufactured. Redesigning its carpets and shifting to a service lease has also improved production efficiencies and reduced material and energy costs significantly. Consumers benefit by getting what they truly desire at lower costs and fewer burdens.

Finally, business managers have a responsibility to reinvest in natural capital, the one factor of production traditionally ignored in economic and financial analysis. The principle involved in this is simple, but its implementation is a challenge. The principle is that business has a responsibility not to use resources at rates faster than what can be replenished by the biosphere, and especially ought not to destroy the productive capacity of the biosphere itself. The financial analogue is a business that liquidates capital for operating expenses or the household that spends savings as income. The prudential and responsible decision is to use the income generated by capital for living expenses while reserving the capital itself for long-term viability. So, too, with natural capital. We ought to use this capital only at the rate at which it can renew itself.

Because the productive capacity of the biosphere is a true public good and because of the many market failures and incentives for individuals to act irresponsibly in such cases, reinvestment in natural capital is perhaps one business responsibility that should be especially subject to government regulation. Business managers ought to do so, but as individuals operating within competitive markets they cannot be expected to do so. Tax incentives to encourage such investment, and tax penalties for uncompensated resource extraction, are one option.

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The roof of the Ford Rouge Factory is one simple example of reinvesting in nature. This roof will be covered with ivy-like sedum plants that will not only reduce water runoff and add insulation value but, like all plants, they will also convert carbon dioxide (a major auto-emission pollutant) to oxygen. Tax subsidies for such decisions, especially if there are short-term economic disincentives for doing this, seem a reasonable policy. We already have a model for this in gasoline taxes that are earmarked for highway construction and repair. There is no reason why similar taxes could not be targeted at other industries that treat nature’s capital as income and the monies devoted to a reinvestment in nature’s capital.

10.6 The “Business Case” for Sustainability

Sustainability has moved from the fringe to the strategic core of corporate activity throughout the world and throughout every business sector. We considered this concept in chapter 3, when it was introduced as a guiding principle of a strategic model of corporate social responsibility. Sustainability is a central idea involved in globalization topics that will be examined in chapter 12.

While some may see this as the latest fad in business management, others understand that sustainability represents a business revolution already underway. In a 2007 address, Patrick Cescau, chief executive of Unilever, observed:

Today social responsibility and environmental sustainability are core business competencies, not fringe activities. We have come a long way since the early eighties when the godfather of free market economics Milton Friedman proudly proclaimed that the only obligation which business had to society was “to make a profit and pay its taxes.”[9]

Perhaps the key point in these developments is the fact that the sustainable business model does not create a divide between environmental and financial responsibilities. From this perspective, it makes good financial sense to pursue sustainable policies, practices, and products. Indeed, sustainability offers a vision of future business that many entrepreneurial and creative businesses are already pursuing. Many observers argue that a strong economic and financial case can be made for the move toward a sustainable future. Consider the following arguments for a “business case” pursuing sustainable practices.

First, sustainability is a prudent long-term strategy. As the supply of resources needed to sustain human life declines and as demand for those resources increases while worldwide population and consumption increase, business will need to adopt sustainable practices to ensure long-term survival. Firms that fail to adapt to the converging lines of decreasing availability of resources and increasing demand risk their own survival. One can look to the ocean fishing industry as an example.

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Reality Check Triple

Bottom Line: Business Tool or Trojan Horse?

The groundbreaking insights of the Brundtland Commission was that economic activity could not be separated from the natural environment in which it occurred, and that the purpose of economic activity was, at a minimum, to meet human needs. This connection of economics, the environment, and ethics soon became captured by the metaphor of the “three pillars of sustainability.”

Over time, the “three pillars” came to be associated with the “triple bottom line” (TBL), an alleged metric for measuring business success in achieving the economic, environmental, and ethical goals of sustainable development. But there are questions about the legitimacy of how this TBL has evolved.

The TBL is usually attributed to John Elkington, who used it in a 1994 book, Cannibals with Forks. In more recent years, Elkington has, intentionally and otherwise, provided reasons for business to have doubts about the triple bottom line.

In a recent essay written for the Harvard Business Review, Elkington suggests that the TBL has been “captured and diluted by accountants and reporting consultants.” In his opinion, the TBL no longer refers to its original goal of widespread “system change” that would have transformed modern economics. As a result, the TBL should be rethought and recalled. In effect, he claims that the TBL has become too narrowly applied by accountants and business management to be an appropriate environmental and ethical guide for business practice.

But debates about how narrow or wide the TBL should get applied goes back to the very origin of the concept of triple bottom line reporting. In a 2008 interview with the magazine Mother Jones, Elkington responded to a question about how he developed the idea of triple bottom line:

“I think quite a number of multinational corporations, in particular U.S. corporations, were quite spooked by the whole social agenda and actively steering away from it. So ‘triple bottom line’ was very consciously business language, trying to get under the guard of business people. It’s almost a Trojan horse trying to give them a sense that this was something that they wanted to play with and subscribe to. Once they started to use the language and commit to it to some degree, we could then define it in ways that could stretch their imaginations a little. That’s how it went down.”

In other words, it was justifiable to mislead and manipulate business for the greater good of some unspecified and hidden social agenda. If, as he now claims, business has moved away from the original idea behind TBL reporting, perhaps it is because this original idea was itself flawed.[10]

Second, the huge unmet market potential among the world’s developing economies can only be met in sustainable ways. Enormous business opportunities exist in serving the billions of people who need, and are demanding, economic goods and services. The base of the economic pyramid represents the largest- and fastest-growing economic market in human history. Yet, the sheer size of these markets alone makes it impossible to meet this demand with the environmentally damaging industrial practices of the nineteenth and twentieth centuries. For example, if China were to consume oil at the same rate as the United States, it alone would consume more than the entire world’s daily production and would more than triple the emission of atmospheric carbon dioxide. It is obvious that new sustainable technologies and products will be required to meet the Chinese demand.

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Third, significant cost savings can be achieved through sustainable practices. Business stands to save significant costs in moves toward ecoefficiency. Savings on energy use and materials will reduce not only environmental wastes, but spending wastes as well. Minimizing wastes makes sense on financial grounds as well as on environmental grounds.

Fourth, competitive advantages exist for sustainable businesses. Firms that are ahead of the sustainability curve will both have an advantage serving environmentally conscious consumers and enjoy a competitive advantage attracting workers who will take pride and satisfaction in working for progressive firms.

Finally, sustainability is a good risk management strategy. Refusing to move toward sustainability offers many downsides that innovative firms will avoid. Avoiding future government regulation is one obvious benefit. Firms that take the initiative in moving toward sustainability will also likely be the firms that set the standards of best practices in the field. Thus, when regulation does come, these firms will likely play a role in determining what those regulations ought to be. Avoiding legal liability for unsustainable products is another potential benefit. As social consciousness changes, the legal system may soon begin punishing firms that are now negligent in failing to foresee harms caused by their unsustainable practices. Consumer boycotts of unsustainable firms are also a risk to be avoided.

When firms as diverse as Walmart, Unilever, and Nike assert that sustainability has moved into the core of their business models, this concept can no longer be considered on the fringe of business activity. Sustainability’s integration of economic, environmental, and ethical bottom lines provides a model for the future.

10.7 Critical Reflections on Chapter Discussion Case

It is helpful to remember that sustainability was initially introduced as a macroeconomic alternative to the then-dominant model of undifferentiated economic growth. In this use, what was to be sustained was global economic activity. Over time, sustainability has become so pervasive in contemporary business settings that it is worth being cautious whenever we see it applied outside of that context. In any conversation about sustainability, we should always ask what is to be sustained.

Note that in the original Brundtland use, the word “sustainable” modified the noun “development.” The ethical weight of sustainable development comes not from the modifier “sustainable” but from “development.” Sustainable can be applied to anything; for example, we could wonder if poverty or malnutrition rates are sustainable. To sustain something simply means to maintain it. The ethical question should address what is to be sustained and, until that question is answered, sustainability itself is neither a good nor a bad ethical goal.

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No doubt, part of the reason why sustainability has become such a widely accepted and praised goal is that when the word is turned into a noun and divorced from a specific context, sustainability can mean almost anything to anyone. For example, when many talk about sustainability, they can easily mean maintaining the status quo: Keep doing what you are doing, but continue doing it over the long term. But, if the status quo is what is leading us astray, as the Brundtland Commission affirmed, the status quo is precisely what cannot be sustained.

Applying this observation to business, we should ask if every business, and every industry, has a place in a sustainable economy. Can every business be sustainable? Is the oil and gas industry, for example, part of a sustainable future? If the way that present economic activity is organized has led to environmental problems that threaten well-being, then present business activities will need to change. The fact that sustainability has become so mainstream has lead some observers to suspect that it is being used in ways other than what Brundtland had intended.

What can make the unspecified goal of sustainability attractive to many firms is the idea that to be sustainable only requires that the firm pursue strategies for survival. In this way, sustainability is more a strategy of risk management than it is an environmental initiative. Clearly, part of the Brundtland conclusion was that environmental improvement was required for managing risks and therefore for continued existence. But, there are other strategies than environmental advances to achieve that goal. One thinks of lobbying efforts aimed at pushing back environmental regulations or withdrawing from environmental agreements such as the Paris Climate Agreement, as a way that a business or an industry could remain financially sustainable while falling short of environmental goals.

A final observation is that not all ethically relevant environmental issues fall under the category of environmental sustainability. The Brundtland understanding of environmental sustainability treats the natural environment as a resource that humans need for economic and social development. Within environmentalism, this perspective is known as anthropocentric (or “human-centered”) conservation; nature is a resource to be used by human beings, but it ought to be used conservatively so that it can continue to provide resources for a long period.

Anthropocentric conservation is a widely supported and respectable environmental philosophy. It is, for example, the environmental philosophy that underlies most hunting and fishing regulations. But it does not exhaust the ethical issues surrounding the natural environment. Many environmentalists would argue that some natural objects have an ethical standing in their own right and they should not be used or valued simply as resources for human use. This approach emphasizes preservation rather than conservation. Others would argue that some natural areas should be preserved as natural wilderness areas and should not be developed for human use. Other environmentalists would argue that some animals are not resources to be used but beings that have rights that deserve to be respected. A concern with species extinction does not easily fit under the sustainability category, for example, unless the threatened species is important for human economic and social development.

The movement toward sustainability does not commit business to any particular actions regarding such issues as animal welfare or wilderness preservation. One could imagine an economically and socially sustainable society that is not committed to the preservation of natural areas or the protection of animal welfare. This is not to say that business does not have ethical responsibilities in these areas, only that those responsibilities would need to be justified in terms of something other than environmental sustainability.

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Chapter Review Questions

1. How would you define a sustainable business? What are the three pillars of sustainability?

2. Give examples of at least two market failures and explain how they represent challenges to the free market understanding of business’s environmental responsibilities.

3. What is the circular flow model of economic transactions? Explain how this model differs from the sustainable economics of Herman Daly.

4. Explain the four guiding principles of natural capitalism as developed by Lovins, Lovins, and Hawken.

Endnotes

- 1For a more complete examination of this discussion case, and for sources of quotations, see my essay “Is It Time to Jump Off the Sustainability Bandwagon?” Business Ethics Quarterly 26, no. 1 (January 2016).

- 2World Commission on Environment and Development, Our Common Future (Oxford: Oxford University Press, 1987).

- 3Patagonia Mission Statement, http://www.patagonia.com/company-info.html (Retrieved June 12, 2018).

- 4Herman Daly, Beyond Growth (Boston: Beacon Press, 1996).

- 5Julian Simon, The Ultimate Resource (Princeton, NJ: Princeton University Press, 1981), p. 12.

- 6The poverty information is taken from the Brookings Institute, https://www.brookings.edu/blog/future-development/2017/11/07/global-poverty-is-declining-but-not-fast-enough/ (Retrieved June 12, 2018). Malnutrition data are from World Food Program, https://www.wfp.org/news/news-release/world-hunger-again-rise-driven-conflict-and-climate-change-new-un-report-says (Retrieved June 12, 2018). For recent use estimates, see John Bongaarts, “Population: Ignoring Its Impact,” in Scientific American, January 2002, pp. 67–69.

- 7Daly, op. cit., pp. 33–35.

- 8Hawken, Paul, Lovins, Amory, and Lovins, Hunter, Natural Capitalism (Boston: Little, Brown and Company, 1999).

- 9“Beyond Corporate Responsibility,” by Patrick Cescau, in Business Ethics: Decision Making for Personal Integrity and Social Responsibility, edited by Laura Hartman, Joseph DesJardins, and Christopher MacDonald (New York: McGraw-Hill, 2018) pp. 482–489.

- 10The reality check is based on the following sources: John Elkington, “25 Years Ago I Coined the Phrase ‘Triple Bottom Line.’ Here’s Why It’s Time to Rethink It,” Harvard Business Review (June 25, 2018). Retrieved October 11, 2019. “The social capitalist behind the phrase ‘triple bottom line’ talks about why some greenwashing is good,” by Jesse Finfrock, Mother Jones, November/December 2008.

Chapter 11

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Workplace Diversity and Discrimination

Learning Objectives

After reading this chapter, you will be able to:

- Describe a range of ethical issues raised by a diverse workforce;

- Explain workplace discrimination;

- Distinguish between equal opportunity, affirmative action, and preferential treatment;

- Explain the ethical basis of equal opportunity and affirmative action;

- Analyze the ethical arguments for and against preferential treatment in the workplace;

- Describe the issue of workplace sexual harassment.

DISCUSSION CASE: Sexual Harassment and Gender Equality

The U.S. Civil Rights Act of 1964 makes it illegal for employers to discriminate against any individual “because of such individual’s race, color, religion, sex, or national origin.” In October 2017, then U.S. Attorney General Jeff Sessions issued a ruling that this legal protection against sex discrimination does not apply to discrimination based on gender. Sessions argued that the law prohibiting discrimination “because of sex” does not apply to gender discrimination because, “as ordinarily defined,” the word “sex” refers to “biologically male or female.” The Attorney General’s decision concluded that the law offers no protection for “discrimination based on gender identity per se, including transgender status.”

These disputes reflect an ambiguity in the phrase “because of sex,” which has plagued the Civil Rights Act since the very beginning. In a 1974 case, Barnes v. Train, one court concluded that unequal workplace treatment based on an employee’s refusal to engage in a sexual relationship with her supervisor did not violate the law. Reasoning in a way similar to Attorney General Sessions in 2017, this judge interpreted “sex” to refer to the biological category of male and female. He concluded therefore that this employee wasn’t mistreated “because she was a [biological] woman” but “because she refused the sexual advances of her supervisor.” The court concluded that while such behavior was “inexcusable,” it was not the type of unlawful discrimination prohibited by the Civil Rights Act.

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Most courts disagreed with this interpretation however. By the 1980s, the Equal Employment Opportunity Commission (EEOC) had established legal guidelines that defined sexual harassment was a form of discrimination based on sex. The EEOC concluded that sexual harassment in the workplace had the effect of denying equal opportunity at work and was therefore discrimination “because of sex.”

The EEOC guidelines codified the two types of illegal sexual harassment that have governed workplace discrimination law since that time. Quid pro quo harassment occurs when submission to sexual favors is made a condition for employment. Hostile work environment occurs when the overall workplace environment is so pervaded with sexual harassment and intimidation that it creates an unfair barrier for women in the workplace.

Sexual harassment of both the quid pro quo and hostile work environment varieties were at the forefront of the MeToo movement that rose to prominence during the fall of 2017. This movement focused public attention on the pervasive sexual harassment and sexual assault that women face every day in the workplace. While most coverage by mass media and social media emphasized cases involving celebrities and political figures, the central message of the #MeToo movement was that sexual harassment and assault was widespread across broad areas of society. These are behaviors that many women recognize as all too common and as having happened to “me, too.”

But ambiguities remain, especially in respect to gender roles and gender identity. In one 1989 case, a women alleged that she was denied a promotion to a partnership in an accounting firm because she did not fit her employer’s image of what a women should look like and how she should act. She was perceived as not “feminine” enough. In another case, a woman working in a construction job was denied a promotion because her co-workers were unwilling to accept a woman in a leadership role at a construction site. Her co-workers, employed as carpenters, electricians, plumbers and so on, did not think that women belonged in construction jobs, which were perceived as “masculine.” As a result, she was regularly harassed with vulgar and crude, but not particularly sexual, gestures, and language.

Recall the James Damore and Google case described in chapter 6. In his memo, Damore claimed that the unequal representation of women in high-tech and leadership positions could be traced to biological and hormonal differences. These biological differences give rise to different preferences and abilities, which Damore claimed can be found universally across all cultures. Damore claimed that men are more aggressive, assertive, and systematic in their thinking, and they have a higher drive for status. Women are more open, extroverted, more interested in people than in things, and more neurotic. Thus, in Damore’s view, workplace discrimination in high-tech firms should not be surprising because it is based on real (biologically based) differences in abilities and temperament.

There are some workplaces, construction and software engineering are two examples, that are segregated by gender stereotypes, not by biological sex or sexuality. On the basis of Sessions’ 2017 memorandum, the U.S. Department of Justice would argue that gender discrimination is not illegal under the Civil Rights Act since it is not based on gender and not the biological categories of male and female.[1]

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Discussion Questions

1. Attorney General Sessions claimed that the Civil Rights Act prohibits discrimination that is based on the biological categories of male and female. Why should those categories be subject to government regulation? Do you think that discrimination based on any other biological (or genetic) category should be illegal?

2. Employers discriminate against job applicants and employees all the time. For example, employers regularly discriminate because of grade point averages, college attended, dress, demeanor, and interview skills. What exactly is ethically wrong with workplace discrimination “because of sex”? Why is discrimination “because of sex” (or race, or religion) different?

3. A hostile workplace is a fact of life for many employees. One’s supervisor might be mean-spirited, demanding, angry, cantankerous, or bad-tempered. No laws prohibit hostile work environments. Why is a hostile work environment based on sex different than one based on the personality of an employer?

4. Some employers use threats to get employees to behave as they want, as when an employee is told to do something or face being fired. How is quid pro quo sexual harassment different from these other threats?

5. How is discrimination based on sex different from, and similar to, discrimination based on gender? Assume the interpretation of “because of sex” adopted by Attorney General Sessions and evaluate James Damore’s reasoning. Would such discrimination violate the principle that employers should not discriminate “because of sex”?

6. Is discrimination against an LGBTQ job applicant discrimination “because of sex”? Is discrimination against a transgender job applicant discrimination “because of sex”?

11.1 Introduction: Diversity and Equality

As described in the opening Discussion Case, the 2017 ruling by then Attorney General Jeff Sessions adopted a narrow understanding of the legal prohibition of discrimination based on sex. Sessions’ ruling followed an earlier decision by the Trump administration’s Justice Department which argued that the Civil Rights Act does not prohibit workplace discrimination based on sexual orientation. In that case, the Justice Department reasoned that the phrase “because of sex” should be interpreted narrowly as not including “sexual orientation.” Therefore, according to this argument, discriminating against LGBTQ workers would not be a violation of the Civil Rights Act.

Sessions’ decision reversed an earlier ruling made by the Obama administration’s Attorney General that interpreted the phrase “because of sex” to include gender, and extending civil rights protection for all LGBTQ people. On the day that Joe Biden was inaugurated President of the United States on January 20, 2021, he issued an executive order reversing the decision by Attorney General Sessions. Biden’s order concluded that “All persons should receive equal treatment under the law, no matter their gender identity or sexual orientation.”

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The fact that legal protections of workplace equality for LGBTQ people vary depending on which political party controls the presidency reinforces a conclusion that we have described previously in this text. Obedience to the law is not enough to meet ethical responsibilities. While the law may change from year to year, ethical requirements do not. So we are challenged, as citizens as well as individuals, to make our own ethical decisions about the ethics of workplace diversity and inclusion.

Data from the 2020 U.S. census confirm the common observation that the American workforce has become increasingly diverse. The U.S. Bureau of Labor Statistics shows that today’s labor force is older, more racially and ethnically diverse, and composed of more women, all trends that have existed for decades. White males have not comprised the majority of the U.S. workforce since the 1970s. Based on data from the 2020 census, the Bureau projected that the percentage of every race and ethnicity in the U.S. workforce, other than white males, will grow in the foreseeable future.[2] Within the civilian labor force, the number of women has grown to 48 percent, the highest percentage in history. (The rate of workforce participation by women leveled off slightly in the years since the COVID pandemic, when women left the workforce at higher rates than men.) Women own 40 percent of all businesses and hold 43 percent of executive, administrative, and managerial positions in the United States, also the highest percentage in U.S. history.

Yet, an increasingly diverse population has not yet translated into increased diversity in positions of authority, in equality of wages and benefits, and in positions of power and prestige. Overall, women earn on average only 82 percent of comparable male workers, a percentage that has changed very little since the 1980s. Despite decades of legal and political initiatives to increase economic opportunities for women and minorities, significant inequalities remain. Business institutions are a prime resource for addressing these inequalities.

The ethical value of equality and the legal value of equal treatment under the law lie at the center of an ethical analysis of workplace diversity. From the earliest days of Western philosophy, equality has been understood to be a fundamental principle of justice. Treating equals equally, according to Aristotle, was as much a basic principle of logic as it was of ethics. In much of the Judeo-Christian tradition, being created “in the image and likeness of God” is interpreted to mean that every individual possesses an equal inherent and inviolable dignity. The great democratic movements against monarchies of the seventeenth and eighteenth centuries argued that all are created equal.

Of course, even within societies that were philosophically committed to a principle of legal equality, inequalities were often the norm. “Treat equals equally” still requires us to identify who are the “equals.” Within the United States, for example, African Americans and women were denied legal equality well into the twentieth century on grounds of alleged inequality of abilities. Other groups of people, including Hispanics, Asians, Irish, Jews, and Muslims have all been subjected to unequal treatment, especially in the workplace. At the center of the drive for equal civil rights was this fundamental ethical principle of equal treatment.

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But there is an apparent dilemma regarding the role of equality in evaluating workplace responsibilities. On the one hand, initiatives to bring greater diversity into the workplace are most often defended by an appeal to equality. Statistics demonstrate that women, people of color, and LGBTQ individuals do not enjoy equal standing within the workplace. On such key metrics as income, job authority, and employment rates, women and people of color have always fallen behind white males. The evidence would seem to conclude that women and people of color are not being treated equally in the workplace. Thus, diversity initiatives aim at making the workplace more equal than it presently is.

On the other hand, diversity initiatives would seem to require that simple equality be ignored in the pursuit of making the workplace more diverse. It would seem that the most effective, if not the only, way to create a diverse workplace is to be conscious of and use categories of sex, gender, race, or ethnicity as a criterion for hiring or promotion. This, as critics often claim, violates equality by denying equal opportunity for white males and granting special consideration on the basis of sex, gender, race, and ethnicity. Thus, the ethical question focuses on the use of the categories of sex, gender, race, and ethnicity in decisions of hiring, promotion, and workplace expectations.

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Reality Check Diversity, Inclusion, and Organizational Culture

Chapter 4 described corporate culture as a shared pattern of beliefs, expectations, and meanings that guide behavior within an organization. An organizational culture can be a benefit by setting high ethical standards and expectations, but it can also create problems—as it did at Wells Fargo--if those shared expectations fail to meet ethical standards.

For most of U.S. history, the shared beliefs and expectations that molded corporate culture were those established by corporate leadership that was almost exclusively white and male. As the diversity of the workforce has increased in recent decades, differences between those cultural standards and the workers who were expected to conform to them has created both problems and opportunities for contemporary business.

Some of the ethical challenges described in this chapter and elsewhere in this text arise out of the gap between organizational norms and expectations of diverse workers. Examples described in this chapter include women working in traditionally male construction jobs who found themselves subjected to crude, vulgar, and sexually suggestive comments. A woman at a professional firm was judged not “feminine enough.” Women at a high-tech firm were considered not aggressive or assertive enough and were characterized as “neurotic.” Imagine being the first female supervisor at an all-male construction site, or the first Black manager in a corporate office, or the first openly LGBTQ employee in a rural business.

As described in this chapter, increasing workplace diversity is a fact of current and future U.S. demographics. But increasing the diversity of a workplace is only part of the story. Integrating a diverse workforce into an organizational culture, and adapting that culture to a more diverse workforce, requires additional actions. Workplace diversity refers to a multiplicity of racial, ethnic, gender, religious, generational, and cultural characteristics of a workforce. The goal of diversity is to increase the range of perspectives and experiences at work. Inclusion refers to practices that ensure that a diverse workforce is valued, respected, and is given a voice within the workplace. An inclusive workplace not only has a diversity of workers but empowers those workers to be full and equal participants.

The challenge for managers is to pursue the values of inclusion while helping the organizational culture evolve in response to this new reality.

Consider the mixed record on workplace equality for women. Women have made significant gains in many professional careers. Between 1970 and 2021, the percentage of women physicians increased from 7.6 to 36 percent. Between 1973 and 2020, the percentage of women lawyers and judges increased from 5.8 to 37 percent, and women in engineering increased from 1.3 to 14 percent.[3] Yet women remain clustered in lower-paid and lower-status jobs, are relatively absent from higher-paying, blue-collar, and management positions, and continue to be paid lower wages than men. In 2016, more than 96 percent of the CEOs at Fortune 500 companies were male. Forty percent of native-born working women fill positions classified as “administrative support” and “service” by the U.S. Bureau of Labor Statistics, while fewer than 16 percent of male workers fill such jobs. In private industry, white men hold 65 percent of managerial positions, white women 25 percent, minority men 6.5 percent, and minority women less than 4 percent. Women in general hold less than 5 percent of all senior-level positions in major corporations.[4]

Significant wage gaps correlated with gender and race also persist. According to the U.S. Bureau of Labor Statistics, in 2020 women’s wages averaged only 82 percent of men’s wages (up from 63 cents in 1979, but mostly unchanged in the past twenty years). White women in 1993 earned 70.8 percent of the salary of white men, while Black women and Hispanic women were paid 63.7 percent and 53.9 percent, respectively. Across the board, women with the same training and educational credentials are paid less than their male counterparts. Even the most highly educated women soon fall behind equally educated men.

The situation for minority workers is at least as bleak and was made worse by the 2008–2010 recession. In 1940, Black men earned on average only 40 cents for every dollar earned by white men. By 1990, Black men’s wages had climbed to about 75 percent of white men’s, and, by 1998, to 76 percent. That trend has reversed in recent years as the gap between wages for white and Black workers has increased. Further, even during a period of significantly high employment rates, the unemployment rate of Black men remains more than twice that of white men, and their labor-force participation rate lags behind that of whites. The unemployment rate generally for Blacks in 2022 was double that for whites.

Given these inequalities in practice, the social and ethical challenge is to address these inequalities in a way that honors the principle of equal treatment. Within the United States, the evolving policies of equal opportunity, affirmative action, and preferential treatment have characterized different approaches to this challenge. Before turning to those debates, the following section explores the issue of sexual harassment as a manifestation of inequality in the contemporary workplace.

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11.2 Sexual Harassment in the Workplace

The #MeToo movement that arose in 2017 was a clear reminder that sexual discrimination and sexual harassment are not relics of a by-gone age. While the most publicized cases involved high-profile men abusing their positions of authority, the underlying reality that made “Me Too” resonate with women across the world is that these cases are typical of what many women face on a daily basis in the workplace.

The legal foundation for sexual harassment law is the Civil Rights Act of 1964. That law made it unlawful for any employer:

(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to compensation, terms, conditions or privileges of employment because of such individual’s race, color, religion, sex, or national origin or (2) to limit, segregate, or classify his or her employees or applicants for employment in any way that would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his or her status as an employee because of such individual’s race, color, religion, sex, or national origin.

In some ways, this law offered a very explicit statement of the employment implications of the ethical principle of equality. Individuals ought not to be denied equal employment opportunities based on such irrelevant factors as race, color, religion, sex, or national origin. Within just a few years of this law’s passage, behavior identified as sexual harassment began to be understood, both legally and philosophically, as a denial of equal opportunity. On the surface, this seems reasonable and appropriate. If a woman is harassed in the workplace and interferes with her ability to work, sexual harassment denies her an equal opportunity to work and therefore is a case of unjust sexual discrimination. Beneath the surface, however, lie a number of difficult ethical and conceptual issues.

The two forms of sexual harassment were introduced in the chapter discussion case, quid pro quo harassment and hostile work environment. Quid pro quo harassment can take the form of threats (“have sex with me or I won’t give you a promotion”) or offers (“if you have sex with me I can help your career”). Hostile work environment harassment occurs when the workplace is so permeated with a sexual atmosphere that women are denied the opportunity to work.

Quid pro quo harassment was characteristic of the most notorious cases of the MeToo movement. Both threats and offers, when they involve trading sexual realties with workplace benefits, are forms of coercion or extortion. The clearest examples involve an individual exploiting his position of workplace authority to obtain sexual favors from an unwilling co-worker. Allegations made against film producer Harvey Weinstein fit this form of harassment. Victims claimed that he harassed them by threatening to harm their careers if they refused to submit to his sexual advances.

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But coercive threats and offers occur very often throughout the workplace. Managers regularly use threats (“do as I say or you’ll get fired”) and offers (“get this job done and you will earn a bonus”) to motivate workers. What makes the use of threats or offers related to sexuality deserve special scrutiny? How exactly is sexual harassment an instance of sexual discrimination?

In the legal context, courts wrestled with this question through the 1970s and 1980s. Quid pro quo sexual harassment becomes sexual discrimination when, and if, the harassment occurs “because of sex.” Thus, in an earlier example described in the discussion case, a judge concluded that unequal and harmful treatment was not unlawful discrimination because it was based on an employee’s refusal to engage in a sexual relationship with her supervisor, rather than because of her sex. This female employee wasn’t mistreated “because she was a woman,” but because she refused the sexual advances of her supervisor.

The ruling by Attorney General Sessions described previously regarding gender discrimination points to the ambiguity in the phrase “because of sex,” which underlies much of the contemporary debates regarding sex and gender discrimination. In the sense referenced by the Attorney General Sessions, “sex” refers to the biological category of male and female. In another sense, it refers to sexuality and sexual relations. In a third sense, it refers to gender, understood as culturally defined norms for the proper social role for males and females.

As a result of this ambiguity, both courts and employers faced several difficult challenges. If not false, it is at least an open question that every case of harassment of a sexual nature is unjust discrimination. Innocent sexual banter or flirtation, while sometimes unwelcome or crude, need not be discriminatory. Or, in the case of a manager who harasses a gay employee, we could have a case of harassment that is gender based but not sexual. Serious coercion or extortion is unethical and sometimes illegal but it also need not be based on sex.

On the other hand, there can be serious barriers to women in the workplace who do not involve sexuality. Discriminatory treatment that is based on animosity toward women rather than sexual desire should be the paradigmatic case of unjust discrimination, yet it does not fall within the quid pro quo “sexual nature” model. Both the construction industry example and the example of Google employees described previously are instances of gender-based discrimination that is not of a “sexual nature.”

In part as a response to such shortcomings of the quid pro quo model, but also to account for another range of discriminatory cases, scholars and courts also recognize the hostile work environment model. A careful reading of the EEOC guidelines suggests that hostile work environment is little more than a generalized version of quid pro quo harassment.

Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitute sexual harassment when … such conduct has the purpose or effect of unreasonably interfering with an individual’s work performance or creating an intimidating, hostile, or offensive work environment [emphasis added].

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Thus, certain “verbal or physical conduct of a sexual nature” can, even if not in the form of an overt sexual offer or threat, so interfere with a woman’s ability to work that it rises to the level of workplace discrimination. Unfortunately, this is not a very clear guideline, ethically or legally. It seems to allow both too many and too few cases into the category of unjust sexual discrimination.

This guideline seems to allow too many cases because it can treat relatively innocent and benign banter or flirtation as unjust and illegal discrimination. To be illegal, the conduct need not have the “purpose” of interfering with a woman’s ability to work, only the actual effect. But this means that the illegal behavior can be determined not according to some public and objective standard but according to the subjective perception of the alleged victim. Thus, a relatively prudish older woman might be terribly offended by language or conduct that younger men and women find benign. In such a case, the guidelines could be read as holding that as long as a woman finds a co-worker’s conduct offensive enough to interfere with her work, it is harassment whether or not it was intended to be so. Such a standard surely would be unfair to employers if they were held legally liable every time a female employee felt harassed.

To address this issue, courts have relied on a concept traditionally called the reasonable man standard. According to this standard, the guidelines’ language of “reasonableness” must be emphasized so that the conduct must have the effect of “unreasonably interfering” with work. This standard prevents allowing the victim’s perceptions to be the sole determination of harassment. With this standard, illegal harassment occurs only if a reasonable man would find the conduct severe enough to interfere with work. Of course, the legal community has moved away from the language of reasonable man in recent decades, instead preferring to use a reasonable person standard. But herein lies a challenge.

Do men and women differ over what constitutes unreasonable conduct of a sexual nature? Might a reasonable woman standard differ from a reasonable man standard in these cases and, if so, which should be used to determine the seriousness of the harassment? Further, as we discussed in chapter 10, the reasonable person standard itself is ambiguous. Sometimes it is interpreted as an ideal standard that establishes a norm or objective criterion that people would adopt if they were to be reasonable (i.e., if they had the relevant facts, considered the issues objectively and carefully, and so forth). At other times, it is interpreted as an average or normal person standard, with the recognition that in fact and on average, people do not always act in thoughtful, informed, and reasonable ways. Thus, we can envision four separate categories for interpreting this reasonable standard: the ideally reasonable person, the average reasonable person, the ideally reasonable woman, and the average reasonable woman. Which standard ought to be used when judging the severity of workplace harassment?

There are two good reasons for making the shift from person to woman. First, as might be suggested by the fact that the “person” standard has until only recently been the “man” standard, we should be alert to the possibility that “person” is simply a disguised version of “man.”[5] In a society, and especially in the workplace that remains very male-oriented, the reasonable person standard can have the effect of simply maintaining the status quo. What, for example, would a reasonable person expect from the workplace at a construction site except rough behavior and crude language? If such behavior is normal, then a reasonable person who accepts a job there should not expect anything different.

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This view was adopted by a judge in a dissenting opinion in the case of Rabidue v. Osceola Refining Co. This judge argued that “unless the outlook of the reasonable woman is adopted, the defendant as well as the courts are permitted to sustain ingrained notions of reasonable behavior fashioned by the offenders, in this case, men.” In a situation in which the norm is one of prejudice or discrimination, adopting a “normal” standard for judging behavior is unlikely to adequately address injustice.

Of course, this concern is more telling against the “average” interpretation of reasonableness than it is against the “ideal” interpretation. A second concern seems to count against both, however. A second reason for adopting this standard appeals to what seems to be true in fact. When it comes to sexuality and sexual relationships, women and men do seem to perceive sexual experiences differently. Just as racial or ethnic epithets are perceived differently by different races and ethnic groups, so, it seems, is verbal and physical conduct of a sexual nature. If this is so, then society can address discriminatory harassment only by acknowledging that disenfranchised groups can be harmed by conduct that the “average” person thinks is “normal.” (Consider, e.g., how the “reasonable man” standard as applied in the Deep South in 1950 might have perceived the offensiveness of referring to an African American man as “boy.”) If “reasonable” is interpreted as the ideal rather than the average model, then we could hold persons responsible for what they should have, although perhaps have not in fact, known about how their conduct would be interpreted by others.

But there are also reasons to hesitate about a shift to a reasonable woman standard. First, it can reinforce the kind of sexual stereotyping and paternalism that we should be rejecting. Women can be perceived as more sensitive, fragile, and delicate than men and thus they deserve extra protection from the rough and tough workplace. This can also create a dilemma for women in the workplace. On the one hand, they are perceived as delicate people who need protection, and thus in some ways don’t belong in tough masculine workplaces such as construction sites or corporate board rooms. On the other hand, if they do take a job and try to fit in, they are perceived as “one of the guys” or less “feminine” who don’t qualify for, or need, protection from harassment.

A second reason to hesitate about a shift to a reasonable woman standard is that it may create an unfair situation for men. If women and men do perceive sexual situations differently, and if the average man truly does not perceive harassing situations as harassment, then it would appear unfair to hold men responsible for conduct that is unintended and misunderstood. If the gap between different perspectives is unbridgeable—if men not only do not but also cannot understand from a women’s perspective—then it would surely be unfair to hold men and their employers responsible for conduct that they could not understand to be harassment. If, as seems more reasonable, the gap can be bridged, then it seems more reasonable to hold men and employers responsible. But, once again, this means that this criticism is more telling against the average or normal standard than it is against the ideal, normative standard of reasonableness. With the ideal standard, even if men do not fully understand that they conduct harassment, one would hold them responsible because, if they were thoughtful and reflective, they should have known.

These considerations suggest that at least one version of the reasonable person standard might be defensible. Interpreted as an ideal of how any person, male or female, should think and reason before acting, the reasonable person standard would seem adequate.

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11.3 Discrimination, Equal Opportunity, and Affirmative Action

An increasingly diverse workplace presents contemporary business with both opportunities and challenges. Greater diversity within recruitment pools provides management with the opportunity to improve worker quality by finding employees with a wider range of talents, experiences, and abilities. Increased diversity in the workplace also makes it more likely that employers can benefit from the diverse perspectives and insights of diverse employees. A good way to encourage creative and innovative ideas and thinking “outside the box” is to hire people who are outside the norm. Finally, companies that find, recruit, hire, and retain such workers can achieve many competitive advantages in the marketplace, including having employees who can speak the language of customers and better serve the market. (See the following Reality Check, “The Business Case for Diversity and Inclusion.”)

Nevertheless, an increasingly diverse population in and out of the workforce creates challenges to businesses as well. A diverse workforce will very likely experience situations in which differences among genders, race, ethnicity, and cultures can create barriers to an efficient and peaceful workplace. Further, the workplace is but a subset of the wider society, and social concerns of equality and discrimination are as likely to appear within the workplace as outside it.

Diversity in the workplace also raises several questions from an ethical point of view. Do employers have any responsibility to intentionally aim to increase the diversity of its workforce? Is the case for diversity merely a business case of improving the labor pool and better serving customers, or is it also an ethical case of having a duty to do so? What ethical responsibilities, if any, does an employer have to employees who are from backgrounds different from the employer? Should, for example, an employer’s health care benefits that include family coverage extend to same-sex marriages? Should an employer be free to exclude diverse people from their workplace?

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Reality Check The Business Case for Diversity and Inclusion

Much of the discussion in this chapter focuses on the ethical reasons for practices and policies aimed at increasing workplace diversity and inclusion. But many observers argue that a strong business case can be made for diversity and inclusion. That case includes:

Recruitment and Retention. In the most obvious sense, increasing the size of the labor pool will translate into the ability to recruit better workers, and limiting that pool will limit the quality of people that a business can hire. While this general observation means that a company that actively recruits from a diverse labor pool will be able to hire a better workforce, it also means that the existence of a diverse workforce itself can be a recruiting tool. Evidence suggests that many workers, perhaps especially younger ones just entering the workforce, prefer to work among a diverse group of co-workers. Beyond recruiting diverse workers, evidence suggest that a diverse workforce will provide a more meaningful workplace and be better retain workers of all backgrounds. This will also better prepare the workplace for the reality of demographic change which predicts an increasingly diverse workforce.

Innovation and Creativity. Having a diverse and empowered workforce can lead to new ideas and more creativity in asking questions and solving problems. Bringing a diverse and varied set of perspectives to the table—thinking “outside the box”—is a great way to avoid stagnation, insularity, and narrow-minded thinking and a great way to encourage ingenuity and innovation. A diverse and inclusive workplace can pay dividends by helping all workers benefit and grow from mutual learning.

Customer Service and Reputational Management. A diverse pool of employees is best situated to serve an increasingly diverse customer and client pool. Demographics show not only that the workforce is getting more diverse, but so is the entire population. Support from employees with diverse backgrounds will better prepare a company to understand market opportunities in diverse customer communities, and it can help build trust and brand loyalty within those communities.

Risk Management. Claims of harassment and discrimination as well as other barriers to workplace equity are less likely to occur in companies in which women, people of color, and LBGQT employees are widely represented in managerial and executive positions. An organizational culture of diversity and inclusion can be a powerful barrier to harassment and discrimination in practice.

Financial Performance. Numerous studies demonstrate that diversity and inclusion are factors in the bottom-line financial performance of firms. Due in large degree to the factors described above, companies that actively support and encourage a diverse workforce, including bringing diversity into the executive-suite and board of directors, have a higher return on investment than companies lacking such diversity.

Some might think that it is unfair or unreasonable to hold business responsible for such an intractable social problem as racial, sexual, or ethnic discrimination. From this perspective, business has a responsibility only to obey the law that prohibits discrimination in employment, but anything beyond that is asking too much of what are, after all, economic institutions. Accordingly, as long as business does not deny equal treatment and equal opportunity, it has fulfilled its legal and ethical responsibility concerning discrimination in work and commerce. This common view is worth considering at some length.

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The first thing to note is that this view rests upon the assumed value of equality. This in itself is testimony to how far this legal and ethical debate has advanced in just a few decades. As recently as the 1960s, many state laws not only allowed but also actually required racial segregation in public places and in schools. Women were also excluded from many jobs, many professions, and many schools for decades after they received the right to vote in 1920. It is easy to forget (if in fact students of the twenty-first century ever even knew) that the Civil Rights Act was politically a very controversial measure that required significant changes throughout American society, not the least of which was in the workplace and in commerce. The discussion case that opens this chapter reminds us that other forms of discrimination continue in the contemporary workplace. Equality based on gender identity and sexual orientation remains a controversial topic even with the U.S. Department of Justice.

Nevertheless, a commitment to equal treatment for each individual, providing each person with equal economic opportunity, is about as strong an ethical consensus as exists, at least in North America, Europe, and throughout much of the rest of the world. The ethical basis for this consensus can be found as a fundamental tenet of all major ethical theories, if not a fundamental assumption of morality itself. All individuals deserve equal moral standing.

As a first approximation of business’s ethical (if not legal) responsibility concerning discrimination, then, we can say that the commitment to equal treatment requires business not to discriminate in any of its activities. This responsibility is sometimes referred to as requiring a policy of passive nondiscrimination. Business fulfills this responsibility as long as it does not do what is ethically prohibited—that is, as long as it does not discriminate on the basis of sex, gender, race, ethnicity. The remaining question is whether business has the further responsibility to take some positive, or “affirmative,” action to counter the effects of discrimination. The question becomes is legal access alone, what is often called formal equal opportunity, enough for adequately addressing discrimination? Does ethics require only that business not discriminate? To answer this question, we need to consider in more detail exactly what this problem is.

Let us first note that discrimination itself is not necessarily a bad thing. Equal treatment does not mean identical treatment. An ethical commitment to equality does not require that individuals be treated in identically the same way. Discrimination most generally refers to the ability to make distinctions, as when we describe someone as having discriminating tastes in food or music. In the workplace, we reasonably expect employers to make discrimination between employees by making distinctions between those who are hired and those who are not, between those who are promoted and those who are not, and so forth. Ethical problems arise only when the criteria used in making such discriminations are unethical or unfair.

For example, suppose I am hiring someone for a position to create and maintain a website for my business. It makes perfect sense to discriminate between job candidates on the basis of computer literacy and experience in working on websites. If I discriminate on the basis of job-relevant criteria, it would seem that I have acted in an ethically responsible way. All candidates have an equal opportunity to apply for the job, but only the most qualified person is hired.

Now consider a slightly different example. Suppose I have a pool of qualified candidates for this position and must discriminate between equally qualified people. Suppose also that one of the candidates graduated from my alma mater. Suppose, as a loyal alumni, I like to support my school and I therefore offer the job to that candidate. I do not claim that this candidate is better qualified because she attended my school, only that I have a personal preference for alums of my school. Have I done anything wrong by discriminating on the basis of personal preference rather than job-relevant criteria?

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Let us now change this example somewhat. Imagine that my preference was not for hiring graduates from my alma mater, but for hiring white males. What, if anything, is the difference between hiring preferences that favor one’s alma mater and those that favor white males? Or suppose, as is often done, what if a company gives hiring preference to family members of present employees? Is this company’s desire to reward loyal employees a violation of equal opportunity? Or, consider an example from the opening discussion case. What, if anything, would be wrong if a company decided to hire only heterosexuals?

Reflecting back on discussions in earlier chapters, we can review several general ethical perspectives on this issue. A utilitarian concern for economic efficiency would be inclined to support a narrow view of employment qualifications. Managers should make hiring decisions based primarily on the ability of the candidate to perform the job efficiently and skillfully. But as in all utilitarian calculations, other consequences (e.g., the goodwill of long-term employees whose family is given preference in hiring) must also be considered. A more libertarian approach that emphasizes property rights and managerial prerogatives would support greater latitude for managerial discretion in hiring. A general concern for justice, however, would constrain both approaches to ensure that all individuals are treated with fairness and equal respect.

Acknowledging that decisions such as the alumni hire are often made, we might say that when all other qualifications are equal, employers should enjoy wide latitude in making hiring decisions. Of course, the degree of managerial prerogative might depend on whether or not the business was privately owned by the person making that decision or a human resource manager making the decision within a publicly traded corporation. This discretion should also depend on how the position is advertised and described. Job openings that acknowledge a preference for families of present employers won’t create misleading expectations among candidates. Nevertheless, as long as the other candidates have an equal chance of being in a similar position, and as long as they were not misled in the application process, little that is obviously unfair was done to them.

On the other hand, candidates from other colleges might claim that there is something unfair about hiring someone based on unadvertised personal preferences rather than job-relevant qualifications. They might claim that there was something deceptive about what amounts to a hidden agenda in the process, and they might claim that while they were given legal equal opportunity, they really weren’t given a fair chance at the position. To overcome the hidden advantage of an alum from my school, other candidates would have needed to be more qualified than the person who received the job. Thus, in effect, they were being held to higher standards and therefore, despite the appearance of a formal equal opportunity, they were not in fact being treated equally.

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Some observers would claim that in a workplace white males are disproportionately in positions of authority, being a white male job applicant is on a par with being a graduate of the same school as the hiring person in our example. There is a personal preference, sometimes conscious and sometimes not, to hire people similar to oneself. Therefore, legal access alone may not be enough to give a woman or a person of color a really fair chance to succeed in a predominantly white, or predominantly male, workplace. This is not to say that decisions that favor white males are the result of conscious and intentional bias. But seemingly benign factors, such as personal preference (such as the preference for certain school graduates) or criteria such as “collegiality” or whether or not someone will “fit in,” can result in a hidden bias in favor of what is already established as “normal.” What is often referred to as the old boys’ network is a good example of such a situation. Such seemingly neutral factors in getting jobs, such as having connection with someone within the company, recommendation from family friends, and having attended the right schools, can turn out to have a very conservative bias, reinforcing the status quo, which turns out to be disadvantageous to women and people of color.

Perhaps the most obvious reason why simple legal access and passive nondiscrimination are thought inadequate is the fact that, six decades after passage of the Civil Rights Act, there remains widespread unequal treatment throughout the economy. It is fair to say that equal opportunity alone has not solved many of the problems it was designed to address. Given the facts of inequality outlined above, there seem to be only two options available. Either society or business can continue to rely on equal opportunity and nondiscrimination, which implies that women and people of color must continue to wait for full equality, or society and business can take more active steps to address social and economic inequality.

Affirmative action refers to any action aimed at securing a more equal workplace that goes beyond simple legal access or passive nondiscrimination, but that does not alter the standards or qualifications for employment. Affirmative action policies, therefore, do provide some positive (affirmative) benefit for a previously disadvantaged group, but do so in ways that do not change or lower qualifications.

Before developing this topic, it is important to reflect on the language used in these debates. The concepts of equal opportunity, affirmative action, preferential treatment, and reverse discrimination are used very ambiguously in social debates and discussions. Those who defend policies of preference tend to identify them simply as equal opportunity of affirmative action and thus benefit from the relatively benign meaning of those terms. Critics of preferential policies will tend to call them reverse discrimination and treat them as indistinguishable from affirmative action policies, thus equating anything other than equal opportunity as unethical discrimination. For the sake of clarity, at least, we can offer some definitions that will not prejudge the issue rhetorically.

Equal opportunity—the opposite of segregation—refers to the commitment to legal access regardless of gender, race, or ethnic background. This is what we have called passive nondiscrimination. Policies described as color-blind or gender-blind are classic examples of equal opportunity policies. There is universal support for equal opportunity within all major ethical traditions and contemporary political philosophies.

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Affirmative action refers to any positive steps taken to alleviate unequal treatment that move beyond passive nondiscrimination. For clarity’s sake, we will limit affirmative action policies to those that do not change the previously existing standards or qualifications. So, for example, a human resources office that seeks to increase the diversity of the applicant pool, recruits women and minority candidates, encourages them to apply, advertises in media that appeal to women or minorities, and provides support for women or people of color who are hired is engaged in affirmative action. Taking such steps to provide greater security for women than what is offered to men would have been a simple example of affirmative action. Perhaps the most common example of affirmative action is the widespread practice of recruiting qualified women and minority candidates. Since this is an action taken to benefit women and minority candidates and is not taken for white males, this is a positive, “affirmative” step that goes beyond simple equal opportunity.

Note that, in one sense, such actions do put the white male in a relatively disadvantageous position compared to where he would have been had the employer not done them. The candidate pool is larger and therefore his chances of getting the job are lower. But few would think that the white male has been harmed in an ethically relevant sense because he has not been denied anything to which he had a legitimate ethical claim. No one’s rights are violated when an employer seeks to increase the applicant pool for its positions. It is very common, in fact, to find employers describing themselves as an “equal opportunity/affirmative action” employer in job postings and advertisements. The frequency of such notices testifies to the overall social consensus surrounding affirmative action policies.

More controversial, both ethically and politically, are policies that grant preference to women or people of color by affecting the qualifications for a job in a way that benefits these previously disadvantaged groups. We will reserve the phrase “preferential treatment” for policies that go beyond affirmative action by seemingly changing the job standards in an effort to hire more women and people of color. Critics of such programs tend to call them reverse discrimination, and since it is in dispute if such is the case, we shall avoid that phrase in favor of the more neutral preferential treatment. Defenders of these policies tend to identify them as affirmative action, perhaps more specifically as strong affirmative action to distinguish them from the “weaker” version described above.

We turn now to a closer examination of these more controversial policies.

11.4 Preferential Treatment in Employment

On the face of it, giving “preferences” to any job applicant appears to violate the ethical commitment to equal treatment. But as the fellow alumni example showed, not every preference in hiring is unethical. Further, if the preference is given as a means for fulfilling other ethical responsibilities, it may turn out to be ethically praiseworthy if not required. Before considering the arguments for and against preference in hiring, let us first distinguish various forms that preferential hiring might take.

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Perhaps the preferential policy closest to affirmative action would, in the case of otherwise equally qualified candidates, give preference to the previously disadvantaged candidate. This is similar to how we described the case of giving preference to a graduate from your alma mater. In such a situation, rather than relying on some personal preference or random procedure, the decision between equally qualified candidates is made in a way that addresses the social inequality. Affirmative action policies seek to increase the pool of qualified candidates and assume that the women and people of color who are most qualified will be hired. This initial type of preferential treatment policy goes one step further and hires the women and people of color who are equally, but not necessarily more, qualified.

A second type of preferential policy would identify members of previously disadvantaged groups in the pool of qualified applicants and give them preference in the hiring decision, even if there is another candidate, typically a white male, who is more qualified. This situation treats membership in a disadvantaged group as itself a qualification for the job.

A third type of preferential policy would simply require that members of disadvantaged groups be hired with only minimal consideration given to qualifications. Effectively, this would be the policy of those who favor hiring quotas for women and people of color. A human resources department with a quota for hiring women, for example, would be committed to hiring a certain percentage regardless of the number or qualifications of male candidates.

The first of these policies seems to raise the least serious ethical challenges. As in the college graduate case, the candidate denied a job by the first policy might claim that he was implicitly being held to higher standards than the person given preference. Like that case, there is some legitimate concern with unfairness here. Note also that such policies are least likely to effectively address the unequal treatment that women and people of color receive in the workplace. Since these policies go only slightly further than affirmative action, and since affirmative action has not advanced equality significantly over the past five decades, these policies are not likely to alter social and economic inequality noticeably.

The second and third types of preferential policy are more likely to have noticeable effects on inequalities. A quota system, in fact, would have an immediate impact by mandating equality in hiring results. One would immediately bring about equality in employment if every employer were required to meet a quota for women and minority hiring that matched the percentage of women and minorities in the general population. But these types of policies also raise the most serious ethical questions. Both policies seem to violate the white male’s right to equal treatment and equal opportunity. Two fundamental ethical questions must therefore be addressed in our analysis of preferential treatment: Do preferential policies in fact violate the rights of white males, and are there other ethical considerations that would override this violation if in fact it did occur?

In July 2003, the U.S. Supreme Court announced a decision that addressed many of these issues. Examining a situation involving admissions policies at universities, this case established precedents for affirmative action and preferential policies in business as well. The Court’s decision seems to allow the first and second types of preferential policies. The decision held that race, ethnicity, or gender can be treated as a qualification and therefore can, when all other factors are equal, determine the outcome.

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The case before the Court involved the University of Michigan Law School, which relied on an admissions policy that took into account the ability of each applicant to contribute to the school’s social and intellectual life. As part of this criterion, the school considered the applicant’s race, on the assumption that a diverse student body would contribute to the goals of the law school, and a critical mass of minority students was required to accomplish that goal. Thus, although scores from LSAT tests, undergraduate college grades, letters of recommendation, and other traditional factors were primarily used to grant admission, an applicant’s race was also a factor. Two white females who were denied admission brought the lawsuit, arguing that admission of minority students with lower grades and test scores violated their rights to equal treatment.

The case attracted significant attention in the corporate sector as well as in higher education. General Motors Corporation filed an amicus curiae (“friend of the court”) brief in support of the law school’s admission policy. By doing this, GM went out of its way, and at great expense to itself, to be identified as a stakeholder and to argue publicly in support of affirmative action. In its brief, GM claimed that the need to ensure a racially and ethnically diverse student body was a compelling reason to support affirmative action policies. GM claimed that “the future of American business and, in some measure, of the American economy depends on it.”

Echoing the claims made in an earlier Reality Check, GM claimed that in its own business experience “only a well educated, diverse workforce, comprising people who have learned to work productively and creatively with individuals from a multitude of races and ethnic, religious, and cultural backgrounds, can maintain America’s competitiveness in the increasingly diverse and interconnected world economy.” Prohibiting affirmative action “likely would reduce racial and ethnic diversity in the pool of employment candidates from which the nation’s businesses’ own efforts to obtain the manifold benefits of diversity in the managerial levels of their work forces.”[6]

The Supreme Court ruled that diversity can be a compelling state interest in admissions to state educational institutions. Because private sector business faces a less strict standard than state institutions in this regard, this decision sets a precedent for hiring policies in the private sector as well. However, the Court offered a more ambiguous judgment on the particular admissions policies aimed at achieving this goal. By a 5–4 vote, the Court approved the Michigan Law School’s policy that gave each individual candidate consideration and that would stray from race-neutral grounds only when evidence existed to show that diversity is not being produced. However, at the same time, the Court also voted 5–4 against the admission policy of the undergraduate program at Michigan. That policy granted admission based on a point system in which membership in an underrepresented class received 20 out of a maximum 150 points. For comparison, academic factors counted up to 100 points, being a Michigan resident counted for 10 points, alumni children received 4 points, and notable personal achievement received 5 points. The court ruled that 20 points almost guaranteed admission and that this therefore violated the rights to equal treatment of nonminority candidates.

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Thus, in the Michigan case, the Supreme Court allows, but does not require, affirmative action programs that aim at creating a more diverse student body. The Court did not explicitly address the question of whether or not private employers could use similar programs. It would seem that if a private employer would connect workplace diversity to important social goals of the employer, the Court would allow these as well. GM’s claims regarding the value of a diverse workforce, and those described in the “Business Case for Diversity,” would presumably be just this sort of connection.

The legal situation has remained mostly unchanged in the years since the Michigan case. A 2016 case involving the University of Texas reaffirmed the idea that using race as one factor among many was consistent with the legal principle of equality. However, in early 2022, the Supreme Court agreed to hear yet another case challenging preferential admissions policies, this time involving Harvard and the University of North Carolina. A decision in that case will not be reached until sometime in 2023.

Again, when the legal case remains ambiguous it is especially important that we look closely at the ethical case, for and against. A variety of philosophical arguments have been offered to support or refute the ethical legitimacy of preferential hiring. Some appeal to principle-based concepts such as rights, duties, justice, and fairness. For example, some argue that preferential policies are unjust because they violate the rights of white males. Others argue that preferential policies are obligatory means for compensating people for harms they have suffered. Other arguments are more consequentialist and utilitarian, arguing that, on balance, preferential policies produce either beneficial or detrimental consequences. For example, some defend preferential hiring as a means of providing more role models for young women and people of color. Others reject these policies as likely to create more discrimination as a backlash against gender or racial preferences. For the sake of convenience, the following sections will examine only deontological arguments for or against. If any of these arguments are sound, if they violate rights or are required by compensatory justice, for example, then either the beneficial or detrimental consequences can legitimately be discounted.

There seem to be two general principle-based arguments that the white male could make to support the claim that his rights have been violated. The first, what we shall call the merit argument, claims that by ignoring or overriding qualifications, preferential policies violate the white male’s right to have hiring decisions based on merit. According to this view, the most qualified person has earned the right to the job, and a denial of this violates a principle of merit. The second argument more simply claims that preferential treatment violates the white male’s right to be treated with equal respect and given equal opportunity. From this perspective, preferential policies are a straightforward case of reverse discrimination.

Likewise, there are two major principle-based arguments in support of preferential policies. One claims that preference is due to women and people of color as a means for compensating them for past harms. Allowing past discrimination to go uncompensated is unfair and unjust. The second major argument claims that, properly understood, the commitment to equality and equal treatment requires that presently disadvantaged people be granted preference as a means for securing real equality in the workplace.

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11.5 Arguments Against Preferential Hiring

The merit argument claims that something unjust occurs when hiring decisions are based on factors other than qualifications for a job. From this perspective, the most qualified candidate has earned or deserves the job and denial of this is unjust. Since preferential hiring policies violate this merit principle, they are unjust.

Four issues need to be examined in order to determine if this argument is sound. First, we need to decide if in fact such a merit principle seems a reasonable requirement of justice. Second, the qualifications used to establish merit must themselves be fair and open to all. Third, as a practical matter, we would need to have some reasonable way to determine and measure qualifications so that we have a way to decide who is most qualified. Finally, we need to consider if diverse ethnic or gender background might itself serve as a job qualification.

For the first issue, let us assume that a fair and objective determination of qualifications can be made so that we have a clear identification of “the most qualified” person for the job. Can we say that this person has earned the job, or deserves it in such a way that if they are denied the job, an injustice has been done? It would seem that, without some modifications, we cannot. Does every candidate for every job have a legitimate expectation that the decisions will be based solely on qualifications? The answer to this might depend on where such an expectation arose. A position that is publicly advertised with stated qualifications would seem more bound to the merit principle than one not so advertised. As mentioned previously, we also might want to distinguish privately owned businesses and publicly traded corporations. A private business owner who hires a son or daughter, for example, seems justified in ignoring a more qualified candidate. But what about our example of hiring a candidate from one’s alma mater? The merit principle would suggest that such a decision is unjust and we would therefore have to conclude that injustice is widespread throughout the economy.

To conclude that the most qualified candidate has a legitimate ethical claim upon a job is to treat jobs more as social goods that should be distributed on the grounds of fairness rather than as the private property of business owners that can be distributed as they see fit. Our discussions in chapters 2 and 3 might lead us to conclude that this is a reasonable conclusion, albeit one that more libertarian versions of corporate social responsibility would be loath to accept. More utilitarian versions of markets and economic responsibilities would tend to favor a merit principle, although other social consequences would also have to be calculated.

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These considerations suggest that, from the perspective of the job applicant, qualifications are more backward-looking accomplishments (e.g., education and grades) by which the job has been earned. From the business perspective, qualifications are more forward-looking indicators of how likely it is that the candidate will do well in the job. The first option seems to give job applicants too much control over the conditions of employment. Absent an explicit promise that certain accomplishment will lead to jobs (did anyone ever promise you that the person with the highest grades will get the best jobs?), the prior expectations of job applicants cannot determine who should get jobs. The second option suggests that business has greater latitude in determining qualifications by determining what they hope to accomplish with the position. In general, we can conclude that the most qualified candidate has a prima facie legitimate claim to be hired only for positions for which the qualifications are publicly and previously advertised, assuming that the qualifications themselves are fair and objective.

But to what degree are the qualifications for positions fair and open to all? Here the answer is ambiguous. It is easy to generate quite a diverse list of factors that function as qualifications for a job. Depending on the particular job, they can range from very minimal qualifications (e.g., a temporary agricultural laborer) to quite extensive qualifications (e.g., a chief financial officer for a major corporation). A useful exercise would be to pick a variety of jobs and generate a list of relevant factors that would qualify one for the job. For each factor, ask whether every candidate has an equal and fair chance to attain the relevant qualification. How many of these qualifications have been “earned” and how many are a matter of luck or random chance? We have already discussed numerous characteristics that function as qualifications but that might be suspect. Graduating from the “right” school, having the right “connections,” having a helpful letter of introduction or recommendation, and being able to “fit in” with present workers and be a good colleague. These considerations suggest that we must be careful with the concept of qualifications.

This brings us to the third issue. Is there a fair and reasonably objective way to determine qualifications? If you generate a list of relevant factors, you are likely to find that they fall into several general categories. Some factors that we think of as qualifications, such as experience or seniority within a firm, are more a matter of past accomplishments that have “earned” the position. Many other factors are more forward-looking predictors of future success. Still others, such as being related to a present employee, may have little to do with the specific candidate or job and more to do with other goals and purposes of the business. In this case, a firm is using its jobs as a means to reward loyalty of present workers. This suggests that for any given job there will unlikely be any strict algorithmic method for determining the “most” qualified candidate.

Consider a case of hiring someone for a position in the information technology and computer department of a business. It turns out that men outnumber women in computer science majors and training programs by about two to one. Thus, in general, there more likely will be more men than women applying for such jobs, and men will tend to have more experience working in computer technology. It also turns out to be the case that in this fast-changing field, a great deal of on-the-job training occurs over the course of an employee’s career. What counts as qualifications in this case? From one perspective, past experience in classes and programming “qualifies” a person for the job. Thus, in one sense, men are generally “more qualified” for the job than women, since there are more men with experience and training in this field. From the business perspective, however, past experience is less relevant than flexibility and the ability to learn quickly and easily. Suppose the business manager believes that people with prior training are more likely to be tied to a peculiar approach to information technology and therefore are less likely to be flexible and less willing to learn new approaches. Who is the most qualified person in such a case?

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This leads us to the final issue: Might a job candidate’s gender or ethnic background itself function as a qualification for a job? For example, I taught at a Catholic all-women’s college. Might it be legitimate for this school to give hiring preference to Catholics and women? Would it be legitimate for a medical practice to give preference to female gynecologists? Might a company seeking to attract new minority business give preference to hiring minority employees? More generally, given the beneficial opportunities that are provided by a diverse workforce, could a business claim that gender and ethnic diversity are themselves qualifications in that they make positive contributions to the workplace?

These are difficult questions to answer. From the first major U.S. Supreme Court case dealing with preferential treatment, Bakke v. Regents of the University of California, the Supreme Court has ruled that race may be used as one among many qualifications for admission to universities. Yet, reflecting on an example described in this chapter’s opening discussion case, presumably, we wouldn’t accept a claim made by a construction company that being a male makes one more qualified to work in the construction environment. Nor would we accept the claim that being a white male makes one more qualified to work in an all-male law firm because it makes it more likely that one would fit in and succeed in that setting.

A reasonable conclusion would seem to acknowledge the possibility that being a woman or a person of color can make positive workplace contributions, but that the burden of proof rests with those who make such claims. That is, the presumption should favor equal, gender-blind, and color-blind policies. Given the unequal economic status that whites and males already enjoy, any hiring decision that favors white and male candidates should receive especially close scrutiny. If employers have good reasons to prefer women or candidates of color (and the arguments examined in the following section claim that they do), then perhaps a job candidate’s gender or ethnic background might count as a qualification for a job.

The second major argument against policies that grant preference to women or people of color appeals to the principle of equal treatment. As we said previously, discriminating between job candidates is not itself unjust. Discrimination is only unjust when it is made on the basis of criteria that are not job-relevant and that deny disfavored candidates equal consideration and respect. According to this argument, preferential treatment policies deny white males the equal respect and consideration that is their due. This argument is at the heart of the reverse discrimination characterization of preferential hiring policies.

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Do policies that give preference to hiring women and people of color violate the right to equal treatment of white males who are competing for the same position? I think an honest answer to this question is that it depends. First, hiring policies that prefer women and people of color—that discriminate on the basis of gender, race, or ethnic background—are ethically different from similar policies that gave preference to whites and males. Past discrimination against women and people of color was part of a systematic denial of equal treatment that was also accompanied by both explicit and implicit attitudes of inferiority and antagonism. The reason why women and people of color were denied equal opportunity is that they were considered inferior and unworthy. Unequal treatment in the workplace was part of a systematic denigration of women and racial or ethnic minorities. Whatever else might be true of preferential policies favoring women and people of color, white males are not now, and will not soon be, victims of similar systematic mistreatment. It is unlikely within the foreseeable future that men will make less than 80 cents for every dollar earned by a woman, or that white unemployment will be twice as high as Black unemployment. The reason for denying equal opportunity to white men is ethically different from the reasons for past discrimination.

Nevertheless, individuals are denied an equal opportunity on the basis of factors, such as gender, race, and ethnicity, that seem irrelevant and over which the job candidate has no control. Prima facie this is a violation of a right to equal treatment and ethically is highly suspect. However, two qualifications of this seem advisable. First, as mentioned previously, there may be some cases in which gender, race, or ethnic diversity might contribute to job performance and thus would be a job-relevant characteristic. In such a case, discrimination against a white male—on a par with discrimination against anyone lacking all of the relevant qualifications—would not be unjust. Second, the force of this objection might vary with the type of preferential policy in place. Hiring to fulfill a quota, in which white males are given no consideration at all, may be more unfair than programs that give preference only when all other qualifications are judged equal.

A final consideration of the argument about equality will provide a transition into the next section, in which we examine arguments in support of preferential hiring. Some defenders of preferential policies acknowledge that these policies do deny white males equal treatment. However, they usually make a distinction between violating someone’s rights and overriding those rights for a more pressing ethical goal. Thus, even if a white male’s right to equal consideration for a job were denied, the denial might not be ethically objectionable if it came about as the means for addressing other ethical obligations. The next section examines the ethical reasons supporting preferential policies and considers if such goals justifiably override equal opportunity for white males.

11.6 Arguments in Support of Preferential Hiring

One of the major arguments to support preferential hiring claims is that these policies are an ethically legitimate means for compensating people for the harms that they have suffered. Just as compensatory justice requires that consumers injured by a negligently designed product deserve to be compensated, a similar principle requires that individuals harmed by discriminatory hiring processes receive compensation for that harm. Failure to compensate continues a practice of undeserved disadvantages (for victims of discrimination) and undeserved advantages (of white males competing within an unfairly restricted job pool).

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Three issues need to be resolved to adequately assess this argument. Compensatory justice requires that the compensation be proportionate to the harms done, that the party paying the compensation be responsible for the harm, and that the party receiving compensation be the party harmed. The ethical status of the compensatory argument depends on how these three requirements are met by preferential hiring policies.

At first glance, compensatory hiring practices do seem to compensate for harms done in a relatively straightforward and proportionate way. Women and people of color have been denied equal opportunity in the workplace (refer to the census data described in the opening sections of this chapter), so repaying that harm with preferential treatment in hiring and promotion seems reasonable. The “preference” in hiring is only an appearance that results from considering the issue only after the fact of the initial harm. Viewed from a longer-range perspective, the preference only equalizes the situation and returns it to the point at which it would have been had the original discrimination not occurred.

Consider, by analogy, a situation in which someone is defrauded of one thousand dollars. Compensatory justice would require that the person be repaid $1,000 (other aspects of justice might require further payment as punishment, of course). If we only consider the situation at the point of (re-)payment, it has the appearance of a one-sided benefit to the injured party. But when we consider the situation within the context of the original fraud, compensation is a repayment that brings the scales of justice back into balance. Of course, preferential hiring does not compensate women and people of color for other harms they might have suffered (e.g., it doesn’t compensate for slavery). It does, however, reasonably compensate for unjust harms done in the workplace.

The second condition on compensatory justice is more controversial. It appears, especially to young white males who are denied equal access, that the people paying the compensation are not responsible for causing the harms. It was not, after all, the present generation of young white males who discriminated against women and people of color in the workplace. Since they are not responsible for the harm, it would be unfair to cause them harm in return.

Defenders of the compensatory argument respond by denying that young white males are making the repayment. The compensation is being repaid either by the private business or by society, either or both of which do bear some of the ethical culpability for past discrimination. In making this compensatory payment, young white males are denied the competitive advantage they previously enjoyed and appear to be harmed. However, they are only being denied something that they did not deserve (i.e., an unfair competitive advantage).

Critics reply that young white males would lose this undeserved competitive advantage if society adopted equal opportunity policies. Actual preferences go further and deny them something more serious, namely, equal employment opportunities. In response to this, defenders point out that while young white males may not be responsible for past harms, they have benefited from those harms. Thus, while they are not culpable for causing the harms, neither can they expect to receive benefits derived from them. In response, critics charge that if anyone has derived undeserved benefits from past discrimination, it is older white males who are already employed and promoted. True compensatory justice would seem to require that these individuals repay the harms done.

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The final aspect of compensatory justice requires that those who receive compensatory payment are the same party that has been injured. It makes no sense, for example, to pay compensation for injuries received in a traffic accident to an uninjured bystander. Critics charge that preferences granted as a means for compensation do not compensate injured parties. This challenge is made in three ways. First, critics charge that the true victims of discrimination are past generations of women and people of color. Since present policies of preference benefit present generations, they fail to compensate those truly injured by discrimination. Second, they claim that to the degree that discrimination continues to harm present generations, preferential hiring policies benefit the least deserving members of those groups. The individual most suffering from past and present discrimination is the poor, uneducated, disenfranchised woman or person of color. The individual most likely to receive preferential treatment in the job market is the person already well positioned to compete for jobs—the educated, trained, and intelligent individual. Finally, critics explain that gender, race, and ethnicity may be inappropriate criteria to use in deciding preferences. Economic and social class is, in this view, a more appropriate criterion.

Consider the following. Who is most deserving of preferential hiring to compensate for past injustice, a young Hispanic woman from a wealthy and educated family, or a young white male who was raised by a single mother in a poor inner-city neighborhood? Granting preferences to every woman and person of color is empirically misguided (because not every individual has been adversely affected by discrimination) and ethically misguided (because it treats each person as a member of a group rather than as a unique individual).

Defenders of the compensatory argument typically will concede that the harms to be compensated are those done to present-generation job candidates, rather than the harms done to past generations. Again, as the census data indicate, discriminatory treatment continues to be widespread across the economy. They also point out that greater injury suffered by others does not mean that the preferential hiring granted to some is unjust. It only means that other forms of compensatory justice (perhaps reparations?) are also needed. Finally, they argue that the only means available to compensate for overall discrimination (e.g., the fact that overall women earn less than 80 cents for every dollar earned by men) is to grant individual women preferential consideration in hiring and promotions.

This speaks to a more general concern with the compensatory argument. The continuing harms of discrimination seem to fall on individuals because they are members of a particular group (i.e., because she is a woman, an African American, and so forth). Not every individual member of the group has suffered an equal harm (e.g., many women have enjoyed lives of wealth, status, and authority). Critics charge that if compensation in the form of preferences is paid to every group member regardless of whether or not they have been harmed, undeserved benefits will be given out at the expense of the equal opportunity of others. If, on the other hand, criteria other than group membership are used to allocate compensatory preferences, then there will be some equally deserving white males who will be unfairly ignored by compensatory preferences.

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The second argument offered in support of preferential treatment appeals to a proper understanding of equality to claim that, in fact, the principle of equal treatment requires, rather than prohibits, preferences. What, exactly, is required by the right to equal treatment? As we have seen in the previous discussion of discrimination, equality does not commit us to identical treatment. I have still given you equal treatment when I discriminate against you by hiring a more qualified candidate. The crucial point here seems to be that you deserve equal consideration and respect, but that relevant differences can justify different and nonidentical treatment. Equality, in its most basic sense, requires us to treat likes alike. So what does equal consideration and respect imply for hiring policies?

This equality argument would claim that real or fair equal opportunity demands that individuals not suffer the effects of undeserved and unfair disadvantages. Ignoring such disadvantages for the sake of some formal principle of equal or identical treatment is to treat unequals equally—that is, it is to violate equality. This argument is sometimes made as an argument from analogy. Imagine that we are committed to a fair and equal race between two runners. One, through no fault of her own, is required to carry extra weight throughout the race. Despite a formal commitment to remove such unfair burdens, the fact remains that the weight is still there at present. Suppose also that we have studied the effects of extra weight and we learn that this extra weight means, on average, that the runner who carries it will finish only 75 percent of the race when the competition has finished. Using this argument, giving the unfairly burdened runner a 25 percent lead at the start of the race is only to respect fair equal opportunity.[7] Ignoring the unfair disadvantage and requiring both runners to start at the identical place and time is only to perpetuate inequalities.

So it would be in hiring and promotion policies. Through no fault of their own, women and people of color suffer from an unfair disadvantage in the workplace. Hiring and promotion policies that, in the name of gender and color-blind equality, ignore such disadvantages only continue the practice of unequal opportunity. Granting preferences at each stage of the process makes the competition for jobs and all those goods that come with employment truly fair and equal.

Reflections on the Chapter Discussion Case

The U.S. Civil Rights Act prohibits discrimination “because of an individual’s race, color, religion, sex, or national origin.” The discussion case reflects on some problems that arise with the meaning of “sex.” Attorney General Sessions asserts that the “ordinary meaning” refers to the biological categories of male and female. Consider how this would be restated if we made this word substitution. The law would then mean that the legal and ethical wrong being prohibited was discrimination against individuals because of they were biologically male or female. But is this the issue? Who, if anyone, has been denied equal treatment because they were biologically a female or a male? Interestingly, the obvious case that comes to mind would be a situation in which a transgendered person who was denied equality because their gender identity did not match their biological sex. That individual would be discriminated against because of biological sex. Presumably, this is exactly the type of case that the Attorney General sought to exclude. However, in cases of discrimination that women suffered for generations, matters of biology were not the base for the discrimination, now was male biology the reason they enjoyed positions of advantage.

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An important background question for this discussion case would focus on the categories of race, color, religion, sex, and national origin. Why these, and not others? Why would a federal law, and one that was very controversial, target these categories as deserving special legal protection? Why not make it illegal to discriminate on the basis of hair color, eye color, height, or weight? The original law did not include discrimination based on age, but this category was later added. Why are these categories ethically relevant and significant?

It is difficult to think of an answer that does not connect each of these protected classes to the historical fact that each has been the basis of widespread and systematic discrimination. That is, the past and ongoing prejudice against individuals because of their race, color, religion, sex, or national origin justified legal action to prohibit discrimination. The prejudice based on these categories denied individuals their status as equal human beings, with equal dignity and deserving equal respect.

The discussion case raises the question if gender identity and sexual orientation should be included among these categories. Attorney General Sessions suggests that they are not. As recently as 2017, federal courts disagreed whether gays and lesbians are protected by this law. Are individuals denied their status as equal human beings, with equal dignity and deserving equal respect, because of their gender identity or sexual orientation? Do they deserve legal protections?

Chapter Review Questions

1. What reasons, other than intentional discrimination, might explain the inequality of wages, employment, and positions of status?

2. Distinguish among equal opportunity, affirmative action, and preferential treatment.

3. When might discrimination in the workplace be justified? Might discrimination on the basis of gender or race ever be justified?

4. How would you distinguish between gender harassment and sexual harassment?

5. Should the severity of workplace harassment be determined solely from the point of view of the victim? Is this fair to the accused harasser?

6. Is there a difference between a reasonable woman and a reasonable man?

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Endnotes

- 1This case was developed from the following sources: Memorandum: Revised Treatment of Transgender Employment Discrimination Claims Under Title VII of the Civil Rights Act of 1964. Attorney General Jeff Sessions, October 24, 2017. “Justice Department Says Rights Law Does Not Protect Gays,” by Alan Feuer, The New York Times, July 27, 2017, https://www.nytimes.com/2017/07/27/nyregion/justice-department-gays-workplace.html (accessed June 18, 2018); Barnes v. Train, 13 Fair Empl. Prac. Cas. (BNA) 123 (D.D.C. 1974); Price Waterhouse v. Hopkins (1989); Reynolds v. Atlantic City Convention Center (1991).

- 2 Labor Force Statistics from the Current Population Survey, U.S. Department of Labor, https://www.bls.gov/cps/demographics.htm (Retrieved May 11, 2022).

- 3See “Women in Medicine,” American Medical Association 1993, and Bureau of Labor Statistics, “Current Population Survey—1963–1993.” “U.S. Share of Lawyers by Gender,” https://www.statista.com/statistics/1086790/share-lawyers-united-states-gender/. “Women in Medical Schools,” https://www.ama-assn.org/education/medical-school-diversity/women-medical-schools-dig-latest-record-breaking-numbers.

- 4Report on “the American Workforce 2016,” published by the Bureau of Labor Statistics, U.S. Department of Labor; Equal Employment Opportunity Commission, “Job Patterns for Minorities and Women in Private Industry,” 1991; Glass Ceiling Commission, “Good Business: Making Full Use of the Nation’s Capital,” March 1995.

- 5A version of this argument can be found in Debra A. DeBruin, “Identifying Sexual Harassment: The Reasonable Women Standard,” in Violence Against Women: Philosophical Perspectives, edited by Stanley French, Wanda Teays, and Laura Purdy (Ithaca, NY: Cornell University Press, 1998), pp. 107–122.

- 6“Amicus Curiae Brief in Support of the University of Michigan,” General Motors Corporation, July 17, 2000, in Grutter/Gratz v. The Regents of University of Michigan.

- 7Something very close to this, in fact, occurs in automotive drag racing. Based on past performances and ability, one car is given a head start in the race. Thus, to make the race fair, an initial disadvantage is offset by granting one an extra advantage. What appears to be an unfair head start is, in actuality, a requirement of equal opportunity.

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Chapter 12

International Business and Globalization

Learning Objectives

After reading this chapter, you will be able to:

- Describe the range of ethical issues arising in a global business context;

- Analyze the issue of ethical relativism in a global setting;

- Describe the application of human rights to international business;

- Explain the ethical issues involved in globalization;

- Describe business’s role and ethical responsibilities in an increasingly global economy.

DISCUSSION CASE: Business Ethics in a Global Setting

There is an old adage, “When in Rome, do as the Romans do.” The suggestion is that one should adapt to the cultural practices of the locale in which you are living. For more than forty years, the ethical implications of this adage have been ever-present for firms doing business in a foreign country. Should business simply conform to local practices whatever they may be, or are there some ethical values that should hold no matter where a firm does business?

A variety of philosophical perspectives can be taken on these questions. One perspective would fully adopt the “When in Rome” adage and direct business to conform to local practices and expectations, no matter what they require. This perspective would fit into the ethical relativism worldview that was examined in chapter 1. A second perspective would argue that while business is free to pursue profits by whichever means are sanctioned by the local society, there are some minimal values that govern business activities in all cultures. This perspective adopts the free market theory associated with Milton Friedman as described in chapters 2 and 3 and argues that business must be bound by the rules of competitive markets, which include the values associated with free and fair competition. A third perspective would assert that there are some basic ethical values that apply across cultures and which establish responsibilities for all businesses regardless of location.

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These perspectives can be applied to a number of well-known cases of the past fifty years. In the early 1970s, for example, there was wide concern that some U.S. firms were engaged in dishonest business practices in foreign countries. In 1977, the U.S. Foreign Corrupt Practices Act made it illegal for U.S. firms to participate in any bribery payment to foreign officials in order to obtain or further business interests. This issue was revisited in 2017 when Walmart admitted that their executives had participated in widespread bribery activities in Mexico during the previous decade.

Bribery has been a reality in many cultural settings. The relativist perspective of the “When in Rome” adage would conclude that bribing local officials to get their cooperation is ethically legitimate. The market perspective would view bribery as an unfair competitive practice that undermines the efficient operation of the market. Others might simply assert that bribery is corrupt as a matter of principle.

In the 1990s and 2000s, similar debates arose regarding a firm’s responsibility for the entire supply chain that produces and distributes its products. Nike was one of the first major firms accused of relying on sweatshop labor. Nike eventually accepted responsibility for abuses of workers at foreign plants that produced Nike running shoes, even though Nike did not own or operate those firms. Soon after Google began operating in China in the early 2000s, the company learned that access to Google, and therefore to the wider Internet, was being controlled by Chinese censors. While such an action violated Google’s own corporate values, the company decided to continue doing business in China, with the rationale that staying engaged in the country would provide a pragmatic approach to changing policies for the better. From 2006 until 2010, Google conformed to China’s censorship policies. When a 2009 cyberattack that breached security at Google and other firms was traced to China, Google withdrew its operations in that country.

During the past decade, issues surrounding working conditions at foreign supply plants for major U.S.-based corporations re-emerged at a Foxconn manufacturing plant in China. Foxconn Technology Group is among the world’s largest manufacturers of electronics and among the largest private employers in China. Estimates are that more than 1 million people work at Foxconn plants throughout China. At its thirteen Chinese plants, Foxconn manufactures such consumer products as iPad, iPhone, Kindle tablet, and Xbox. Its largest facility, more reasonably called a city, is located in Shenzhen province and employs several hundred thousand workers who live in dormitory-style housing within the walled industrial complex.

In early January 2012, press reports described how 150 Chinese workers at Foxconn’s Wuhan plant threatened to commit mass suicide by leaping from their factory roof. Workers remained on the roof for three days before agreeing to come down. This incident followed as many as fourteen actual suicides at Foxconn in 2010. Both the actual and threatened suicides were in protest of their working conditions at the Foxconn plants.

Apple and other companies quickly moved to address these issues working with Foxconn and the Fair Trade Association to improve and verify the working conditions at these facilities. Foxconn soon committed to reducing the work week to between forty-eight and sixty hours, increasing pay, and improving working and living conditions.

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On April 24, 2013, more than 1,100 workers were killed and more than 2,000 others were injured when the eight-story textile and garment manufacturing center, Rana Plaza, collapsed in Dhaka, Bangladesh. Investigations revealed that the building had been constructed on a former swamp and had not been designed to house heavy industrial machinery. Several additional stories had been illegally added to the original building and few safety features were in place. Just days before the collapse, workers had complained about cracked foundations and other unsafe working conditions. Local inspectors judged the building to be unsafe, but the employers threatened those who had complained with dismissal. While the building was owned and operated by local firms, the clothing manufactured at Rana Plaza was sold in the United States by such well-known brands as Benetton, Bonmarche, Walmart, and Primark.

Many of these past cases involve situations in which major corporations face local conditions that fall short of the ethical expectations and norms of the business itself, or of its home country. The dilemma in all of these cases is that higher ethical standards seem to run counter to both profits and local standards. Some recent cases shift this to a situation in which local standards are more demanding than both the firm’s standards and those of the United States.

In 2017, the European Union (EU) announced a $2.7 billion fine against Google for anticompetitive practice. The EU determined that Google’s practice of giving priority on search result pages to its own advertisements was an unfair business practice. What might appear to be the normal practice of search engine optimization in the United States was judged to be unethical business practice in the EU.

This case followed upon a decision by the European Court of Justice in 2014 that a person’s “right to be forgotten” means that an individual can demand that Google and Facebook (among other companies) remove personal information about that person from their databases and search results. The court ruled that “outdated” and “irrelevant” information about a person must be removed upon request.

More recently, the EU enacted a new data privacy law, the General Data Protection Regulation (GDPR), that grants citizens in EU countries greater protection against companies that gather and store personal information. This regulation, which went into effect in May 2018, places greater restrictions on obtaining personal information, mostly by requiring explicit consent, and it grants citizens rights to revoke that consent and obtain copies of all the personal information in a company’s possession. While the GDPR covers only citizens of EU countries, the integrated nature of Internet and online databases will likely mean that these standards will apply to any and all users of sites such as Google and Facebook.

Discussion Questions

1. There is an old saying, “When in Rome, do as the Romans do.” Do you believe that a business should conform to the business and cultural practices of the countries in which they operate, or should they adopt and remain true to the values of their home countries? If bribery is acceptable in Mexico, why shouldn’t Walmart bribe local officials?

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In what sense is Apple, Facebook, or Google a “U.S. company”? Should companies have special loyalty to the countries in which they are incorporated? Why, or why not?

3. Nike once famously claimed that they are a marketing company not a manufacturer, and thus they cannot be held responsible for the actions of other companies that produce the goods that Nike sells. To what degree should Apple be held responsible for the actions of Foxconn in China? To what degree should Foxconn be held responsible for the actions of security guards at their plants when those guards are hired by independent security firms?

4. To what degree, if any, are consumers responsible for the way workers are treated in manufacturing plants that produce consumer goods? Would you be less willing to buy an iPad if you learned that it was manufactured in a plant in which workers worked eighty-hour weeks and other workers committed suicide to protest their treatment?

12.1 Introduction

As the economic reality of doing business in the twenty-first century takes hold, ethical issues in international business have become much less of an occasional occurrence and much more a normal state of doing business. This reality was highlighted in the aftermath of the Russian invasion of Ukraine in February 2022. Immediately after the invasion, national governments, with only a few exceptions, announced a series of political and economic sanctions against Russia. At the same time, companies across the globe had to decide whether or not to continue doing business in or with Russia. Virtually every major global firm decided to stop doing business in Russia. These firms included major retail brands such as MacDonald’s, Coca-Cola, Ikea, Unilever, Starbucks, and Nike; major energy firms such as BP, Exxon-Mobil, and Shell; financial firms such as American Express, Citigroup, Mastercard, and Visa; and tech and media firms such as Netflix, Google, Amazon, Walt Disney, Apple, and Microsoft. Essentially every business ending operations with Russia lost revenues as a result of this political and ethical decision.

This was not the first time that business was impacted by ethical issues involved in international relations As far back as the 1970s, a number of dramatic and well-publicized cases made headlines across the world. In the early 1970s, American-based ITT was accused of widespread efforts to undermine the democratically elected Marxist government of Salvador Allende in Chile. Later in the 1970s, Nestlé faced worldwide boycotts over questionable marketing practices with infant formula in less-developed parts of the world. Throughout the 1970s and 1980s, Western, and particularly American, businesses came under pressure to withdraw from South Africa in protest of its racist apartheid government. The 1990s witnessed extensive protests against international sweatshops and child labor used in the manufacture of clothing sold at K-Mart and shoes made by Nike. In 2001, worldwide protests against pharmaceutical companies changed the way AIDS drugs were sold and marketed in Africa. In the early 2000s, massive and violent street demonstrations in Seattle, Washington, D.C., Genoa, and Prague protested the economic policies of the World Bank, International Monetary Fund (IMF), and the G7 nations that, according to protesters, protect the profits of multinational corporations while exploiting the workers and environments of less-developed countries. In the 2010s, public attention focused on dangerous working conditions at factories supplying major global brands such as Nike, Apple, and Walmart in less developed countries. These problems culminated with the collapse of the Rana Plaza garment factory in Bangladesh, killing over 1,100 workers in 2013.

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This chapter will examine a range of ethical issues that confront a firm doing international business. For simplicity’s sake, these issues will be organized into two groups. Some ethical issues arise on the level of businesses and business managers who must decide on the applicability of their own ethical standards in foreign lands. Like the bribery and supply chain responsibility case for the garment industry, these issues raise questions of ethical relativism and cross-cultural ethical values. A second set of ethical concerns involves the range of topics grouped under the term globalization. These more macrolevel concerns arise not just for individual businesses and managers, but quite literally for all citizens of every country in the world.

12.2 Ethical Relativism and Cross-Cultural Values

Perhaps the most common issue faced by managers doing business in foreign lands stems from the realization that different cultures often have quite different value systems. When these value systems conflict, business must choose whether to obey the values of their “home” country, or conform to local values and practices. On issues as diverse as equality for women and ethnic or racial minorities, health and safety standards for workers, consumer privacy, the acceptability of bribes and kickbacks, and environmental standards, international standards vary significantly across the globe. Given that significant financial benefits can result from following local ethical practices, it is tempting for business to take the step from cultural relativism to ethical relativism. Because cultures do differ in values, there is no reason for thinking that any one value system is more legitimate than others. Thus, when in foreign lands one should conform to local customs, even if that means accepting gender or racial apartheid, child labor, or bribery. The challenge of ethical relativism, it seems, arises in very practical terms in international business.

But the challenge of ethical relativism, as described in chapter 1, does not withstand careful analysis. The fact that cultures have different values (cultural relativism) does not by itself imply that there are no objective standards for deciding between conflicting values (ethical relativism). Several of the more general objections to ethical relativism reviewed in chapter 1 can be brought to bear on this issue.

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First, we should be careful not to conclude too quickly that diverse cultures do in fact hold diverse ethical values. Consider the infamous case of doing business in Indonesia during the regime of President Suharto. Until Suharto’s regime was overthrown in 1998, in order to conduct business in Indonesia a company had to form a partnership with a local Indonesian business. Most of the Indonesian businesses that formed such partnerships were owned or controlled by Suharto’s close associates or family members. Bribes, kickbacks, and extortion were commonplace. But now the question arises: In what sense were these practices “accepted” in Indonesia? They were widespread and commonly known, but to call them accepted is surely wrong. Indonesians who were not a part of the powerful elite accepted this corruption only in the sense that dissent and opposition could be met with violent and sometimes deadly reactions. The anticorruption reforms that followed Suharto’s overthrow are evidence that Indonesians share many values with the West. Similarly in a more recent case, Walmart was charged with participating in a widespread bribery scheme in Mexico. In 2019, Walmart settled the legal case brought against it for by paying a $282 million fine. Despite what some Walmart officials said in its original defense, bribery is not ethically or legally accepted in Mexico, even if it was widespread in some areas.

There are many other cases in which apparent diversity of values disappears upon closer examination. Corruption scandals that toppled governments in Japan and Italy demonstrate that acceptance of bribery and kickbacks was not as widespread nor as accepted as some would have thought. The fact that political and economic elites tolerate corrupt and unethical conduct, especially in cases where they are the very ones to benefit from that conduct, is hardly evidence to support the claim that what we take as unethical is ethically acceptable in other countries.

A second issue calls attention to a distinction between ethical principles and the application of those principles. Given different circumstances, conduct that might be condemned or excused in one context might not be condemned or excused in another. But this fact would no more count in favor of ethical relativism than the fact that we make distinctions between premeditated murder and negligent homicide. Consider the different circumstances between a local business owner operating in a corrupt regime, and an American-based multinational corporation doing business in the same place.

Suppose that, in order to do business with the state-controlled phone company, one had to pay bribes to have phones installed. Failure to pay would result in long delays in getting phone service. For a local business, failure to pay bribes could literally mean the end of the business. Local firms typically have few other choices, and thus it might make sense to excuse the payment of bribes in this circumstance. But note, excusing unethical behavior is not the same as justifying it. We do not say that bribery or extortion is justified or acceptable; only that, in such circumstances, payment of a bribe is understandable and perhaps excusable. However, given that multinational corporations are not at all in similar circumstances, excusing their similar behavior is much less reasonable. Multinationals have many more choices available to them than are available to local businesses, not the least of which is to use their economic bargaining power to change the unethical practices.

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A similar case might be made for low wages and unhealthy working conditions in sweatshops. There is an important difference between a local farmer, who may be making only subsistence wages themselves paying low wages to farm workers, and a multinational agricultural business paying similar wages. The fact that local populations tolerate working conditions that the industrialized world would judge unacceptable, as happened at the Rana Plaza factory in Bangladesh, does not mean that such conditions are ethically justified when doing business in that foreign land.

A third issue of international ethics concerns the virtue of integrity. Even in cases in which a local culture holds values different from one’s own, a person’s own integrity would require that one’s personal values not be abandoned.[1] Integrity is that virtue that maintains a person’s own personal identity and character. One’s integrity preserves the very core of one’s self. To abandon one’s values in the face of disagreement or diversity is to undermine one’s integrity.

Consider doing business in a culture that treats women as second-class citizens. Imagine that as a condition for doing business in this country, you will not be able to hire women for anything other than the most menial jobs, your own female employees will not be able to participate in negotiations with local firms, and they will not even be allowed out in public without a male escort and without their heads and faces covered. In these circumstances, one’s options seem to be either to abandon one’s own principles or stick to one’s principles and walk away from business in this culture. A person’s integrity surely counts against abandoning one’s principles in such circumstances.

This is not to say that one should never compromise or tolerate diverse values. But integrity does suggest that such questions are not to be decided solely on consequentialist, utilitarian, and economic grounds. Sometimes ethics asks that we act on principle. Such principles go a long way toward establishing who one is as a person.

A final observation calls attention to the fact that in many discussions of cultural relativism in international business, the values that are taken as unethical are those of the “other” culture. The assumption seems to be that the ethics of the industrialized Western democracies are given, and the only question remaining is whether or not those values should be compromised when they conflict with the values of a local culture. Let us now reverse this assumption and consider how local cultures might be expected to compromise when they conflict with the values brought in by multinational corporations.

We will examine this issue in more depth in a later section of this chapter. For now, consider only how this is related to the question of value relativism. How often does the question of abandoning one’s own values to conform to local practices arise in situations where a multinational would be expected to abandon market and profit principles in order to conform? One could think of a number of circumstances where this could happen. The Mondragon region in Spain, as well as many other areas in Europe, have long traditions of worker ownership, worker co-ops, and workplace democracy. Many regions in Asia have traditions of lifelong employment. Many agricultural regions throughout the world have long practiced sustainable farming and forestry techniques. Many cultures throughout the world deeply value communitarian social welfare structures. The EU has recently asserted strong privacy rights for consumers. Yet one seldom sees multinational corporations abandoning their business model so that they might better fit in with these local cultural practices.

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This suggests, at a minimum, a healthy dose of skepticism when one hears of a multinational business seeking to justify or excuse otherwise unethical conduct by appealing to local values and customs. When such appeals are advanced only when they contribute to the bottom line, we can take them for what they are: yet another instance where ethical responsibilities restrict self-interest. This fact alone is good reason not to abandon ethics in the face of a disagreement of values.

12.3 Cross-Cultural Values, Human Rights, and the Ruggie Principles

If ethical relativism is not a coherent philosophical position, the question remains: Are there any values that can reasonably be applied across cultures? Nonrelativists answer yes. Philosopher Tom Donaldson, for example, describes both “minimalist” and “maximalist” answers to this question. We’ll follow Donaldson’s framework to investigate this issue.[2]

A minimalist approach, according to Donaldson, holds that business is free to pursue its economic interests as long as certain minimal moral rights are not violated in the process. Reminiscent of the moral minimum approach to corporate social responsibility described in chapter 3, the minimalist acknowledges only “negative duties” to cause no harm. Once these minimal conditions are met, corporations fulfill their ethical responsibilities by meeting their economic goals of producing goods, services, jobs, and profits for their consumers, employees, and shareholders. A maximalist approach believes that, given the influence, power, and resources that multinational corporations enjoy, they have a responsibility to provide positive benefits and support for the communities in which they operate. Both views agree that there are ethical standards that can be applied cross-culturally. Minimalists conclude that those values are minimal negative duties; maximalists argue for more extensive positive responsibilities.

One very influential minimalist strategy was taken by the United Nations Commission on Human Rights. In 2005, the U.N. Commission created a group to “identify and clarify standards of corporate responsibility and accountability for transnational corporations and other business enterprises with regard to human rights.” What emerged from this study is known as the “Ruggie Framework,” named after John Ruggie, a professor at Harvard’s Kennedy School of Government, who was appointed to lead this study.[3]

The Ruggie Framework is summarized as “Protect, Respect, and Remedy.” The positive duty to protect and secure rights is assigned to governments. Business institutions are assigned only the negative duty to respect rights and cause no harm. On this view, businesses have no responsibilities for securing rights, nor do they have any positive duties to do good or to ameliorate harms caused by others. Finally, the Ruggie Framework holds that all victims of harms should have a right to remedy the harms done to them.

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So, for example, in the Rana Plaza case, it would be the government’s positive duty to protect health and safety by establishing and enforcing building codes. Business’s only duty would be not to cause any workplace health or safety harms. Or in the case of child labor, it would be government’s duty to protect children through minimum age laws and a business such as Nike would only have the duty to respect the child’s rights.

Reality Check Doing Business in Russia Following the Invasion of Ukraine

In February 2022, Russia launched an unprovoked and unjustified invasion of Ukraine. At the time, countless global companies were doing business with or in Russia. In the face of widespread governmental sanctions applied to Russia, these companies had to decide whether they would continue working with Russia. Most decided that they would not. Was this decision something that was ethically obligatory or just advisable? Was it a good business decision?

The Ruggie framework provides only a little guidance. While there were massive human rights violations in Ukraine as a result of the invasion, these global businesses had no role in causing those violations. After all, the Ruggie principles conclude that it is government’s role to protect those rights, not business’ role.

So, why should a company stop doing business in Russia if it is not responsible for the war and if the business is profitable? A range of answers were given in the weeks following the invasion. Some companies worked in industries that were covered by governmental sanctions and therefore had little choice about ending operations in Russia. Some saw themselves as part of the larger economic sanctions and therefore saw themselves as doing something to end or limit the war. For many companies, it was a matter of integrity and simply not wanting to be complicit in the invasion. Many companies were responding to investor, employee, and customer demands. Some saw it as a wise business decision because both short and long-term financial prospects in Russia were dim. For most businesses, no doubt all of these factors played a role.

What would your reasoning be if you were in a position to advise senior executives about continuing to do business in Russia following the invasion? Assuming that the Russian operations were profitable, what would you advise and why? Would your advice depend on the nature of the business? Why?

As these examples suggest, the Ruggie Framework can be problematic. First, the line between negative duties to cause no harm and the positive duty to provide goods is not as clear as the framework suggests. Does a company fail to respect right if it continues to do business with Russia while that country in committing massive human rights violations in Ukraine? Does a company that allows its supply chain contractors to operate an unsafe manufacturing plant violate its duty to respect the rights of employees? When a company does business in a country that violates rights, is that company failing to respect rights? Is it violating those rights itself?

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Second, the framework downplays the role that business can play in determining what governments do to protect and secure rights. Especially in situations involving major transnational corporations doing business in less-developed economies, the willingness and ability of government agencies can be greatly influenced, if not controlled, by business. Whether or not a government chooses to establish and enforce wage, health, or safety protections has a lot to do on what expectations the company brings to the situation.

In his own writings, Donaldson provides a good example of the minimalist position. Donaldson argues that fundamental human rights can provide the basis for a list of international responsibilities for business. Citing such international documents as the United Nations’ Universal Declaration of Human Rights, Donaldson suggests that there exists, in fact, a wide consensus on a variety of cross-cultural and universal values. Such universal rights provide the framework for the ethical responsibilities of international business. Among the rights that Donaldson describes are the following:

1. The right to freedom of physical movement.

2. The right to ownership of property.

3. The right to freedom from torture.

4. The right to a fair trial.

5. The right to nondiscriminatory treatment.

6. The right to physical security.

7. The right to freedom of speech and association.

8. The right to minimal education.

9. The right to political participation.

10. The right to subsistence.

Donaldson admits that there is room for dispute concerning the details of application or the range of such rights. Nevertheless, such rights would create duties for others—individuals, corporations, and governments—to respect those rights. A useful exercise would be to review some of the international ethical controversies mentioned at the start of this chapter and consider if recognizing such rights would help in the analysis of these problems. Would multinational businesses have acted differently if they were committed to such international human rights?

Yet, a challenge to this minimalist approach remains. Why should the responsibilities correlated with these rights fall on the shoulders of multinational business? Many of these duties would seem more appropriately to belong to government and not private business. Further, given the fact that these rights are, in theory if not always in practice, already acknowledged cross-culturally, the minimalist approach does not seem to provide much help when cultural values conflict. International business ethics should provide guidance for business managers when their home country values come into conflict with those of the host country. For these and other reasons, some observers defend a more extensive and specific list of international business responsibilities.

Philosopher Richard DeGeorge has offered ten such ethical guidelines that he believes can be applied cross-culturally.[4] According to DeGeorge’s analysis, multinational corporations should:

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Do no intentional direct harm.

2. Produce more good than harm for the host country.

3. Contribute by their activity to the host country’s development.

4. Respect the human rights of their employees.

5. Respect the local culture and work with and not against it.

6. Pay their fair share of taxes.

7. Cooperate with the local government in developing and enforcing just background institutions.

8. Recognize that majority control of a firm carries with it the ethical responsibility for the actions and failures of the firm.

9. Make sure that hazardous plants are safe and run safely.

10. When transferring hazardous technology to less-developed countries, be responsible for redesigning such technology so that it can be safely administered in the host country.

There seem to be two general ways to interpret and justify such a list of positive responsibilities to host countries. One could argue that such a list amounts simply to the application of more general minimalist duties. Thus, for example, the duty that stems from the right to physical security entails a responsibility for businesses that deal with hazardous materials or technology to take steps to ensure that people are protected from such hazards. From this perspective, the minimalist approach outlines general rights and responsibilities. The maximalist strategy is to specify in more detail the implications that these rights and duties have for businesses operating internationally. This approach seems to work for several more specific international responsibilities for business.

A second interpretation of these maximalist responsibilities understands them being derived from an implicit social contract between multinational businesses and the host countries. Such responsibilities arise as part of the implied contract. As in any contract, parties enter into them only if they can reasonably expect to benefit from the agreement. A multinational business enters a foreign country only if it believes that it will reap a net benefit from such a move, and host countries are justified in similar expectations. Multinationals are allowed to operate in a country if and only if that host country can expect more good than harm from the arrangement. Once again, this interpretation seems to make sense of many of the maximalists’ list of responsibilities.

12.4 Globalization and International Business

We shift now to a more macrolevel analysis of business’s international responsibilities. Ethical issues surrounding globalization have taken center stage in discussions of international relations within just the past few decades. What are these ethical issues, and what role and responsibilities do multinational businesses have in these issues?

A discussion about globalization and international trade might be thought of as unusual in a text on business ethics. International relations have traditionally been understood solely in terms of relations between states, and these issues were more at home in political science and macroeconomics than in business management. This approach is no longer adequate in the twenty-first century. It has become clear that decisions made within businesses can have as great an influence on international affairs as those made within government.

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In fact, many of the criticisms of globalization cite this as one of the central problems of worldwide economic integration. In the view of some critics, decisions made by unelected corporate officials motivated by profit and self-interest have replaced the decisions made by political officials who, in democratic lands at least, should be motivated by the best interests of their citizens.

What is globalization? As street demonstrations from Seattle to Prague to Genoa have shown, this term carries powerful political and ethical connotations. In the most straightforward sense, globalization refers to a process of international economic integration. While international trade and cooperation have existed for as long as there have been nations, this process of international economic integration became increasingly more common and has accelerated in the 1990s and 2000s. International trade agreements such as the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA) opened borders to free trade. The continuing integration within the European Union, including the adoption of a single currency (the Euro) beginning in 2002, turned Europe into what is essentially a single economy. International loans from the World Bank have supported major development projects throughout the world. Monetary policies established by the IMF have made it increasingly easy for capital to flow between countries.

Perhaps less slowly, immigration policies also made the international flow of people and labor easier. Recent economic recessions in Japan and the United States, along with currency devaluations in Mexico and Argentina, major national debt crises in Greece, Spain, Ireland, and Italy, and of course the Russian invasion of Ukraine, testify to how interdependent the world’s economies truly are.

However, the free movement of labor, capital, technology, and trade across borders has changed abruptly in recent years. The EU, and particularly southern European countries like Greece and Italy, faced a significant influx of immigrants and refugees from regions in Africa and the Middle East devastated by war and economic upheaval. Opposition to immigration, and the perceived resultant loss of economic sovereignty, helped bring about Brexit, the British withdrawal from the EU in 2020. Perhaps most dramatically, the Trump administration made a wide range of decisions that pulled the United States back from international economic cooperation and increased pressure on restricting immigration.

The ethical case for free trade and international economic cooperation has been widely accepted by governments, industry, and economists since the end of World War II. The major argument in favor is a more generalized version of the market argument we examined in chapters 2 and 3. The pursuit of profit within social and economic arrangements that secure free and open competition will allocate resources to their most highly valued uses and distribute those resources in ways that will produce the greatest good for the greatest number of people. Globalization is the process of extending this free and open competition beyond national borders. International competition for labor, jobs, goods and services, natural resources, and capital will, over time, increase the overall well-being of everyone.

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Two corollaries of this view are worth mentioning. First, the economic growth and development that flows from more free and open trade is thought to be the most effective way to improve the well-being of the most impoverished people in the world. International economic integration, according to defenders of globalization, is an essential step in worldwide economic growth, and only this growth can adequately address worldwide poverty and deprivation. Second, defenders of this process argue that economic integration is a major impediment to conflict. The more countries cooperate economically, the less likely they will be to fight militarily. Thus, globalization is seen as a major step in reducing both poverty and the possibility of war.[5]

However, a variety of public interest groups so disagree with these arguments that they were willing to take to the streets in the late 2000s to demonstrate against globalization. Advocates from organized labor, environmentalism, human rights groups, and pro-democracy organizations on the political left reject the ethical legitimacy of continued international economic integration. Oppositions from the political right, which has occurred in the United Kingdom, Italy, and the United States, object to the perceived loss of sovereignty and domestic benefits from free international trade. To help analyze these arguments, we can organize them into four topics: globalization harms rather than benefits the poor; globalization encourages a “race to the bottom” of environmental, health, safety, and workplace regulation; globalization undermines rather than supports equal rights and self-determination; and globalization violates a duty of national loyalty.

12.5 Globalization and the Poor

The general outlines of the market-based argument are familiar by now. A free, competitive, and open international market will lead to more efficient and optimal distribution of economic goods and services. More people will get more of what they most desire and hence more people will be better off than otherwise. We have seen versions of this argument at several points throughout this text. Is it a sound argument?

Part of the difficulty in analyzing this argument stems from the realization that it involves both empirical and conceptual/ethical questions. The empirical question asks whether or not living standards, particularly among the poor and less-developed nations, improve under conditions of international economic integration. The conceptual and ethical questions examine the sense in which people are thought to be “better off” with economic growth.

The answer to the empirical question is ambiguous. Consider what the theory predicts will happen in the labor market. Jobs should be exported to countries with less expensive labor. In industrialized countries, this will most likely mean that jobs of the lowest-paid workers will be lost (it would be unlikely that poor countries will have a surplus of skilled and professional workers looking for employment). In turn, this will tend to depress wages in the industrialized countries, again particularly among the lowest-paid workers. The theory suggests that, as consumers, these unemployed or underemployed workers will also benefit by lower costs for the goods and services imported from the country to which jobs have been exported. It would also predict that, over time, the increased economic growth of the poorer country will increase the demand for industrial goods and thus create jobs back in the industrialized countries. In the meantime, the displaced workers would surely be suffering.

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As we have seen before, the market argument is utilitarian. The recipient of the beneficial consequences is the collective “greatest number of people” and this can disregard the harms done to individuals in the process. Even if the theoretical “overall” benefits will occur, many actual individuals and their families may be harmed in the process. Empirically, no doubt there are specific identifiable workers who have been hurt by the movement of jobs out of their home country. The theoretical question is whether or not other workers have been benefited by new jobs created elsewhere in the country. The ethical question is whether such benefits outweigh the harms.

What about workers in the poorer country? Are they not benefited from the jobs created by free trade? Were not the workers at the Foxconn plants or at Rana Plaza benefited by eighty-hour workweek when the alternative of remaining in their home village is to earn no income at all? The answer to this question is at least as much conceptual and ethical as it is empirical. Defenders of free trade argue that workers in poor countries are benefited because new jobs make them better off than they were previously. Critics charge that many exported jobs pay bare subsistence wages and create sweatshop conditions. This challenge raises conceptual questions on both individual and national levels.

Market theory tells us that these newly employed workers are better off because they have chosen to take these jobs, and individuals would not choose to do something if the harms are greater than the benefits. In a relative sense, this seems true. People whose options are utter poverty or long hours at subsistence wages under sweatshop conditions will likely choose to work. They are better off than they otherwise would have been. Critics respond that the choice to work under such conditions is little more than extortion and exploitation by business. “Your money or your life” is also a choice, but it is not one international business should aim to emulate. Someone who chooses to surrender her money to an armed robber is also relatively better off than she otherwise would have been, but this fact does not justify the actions of the robber.

What, then, are the ethical responsibilities of international business to their employees in host countries? In general, we should conclude that they are similar to their responsibilities to employees in their home countries. Obviously, if wages and benefits are very similar in the host countries, there will be no incentive to export jobs in the first place. This not only defeats the purpose of free trade, it also means that workers in host countries receive no benefits at all. On the other hand, we need to recognize that human beings are not merely “factors of production,” whose value is determined by labor markets. Wages and benefits somewhere between those paid in the home country and the minimal wages that will get people to work in the host country seem required. One proposal would be to pay wages at rates comparable, given the differing standards of living between home and host countries, to those paid in the home country.

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For example, independent economic indicators could be used to determine how minimum wage in the home country would translate into the economy of the host country. Fair wages would be determined comparably, rather than being left to labor markets alone to determine. If it takes two people earning minimum wages to support a family of four just above the poverty level in the United States, a minimum wage in the host country would be similarly determined. Such an approach would benefit the business by still attaining employees at lower costs but would pay those employees a fair wage.

In practice, many international businesses do not directly employ workers in the host countries. Many rely on local firms and independent contractors to supply workers. There are many reasons for doing this, some less ethical than others. Hiring individuals to sew clothing or shoes and paying them as “independent contractors” on a per-item basis may be little more than a smokescreen for avoiding responsibility for fair wages and benefits. As independent contractors they supposedly are responsible for the terms and conditions of their own employment. A reasonable principle is that if an international business wants to benefit from less costly local labor, they should take full and direct responsibility for how those workers are treated. The most obvious means for doing this is to hire these people directly.

Returning to the more general question, overall are local national economies in host countries harmed or benefited from the arrival of international business? Further, given the overwhelming poverty in many areas of the world, what alternative to free trade and further economic integration is likely to be as effective in alleviating poverty and economic deprivation?

It is unlikely that specific and unqualified answers to these questions in all cases are possible or reasonable. The type of sustainable economic development as described in chapter 10’s treatment of environmental responsibilities would be one place to start. Generally, market economies have the potential to create tremendous economic growth in poor countries; ethical responsibilities require that businesses that seek to benefit from that growth do not do so by exploiting the human and natural resources of host countries.

But there is a major conceptual issue in the background to these questions. Even if it is true that freer trade and greater international economic integration can improve the economic well-being of any nation that adopts free trade and free market policies, it does not follow that these policies can improve the economic well-being of all countries. Logicians call the inference from what is true of parts to the conclusion that it is also true of the whole the fallacy of composition.

It does not follow that if any poor country can improve its economy through exports, all poor countries can improve economically through exports. For example, if every poor country tried to import low-paying jobs and increase exports, the demand and price of both would be driven down. Policies that may benefit individual nations when adopted individually might have the effect of harming all nations that adopt them simultaneously.

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12.6 “Race to the Bottom”

A second set of ethical challenges to global economic activity is that freer trade and economic integration creates incentives to weaken or do away with environmental, labor, health, and safety regulations. Such regulations constitute “barriers to trade” and, given competition for economic growth, countries will have strong incentives to be the first to offer multinational corporations less regulation and restrictions. There will, in terms used often by critics, be a “race to the bottom” of regulation.

There are numerous examples of local environmental or labor standards being successfully challenged by competing countries as violations of free trade agreements such as GATT or NAFTA.[6] Consider, for example, the type of workplace health and safety regulations required by OSHA and examined in chapter 6. Such regulations raise the costs of doing business in the United States. This creates an incentive for a business to move jobs out of the United States to countries without such protections. Traditionally, a country in that situation might impose tariffs on imports from the other country as a means to offset higher local prices that result from regulations. Under free trade agreements enforced by the WTO, such tariffs are no longer permissible. The result is that the home country faces competitive pressures to eliminate health and safety regulations so that its industries can compete more effectively under the rules of free trade. Local regulations are a barrier to the ability of local businesses to compete in world trade. (Considerations such as these and the export of jobs as described in the previous section go a long way to explain why labor groups have been at the forefront of globalization protests.)

Consider also how environmental regulations create barriers to free trade. In 1992, the U.S. Congress passed a law that prohibited the sale of tuna that was not harvested by methods that protected dolphins. Dolphin-free tuna nets are an available, but costly, option. In 1999, the WTO prohibited the United States from enforcing this law because it created an unfair barrier to tuna imports. Another example involves the European Union’s attempt to ban imports of hormone-treated beef. The United States appealed this decision to the WTO, claiming it was an unfair barrier to free trade. The EU now faces the threat of trade sanctions if they refuse to abandon this ban.

The point is that regulation on economic activity for any ethical reason—to protect the environment, workers, family farms, domestic industries, or consumers—is likely to be judged a barrier to free trade. Given worldwide commitment to free trade agreements, there is a strong incentive to abandon these regulations. It is easy to understand how this would and should occur in theory. Well-publicized cases provide examples of how it occurs in fact. But the empirical evidence is less clear.[7] The trend over recent decades, admittedly the time at which globalization was just beginning to grow, is that environmental, workplace, and consumer regulation has been increasing rather than decreasing in both wealthy and poor countries.[8] A fair assessment seems to be that there are and will remain strong incentives working against local environmental, labor, and consumer regulation. Free trade agreements and the WTO will be the major engines for such deregulation. Nevertheless, strong worldwide political consensus on such values militates against them.

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Perhaps the only responsible position to take on international free trade is one that parallels the familiar ethical restrictions placed upon markets within national borders. No economic market exists in a vacuum. Even in theory, markets require extensive background conditions (free and open competition, perfect information, legally enforceable and tradable property rights, rationally self-interested agents, and so forth) to function. In practice, of course, actual markets never attain the perfection described by theory. In recognition of this, nongovernmental agencies such as the World Bank, the WTO, and the IMF, and the governments that support them, must acknowledge that “free” markets and “free” trade must be regulated by considerations of fairness and social justice.

Environmental, labor, consumer, and other ethical regulations set the moral minimum from which market competition can then commence. Widespread international agreement on such regulation is possible, as the Montreal Protocol (limiting manufacture of chlorofluorocarbons to protect the atmospheric ozone layer) and the Kyoto Agreement (yet to be endorsed by the United States) have shown. Such regulations are not barriers to fair and open competition if they are accepted and endorsed universally. They establish the context in which markets can then be left to operate.

One ethical responsibility for business that follows from this reflects the model of corporate social responsibility defended by Norman Bowie and discussed in chapter 3. If social regulation is to set the minimally acceptable conditions on market transactions, and if these regulations are to accurately reflect the ethical consensus of citizens, business ought to refrain from trying to influence such policies. Society, through its political institutions, should set the ethical and legal guidelines under which business is allowed to operate. This can occur internationally as well as nationally.

12.7 Democracy, Cultural Integrity, and Human Rights

Another set of criticisms is that increased global economic integration threatens deeply held noneconomic values. Critics charge that institutions such as the WTO, World Bank, and IMF are themselves undemocratic bureaucracies that threaten the political values of democracy and self-determination in both poor and industrialized countries. A corollary to this is often that private multinational corporations are replacing legitimate governments as the true international decision makers. Further, global market capitalism fueled by multinational corporations seeking to expand worldwide markets for their products creates a cultural homogenization that threatens local cultures and traditions.

Critics of the World Bank and the IMF often raise the challenge that their economic policies undermine self-determination in poorer countries seeking international financial help. Financial aid to poor countries is always made contingent upon those countries accepting a range of policies intended to promote economic stability and growth. Thomas Friedman, The New York Times columnist and author of the best-selling book The Lexus and the Olive Tree, calls such policies the Golden Straitjacket.[9] According to Friedman, the policies required by the World Bank and the IMF are the very same policies that a country could choose to follow for itself if it “opts for prosperity.” These policies include:

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Making the private sector the primary engine of economic growth,… shrinking the size of state bureaucracy, maintaining as close to a balanced budget as possible…, eliminating and lowering tariffs on imported goods, removing restrictions on foreign investment, getting rid of quotas and domestic monopolies, increasing exports, privatizing state-owned industries and utilities,… making their currency convertible, [and] opening… industries, stock, and bond markets to direct foreign ownership and investment.[10]

As a result, according to Friedman, two things happen:

Your economy grows and your politics shrinks.… The Golden Straitjacket narrows the political and economic choices of those in power to relatively tight parameters. That is why it is increasingly difficult these days to find any real differences between ruling and opposition parties in those countries that have put on the Golden Straitjacket. Once your country puts on the Golden Straitjacket, its political choices get reduced to Pepsi or Coke—to slight nuances of policy…, but never any major deviation from the core golden rules.[11]

Critics of the WTO often reach similar conclusions about the effects of international trade agreements on both poor and industrialized countries. As we saw in the “race to the bottom” arguments, trade agreements seem to trump local decision making and thereby undermine self-determination and democracy.

Critics also charge that such institutions as the World Bank, the IMF, and the WTO are themselves undemocratic and secretive. Decisions are made by unelected bureaucrats, typically economists, bankers, and former corporate officials, whose discussions are not public and who answer to no public constituency. Because these decisions often have the effect of benefiting multinational businesses, the inference is that multinational corporations are controlling these decisions behind the scenes.

To the charge that Golden Straitjacket policies undermine local control and self-determination, defenders such as Friedman argue that these policies are simply rational requirements if a nation chooses prosperity over poverty. A nation cannot expect foreign investment, from either the World Bank or private investors, if it does not have in place policies that make this investment financially sound. In this view, financial and economic norms are analogous to scientific laws discovered by social scientists. If one chooses economic growth and prosperity, then past practice advises that one should do such and such. The Golden Straitjacket is no more than an outline of these “such and such” rules. Poor nations are free to reject this straitjacket, but if they do so they cannot reasonably expect that economic prosperity will follow from alternative policies.

Defenders offer two responses to the charge that globalization undermines democracy within the industrialized countries. First, as suggested in the analysis of the “race to the bottom” argument, the empirical evidence for this claim is at least ambiguous. Political regulation for such goals as environmental, worker, and consumer protection seems to increase rather than decrease in industrialized countries. If global institutions such as the World Bank, the IMF, and the WTO were undermining national sovereignty, one would expect less rather than greater regulation among industrialized countries.

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As a case in point, defenders remind us that authoritarian governments historically have been the most likely ones to shun free market policies. Only by keeping their borders closed did countries like East Germany and the former Soviet Union in recent history, and North Korea currently, prevent their citizens from choosing with their feet which political and economic arrangements they prefer. History suggests that democratic countries tend to favor freer markets and freer trade.

The second response points out that all of these institutions (e.g., the World Bank, the IMF, and the WTO) were created by, and owe their continued existence to, decisions made by individual nations. These institutions exist and have authority only because nations have agreed to have them exist with authority. Given that politically legitimate governments have freely entered into the agreements that created and control these international financial institutions, it would seem more reasonable to accuse critics of supporting undemocratic policies. Defenders can argue that what environmental, labor, and other special interest groups could not win in their own national elections, they now seek to achieve through street protests and demonstrations. If there is a crisis of illegitimacy in these debates, it rests with the protestors and not with duly constituted institutions.

A final challenge is the claim that organizations such as the World Bank and WTO are secretive and undemocratic. Decisions are typically made behind closed doors, with the public learning about them only when policies are announced. Not only has no one elected the people serving in these positions, but the decisions are made without input from any outsiders who might disagree. A right to participate in these decisions for anyone affected by them (as was argued by John McCall in chapter 6) seems a fundamental requirement of fairness.

Defenders of these institutions argue that the proper model for these institutions is not a legislature but a judiciary. Most decisions involve conflict resolution, negotiation, and compromise. The WTO acts more like an arbitrator helping parties resolve disagreements than a legislator creating public policy. In such a setting, privacy and secrecy often make it easier to reach mutually acceptable decisions. Carrying on these discussions in the public spotlight can make it more difficult for countries and their leaders to float ideas, consider compromises, and change their minds.

There are, no doubt, many legitimate concerns over the influence and policies of such international institutions as the World Bank, the IMF, and the WTO. The Golden Straightjacket as described by Thomas Friedman does impose sometimes undesired restrictions on sovereign nations. These policies do seem to favor, at least in the short term, those people and businesses within a host country already in relatively secure financial positions and those outsiders who already possess most of the world’s wealth. Market capitalism and consumerism seem to be the social structures being imposed by these groups, and such changes surely threaten the integrity of many indigenous cultures and practices.

On the other hand, worldwide poverty, all of the social ills that follow from it, and a growing worldwide population upsurge call out for a strong response. When we recognize that much of the wealth of the industrialized world relies on the resources and markets in the developing world, we must acknowledge that taking steps to relieve poverty is more than an act of charity. It is the ethical duty of the citizens and businesses of the industrialized world to act.

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If we believe that the industrialized and wealthy nations have a duty to help alleviate the effects of poverty, we must consider the appropriate means for doing this. Direct grants of financial aid and food and goods, while no doubt necessary in many cases in the short term, do not seem to be effective long-term strategies. Not the least of concerns is that such donations can undercut the local agricultural and industrial base by flooding the local market with competition.

The policies of the World Bank, the IMF, and the WTO assume that economic growth is the path to stable self-sufficiency. Their policies support foreign investment in local economies, free trade, and stable currencies. The implicit claim is that these policies are most likely to benefit local economies. The challenge to those who recognize the problems with this approach is to specify either an alternative that is as likely to benefit local societies, or to identify restrictions and regulations that prevent or minimize the harms created by the influx of foreign business and capital. For businesses involved in these events, these latter responsibilities seem most essential.

12.8 International Business and a Duty of National Loyalty

In recent years, a variety of criticisms against global economic integration have arisen from political movements that assert a primary duty to one’s home country. Political leaders in the United Kingdom, the United States, Italy, and elsewhere have advocated for policies to limit global free trade in favor of policies aimed at protecting domestic business and domestic jobs. The implications of these policies for business are profound.

Within the United States, the Trump administration supported policies to “Buy American, Hire American.” During his 2016 campaign for president, Donald Trump widely criticized American corporations for moving manufacturing jobs out of the country. Ford Motor Company, in particular, was singled out for criticism because of its decisions to build cars in Mexico. Apple was criticized and challenged to make computers and phones in the United States. Soon after his election, President Trump also issued an executive order directing companies involved in building oil and gas pipelines to buy American steel for their projects. In 2021, the Biden administration also committed to increasing governmental efforts to “Buy American.”

These cases call to mind the discussion in chapter 3 about the decisions of Facebook and Twitter regarding Russian activity on their platforms during the 2016 election. That chapter asked if corporations had a social responsibility beyond the general financial responsibility to increase profits. But, those cases can also raise a more specific question, one that is also reflected in the “Buy American, Hire American” policy: Does business have a duty of loyalty to their home country that should override mere economic interests?

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The major ethical argument in support of this perspective would be a social contract argument. This would argue that because businesses receive benefits from the society in which it operates, it owes that society certain duties in return. In the United States, for example, corporations are recognized as having legal rights, so they should also have responsibilities in return. Those duties include not only the obvious legal duties of obeying the law and paying taxes but also the duty to give priority to the home country in decisions regarding purchasing and employment.

Four general arguments are raised against this view. First, the familiar economic and utilitarian argument would claim that this policy will raise prices and therefore reduce overall happiness as goods and services become more expensive. The U.S. Chamber of Commerce, for example, publicly opposed the initiative that American firms should “buy American” on the grounds that this would raise costs for all and harm the overall economy. This response is not unlike what the economic perspective relied on for its criticism of the wider CSR movement.

A second criticism, also rooted in market economics, would question how a company is to know what a particular country demands of it. Administrations come and go, and while one administration discourages free trade, the other commits to free trade agreements and encourages foreign investment. Allowing particular elected administrations to direct business operations, and when it tells them to buy American steel or move manufacturing plants into the United States, is unfair to business by making business decisions dependent on the whims of every administration. It also puts government, rather than consumers, in the position of choosing winners and losers in the market place. This critical perspective would argue that the best way of knowing what any particular society expects is to follow what is demanded in the marketplace. From this perspective, the primary responsibility of any company to the people in the countries in which it operates is to provide goods and services at a competitive cost.

A third criticism would challenge the idea that transnational corporations should be thought of as belonging to, or as members of, a particular country in an analogous way that individual citizens are. It might seem initially plausible that Ford is an American company, Toyota is a Japanese company, and Mercedes is a German company. After all, these businesses are all incorporated within a particular state. But is it just a matter of where their headquarters are located? Or where they are incorporated? Or where they do business? All of the major transnational corporations have major divisions and major operations in many other countries.

This is particularly true when we shift attention from the corporate entity to their products and services. Some Fords are assembled in Canada and Mexico, some Mercedes are built in Alabama, BMWs in South Carolina, and Toyotas in Kentucky. Further, despite where the products are assembled, the supply chain is distributed across the globe. Similarly, while iPhones are assembled in China and Macs are assembled in the United States, Apple’s supply chain relies on businesses in dozens of countries. Therefore, this criticism argues that if the goal is jobs and economic development, the location of a corporate headquarters is much less important than the location of operations and supply chains. Would a consumer seeking to “buy American” do more or less good for jobs in the United States if they bought a BMW manufactured in South America, a VW manufactured in Tennessee, a Ford car manufactured in Canada, or Ford truck manufactured in Mexico?

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Finally, a fourth criticism would point out the social and economic chaos that would result if this approach was generalized and if every company had a primary duty to buy and hire within its home country. No country is self-sufficient in either producing, or finding markets for, its good and services. Even if every American committed to buying only U.S. agricultural products, for example, there would not be sufficient demand to keep American farmers and food industries in business. Yet, if American markets are closed to foreign companies, we should expect that foreign countries will close their markets to American companies. The only realistic option, according to this perspective, is to open markets and let corporations serve the public by finding the increasing efficiencies that come from free and open competition.

Reflections on the Chapter Discussion Case

This chapter provides several opportunities to reflect back on one of the major issues that opened this text. We cast the debates regarding CSR along a continuum from a free market-based view, to one in which social responsibilities were embedded into the very identity and mission of the corporation. The examples described in the opening discussion case recasts some of these issues on a global scale. If business has a primary social responsibility to obey the law and ethical customs (as Milton Friedman claimed), what happens when local laws and customs differ from those is the firm’s home country? If bribery, or discrimination, or pollution, or child labor is legal and customary, is it responsible for a business to conform to these standards in pursuit of profits? If not, are the values and standards brought into that setting by transnational corporations from the developed world little more than a case of cultural imperialism where external values are being imposed on indigenous people? Or are the ethical values, that apply across all cultures, such as prohibitions against child labor, discrimination, cheating, and fraud, acknowledged as legitimate?

This chapter also reminds us that ethical issues cannot be restricted to individual or even organizational decisions and behaviors. Ethics involves how we should live our lives, as individuals and as member of communities, whether small business organizations, nation-states, or the global community. It also reminds us that economic decisions seldom can be divorced from wider social and political issues.

Finally, this chapter reminds us that modern corporations, especially those large transnational corporations mentioned throughout this book—Facebook, Google, Apple, Microsoft, Nike, Walmart, Ford, Exxon-Mobil—have tremendous power in today’s world. In some cases, they have more power than the nation-states in which they operate. That fact alone is reason enough to remember why business ethics is worth studying.

Page 312

Chapter Review Questions

1. Can you identify any ethical values that legitimately can be applied cross-culturally?

2. How far should the principle “When in Rome, do as the Romans do” extend in international business?

3. Are there any conditions under which an American business could employ child labor in a developing country?

4. What are three arguments against the trend toward globalization? How would defenders of globalization respond to each?

5. What is meant by “the race to the bottom”?

6. Is it possible for the rest of the world to live a consumer lifestyle on a par with the United States? Would this be a good thing? Who should decide this?

7. Besides obeying the law and paying taxes, does a business have any particular duties to the country in which it operates?

Endnotes

- 1This point has been made by Richard DeGeorge among others. See his “International Business Ethics,” in A Companion to Business Ethics, edited by Robert Frederick (Oxford: Blackwell Publishers, 1999), pp. 233–242, and his Competing with Integrity in International Business (New York: Oxford University Press, 1993). I owe much of my thinking on these issues to DeGeorge’s work.

- 2Donaldson introduces this distinction most clearly in “International Business Ethics” in Encyclopedic Dictionary of Business Ethics, edited by Patricia Werhane and R. Edward Freeman (Oxford: Blackwell Publishers, 1997), pp. 346–348. But, see also his “Rights in the Global Market” in Business Ethics: The State of the Art, edited by R. Edward Freeman (New York: Oxford University Press, 1991), pp. 139–162, and The Ethics of International Business (New York: Oxford University Press, 1989).

- 3“Guiding Principles on Business and Human Rights,” United Nations Office of the High Commissioner of Human Rights, New York, 2011, https://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf (accessed June 26, 2018).

- 4Richard DeGeorge, Competing with Integrity in International Business (New York: Oxford University Press, 1993).

- 5A very helpful review of many of the debates on globalization from a source generally sympathetic to it can be found in “Globalization and Its Critics,” a special section of The Economist, September 29, 2001.

- 6See, for example, Hilary French, “GATT: Menace or Ally?” in Worldwatch 6, no. 5 (September/October 1993); David Korten, When Corporations Rule the World (West Hartford, CT: Kumarian Press, 1995); Frederick Frommer, “Caught in the Net,” Animal Watch (Fall 1999); and Public Citizen News 19, no. 4 (January/February 1999).

- 7For a review of the research on this and other questions concerning justice and free trade from an economic scholar who has an admitted sympathy for the poor and for environmental protection, see Daniel Finn, Just Trading (Peabody, MA: Abington Press, 1996). Finn seems to conclude that regulated and well-monitored international trade remains an effective means for alleviating poverty and protecting the environment.

- 8See both “Globalization and Its Critics,” op. cit., and Just Trade, ibid., for some evidence of this.

- 9Thomas Friedman, The Lexus and the Olive Tree (New York: Farrar, Straus, and Giroux, 1999).

- 10Ibid., pp. 86–87.

- 11Ibid., pp. 87–88.

Page 313

Index

A

Acceptable risks, 146

Accountant, 70, 113, 161, 168, 186

Advertising

- consumer autonomy, 227–233

- deceptive/unfair, 221–224

- manipulation, 218–221

- vulnerable consumers, 233–237

Affirmative action, 276–277

Affluent Society, The (Galbraith), 228

Affluenza, 194

African American man, 271

African Americans, 207, 235, 265, 286

Agency relationships, 163

Agent-principal model, 164

Air pollution, 63, 246

Alienation, 119–120, 141

Allende, Salvador, 293

Amazon, 176

Ambulance chasing, 235

Americans with Disabilities Act, 14, 93, 114, 135

Anacin, 222

Analysts, 159, 169–170

Andersen, Arthur, 172

Anthropocentric conservation, 260

Apple, 1, 25, 27, 83, 91, 94, 96, 97, 127, 213, 291, 293, 294, 310

Arendt, Hannah, 117

Aristotle, 12, 35, 109, 113, 265

Arrington, Robert, 230–232

Arthur Andersen, 70, 158, 172, 186. See also Enron Corporation

At will contract, 134

Auditors, 15, 51, 157–159, 161, 168–171, 175

Automobile manufacturers, 207

Autonomous desires, 229–232

B

Background checks, 154

Bad work, 119

Bakke v. Regents of the University of California, 283

Bankruptcy, 28, 98, 234

Barriers to trade, 305–306

Baum, Gregory, 120

Bear Stearns, 158

Bellah, Robert, 110

Benefit Corporation, 78–80

Bentham, Jeremy, 38–40, 42

Bing, 215, 225

Biomimicry, 254

Black Lives Matter movement, 2, 57, 229

Blowing the whistle, 181

Bowie, Norman, 71, 121

Brandeis, Louis, 152

Brenkert, George, 152

Brexit, 181

Brundtland Commission, 248

Bureau of Labor Statistics, 265

Business ethics

- age of sustainable development, 253–257

- as branch of philosophical ethics, 10

- decision making in, 22–25

- definition, 7

- as ethically responsible people, 8–9

- ethos and, 9

- goal of, 9

- morality and, 9–11

- as responsible decision making, 12–13

- skeptical challenges, 14–22

- social justice and, 9–11

- sustainable economics, and, 250–253

- theory (See Ethical theory)

- trust and business, 162–163

- virtues and, 10–11

C

CAFE standards, 66, 246, 249

Calling, 110

Calvin, John, 109

Cambridge Analytica, 7, 61, 181

Capitalism and Freedom (Friedman), 60

Page 314

Career, 110, 111

Carr, Albert, 179

Case law, 15, 74

Cases. See Discussion cases

Categorical imperative, 47

Caveat emptor approach, 199

CEO compensation, 30, 31

Certified public accountants, 170

Cescau, Patrick, 257

Chapter discussion cases. See Discussion cases

Child labor, 17, 21, 47, 48, 139, 293–294, 298, 311

China, doing business in, 258, 291

Chronic unemployment, 118

Cigarette advertising aimed at children, 220

Circular flow model, 250

Civil Rights Act of 1964, 262, 268

Civil rights laws, 135

Classical interpretation of work, 116

Clean Air Act of 1970, 248

Clean Water Act of 1977, 248

Clinton, Hillary, 229

Closed-loop design, 254

Codes of conduct, 99–100

Collins, Jim, 99

Compensatory argument, 275

Conflict of interest, 158, 159, 171, 174, 186

Consequentialism, 42

Conservation of matter/energy, 251

Consumer autonomy, 227–233

Consumer boycotts, 259

Consumer privacy, 225–227

Contingent work, 114

Contractual rights, 130

Core ideology, 92

Core values, 92

Corporate automotive fuel efficiency (CAFE) standards, 66, 246, 249

Corporate culture, 90–102

- assessing/monitoring, 101–102

- code of conduct, 99–100

- defined, 90–91

- ethics, and, 92–94

- ethics hotlines, 100–101

- integrating ethical culture, 100–101

- leadership, 94–96

- mission statement, 99–100

- ombudsmen, 100–101

- statement of values, 99–100

- value-based, 99–102

Corporate social responsibility, 54–83, 245–248

- Benefit Corporation, 78–80

- economic model, 59–62

- moral minimum, 70–73

- private property defense, 67–70

- stakeholder model, 73–78

- strategic model, 78–80

- utilitarianism, 62–67

Cost-benefit analysis (workplace health and safety standards), 150–151

Cost-effective, 151

Countrywide Financial, 158, 180

COVID-19 pandemic, 15, 21, 29, 57, 64, 93, 104–107, 105, 146, 147, 148, 149, 159, 183, 265

Cradle to Cradle, 255

Cradle to the grave, 255

Cult of the shareholder, 172

Cultural integrity, 306–309

Cultural relativism, 21

Culture. See Corporate culture

D

Daly, Herman, 250, 252, 253

Damore, James, 142–143

Dark Patterns, 212

Deception, 218–221

Deceptive/unfair advertising, 221–224

Defective products, 203

DeGeorge, Richard, 182

Deontological arguments, 280

Dependence effect, 228

Descriptive ethics, 7

Dick’s Sporting Goods, 20

Digital addiction, 218, 229, 231

Digital marketing, 201, 211–238

Discrimination. See Workplace diversity and discrimination

Discussion cases

- business and sustainability, 240–243

- business ethics in a global setting, 290–292

- compensation versus minimum wage, 27–29

- digital marketing and “dark patterns,” 211–213

- EpiPen, 28–30

- ethical responsibility, 54–58

- Facebook, 1–5

- obesity and opioids, 189–193

- sexual harassment and gender equality, 262–263

- social harms, 189–193

- trust in business, 157–160

- Wells Fargo, 86–89

- work-life balance after pandemic, 104–107

- workplace privacy and employee monitoring, 127–129

Page 315

Doing good vs. preventing harm, 72

Dolphin-free tuna nets, 305

Donaldson, Tom, 297, 299

Drug testing, 154

Due diligence, 184

Due process, 136–139

Duska, Ronald, 177–178

Duties, 46–50

Dworkin, Gerald, 231–232

E

Ecoefficiency, 254–255

Ecological economics, 250

Economically feasible, 150, 151

Economic growth, 48, 67, 206, 208, 244, 250, 251, 252, 254, 302–304

Economic integration, 301–302

Economic model of corporate social responsibility

- modified version (moral minimum), 70–73

- overview, 59–62

- private property defense, 67–70

- utilitarian defense, 62–67

Effective leadership vs. ethical leadership, 97–99

Efficiency, 46

Egoism, 39

Employee health and safety, 145–151

Employee responsibilities, 157–187

- conflicts of interest, 171–175

- employees as agents, 163–168

- gatekeeper function, 168–171

- honesty, 179–181

- insider trading, 182–185

- kickback, 174

- loyalty, 175–178

- managerial responsibility, 171–175

- narrow view, 163–168

- overview, 160–161

- professional ethics, 168–171

- responsibilities to third parties, 178–185

- soft money, 174

- trust, 175–178

- whistle-blower, 181–182

Employee rights, 129–131

Employer-employee relations, 164

Employment at will, 134–136

Endangered Species Act of 1973, 248

Enron corruption

- Code of Ethics, 100

- cult of the shareholder, 172

- discussion case, 157–159

- employee loyalty, 178

- personal ethics and, 69

- pushing the envelope of legality, 15

Entropy, 253

Environment

- corporate social responsibility and, 245–248

- natural, 240–261

- organizational, 8

- regulation, 248–250

- social, 32, 94

- and sustainability, 244–245

Environmentalism, 243

Environmental regulation, 248–250

Environmental responsibilities

- business case, 257–259

- circular flow model, 250

- corporate social responsbility, 245–248

- Natural Capitalism, 254–256

- sustainable economics, 250–253

EpiPen, 28–30, 205

Equal Employment Opportunity Commission (EEOC), 263

Equality argument, 287

Equal opportunity, 276

Ethical guidelines, 299–300

Ethical relativism, 16–22

Ethical theory, 27–53

- defined, 30

- ethical relativism, 16–22

- principle-based, 46–50

- principles and rights, 31

- utilitarianism (See utilitarianism)

- virtue ethics, 32–37

Ethics

- business (See Business ethics)

- corporate culture, 92–94

- descriptive, 7

- managerial, 9, 14

- model for decision making, 22–25

- normative, 7

- principle-based, 31, 43, 44, 46–50

- social, 11

- virtue, 10–11

Ethics audit, 101

Ethics hotlines, 100–101

Ethics officer, 14

Ethos, 16

European Union, 4, 5, 124, 292, 301

Executive compensation, 36, 43, 44, 52, 53, 186, 241

Expectation of privacy, 226

Externalities, 63, 65, 197, 203, 206, 246

Page 316

F

Facebook, 1–5, 6–8, 25, 57–58, 151, 176, 215, 225–226, 231

Facts, 22

Fallacy of composition, 304

Falsehood, 180

Fargo, Wells, 86, 89

Feasibility analysis, 151

Federal Reserve, 44, 89

Federal Trade Commission (FTC), 221

Federal Water Pollution Act of 1972, 248

Fiduciary model, 87, 162, 175

Fiduciary relationship, 163

Firing employees, 135

First generation problem, 149

First law of thermodynamics, 253

First-order desires, 230, 232

Fishing industry, 65, 246, 257

Ford Motor Company, 255

Ford Pinto case, 201

Foreign Corrupt Practices Act, 291

Foreseeability, 201

Four P’s of marketing, 193

Foxconn Technology Group, 291

Freedom of expression, 142–145

Free market economics, 40, 41, 64

Free rider, 131

Friedman, Milton

- economic model, 60

- economic model of corporate social responsibility, 60–62

- employee responsibilities, 163

- limits to pursuit of profits, 68–70

- property rights, 68

Friedman, Thomas, 306

G

- Galbraith, John Kenneth, 228–229

- Gatekeeper function, 168–171

- Generally Accepted Accounting Principles (GAAP), 12

- General Motors Corporation, 279

- Genesis, 109, 120

- Genetic screening, 154

- Gini, Al, 120

- Global climate change, 250

- Globalization. See also International business and globalization

- defined, 294

- democracy and, 307

- international business, and, 300–302

- poor countries, and, 302–304

- Golden Straitjacket, 306–307

- Goldman Sachs, 180

- Golfing example, 112

- Google, 54–57, 69, 142, 143, 154–155, 176, 215, 225

- Government standards, 149, 238

- Government subsidies, 207

- Greater good, 180

- Great Resignation, 114, 115

- Greenhouse gas emissions, 246–247

- Griswold v. Connecticut, 152

H

- Habits of the Heart (Bellah et al.), 110

- Happiness

- Bentham, 38–39

- for the classical model, 117

- for the hedonistic model, 117

- maximum, 38, 39, 40, 41, 46, 60, 66

- Mill, 39–41

- social, 43

- Hawken, Paul, 254

- Hedonistic interpretation, 117

- Hewlett Packard (HP), 92

- Hiring practices. See Workplace diversity and discrimination

- Hobbes, Thomas, 37

- Home Depot, 206

- Honda cars, 198

- Hostile work environment, 263, 264, 268, 269

- Human Condition, The (Arendt), 117

- Human dignity, 140

- Human fulfillment model, 117–120

- Human rights, 130, 297–300, 306–309

- Hume, David, 37

I

IBM, 91

IMF, 294, 301, 306–309

Implied contract exemption (employment at will), 135

Implied covenant of good faith (employment at will), 135

Impulse buying, 194

Indirect marketing, 214

Individual rationality, 63, 64

Information-gathering techniques, 154

Informed consent, 153, 195, 199, 205, 234

Insider trading, 182–185

Instagram, 151, 176, 215, 226

Instrumental value, 146

Integrating ethical culture, 100–101

Page 317

Interface Corporation, 256

International business and globalization, 290–311

- barriers to trade, 305–306

- Chinese market, 291

- cross-cutltural values, 294–300

- cultural integrity, 306–309

- democracy, 306–309

- duty of national loyalty and, 309–311

- economic integration, 301–302

- ethical guidelines, 299–300

- ethical relativism, 294–297

- Golden Straitjacket, 306–307

- human rights, 297–300, 306–309

- international institutions (WTO, etc.), 308–309

- introduction, 293–294

- minimalist approach, 297

- poor countries, 302–304

- race to the bottom, 305–306

- rights, 297–300

- Ruggie principles, 297–300

- values, 297–300

International economic integration, 301–302

International institutions (WTO, etc.), 308–309

International Monetary Fund (IMF), 294, 301, 306–309

International sweatshop, 293

International trade agreements, 301, 307

Intrinsic value, 146

J

- Job, defined, 111

- Job mobility, 114

- Jobs, Steve, 97

- John Paul II, Pope, 119–120

- Johnson & Johnson, 221

- Just cause, 136

K

- Kantian theory

- dishonesty, 180

- equal rights for all, 75

- harm, 71

- moral minimum, 71

- principle-based ethics, 194

- stakeholders, 75

- work, 121

- kickbacks, 174

- K-Mart, 293

- Kogan, Aleksandr, 4

- Kyoto Agreement, 306

L

- Laborem Exercens, 119–120

- Lehman Brothers, 158, 180

- Let alone, right to be, 152

- LGBTQ people, 265, 266

- Liberal model of work, 120–122

- Life-cycle responsibility, 255

- LinkedIn, 151, 215

- Lovins, Amory, 254

- Lovins, Hunter, 254

- Loyalty, 175–178

- Luther, Martin, 109

M

Madoff, Bernard, 97

Malnutrition, 251, 259

Managerial employees loyalty, 164

Managerial responsibility, 171–175

Manipulation, 218–221

Marketing campaigns, 236

Marketing ethics, 189–209

- benefits of market exchanges, 194

- caveat emptor, 199

- consumer autonomy, 227–233

- consumer privacy, 225–227

- deceptive/unfair advertising, 221–224

- ethical responsibility for products, 197–202

- four P’s of marketing, 193

- manipulation, 218–221

- negligence, 200–202

- overview, 193–197

- pricing and, 204–208

- respect, 194–195

- strict products liability, 202–204

- vulnerable consumers, 233–237

Marx, Karl, 119

Master-servant relationship, 163

McCall, John, 140, 203

McDonald’s hot coffee case, 200–201

McGregor, Douglas, 113, 139

Meaning and value of work, 104–124

- bad work, 119

- business’s responsibility, 122–124

- classical interpretation, 116

- conventional views of work, 116–117

- emerging trends, 114

- glory vs. contempt, 108–109

- hedonistic interpretation, 117, 121–122

- human fulfillment model, 117–120

- introduction, 107–109

Page 318

- liberal model of work, 120–122

- Pope John Paul II, 119–120

- psychic goods, 112

- social meaning, 113

- value of work, 111–116

- value to society, 113

- women, 110

- work, defined, 109–111

Means-ends reasoning pattern, 108

Merck, 95

Merit principle, 281

Merrill Lynch, 158

MeToo movement, 263, 268

Michigan Law School case, 279

Mill, John Stuart, 144

Minimalist approach, 297

Miranda rights, 136–137

Mission statements, 99–100

Monopolistic pricing, 205

Morality, 9–11

Moral rights in the workplace, 127–155

- due process, 136–139

- employee health and safety, 145–151

- employee rights, 129–131

- employment at will, 134–136

- freedom of expression, 142–145

- participation rights, 140–142

- privacy, 151–154

- right to work, 131–134

Mortgage-backed securities, 158–159

Motorola, 92

Mylan Inc, 28

N

- Natural Capitalism, 254–256

- Natural environment, 240–261

- Negligence, 200–202

- Nike, 259

- Normative ethics, 7

O

- Obama, Barack, 264

- Occupational Safety and Health Act, 135

- Occupational Safety and Health Administration (OSHA), 150

- Ombudsmen, 100–101

- Opioids, 191–193

- Owner-manager relationship, 172

P

Packard, David, 99

Pain, 39

Paris Climate Agreement, 250

Participation rights, 140–142

Passive nondiscrimination, 274, 276

Patagonia, 244–245

Per legem terrae, 136

Philosophical ethics, 9–10

Plato, 12

Plutarch, 116

Preferential hiring, 277–287

- arguments against, 281–284

- arguments for, 284–287

- compensatory argument, 275

- deontological arguments, 280

- equality argument, 287

- merit principle, 281

- Michigan Law School case, 279

- quota system, 278

- types of policies, 278

- utilitarian view, 281

Price fixing, 205

Prima facie responsibility, 194

Primary goods, 122

Principle-based ethics, 31, 43, 44, 46–50

Prisoners’ dilemma, 63

Privacy at work place, 151–154

Private property defense, 67–70

Product accountability, 202

Product liability, 189, 193, 197, 198, 202

Professional ethics, 168–171

Psychic goods, 112

Psychological egoism, 33

Psychological testing, 154

Public accounting, 171

Public policy exemption (employment at will), 135

Q

- Quid pro quo harassment, 18, 263, 268–269

- Quota system, 278

R

- Rabidue v. Osceola Refining Co, 271

- Race to the bottom, 305–306

- Reasonable accommodations, 14

- Reasonable consumer standard, 224

- Reasonable man standard, 270

- Reasonable person standard, 202

Page 319

- Relative risks, 146

- Relativism

- costs of, 20

- cultural, 21

- ethica (See Ethical relativism)

- value, 13

- Reverse discrimination, 277

- Rights, 46–50

- Right to due process, 134

- Right to work, 131–134

- Right-to-work law, 131

- Roe v. Wade, 152

- Rouge River manufacturing plant, 153

- Royko, Mike, 114

- Ruggie, John, 297

- Ruggie principles, 297–300

S

- Sagoff, Mark, 146

- Samsung Galaxy Note, 198

- Schumacher, E. F., 119

- Schwartz, Adina, 122, 123

- Securities and Exchange Commission, 174

- Separation thesis, 14

- Sexual harassment

- EEOC definition, 263

- gender equality and, 262–263, 264–268

- reasonable person standard, 270–272

- types, 263

- women and, 263, 265–266

- workplace, 268–272

- Shareholder primacy, 59–60

- Single biggest reason, 172

- Snapchat, 226

- Social ethics, 11

- Socrates, 230

- Soft money, 174

- Sports utility vehicle (SUV), 246, 249

- Stair-step programs, 207

- Stakeholder model of corporate social responsibility, 73–78

- Stakeholders, 22–25

- Statements of values, 99–100

- Sustainability, 240–261

- business, 244–245

- Sustainable business, 244

- Sustainable development, 253–257

T

- Takata, 198

- Take-make-waste, 255

- Target marketing, 220–221, 233–237

- Technologically feasible, 150

- Teleological ethics, 117–118

- telos, 117–118, 119

- Terkel, Studs, 116

- Theory Y, 113, 139

- TikTok, 151, 215, 226

- Tough luck standard, 203, 204

- Trust, 162–163, 175–178

- trustor, 162

- Twitter, 151, 176, 215, 226

- Tylenol, 221–222

U

- Unilever, 259

- Unreasonably interfering, 270

- Utilitarianism, 37–41

- Bentham, 39

- business policy, and, 44–46

- challenges to, 41–44

- consequentialist ethics, as, 38

- economic model of corporate social responsibility, 62–67

- economics, and, 40–41

- egoism and, 39

- expert vs. market versions, 44

- Mill, 39–40

- parental love and duty, 43

- roots, 37–38

- Utilitarian view, 281

V

- Valliant, Caroline, 118

- Valliant, George, 118

- Values-based corporate culture, 99–102

- Vices, 31, 32 54

- Virtues, 10

- Volkswagen, 170

- Vulnerable consumers, 233–237

W

Wagner Act, 135

Walmart, 20, 206, 259

Warren, Samuel, 152

Werhane, Patricia, 138–139

Whistle-blower, 181–182

Whistle-blowing, 101

White women, 266

Women

- sexual harassment at workplace, 262–263, 268–272

- workplace equality for, 265–266

Work. See Meaning and value of work

Work from home flexibility, reality check, 115

Working (Terkel), 116

Workplace diversity and discrimination, 262–288

- affirmative action, 272–277

- Black men, 266–267

- discrimination, defined, 274

- diversity and equality, 264–268

Page 320

- equal opportunity, 272–277

- introduction, 264–268

- LGBTQ people, 265, 266

- merit principle, 281

- preferential treatment (See Preferential hiring)

- quota system, 278

- sexual harassment, 262–263, 268–272

- White women, 266

- women, 265, 266

World Bank, 308–309

WorldCom, 69

World Trade Organization (WTO), 305–306

Wylie, Christopher, 181

Y

- Yahoo, 215

Z

- Zone of privacy, 152

- Zoning laws, 68, 141

- Zuckerberg, Mark, 237

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Return to A Page Shows the Features Graphic

Figure 10.1 Text Alternative (Chapter 10)

Return to Figure 10.1

Business to households:

Consumer goods and services; wages, rents, interests, profits.

Households to business:

Resources: labor, land, capital, entrepreneurial skills; payments.

Return to Figure 10.1

Figure 10.2 Text Alternative (Chapter 10)

Return to Figure 10.2

The solar energy comes into the biosphere and heat energy is lost out.

Business to households:

Consumer goods and services; wages, rents, interests, profits. The incoming energy includes natural resources and outgoing energy is heat. The waste including pollution, trash are formed.

Households to business:

Resources: labor, land, capital, entrepreneurial skills; payments. The incoming energy includes natural resources and outgoing energy is heat. The waste including pollution, trash are formed.

Return to Figure 10.2

Remarks

2Jeremy Bentham, An Introduction to the Principles of Morals and Legislation (Oxford: Clarendon Press, 1907), p. 1.

3John Stuart Mill, Utilitarianism, ed. George Sher (Indianapolis: Hackett Publishing Co., 1979), p. 10.

4Ibid., p. 8.

5Ibid., p. 11.

2Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), p. 133.

3Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” The New York Times Magazine (September 13, 1970), reprinted in Contemporary Issues in Business Ethics, 4e., edited by Joseph R. DesJardins and John McCall (Belmont, CA: Wadsworth Publishing, 2000), p. 9.

4For example, in an article analyzing the earlier business scandals of Enron and Arthur Andersen cases, Fortune magazine called this Friedman-like view the “cult of the shareholder” and attributed much of the blame for several corporate bankruptcies and financial falls to the “God-awful” accounting games played by executives seeking only to increase their company’s stock price. Differing from the ethical criticisms of the Friedman view considered in this chapter, Fortune’s criticisms are that this view adopts an unrealistic and inadvisable model of corporate control and ownership. See “Dirty Numbers” by Andy Serwer, Fortune (February 18, 2002), pp. 75–84.

5This classic case is represented by a grid in which two prisoners who are accused of a crime are offered two options by the police: confess or not. If one prisoner confesses while her partner does not, she is set free and her partner gets a ten-year prison sentence. If both confess, they each get a five-year sentence. If neither confesses, they each get six months in jail. What would rational, self-interested individuals do in such a situation? If I am prisoner A, then I look at my options: whichever choice my partner makes, it will be better for me to confess. If she confesses and I don’t, then I get ten years in jail. So, if she confesses it is preferable for me to confess as well. If she doesn’t confess and I confess, then I go free. Either way, it is rational for me to confess. But, since exactly the same reasoning will lead prisoner B to reach the same conclusion, the “rational” choice for two self-interested noncooperating individuals results in a suboptimal outcome for both. On the other hand, if the two prisoners cooperated, trusted each other, and kept their word, the reasonable thing to do would be for both not to confess and settle for a six-month sentence. But, this suggests that the ideal market situation should be abandoned in favor of a more cooperative, or at least coordinated, relationship.

6Many useful discussions of happiness and consumption, by social scientists as well as philosophers, can be found in The Ethics of Consumption, edited by David Crocker and Toby Linden (Lanham, MD: Rowman & Littlefield, 1998). An entertaining and informative video presentation of these issues is found in Affluenza. “Affluenza” is the contagious disease that accompanies affluence.

7Norman Bowie, “New Directions in Corporate Social Responsibility,” in Business Horizons, July–August 1991, p. 56. Bowie’s views are developed further in his Business Ethics: A Kantian Perspective, 2e (Cambridge University Press, 2017).

8“Managing for Stakeholders” by R. Edward Freeman reprinted in Business Ethics: Decision-Making for Personal Integrity and Social Justice, by Laura Hartman and Joseph DesJardins, 2e (McGraw-Hill, 2010).

9“A Stakeholder Theory of the Modern Corporation: Kantian Capitalism,” by William Evan and R. Edward Freeman, in Contemporary Issues in Business Ethics, 4e, edited by Joseph R. DesJardins and John McCall (Belmont, CA: Wadsworth Publishing, 2005), p. 89. Freeman’s views are developed more fully in R. Edward Freeman, Strategic Management: A Stakeholder Approach (Marshfield, MA: Pitman, 1984).

11Ellen Berrey, How Many Benefit Corporations Are There? (May 5, 2015). Available at SSRN: http://ssrn.com/abstract=2602781

12Deloitte Millennial Survey, January 2014, http://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/gx-dttl-2014-millennial-survey-report.pdf (accessed April 14, 2015).

13Source: http://www.globalreporting.org.

14This quote is taken from “Marketing and the Corporate Purpose: The Purpose Is to Create and Keep a Customer,” by Theodore Levitt, a speech delivered at New York University, March 2, 1977, available from Vital Speeches of the Day. Similar claims can be found in chapter 1, “Marketing and the Corporate Purpose,” of The Marketing Imagination, by Theodore Levitt (New York: Free Press, 1983), pp. 5, 7.

1James Collins and Jerry Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperCollins, 1994), p. 73.

2Raymond Gilmartin, “Ethics and the Corporate Culture,” Raytheon Lectureship in Business Ethics (November 10, 2003).

3L. Trevino, M. Brown, L. Hartman, “A Qualitative Investigation of Perceived Executive Ethical Leadership: Perceptions from Inside and Outside the Executive Suite,” Human Relations, v. 56, no. 1 (January 2003), pp. 5–37.

3Ibid.

4James Collins and Jerry Porras, “Building Your Company’s Vision,” Harvard Business Review (September–October 1996).

5James Collins and Jerry Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperCollins, 1994).

2Mike Royko, “Silver Spoon Fits, Why Not Wear It?,” Chicago Tribune (November 11, 1985), sec. 1, p. 3. Quoted in It Comes with the Territory, edited by A. R. Gini and T. J. Sullivan (New York: Random House, 1989).

3Genesis, 1, 28; 2, 15; 3, 17–19.

4Aristotle, Politics 1256 a 30, 1253 b 25.

5An interesting and helpful overview essay on work is “Work: The Process and the Person” by Gini and Sullivan, chapter 1 of It Comes with the Territory, op. cit., pp. 1–36. For a more in-depth treatment of the ethical and philosophical issues concerning the nature and value of work, see Al Gini, My Job, My Self: Work and the Creation of the Modern Individual (New York: Routledge, 2000) and Joanne Ciulla, The Working Life: The Promise and Betrayal of Modern Work (New York: Times Books, 2000). These insightful books provide excellent resources for further thinking about work.

6For Rousseau, see especially Emile, translated by Allan Bloom (New York: Basic Books, 1979). For Marx, compare “Estranged Labor” in The Economic and Philosophic Manuscripts of 1844, translated by Martin Milligan (New York: International Publishers, 1964), and “The German Ideology,” edited and translated by Loyd Easten and Kurt Guddat, in Writing of the Young Marx on Philosophy and Society (New York: Doubleday, 1967).

7Habits of the Heart: Individualism and Commitment in American Life, by Robert Bellah, Richard Madsen, William Sullivan, Ann Swidler, and Steven Tipton (New York: Harper & Row, 1985), pp. 65–66.

8Douglas McGregor, “The Human Side of Enterprise,” originally published in The Management Review 46, no. 11 (1957), reprinted in Leadership and Motivation: Essays of Douglas McGregor (Cambridge, MA: MIT Press, 1966).

9Studs Terkel, Working (New York: Pantheon Book, 1974), p. xi.

10Plutarch, Lives (New York: Modern Library, 1932), p. 132.

11Yves Simon, Work Society, Culture, edited by Vukan Kuic (New York: Fordham University Press, 1971), p. 78.

12Hannah Arendt, The Human Condition (Chicago: University of Chicago Press, 1958), p. 5.

13George E. Valliant and Caroline O. Valliant, “Natural History of Male Psychological Health: Work as a Predictor of Positive Mental Health,” American Journal of Psychiatry 138 (1981), pp. 433–440, as quoted in Robert Lane, The Market Experience (Cambridge, United Kingdom: Cambridge University Press, 1992), p. 247.

14The downward spiral of unemployment, poverty, and crime characteristic of many cities is forcefully portrayed in William Julius Wilson, When Work Disappears (New York: Alfred Knopf, 1997).

15For two insightful discussions that rely on the distinction between what work does for and to individuals, see E. F. Schumacher, Good Work (New York: Harper Colophon Books, 1980), and the American Catholic Bishops’ pastoral letter, Economic Justice for All (Washington, DC: National Conference of Catholic Bishops, 1986).

16Schumacher, Good Work, p. 27.

17Karl Marx, The Economic and Philosophical Manuscripts of 1844, edited with an introduction by Dirk J. Struik. Translated by Martin Milligan (New York: International Publishers, 1964).

18Laborem Exercens, reprinted in Gregory Baum, The Priority of Labor (Ramsey, NJ: Paulist Press, 1982). I rely on Baum’s excellent and extensive interpretive commentary for much of this section.

19Laborem Exercens, in Baum, pp. 95–102.

20Baum, p. 65.

21Baum, pp. 68–72.

22See Schumacher, Good Work, pp. 3–4 and Al Gini, “Work, Identity and Self: How We Are Formed by the Work We Do,” Journal of Business Ethics 17 (1998), pp. 707–714.

23Gini, p. 714.

24Norman Bowie, “A Kantian Theory of Meaningful Work,” Journal of Business Ethics 17 (1998), pp. 1083–1092. As will become clear, I take Bowie’s “Kantian” theory, based on an overriding commitment to individual autonomy, as a clear example of a “liberal” approach.

25Bowie, p. 1083. Bowie’s characterization of the first alternative as subjective and individualistic reasonably captures the more libertarian versions of the conventional model of work. His reference to an “objective normative definition” captures the essence of the human fulfillment model’s understanding of a single human good, or telos.

26Adina Schwartz, “Meaningful Work,” Ethics 92 (July 1982), pp. 634–646.

1For an early version of this conception of employee rights, see “A Defense of Employee Rights” by Joseph DesJardins and John McCall, Journal of Business Ethics 4 (1985), pp. 367–376.

2For example, Article 23 of the U.N. Universal Declaration of Human Rights states: “Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.” The right to work in the tradition of Catholic social teaching is discussed in Economic Justice for All: Pastoral Letter on Catholic Social Teaching and the U.S. Economy, U.S. Catholic Bishops, 1986; and Pacem in Terris (Peace on Earth), Pope John XXIII, 1963. The right to a job has always been more controversial within the United States. The closest this issue ever got to becoming policy was the Full Employment and Balanced Growth Act of 1978 (usually referred to as the Humphrey-Hawkins Act after its sponsors Senator Hubert Humphrey and Representative Augustus Hawkins), which directed that federal monetary and economic policy take full employment as one of its major objectives.

3Payne v. Western & A.A.R. Co., 81 Tenn. 507 (1884).

5Patricia Werhane, “Individual Rights in Business,” in Just Business: New Essays in Business Ethics, ed. Tom Regan (New York: Random House, 1984), pp. 107–126.

6John McCall, “An Ethical Basis for Employee Participation,” in Contemporary Issues in Business Ethics, 4th ed., eds. DesJardins and McCall (Belmont, CA: Wadsworth Publishing, 1996), pp. 199–206.

7McCall, p. 200.

8For example, McCall cites the cases of Volvo and Donnelly Mirrors, and the legally mandated co-determination practices in Germany, as evidence that employee participation can increase a business’s competitiveness.

9Mark Sagoff, “At the Shrine of Our Lady of Fatima or Why Political Questions Are Not All Economic,” Arizona Law Review 23 (1981), p. 1283.

10Griswold v. Connecticut (1965) found privacy within the “penumbra” of rights established by the First, Third, Fourth, and Fifth Amendments. Criticism of this decision as a vague, judicially created right was a major factor in the U.S. Senate’s rejection of the nomination of Robert Bork to the Supreme Court. Only eight years later the Supreme Court relied on this same understanding of privacy rights in reaching the still-controversial abortion decision in Roe v. Wade.

11George Brenkert, “Privacy, Polygraphs, and Work,” Business and Professional Ethics Journal 1, no. 1 (1981), pp. 19–35.

1Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” New York Times Magazine, September 13, 1970.

2Such a view is used by those who claim, for example, that employers have a right to test employees for drug use. Drug use presumably prevents an employee from performing at an optimal level. Because, from this perspective, employers have a legitimate expectation that employees do perform at such levels, they have a legitimate claim to know about and prevent employee drug use. See Joseph DesJardins and Ronald Duska, “Drug Testing in Employment,” Business and Professional Ethics Journal 6, no, 3 (1987), for a refutation of this claim.

3Readers should review the discussion of the classical model of corporate social responsibility from chapter 3 for a fuller analysis of this issue. The perspective emerging from this chapter parallels the emergence of stakeholder theory described in chapter 3. See also, “Dirty Numbers,” Fortune, February 18, 2002, pp. 75–84.

4Ronald Duska, “Whistle-blowing and Employee Loyalty,” originally published in Joseph DesJardins and John McCall, eds., Contemporary Issues in Business Ethics, 2nd ed. (Belmont, CA: Wadsworth, 1990), pp. 142–146.

5This banking case is based on a situation with which I was personally familiar. Interestingly, a bank manager explained that the bank saw the training simply as an investment. They knew in advance that only a certain percentage of the trainees would remain with the bank long term and that these losses were already built into the salaries and training expenses. He didn’t see the training expenses as a sacrifice and was unwilling to characterize those who left as disloyal.

6Albert Z. Carr, “Is Business Bluffing Ethical?” Harvard Business Review 46 (January–February, 1968).

7Ibid., p. 9.

8See Joseph Kupfer, “The Moral Presumption against Lying,” Review of Metaphysics 36 (1982), for an insightful discussion of the harmful effects lying has on the liar’s own character.

9Richard DeGeorge, Business Ethics, 5th ed. (Upper Saddle River, NJ: Prentice Hall, 151999), ch. 10.

10For good summaries of the arguments for and against insider trading, see Jennifer Moore, “What Is Really Unethical about Insider Trading?” Journal of Business Ethics 9 (1990), pp. 171–182; and Patricia Werhane, “The Ethics of Insider Trading,” Journal of Business Ethics 8 (1989), pp. 841–845.

1The quotation is taken from “Drug firms poured 780M painkillers into WV amid rise of overdoses,” https://www.wvgazettemail.com/users/profile/Eric%20Eyre By Eric Eyre, West Virginia Gazette Mail, Dec 17, 2016. Other sources used in this case are: Sugar Science Institute at the University California at San Francisco, http://sugarscience.ucsf.edu/hidden-in-plain-sight/#.WvRKVUxFyM8 (accessed May 10, 2018); Center for Disease Control, “Opioid Use” https://www.cdc.gov/drugoverdose/opioids/prescribed.html (accessed May 10, 2018); Understanding the Opioid Crisis, U.S. Department of Health and Human Services, https://www.hhs.gov/opioids/about-the-epidemic/ (accessed May 10, 2018).

2See, for example, Affluenza: The All-Consuming Epidemic by John de Graaf, David Wann, and Thomas Naylor (San Francisco: Berrett-Koehler Publishers, 2001). A 1997 PBS television show of the same title, produced by KTCS Television and Oregon Public Television, is a useful classroom tool and is available in videotape format from Bullfrog Films.

3An informal Internet search found over a hundred companies advertising with this slogan. They ranged from real estate companies to antique dealers, and from long-distance phone providers to water filtration systems dealers. Presumably those who disagree do not advertise that fact.

4For a detailed development of these and other criticisms of the strict products liability standard, see Peter W. Huber, Liability: The Legal Revolution and Its Consequences (New York: Basic Books, 1988).

5John McCall, “Fairness, Strict Liability, and Public Policy,” in Contemporary Issues in Business Ethics, 4th ed., edited by Joseph DesJardins and John McCall (Belmont, CA: Wadsworth Publishing, 2000), pp. 328–329.

6See “Assessing Product Liability Alternatives,” Introduction to chapter 10 in Contemporary Issues in Business Ethics, pp. 308–310.

1Information on the Target case can be found in “How Target Figured Out a Teenage Girl Was Pregnant Before Her Father Did,” by Kashmir Hill, Forbes, February 16, 2012. A discussion of how face recognition software is being used in retail stores can be found in “Revealed: How face recognition has invaded shops, and your privacy” by Chris Frey, The Guardian, March 3, 2016, https://www.theguardian.com/cities/2016/mar/03/revealed-facial-recognition-software-infiltrating-cities-saks-toronto retrieved June 3, 2018. On April 9, 2018, journalist Anderson Cooper reported on the ability of technology companies to manipulate smartphone users in a 60-minute story “Brain Hacking” that can be found at https://www.cbsnews.com/news/brain-hacking-tech-insiders-60-minutes/ Retrieved June 6, 2018.

2See, for example, James Miller, one-time FTC Commissioner, “Why FTC Curbs Are Needed” in Advertising Age, March 1982.

3See Ivan Preston, The Great American Blow-Up (Madison, WI: The University of Wisconsin Press, 1975).

4For a well-known statement of this view, see Theodore Levitt, “The Morality (?) of Advertising,” Harvard Business Review 48 (1970), 84–92.

5I adopt here the phrase used by the U.S. Catholic Bishops in their pastoral letter on the American economy, Economic Justice for All (Washington, DC: 1986). “Every perspective on economic life that is human, moral, and Christian must be shaped by three questions: What does the economy do for people? What does it do to people? And how do people participate in it?” p. 1.

6See, for example, Vance Packard, The Hidden Persuaders (New York: Pocket Books, 1958), and B. F. Skinner, Beyond Freedom and Dignity (New York: Alfred Knopf, 1971).

7Robert Arrington, “Advertising and Behavior Control,” Journal of Business Ethics I (1982), pp. 3–12.

9Gerald Dworkin, “Autonomy and Behavior Control,” in DesJardins and McCall, Contemporary Issues in Business Ethics (Belmont, CA: Wadsworth Publishing, 1985), pp. 159–166. Dworkin’s views are developed more fully in his The Theory and Practice of Autonomy (Cambridge, United Kingdom: Cambridge University Press, 1988).

10Dworkin, Theory and Practice of Autonomy, p. 20.

11This account of vulnerability differs from, but owes much to, George Brenkert’s analysis in “Marketing and the Vulnerable,” Business Ethics Quarterly, The Ruffin Series Special Issue No. 1, 1998, pp. 7–20. For an insightful analysis of marketing alcohol in the inner city, see George Brenkert, “Marketing to Inner-City Blacks: Powermaster and Moral Responsibility,” Business Ethics Quarterly 8, no. 1, pp. 1–18. Readers familiar with Brenkert’s writings will recognize how much of the present chapter has benefited from his work.

1Sources of Greenhouse Gas Emissions, U.S. Environmental Protection Agency, https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions (Retrieved June 12, 2018).

2World Commission on Environment and Development, Our Common Future (Oxford: Oxford University Press, 1987).

3Patagonia Mission Statement, http://www.patagonia.com/company-info.html (Retrieved June 12, 2018).

4Herman Daly, Beyond Growth (Boston: Beacon Press, 1996).

5Julian Simon, The Ultimate Resource (Princeton, NJ: Princeton University Press, 1981), p. 12.

6The poverty information is taken from the Brookings Institute, https://www.brookings.edu/blog/future-development/2017/11/07/global-poverty-is-declining-but-not-fast-enough/ (Retrieved June 12, 2018). Malnutrition data are from World Food Program, https://www.wfp.org/news/news-release/world-hunger-again-rise-driven-conflict-and-climate-change-new-un-report-says (Retrieved June 12, 2018). For recent use estimates, see John Bongaarts, “Population: Ignoring Its Impact,” in Scientific American, January 2002, pp. 67–69.

7Daly, op. cit., pp. 33–35.

8Hawken, Paul, Lovins, Amory, and Lovins, Hunter, Natural Capitalism (Boston: Little, Brown and Company, 1999).

9“Beyond Corporate Responsibility,” by Patrick Cescau, in Business Ethics: Decision Making for Personal Integrity and Social Responsibility, edited by Laura Hartman, Joseph DesJardins, and Christopher MacDonald (New York: McGraw-Hill, 2018) pp. 482–489.

1This case was developed from the following sources: Memorandum: Revised Treatment of Transgender Employment Discrimination Claims Under Title VII of the Civil Rights Act of 1964. Attorney General Jeff Sessions, October 24, 2017. “Justice Department Says Rights Law Does Not Protect Gays,” by Alan Feuer, The New York Times, July 27, 2017, https://www.nytimes.com/2017/07/27/nyregion/justice-department-gays-workplace.html (accessed June 18, 2018); Barnes v. Train, 13 Fair Empl. Prac. Cas. (BNA) 123 (D.D.C. 1974); Price Waterhouse v. Hopkins (1989); Reynolds v. Atlantic City Convention Center (1991).

2 Labor Force Statistics from the Current Population Survey, U.S. Department of Labor, https://www.bls.gov/cps/demographics.htm (Retrieved May 11, 2022).

3See “Women in Medicine,” American Medical Association 1993, and Bureau of Labor Statistics, “Current Population Survey—1963–1993.” “U.S. Share of Lawyers by Gender,” https://www.statista.com/statistics/1086790/share-lawyers-united-states-gender/. “Women in Medical Schools,” https://www.ama-assn.org/education/medical-school-diversity/women-medical-schools-dig-latest-record-breaking-numbers.

4Report on “the American Workforce 2016,” published by the Bureau of Labor Statistics, U.S. Department of Labor; Equal Employment Opportunity Commission, “Job Patterns for Minorities and Women in Private Industry,” 1991; Glass Ceiling Commission, “Good Business: Making Full Use of the Nation’s Capital,” March 1995.

5A version of this argument can be found in Debra A. DeBruin, “Identifying Sexual Harassment: The Reasonable Women Standard,” in Violence Against Women: Philosophical Perspectives, edited by Stanley French, Wanda Teays, and Laura Purdy (Ithaca, NY: Cornell University Press, 1998), pp. 107–122.

6“Amicus Curiae Brief in Support of the University of Michigan,” General Motors Corporation, July 17, 2000, in Grutter/Gratz v. The Regents of University of Michigan.

7Something very close to this, in fact, occurs in automotive drag racing. Based on past performances and ability, one car is given a head start in the race. Thus, to make the race fair, an initial disadvantage is offset by granting one an extra advantage. What appears to be an unfair head start is, in actuality, a requirement of equal opportunity.

1This point has been made by Richard DeGeorge among others. See his “International Business Ethics,” in A Companion to Business Ethics, edited by Robert Frederick (Oxford: Blackwell Publishers, 1999), pp. 233–242, and his Competing with Integrity in International Business (New York: Oxford University Press, 1993). I owe much of my thinking on these issues to DeGeorge’s work.

2Donaldson introduces this distinction most clearly in “International Business Ethics” in Encyclopedic Dictionary of Business Ethics, edited by Patricia Werhane and R. Edward Freeman (Oxford: Blackwell Publishers, 1997), pp. 346–348. But, see also his “Rights in the Global Market” in Business Ethics: The State of the Art, edited by R. Edward Freeman (New York: Oxford University Press, 1991), pp. 139–162, and The Ethics of International Business (New York: Oxford University Press, 1989).

3“Guiding Principles on Business and Human Rights,” United Nations Office of the High Commissioner of Human Rights, New York, 2011, https://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf (accessed June 26, 2018).

4Richard DeGeorge, Competing with Integrity in International Business (New York: Oxford University Press, 1993).

5A very helpful review of many of the debates on globalization from a source generally sympathetic to it can be found in “Globalization and Its Critics,” a special section of The Economist, September 29, 2001.

6See, for example, Hilary French, “GATT: Menace or Ally?” in Worldwatch 6, no. 5 (September/October 1993); David Korten, When Corporations Rule the World (West Hartford, CT: Kumarian Press, 1995); Frederick Frommer, “Caught in the Net,” Animal Watch (Fall 1999); and Public Citizen News 19, no. 4 (January/February 1999).

7For a review of the research on this and other questions concerning justice and free trade from an economic scholar who has an admitted sympathy for the poor and for environmental protection, see Daniel Finn, Just Trading (Peabody, MA: Abington Press, 1996). Finn seems to conclude that regulated and well-monitored international trade remains an effective means for alleviating poverty and protecting the environment.

8See both “Globalization and Its Critics,” op. cit., and Just Trade, ibid., for some evidence of this.

9Thomas Friedman, The Lexus and the Olive Tree (New York: Farrar, Straus, and Giroux, 1999).

10Ibid., pp. 86–87.

11Ibid., pp. 87–88.

The following sources were used in preparing this Decision Case.
The Twenty-Six Words That Created the Internet, Jeff Kosseff (Cornell University Press, 2019). What is Section 230? An expert on internet law and regulation explains the legislation that paved the way for Facebook, Google and Twitter, by Abbey Stemler, The Conversation, August 2, 2021, https://theconversation.com/what-is-section-230-an-expert-on-internet-law-and-regulation-explains-the-legislation-that-paved-the-way-for-facebook-google-and-twitter-164993 (Accessed January 14, 2022).
Jim Buckmaster: Craigslist put up an ad for a programmer. It got a chief executive, by Graham Snowdon The Guardian, October 6, 2011 https://www.theguardian.com/business/2011/oct/06/craigslist-jim-buckmaster-interview. Accessed January 13, 2022.
“I Am Jane Doe” Takes on Backpage, by Tad Friend, The New Yorker, January 8, 2017
Danielle K. Citron & Benjamin Wittes, The Problem Isn’t Just Backpage: Revising Section 230 Immunity, 2 Georgetown Law Technology Review 453 (2018).
Available at: https://scholarship.law.bu.edu/faculty_scholarship/631
Zuckerberg resists pressure to alter Facebook’s livestream feature after Christchurch attacks, by Chloe Taylor, The Guardian, April 4, 2019. https://www.cnbc.com/2019/04/04/zuckerberg-resists-pressure-to-alter-facebooks-livestream-feature-after-christchurch-attacks.html (accessed January 15, 2022).
“Facebook exec blames society for COVID misinformation,” by Ina Fried, Axios December 12, 2021 https://www.axios.com/facebook-bosworth-covid-misinformation-89a751dc-6875-4ad3-8103-33cd10b9972c.html Accessed January 17, 2022.

3KFF Covid Vaccine Monitor: Media and Misinformation, https://www.kff.org/coronavirus-covid-19/poll-finding/kff-covid-19-vaccine-monitor-media-and-misinformation/ (accessed January 6, 2022.)

2This decision-making model is adapted from a more detailed version offered in Business Ethics: Decision Making for Personal Integrity and Social Justice, by Laura Hartman, Joseph DesJardins and Chris MacDonald (McGraw-Hill, 6th ed., 2022).

1Figures on pay differential taken from Economic Policy Institute, https://www.epi.org/publication/ceo-pay-in-2020/ (accessed Jan 12, 2021). Bloomberg quotes from Caleb Melby, “Executive Pay: Valuing CEOs (March 15, 2015),” Bloomberg.com, www.bloomberg.com/quicktake/executive-pay (accessed June 26, 2016). Fortune story from “The Great CEO Pay Heist: Executive compensation has become highway robbery—we all know that. But how did it happen? And why can’t we stop it?” by Geoffrey Colvin, June 25, 2001.

1The following sources were used in preparing this Discussion Case.
The Twenty-Six Words That Created the Internet, Jeff Kosseff (Cornell University Press, 2019). What is Section 230? An expert on internet law and regulation explains the legislation that paved the way for Facebook, Google and Twitter, by Abbey Stemler, The Conversation, August 2, 2021, https://theconversation.com/what-is-section-230-an-expert-on-internet-law-and-regulation-explains-the-legislation-that-paved-the-way-for-facebook-google-and-twitter-164993 (accessed January 14, 2022).
Jim Buckmaster: Craigslist put up an ad for a programmer. It got a chief executive, by Graham Snowdon The Guardian, October 6, 2011, https://www.theguardian.com/business/2011/oct/06/craigslist-jim-buckmaster-interview (accessed January 13, 2022).
“I Am Jane Doe” Takes on Backpage, by Tad Friend, The New Yorker, January 8, 2017.
Danielle K. Citron & Benjamin Wittes, The Problem Isn’t Just Backpage: Revising Section 230 Immunity, 2 Georgetown Law Technology Review 453 (2018).
Available at: https://scholarship.law.bu.edu/faculty_scholarship/631
Zuckerberg resists pressure to alter Facebook’s livestream feature after Christchurch attacks, by Chloe Taylor, The Guardian, April 4, 2019. https://www.cnbc.com/2019/04/04/zuckerberg-resists-pressure-to-alter-facebooks-livestream-feature-after-christchurch-attacks.html (accessed January 15, 2022).
“Facebook exec blames society for COVID misinformation,” by Ina Fried, Axios December 12, 2021 https://www.axios.com/facebook-bosworth-covid-misinformation-89a751dc-6875-4ad3-8103-33cd10b9972c.html Accessed January 17, 2022.

10Source: Business Roundtable, “Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans,’” press release (August 19, 2019), https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans.

1The case was developed from the following sources: “The Power of Capitalism, “Larry Fink’s Annual Letter to CEOs,” https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter# (accessed Jan. 19, 2022). “Toxic Culture Is Driving the Great Resignation,” by Donald Sull, Charles Sull, and Ben Zweig, MIT Sloan Management Review (January 11, 2022). “Job Openings and Labor Turnover Survey,” U.S. Bureau of Labor Statistics, accessed January 20, 2022, www.bls.gov. “For Most U.S. Workers, Real Wages Have Barely Budged in Decades,” by Drew Desilver, Pew Research Center, August 7, 2018, https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ (accessed Jan. 20, 2022). “Quitting is Just Half the Story: The Truth behind the ‘Great Resignation’,” by Rashida Kamal, The Guardian, January 4, 2022, https://www.theguardian.com/business/2022/jan/04/great-resignation-quitting-us-unemployment-economy (accessed January 12, 2022). “Who Is Driving the Great Resignation?” by Ian Cook Harvard, Business Review, September 15, 2021, https://hbr.org/2021/09/who-is-driving-the-great-resignation (accessed January 12, 2022).

4Elisha Fieldstadt, Ali Gostanian, and Bianca Britton, “900 Better.com employees learn their jobs are being eliminated in a Zoom call” NBC News (December 6, 2021), https://www.nbcnews.com/business/business-news/900-bettercom-employees-learn-jobs-are-eliminated-zoom-call-rcna7738 (accessed February 12, 2022) and “Better.com CEO apologizes after laying off 900 employees via Zoom call,” Reuters (December 8, 2022), https://www.reuters.com/markets/deals/bettercom-ceo-apologizes-after-laying-off-900-employees-via-zoom-call-2021-12-08/ (accessed February 12, 2022).

8What is “brain hacking”? Tech insiders on why you should care, by Anderson Cooper June 11, 2017. https://www.cbsnews.com/news/what-is-brain-hacking-tech-insiders-on-why-you-should-care/ (accessed January 25, 2021).

1Information on the Target case can be found in “How Target Figured Out a Teenage Girl Was Pregnant Before Her Father Did,” by Kashmir Hill, Forbes, February 16, 2012. A discussion of how face recognition software is being used in retail stores can be found in “Revealed: How face recognition has invaded shops, and your privacy” by Chris Frey, The Guardian, March 3, 2016, https://www.theguardian.com/cities/2016/mar/03/revealed-facial-recognition-software-infiltrating-cities-saks-toronto (accessed June 3, 2018).

1For a more complete examination of this discussion case, and for sources of quotations, see my essay “Is It Time to Jump Off the Sustainability Bandwagon?” Business Ethics Quarterly 26, no. 1 (January 2016).

10The reality check is based on the following sources: John Elkington, “25 Years Ago I Coined the Phrase ‘Triple Bottom Line.’ Here’s Why It’s Time to Rethink It,” Harvard Business Review (June 25, 2018). Retrieved October 11, 2019. “The social capitalist behind the phrase ‘triple bottom line’ talks about why some greenwashing is good,” by Jesse Finfrock, Mother Jones, November/December 2008.

1

1

1“The Facebook Files,” The Wall Street Journal (October 1, 2021), https://www.wsj. com/articles/the-facebook-files-11631713039 (accessed December 12, 2021); “Facebook whistleblower Frances Haugen calls for urgent external regulation,” The Guardian (October 21, 2021), https:// www.theguardian.com/technology/2021/oct/24/frances-haugen-i-never-wanted-to-be-awhistleblower-but-lives-were-in-danger (accessed December 12, 2021); “Facebook Will not Fix Itself,” by Roger McNamee, Time (October 7, 2021), https:// time.com/6104863/facebook-regulation-roger-mcnamee/(accessed December 12, 2021); Zucked; Waking up to the Facebook Catastrophe, Penguin Books, New York, 2019; Christopher Hughes, “Its Time to Break Up Facebook,” New York Times (May 9, 2018), https://www.nytimes.com/2019/05/09/opinion/sunday/chris-hughes-facebookzuckerberg.html(accessed December 12, 2021); “Whistleblower says Facebook Ignored Global Political Manipulation,” Buzz Feed News (September 14, 2020), https://www. buzzfeednews.com/article/craigsilverman/facebook-ignore-political-manipulationwhistleblower-memo (accessed December 12, 2021).

Glossary

word
Glossary definition for word goes here.
Enron

An energy company based in Houston, Texas, that Fortune magazine named America’s most innovative company for six consecutive years before it was discovered to have been involved in one of the largest instances of accounting fraud in world history. In 2001, with over 21,000 employees, it filed the largest bankruptcy in U.S. history and disclosed a scandal that resulted in the loss of millions of dollars, thousands of jobs, the downfall of Big Five accounting firm Arthur Andersen LLP, at least one suicide, and several trials and convictions, among other consequences.

ethics

Derived from the Greek word ethos, which refers to those values, norms, beliefs, and expectations that determine how people within a culture live and act. Ethics steps back from such standards for how people do act, and reflects on the standards by which people should live and act. At its most basic level, ethics is concerned with how we act and how we live our lives. Ethics involves what is perhaps the most monumental question any human being can ask: How should we live? Following from this original Greek usage, ethics can refer to both the standards by which an individual chooses to live her or his own personal life and the standards by which individuals live in community with others (see also morality). As a branch of philosophy, ethics is the discipline that systematically studies questions of how we ought to live our lives.

descriptive ethics

As practiced by many social scientists, provides a descriptive and empirical account of those standards that actually guide behavior, as opposed to those standards that should guide behavior. Contrast with normative ethics.

normative ethics

As a normative discipline, ethics deals with norms and standards of appropriate and proper (normal) behavior. Norms establish the guidelines or standards for determining what we should do, how we should act, what type of person we should be. Contrast with descriptive ethics.

morality

Sometimes used to denote the phenomena studied by the field of ethics. This text uses morality to refer to those aspects of ethics involving personal, individual decision making. “How should I live my life?” or “What type of person ought I be?” are taken to be the basic questions of morality. Morality can be distinguished from questions of social justice, which address issues of how communities and social organizations ought to be structured.

virtues

Those character traits or behavioral habits that constitute a good human life, a life worth living. The virtues provide answers to the basic ethical question “What kind of person should I be?” Examples might include the character traits of trustworthiness, honesty, friendliness, kindness, modesty, moderation, and courage.

social ethics

The area of ethics that is concerned with how we should live together in community with others and how social organizations ought to be structured. Social ethics involves questions of political, economic, civic, and cultural norms aimed at promoting human well-being.

ethical relativism

An important perspective within the philosophical study of ethics that holds that ethical values and judgments are ultimately dependent on, or relative to, one’s culture, society, or personal feelings. Relativism therefore denies that we can make rational or objective ethical judgments
cultural relativism

A factual claim about cultures holding that, in fact, the values and ethos of cultures differ. To be distinguished from ethical relativism which holds, often on the basis of cultural relativism, that there is no way to make cross-cultural ethical judgments.

virtue ethics

An ethical tradition that studies those character traits or habits that constitute a good human life, a life worth living. The virtues provide answers to the basic ethical question “What kind of person should I be?” and virtue ethics seeks a systematic account of both the good life and the character traits (virtues) that make up that life.

utilitarianism

An ethical theory that tells us that we can determine the ethical significance of any action by looking to the consequences of that act. Utilitarianism is typically identified with the policy of “maximizing the overall good” or, in a slightly different version, of producing “the greatest good for the greatest number.”

principles and rights

An approach to ethics in which certain fundamental rules of action guide ethical behavior in ways that do not depend on consequences. Among these fundamental rules would be human rights, which are rules that grant each person certain entitlements, or protect each person from the actions of others.

psychological egoism

An alleged theory of human motivation that claims that all human actions are selfish and motivated by self-interest.

separation thesis

The separation thesis asserts that ordinary ethical standards should be kept separate from, and not be used to judge, business decisions because business has its own standards of good and bad.

corporate social responsibility (CSR)

The responsibilities that businesses have to the societies within which they operate. In various contexts, it may also refer to the voluntary actions that companies undertake to address economic, social, and environmental impacts of their business operations and the concerns of their principal stakeholders. Models of CSR describe how a business should identify its stakeholder groups and incorporate stakeholder needs and values within its strategic and operational decision-making process.

shareholder primacy

A CSR theory and model for management decision making which identifies the responsibility to serve the financial interests of shareholders or stockholders as the primary responsibility for business.

Stakeholder Model of CSR

A model of corporate social responsibility that holds that business managers have ethical responsibilities to a range of stakeholders that go beyond a narrow "shareholder primacy" view that the primary or only responsibility of managers is to stockholders. In a general sense, a stakeholder is anyone who can be affected by decisions made within a business. More specifically, stakeholders are considered to be those people who are necessary for the functioning of a business
benefit corporations

A legal model of incorporation in which the purpose of the corporate entity is to pursue some socially beneficial objective. Benefit corporations, or "B-Corps," continue as for-profit businesses, but profit is understood as a by-product of achieving its socially beneficial goals and is not the primary goal of the firm.

fiduciary model

A legal model that creates legal duties for agents such as managers, accountants, lawyers to act on behalf of the interests of clients. These fiduciary duties, grounded in the trust placed in agents by clients, include duties of obedience, confidentiality, and loyalty.

corporate culture

Those values, expectations, beliefs, and standards that characterize a corporation and that influence behavior and understandings within that organization.

teleological ethics

A model of ethics that identifies the human good and the goal of human life as attainment of some "telos," or an essential purpose, goal, or nature.

employee rights

Those good that people are entitled to in the workplace and that entitlement makes those good exempt from the normal bargaining between employer and employee over the terms and conditions of work. Those entitlements might be granted by law (legal rights in the workplace), by the employment contract (contractual rights), or they might derive from more fundamental human rights.

right to work

As a moral or human right, this would be the entitlement to a job, or at least the entitlement to keep a job without fear of unjust dismissal. In the U.S. legal context, right-to-work laws refer to the right to work in a unionized shop without being required to join the union.

employment at will

In many states within the United States, this legal doctrine means that employees can be fired at any time for any reason.

just cause

Opposed to employment at will, just cause requires that employers must have a legitimate and just reason for terminating an employee.

instrumental value

When the value of an object or action rests in its function as a means to an end, it is said to have instrumental value. Compare to intrinsic value.

intrinsic value

When an object or action has value in itself or is valued as an end in itself it is said to have intrinsic value. Compare to instrumental value.

cost-benefit analysis

A procedure for making policy decisions in which the costs for the policy are compared to the benefits of implementation. The policy is judged rational and justified only when the benefits outweigh the costs. Compare to cost-effective analysis.

cost-effective analysis

A procedure for making policy decisions in which the costs associated with various means for attaining a particular end are compared. The means judged most rational and justified is the one with the lowest costs for attaining a given end. Compare to cost-benefit.

agent-principal

A legal relationship in which one person (the "agent") is obligated to act on behalf of another (a "principal").

Trust

A relationship of reliability that allows one party to operate with the confidence that another party will fulfill its duties.

loyalty

A relationship of faithfulness or allegiance between two or more parties in which the loyal party is willing to make sacrifices for the other.

Conflict-of-interest

A situation in which an ethical or legal responsibility to act on behalf of another's interest comes into conflict with one's own self-interest.

Whistleblower

An individual who reveals inside information of organizational wrong-doing to an outside authority.

Caveat emptor

Latin phrase for "let the buyer beware" refers to a legal doctrine in which buyers of a product are liable for any harms that they suffer from the product.

Negligence

In legal terms, a failure to exercise due care that results in a harm to another.

Dark Pattern

As defined by IT consultant Harry Brignull, “A dark pattern is a user interface carefully crafted to trick users into doing things they might not otherwise do, such as buying insurance with their purchase or signing up for recurring bills."

Autonomy

Derived from the Greek words of "self" (auto) and "rule" (nomos), refers to the human capacity to make one's own decisions. The ethical principle that persons should be treated with respect is often explained in terms of respect for a person's freedom to live their own life and make their own decisions.

Sustainable business

A business that is structured in ways to use natural resources only at rates at which their productive capacity continue indefinitely for use by future generations.

Workplace Diversity

A workplace characterized by a multiplicity of racial, ethnic, gender, religious, generational, and cultural characteristics. Diversity is both an increasing fact and an ethical goal of contemporary workplaces.

Inclusion

Practices that ensure that a diverse workforce is valued, respected, and is given a voice within the workplace. An inclusive workplace not only has a diversity of workers but empowers those workers to be full and equal participants.

equal opportunity

A policy of treating all employees and applicants equally on the basis of ability and merit and, conversely, a commitment not to discriminate on the basis of race, sex, gender, ethnicity, age.

Affirmative Action

Policies that take positive steps to alleviate unequal treatment, e.g., policies to increase recruitment of qualified women, people of color, and LGBTQ employees.

Preferential Treatment

Policies that seek to alleviate inequality by giving preference to a candidate based on race, sex, gender, or ethnicity, making that characteristic part of the qualifications for a position.

Globalization

The process by which global economy is becoming increasingly integrated and interdependent. It is characterized by free trade, free flow of capital, and movement of economic activities across boundaries seeking the lowest production and labor costs.

Table of Contents

Table of Contents and Preface

- Cover Page
- Title Page
- Copyright Page
- About the Author
- Dedication
- Contents
- Preface to the Seventh Edition
- Connect

Chapter 1: Why Study Ethics?

- Chapter 1 Introduction

- DISCUSSION CASE: Facebook

- 1.1 Business Ethics: The What and the Why

- 1.2 Ethics, Morality, and Social justice

- 1.3 Business Ethics as Responsible Decision Making

- 1.4 Skeptical Challenge I: isn’t the law enough?

- 1.5 Skeptical Challenge ii: Ethical relativism

- 1.6 A Model for Ethical Decision Making

- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnote

Chapter 2: Ethical Theory and Business

- Chapter 2 Introduction

- DISCUSSION CASE: CEO Compensation versus Minimum Wage

- 2.1 Introduction
- 2.2 Virtue Ethics
- 2.3 Utilitarian Ethics

- 2.4 Challenges to Utilitarianism

- Problems Raised from within the Utilitarian Tradition

- Problems Raised to the Utilitarian Tradition

- 2.5 Utilitarianism and Business Policy

- 2.6 Rights, duties, and Principle-Based Ethics

- 2.7 Summary and Review

- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnotes

Chapter 3: Corporate Social Responsibility

- Chapter 3 Introduction

- DISCUSSION CASE: Section 230: If it is Legal, Is It Ethically Responsible?

- 3.1 Introduction

- 3.2 The Economic Model of Corporate Social Responsibility

- 3.3 Critical Assessment of the Economic Model: The Utilitarian Defense

- 3.4 Critical Assessment of the Economic Model: The Private Property Defense

- 3.5 Modified Version of the Economic Model: The Moral Minimum

- 3.6 The Stakeholder Model of Corporate Social Responsibility

- 3.7 Strategic Model of Corporate Social Responsibility: Benefit Corporations

- 3.8 Summary and Review

- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnotes

Chapter 4: Corporate Culture, Governance, and Ethical Leadership

- Chapter 4 Introduction

- DISCUSSION CASE: Fraud at Wells Fargo

- 4.1 Introduction
- 4.2 What is Corporate Culture?
- 4.3 Culture and Ethics

- 4.4 Ethical Leadership and Corporate Culture

- 4.5 Effective Leadership and Ethical Leadership

- 4.6 Building a Values-Based Corporate Culture

- Mission Statements, Codes of Conduct, and Statements of Values

- Ethics Hotlines, Ombudsmen, and Integrating Ethical Culture

- Assessing and Monitoring the Corporate Culture: Audits

- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnotes

Chapter 5: The Meaning and Value of Work

- Chapter 5 Introduction

- DISCUSSION CASE: Work–Life Balance After a Pandemic

- 5.1 Introduction
- 5.2 The Meanings of Work
- 5.3 The Value of Work
- 5.4 Conventional Views of Work
- 5.5 The Human Fulfillment Model
- 5.6 The Liberal Model of Work

- 5.7 Business’s Responsibility for Meaningful Work

- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnotes

Chapter 6: Moral Rights in the Workplace

- Chapter 6 Introduction

- DISCUSSION CASE: Workplace Privacy and Employee Monitoring

- 6.1 Introduction: Employee Rights
- 6.2 The Right to Work
- 6.3 Employment at Will
- 6.4 Due Process in the Workplace
- 6.5 Participation Rights
- 6.6 Freedom of Expression
- 6.7 Employee Health and Safety

- 6.8 Privacy in the Workplace

- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnotes

Chapter 7: Employee Responsibilities

- Chapter 7 Introduction

- DISCUSSION CASE: Trust in Business

- 7.1 Introduction

- 7.2 Trust And Business

- 7.3 The Narrow View of Employee Responsibilities: Employees as Agents

- 7.4 Professional Ethics and the Gatekeeper Function

- 7.5 Managerial Responsibility and Conflicts of Interest

- 7.6 Trust and Loyalty in the Workplace

- 7.7 Responsibilities to Third Parties: Honesty, Whistle-Blowing, and Insider Trading

- Honesty
- Whistle-Blowing
- Insider Trading
- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnotes

Chapter 8: Marketing Ethics: Product Safety and Pricing

- Chapter 8 Introduction

- DISCUSSION CASE: Social Harms: Obesity and Opioids

- 8.1 Ethical Issues in Marketing: An Overview

- 8.2 Ethical Responsibility for Products: From Caveat Emptor to Negligence

- Caveat Emptor

- Negligence

- 8.3 Strict Product Liability

- 8.4 Ethics and Pricing

- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnotes

Chapter 9: Marketing Ethics: Advertising and Digital Marketing

- Chapter 9 Introduction

- DISCUSSION CASE: Digital Marketing and “Dark Patterns”

- 9.1 Introduction

- 9.2 Ethics of Manipulation and Deception

- 9.3 Governemnt Regulation of Deceptive and Unfair Advertising

- 9.4 Digital Marketing and Consumer Privacy

- 9.5 Marketing Ethics and Consumer Autonomy

- 9.6 Targeting the Vulnerable: Marketing and Sales

- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnotes

Chapter 10: Sustainability and the Natural Environment

- Chapter 10 Introduction

- DISCUSSION CASE: Business and Sustainability

- 10.1 Introduction: Business, the Environment, and Sustainability

- 10.2 Corporate Social Responsibility and the Environment

- 10.3 Business’s Responsibility as Environmental Regulation

- 10.4 Business Ethics and Sustainable Economics

- 10.5 Business Ethics in the Age of Sustainable Development

- 10.6 The “Business Case” for Sustainability

- 10.7 Critical Reflections on Chapter Discussion Case

- Chapter Review Questions

- Endnotes

Chapter 11: Workplace Diversity and Discrimination

- Chapter 11 Introduction

- DISCUSSION CASE: Sexual Harassment and Gender Equality

- 11.1 Introduction: Diversity and Equality

- 11.2 Sexual Harassment in the Workplace

- 11.3 Discrimination, Equal Opportunity, and Affirmative Action

- 11.4 Preferential Treatment in Employment

- 11.5 Arguments Against Preferential Hiring

- 11.6 Arguments in Support of Preferential Hiring

- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnotes

Chapter 12: International Business and Globalization

- Chapter 12 Introduction

- DISCUSSION CASE: Business Ethics in a Global Setting

- 12.1 Introduction

- 12.2 Ethical Relativism and Cross-Cultural Values

- 12.3 Cross-Cultural Values, Human Rights, and the Ruggie Principles

- 12.4 Globalization and International Business

- 12.5 Globalization and the Poor

- 12.6 “Race to the Bottom”

- 12.7 Democracy, Cultural Integrity, and Human Rights

- 12.8 International Business and a Duty of National Loyalty

- Reflections on the Chapter Discussion Case
- Chapter Review Questions
- Endnotes

Index

- Index

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