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The plaintiff stockholder brought an action challenging the consideration that the private equity fund, Vista, had agreed to pay to acquire Tibco in the merger. But, Vista was apparently willing, at least before the share count error was discovered, to pay $100 million more to acquire Tibco in the merger. The court ruled the Tibco board's alleged failure to make basic inquiries after discovery of the share count error constituted gross negligence in violation of its fiduciary duty of care. Turning to the aiding and abetting claims against Tibco's financial adviser, the court ruled that Goldman Sachs may still be liable for aiding and abetting the Tibco board's breach of its duty of care. By withholding critical information in a merger that prevents a board from fulfilling its fiduciary duty of care to make a reasoned and informed decision concerning the deal consideration, financial advisers risk the imposition of significant monetary liability while the board itself may be immunized from such liability under an exculpation provision in the company's charter. The leaders of the Securities and Exchange Commission (“SEC” or “Commission”) addressed the public on February 19-20 at the annual SEC Speaks conference in Washington, D.C.
On Tuesday, Andrew Ceresney, Director of the Securities and Exchange Commission’s Division of Enforcement, told the House Judiciary Committee that the Email Privacy Act (H.R.
Carrying the Halli-burden: District Court Takes Up Price Impact at Class Certification in the Wake of Halliburton v. Securities and Exchange Commission leadership and staff members addressed the public on February 20-21 at the annual “SEC Speaks” conference in Washington, D.C. Data breaches may be nothing new, but they are certainly evolving into bigger and more notorious infractions.
The leaders of the Securities and Exchange Commission addressed the public on February 21-22 at the annual SEC Speaks conference in Washington, D.C. The Sixth Circuit recently made it easier for plaintiffs to bring securities suits brought under Section 11 of the Securities Act of 1933. JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources.
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This is a€?Corporate Social Responsibility and Business Ethicsa€?, chapter 2 from the book The Legal Environment and Business Law (v. This content was accessible as of December 29, 2012, and it was downloaded then by Andy Schmitz in an effort to preserve the availability of this book. PDF copies of this book were generated using Prince, a great tool for making PDFs out of HTML and CSS. For more information on the source of this book, or why it is available for free, please see the project's home page. helps people like you help teachers fund their classroom projects, from art supplies to books to calculators. A great society is a society in which [leaders] of business think greatly about their functions. Define ethics and explain the importance of good ethics for business people and business organizations. Understand the principal philosophies of ethics, including utilitarianism, duty-based ethics, and virtue ethics. Distinguish between the ethical merits of various choices by using an ethical decision model. Explain the difference between shareholder and stakeholder models of ethical corporate governance. Explain why it is difficult to establish and maintain an ethical corporate culture in a business organization. Few subjects are more contentious or important as the role of business in society, particularly, whether corporations have social responsibilities that are distinct from maximizing shareholder value. This chapter has a fairly modest aim: to introduce potential businesspeople to the differences between legal compliance and ethical excellence by reviewing some of the philosophical perspectives that apply to business, businesspeople, and the role of business organizations in society. Explain how law and ethics are different, and why a good reputation can be more important than legal compliance. Most of those who write about ethics do not make a clear distinction between ethics and morality.
People often speak about the ethics or morality of individuals and also about the morality or ethics of corporations and nations.
Although morals and ethics are not precisely measurable, people generally have similar reactions about what actions or conduct can rightly be called ethical or moral.
Saying that someone or some organization is law-abiding does not mean the same as saying a person or company is ethical. Here is a cautionary note: for individuals, it is far from easy to recognize an ethical problem, have a clear and usable decision-making process to deal it, and then have the moral courage to do whata€™s right.
Before talking about how ethics relates to law, we can conclude that ethics is the study of moralitya€”a€?righta€? and a€?wronga€?a€”in the context of everyday life, organizational behaviors, and even how society operates and is governed. The goodwill of an organization is to a great extent based on the actions it takes and on whether the actions are favorably viewed. Another reason to think about ethics in connection with law is that the laws themselves are meant to express some moral view. Finally, important policy issues that face society are often resolved through law, but it is important to understand the moral perspectives that underlie public debatea€”as, for example, in the continuing controversies over stem-cell research, medical use of marijuana, and abortion.
The irony of Andersen as a poster child for overly aggressive accounting practices is that the man who founded the firm built it on integrity and straightforward practices. Maximizing profits while being legally compliant is not a very inspiring goal for a business. Think of an action by a business organization (sole proprietor, partnership, or corporation) that was legal but still strikes you as wrong. Begin considering how the major theories about ethics apply to difficult choices in life and business. UtilitarianismThe theory that the a€?righta€? moral act is the one that produces the greatest good for society.
Bentham believed that the most promising way to obtain agreement on the best policies for a society would be to look at the various policies a legislature could pass and compare the good and bad consequences of each. This statement describes a€?act utilitarianisma€?a€”which action among various options will deliver the greatest good to society?
Notice that the emphasis is on finding the best possible results and that the assumption is that we can measure the utilities involved. An individual or a company that consistently uses the test a€?Whata€™s the greatest good for me or the company?a€? is not following the utilitarian test of the greatest good overall. Failing to come up with lots of options that seem reasonable and then choosing the one that has the greatest benefit for the greatest number. Assuming that the greatest good for you or your company is in fact the greatest good for alla€”that is, looking at situations subjectively or with your own interests primarily in mind. Underestimating the cost or harm of a certain decision to someone else or some other group of people. In contrast to the utilitarian perspective, the deontological view presented in the writings of Immanuel Kant purports that having a moral intent and following the right rules is a better path to ethical conduct than achieving the right results.
For Kantian thinkers, this basic principle of equality means that we should be able to universalize any particular law or action to determine whether it is ethical.
In considering whether to lie on your resume, reversibility requires you to actively imagine both that you were the employer in this situation and that you were another well-qualified applicant who lost the job because someone else padded his resume with false accomplishments.
Similar demonstrations can be made for actions such as polluting, breaking promises, and committing most crimes, including rape, murder, and theft.
Social justice theorists worry about a€?distributive justicea€?a€”that is, what is the fair way to distribute goods among a group of people? People who do not see the need for public goodsGoods that are useful to society (parks, education, national defense, highways) that would ordinarily not be produced by private enterprise.
Modern social contract theorists, such as Thomas Donaldson and Thomas Dunfee (Ties that Bind, 1999), observe that various communities, not just nations, make rules for the common good.
Donaldson and Dunfeea€™s integrative social contracts theory stresses the importance of studying the rules of smaller communities along with the larger social contracts made in states (such as Colorado or California) and nation-states (such as the United States or Germany). It is important to realize that a social contract can be changed by the participants in a community, just as the US Constitution can be amended. Thus the rights that people havea€”in positive lawa€”come from whatever social contract exists in the society. If you have a right of free expression, the government has a duty to respect that right but can put reasonable limits on it.
Rights and duties exist not only between people and their governments but also between individuals. Your right in legal terms is only as good as your societya€™s willingness to provide legal remedies through the courts and political institutions of society. Virtue theoryAristotlea€™s perspective on finding happiness through the application of reason in human affairs advises continual practice to develop habits of virtuous moral character. Aristotle believed that all activity was aimed at some goal or perceived good and that there must be some ranking that we do among those goals or goods.
As to the third question, whether corporations can a€?havea€? virtues or values is a matter of lively debate.
As to the first two questions regarding virtues, a look at Michael Josephsona€™s core values may prove helpful.
Michael Josephson, a noted American ethicist, believes that a current set of core values has been identified and that the values can be meaningfully applied to a variety of personal and corporate decisions. To simplify, leta€™s say that there are ethical and nonethical qualities among people in the United States.
Notice also that these six core values share something in common with other ethical values that are less universally agreed upon. The importance of an individuala€™s having these consistent qualities of character is well known. XYZ Motor Corporation begins to get customer complaints about two models of its automobiles. Internal investigations of half a dozen accidents in US locations come to the conclusion that the accidents are not being caused by drivers who mistake the gas pedal for the brake pedal. It is voluntary to report these incidents to the National Highway Traffic and Safety Administration (NHTSA), but the company decides that it will wait awhile and see if there are more complaints.
Experts have advised XYZ that standard failure-analysis methodology requires that the company obtain absolutely every XYZ vehicle that has experienced sudden acceleration, using microscopic analysis of all critical components of the electronic system.
Understand one model for ethical decision making: a process to arrive at the most ethical option for an individual or a business organization, using a virtue ethics approach combined with some elements of stakeholder analysis and utilitarianism.
Once you recognize that there is a decision that involves ethical judgment, Michael Josephson would first have you ask as many questions as are necessary to get a full background on the relevant facts.
If there is no decision that satisfies the greatest number of core values, try to determine which decision delivers the greatest good to the various stakeholders.
It is often helpful to identify who (or what group) is the most important stakeholder, and why.
Here are the core values and their subcomponents as developed by the Josephson Institute of Ethics. When individuals and organizations confront ethical problems, the core values decision model offered by Josephson generally works well (1) to clarify the gains and losses of the various stakeholders, which then raises ethical awareness on the part of the decision maker and (2) to provide a fairly reliable guide as to what the most ethical decision would be. That said, it does not follow that students (or managers) would necessarily act in accord with the results of the core values decision process. Explain the basic structure of the typical corporation and how the shareholders own the company and elect directors to run it. Understand how the shareholder profit-maximization model is different from stakeholder theory. Figure 2.1 "Corporate Legal Structure", though somewhat oversimplified, shows the basic legal structure of a corporation under Delaware law and the laws of most other states in the United States. Economist Milton Friedman is often quoted as having said that the only moral duty a corporation has is to make the most possible money, or to maximize profits, for its stockholders.
Presumably, the individuals who are to be responsible are businessmen, which means individual proprietors or corporate executives.a€¦In a free enterprise, private-property system, a corporate executive is an employee of the owners of the business. What does it mean to say that the corporate executive has a a€?social responsibilitya€? in his capacity as businessman? In each of these cases, the corporate executive would be spending someone elsea€™s money for a general social interest.
Others have challenged the notion that corporate managers have no real duties except toward the owners (shareholders).
Stakeholders of a corporation include its employees, suppliers, customers, and the community. In the late 1800s, New Jersey and Delaware changed their laws to make incorporating relatively easy.
Implicitly, then, there is a social contract between governments and corporations: as long as corporations are considered socially useful, they can exist. According to stakeholder theorists, corporations (and other business organizations) must pay attention not only to the bottom line but also to their overall effect on the community. These stakeholders are not directly linked to the organization but have an interest in making sure the organization acts in a socially responsible manner. A corporation is a a€?persona€? capable of suing, being sued, and having rights and duties in our legal system. What follows is a series of observations about corporations, ethics, and corporate culture. Without strong leadership and a willingness to listen to bad news as well as good news, managers do not have the feedback necessary to keep the organization healthy.
Ita€™s often noted that a code of ethics is only as important as top management is willing to make it.
In short, if a company can show that it has an ongoing process to root out wrongdoing at all levels of the company, the judge is allowed to consider this as a major mitigating factor in the fines the company will pay.
If you manage by the numbers, there is a temptation to lie about those numbers, based on the need to get stock price ever higher. If winning is the most important thing in your life, then you must be prepared to do anything to win.
Sears Roebuck & Company has been a fixture in American retailing throughout the twentieth century. The authorities were alerted by a 50 percent increase in consumer complaints over a three-year period.
Ultimately, California got Sears to settle a large number of lawsuits against it by threatening to revoke Searsa€™ auto repair license. Note that in boosting sales by performing unnecessary services, Sears suffered very bad publicity. People often justify the harm to others as being minimal or a€?necessarya€? to achieve the desired sales quota or financial goal. The long-term losses to Sears are difficult to quantify, while the short-term gains were easy to measure and (at least for a brief while) quite satisfying financially.
Searsa€™ ongoing rip-offs were possible only because individual consumers lacked the relevant information about the service being offered. Noting this last point, we can assume that these key people were motivated by maximizing profits and had lost sight of other goals for the organization. The emphasis on doing whatever is necessary to win is entirely understandable, but it is not ethical. One effort to integrate the two viewpoints of stakeholder theory and shareholder primacy is the conscious capitalism movement. Manwaring, IVDelaware Business Court InsiderSection 102(b)(7) of the Delaware General Corporation Law permits a provision in a company's certificate of incorporation that exculpates directors from monetary liability for breaches of the fiduciary duty of care. The plaintiff did not challenge the propriety of the sale process and conceded that the $24 per share merger price was a "good outcome." The plaintiff took issue, however, with the aggregate equity value of the merger consideration.
Unfortunately, for the Tibco stockholders, the merger consideration was not stated in the merger agreement in terms of aggregate equity value, but rather in terms of price per share, which militated against a claim for reformation.
The court reasoned that there was a "wide gulf" between what the board actually did, and what the board should rationally have done, after discovering a fundamental flaw in the sale process concerning the share count, which led to a mistaken belief by Vista and Tibco that the aggregate equity value was $100 million greater for the merger consideration.
Section 102(b)(7) does not extend protection to an aider and abettor for a board's breach of the duty of care. Circuit, the second federal appellate court to recently weigh in on the ongoing debate over SEC administrative actions, ruled in favor of the SEC in Jarkesy v. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.
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Please refer to the date at the top of this page to determine when this Policy was last revised. See the license for more details, but that basically means you can share this book as long as you credit the author (but see below), don't make money from it, and do make it available to everyone else under the same terms. However, the publisher has asked for the customary Creative Commons attribution to the original publisher, authors, title, and book URI to be removed. The question of what is a€?righta€? or a€?morally correcta€? or a€?ethically correcta€? or a€?morally desirablea€? in any situation is variously phrased, but all of the words and phrases are after the same thing: what act is a€?bettera€? in a moral or ethical sense than some other act?

There are clearly differences in the kind of moral responsibility that we can fairly ascribe to corporations and nations; we tend to see individuals as having a soul, or at least a conscience, but there is no general agreement that nations or corporations have either. If we say that Microsoft is a a€?good company,a€? we may be making a statement about the investment potential of Microsoft stock, or their preeminence in the market, or their ability to win lawsuits or appeals or to influence administrative agencies.
If I like Daniel and try to convince you what a a€?good guya€? he is, you may ask all sorts of questions: Is he good-looking? All of that is even more difficult within a business organization, where corporate employees vary in their motivations, loyalties, commitments, and character.
Few would choose a professional service, health care or otherwise, because the provider had a record of perfect legal compliance, or always following the letter of the law.
Consider whether they strike you as true or whether you would need to know more in order to make a judgment. If there are legal prohibitions against cheating the Medicare program, it is because people (legislators or their agents) have collectively decided that cheating Medicare is wrong. Some ethical perspectives focus on rights, some on social utility, some on virtue or character, and some on social justice. In the long run, businesses that pay attention to ethics as well as law do better; they are viewed more favorably by customers. Consumers were boycotting and investors were getting frightened, so the company took a long, hard look at its ethic of short-term profit maximization. In Section 2.4 "Corporations and Corporate Governance", you will read about the Sears Auto Centers case. A major accounting firm, Andersen worked closely with Enron in hiding its various losses through creative accounting measures. Compare your answer with those of your classmates: were you more likely to find an example from individual action or corporate action?
The right course of action from an ethical point of view would be to choose the policy that would produce the greatest amount of utility, or usefulness. It is found in such diverse places as cost-benefit analysis in administrative and regulatory rules and calculations, environmental impact studies, the majority vote, product comparisons for consumer information, marketing studies, tax laws, and strategic planning. Often, a decision maker seizes on one or two alternatives without thinking carefully about other courses of action. The now-classic Ford Pinto case demonstrates how Ford Motor Company executives drastically underestimated the legal costs of not correcting a feature on their Pinto models that they knew could cause death or injury. In comparing the risks to human health or safety against, say, the risks of job or profit losses, cost-benefit analyses will often try to compare apples to oranges and put arbitrary numerical values on human health and safety. A deontologist like Kant is likely to believe that ethical action arises from doing onea€™s duty and that duties are defined by rational thought. For example, if you were to consider misrepresenting yourself on a resume for a particular job you really wanted and you were convinced that doing so would get you that job, you might be very tempted to do so. If the consequences of such an exercise of the imagination are not appealing to you, your action is probably not ethical.
Marxist thought emphasizes that members of society should be given goods to according to their needs. Public goods require public revenues (taxes) and political support to be adequately maintained. Your college or school is a community, and there are communities within the school (fraternities, sororities, the folks behind the counter at the circulation desk, the people who work together at the university radio station, the sports teams, the faculty, the students generally, the gay and lesbian alliance) that have rules, norms, or standards that people can buy into or not. This view differs from that of the deontologists and that of the natural-law thinkers such as Gandhi, Jesus, or Martin Luther King Jr., who believed that rights come from God or, in less religious terms, from some transcendent moral order.
Communitarians emphasize that rights carry with them corresponding duties; that is, there cannot be a right without a duty. For example, you can legally say whatever you want about the US president, but you cana€™t get away with threatening the presidenta€™s life. Your right to be free from physical assault is protected by the law in most states, and when someone walks up to you and punches you in the nose, your rightsa€”as set forth in the positive law of your statea€”have been violated. Basic rights may include such fundamental elements as food, water, shelter, and physical safety. In a modern setting, deliberating on core values and their application to individual and corporate ethical dilemmas and adhering to the recommendations of core values analysis would provide similar practice., or virtue ethics, has received increasing attention over the past twenty years, particularly in contrast to utilitarian and deontological approaches to ethics. When you ask people what kinds of qualities they admire in others or in themselves, they may say wealth, power, fitness, sense of humor, good looks, intelligence, musical ability, or some other quality. Studies from the Josephson Institute of Ethics in Marina del Rey, California, have identified six core valuesValues that are generally recognized as positive ethical characteristics of an individual or a business organization. While many of us may value wealth, good looks, and intelligence, having wealth, good looks, and intelligence does not automatically make us virtuous in our character and habits. Many values taught in the family or in places of worship are not generally agreed on, practiced, or admired by all. Often we remember the last bad thing a person did far more than any or all previous good acts.
Customers have had near-death experiences from sudden acceleration; they would be driving along a highway at normal speed when suddenly the car would begin to accelerate, and efforts to stop the acceleration by braking fail to work. In fact, there appears to be a possible flaw in both models, perhaps in a semiconductor chip, that makes sudden acceleration happen. Recalling the two models so that local dealers and their mechanics could examine them is also an option, but it would be extremely costly. That is, who are the potential gainers and losers in the various decisions that might be made here? Pursue excellence: Do your best, dona€™t quit easily, persevere, be diligent, make all you do worthy of pride.
There are many psychological pressures and organizational constraints that place limits on people both individually and in organizations. One such process is offered here, based on the core values of trustworthiness, caring, respect, fairness, responsibility, and citizenship.
What are XYZa€™s options when they first notice that two of their models are causing sudden acceleration incidents that put their customers at risk?
The first viewa€”maximizing profitsa€”is the prevailing view among business managers and in business schools.
As a person, he may have other responsibilities that he recognizes or assumes voluntarilya€”to his family, his conscience, his feeling of charity, his church, his clubs, his city, his country.
If this statement is not pure rhetoric, it must mean that he has to act in some way that is not in the interest of his employers. On the level of political principle, the imposition of taxes and the expenditure of tax proceeds are governmental functions. By changing two letters in shareholder, stakeholder theorists widened the range of people and institutions that a corporation should pay moral consideration to. Stakeholder is a deliberate play on the word shareholder, to emphasize that corporations have obligations that extend beyond the bottom-line aim of maximizing profits.
These two states allowed incorporation a€?for any legal purpose,a€? rather than requiring some public purpose. Public perception of a companya€™s unfairness, uncaring, disrespect, or lack of trustworthiness often leads to long-term failure, whatever the short-term successes or profits may be. Regardless of managersa€™ talk about ethics, employees quickly learn what speech or actions are in fact rewarded.
Again, we see that the manager is often an agent for himself or herself and will often act more in his or her self-interest than for the corporate interest. If they call attention to problems that are being covered up by coworkers or supervisors, they bring bad news. Ethics codes have been put in placea€”partly in response to federal sentencing guidelines and partly to encourage feedback loops to top management.
If the code is just a document that goes into a drawer or onto a shelf, it will not effectively encourage good conduct within the corporation. The original idea behind these guidelines was for Congress to correct the lenient treatment often given to white-collar, or corporate, criminals. Most Fortune 500 companies have ethics hotlines and processes in place to find legal and ethical problems within the company. As humans, our desire to associate with those who have status provides plenty of incentive to glorify winners and ignore losers. At one time, people in rural America could order virtually anything (including a house) from Sears. New Jerseya€™s division of consumer affairs also investigated Sears Auto Centers and found that all six visited by investigators had recommended unnecessary repairs. Customers received coupons in the mail inviting them to take advantage of hefty discounts on brake jobs.
Sears agreed to distribute $50 coupons to nearly a million customers nationwide who had obtained certain services between August 1, 1990, and January 31, 1992. In the Sears case, it is likely that Sears a€?insidersa€? looked at customers as a€?outsiders,a€? effectively treating them (in Kantian terms) as means rather than ends in themselves. This lack of information is a market failure, since many consumers were demanding more of Sears Auto Center services than they would have (and at a higher price) if relevant information had been available to them earlier. The temptation will always exista€”for individuals, companies, and nationsa€”to dominate or to win and to write the history of their actions in a way that justifies or overlooks the harm that has been done. Companies that practice conscious capitalismCompanies that practice conscious capitalism embrace the idea that profit and prosperity can and must go hand in hand with social justice and environmental stewardship.
By immunizing directors from money damages for breaches of the duty of care, Section 102(b)(7) provisions serve an important purpose in Delaware corporate law to encourage well-qualified people, who may be risk averse, to serve as directors without fear of monetary liability for a duty-of-care mistake. This share count error was discovered after the parties executed the merger agreement, and was subsequently disclosed to Tibco's stockholders in a proxy statement before their vote on the merger, which over 96 percent of the stockholders voted to approve despite the error. The court explained that the board should have pressed its financial adviser for a complete explanation concerning the share count error, and for its knowledge of Vista's understanding and reliance on the share count error in its final bid in the merger. The court explained that even though the board itself was exculpated from duty-of-care liability, its breach of fiduciary duties still served as a predicate for the aiding and abetting claims against its financial adviser. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites.
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You may also download a PDF copy of this book (19 MB) or just this chapter (211 KB), suitable for printing or most e-readers, or a .zip file containing this book's HTML files (for use in a web browser offline). However, business organizations ignore the ethical and social expectations of consumers, employees, the media, nongovernment organizations (NGOs), government officials, and socially responsible investors at their peril. People sometimes speak of morality as something personal but view ethics as having wider social implications.
Still, our ordinary use of language does point to something significant: if we say that some nations are a€?evila€? and others are a€?corrupt,a€? then we make moral judgments about the quality of actions undertaken by the governments or people of that nation. Less likely, though possibly, we may be making a statement about the civic virtue and corporate social responsibility of Microsoft.
There are many professional ethics codes, primarily because people realize that law prescribes only a minimum of morality and does not provide purpose or goals that can mean excellent service to customers, clients, or patients. The reputation of an organization is built on the goodwill that suppliers, customers, the community, and employees feel toward it. While it is difficult to place a monetary value on goodwill, a firma€™s good reputation will generally call for a higher evaluation in the final accounting before the sale. If there are legal prohibitions against assisting someone to commit suicide, it is because there has been a group decision that doing so is immoral. People consciously (or, more often, unconsciously) adopt one or more of these perspectives, and even if they completely agree on the facts with an opponent, they will not change their views.
But this is a difficult claim to measure scientifically, because a€?the long runa€? is an indistinct period of time and because there are as yet no generally accepted criteria by which ethical excellence can be measured. The loss of goodwill toward Sears Auto Centers was real, even though the total amount of money lost cannot be clearly accounted for. Suspiciously, Andersena€™s Houston office also did some shredding around the clock, appearing to cover up what it was doing for Enron. Andersen established the companya€™s reputation for integrity over a hundred years ago by refusing to play numbers games for a potentially lucrative client. By focusing on pushing the edge of what is legal, by looking for loopholes in the law that would help create short-term financial gain, companies have often learned that in the long term they are not actually satisfying the market, the shareholders, the suppliers, or the community generally.
Goodwill is hard to measure or quantify, but it is real nonetheless and can best be protected by acting ethically. It is important to know that many who think a lot about business and ethics have deeply held beliefs about which perspective is best. Jeremy Bentham is often considered the founder of utilitarianism, though John Stuart Mill (who wrote On Liberty and Utilitarianism) and others promoted it as a guide to what is good. In brief, the utilitarian principle holds that an action is right if and only if the sum of utilities produced by that action is greater than the sum of utilities from any other possible act.
Notice that the theory does not tell us what kinds of utilities may be better than others or how much better a good today is compared with a good a year from today. In management, people will often employ a form of utility reasoning by projecting costs and benefits for plan X versus plan Y.
If the alternative does more good than harm, the decision maker assumes ita€™s ethically okay. General Motors was often taken to task by juries that came to understand that the company would not recall or repair known and dangerous defects because it seemed more profitable not to.
Duties, according to Kant, are not specific to particular kinds of human beings but are owed universally to all human beings. A deontologist would say that since you know you are telling a lie, you must be willing to say that lying, as a general, universal phenomenon, is acceptable.
In the gray areas of life as it is lived, the consistency test is often difficult to apply.
If not, they can exit from that community, just as we are free (though not without cost) to reject US citizenship and take up residence in another country. Ideally, the social contract struck by citizens and the government allows for certain fundamental rights such as those we enjoy in the United States, but it need not. Even if your criticisms are strong and insistent, you have the right (and our government has the duty to protect your right) to speak freely. Another distinction is between positive rights (the right to bear arms, the right to vote, the right of privacy) and negative rights (the right to be free from unreasonable searches and seizures, the right to be free of cruel or unusual punishments). Virtue theory emphasizes the value of virtuous qualities rather than formal rules or useful results. Aristotle rejected wealth, pleasure, and fame and embraced reason as the distinguishing feature of humans, as opposed to other species.
But there seems to be growing agreement that organizations do differ in their practices and that these practices are value driven.
They may also value honesty, caring, fairness, courage, perseverance, diligence, trustworthiness, or integrity. People may have strong views about other kinds of ethical values, but core values are more widely accepted. But being more trustworthy (by being honest and by keeping promises) does make us more virtuous, as does staying true to the other five core values. Some families and individuals believe strongly in the virtue of saving money or in abstaining from alcohol or sex prior to marriage.
For example, Eliot Spitzer and Bill Clinton are more readily remembered by people for their last, worst acts than for any good they accomplished as public servants. Drivers could turn off the ignition and come to a safe stop, but XYZ does not instruct buyers of its cars to do so, nor is this a common reaction among drivers who experience sudden acceleration.
Company executives are aware that quarterly and annual profit-and-loss statements, on which their bonuses depend, could be decisively worse with a recall. In the view of John Mackey, the CEO of Whole Foods Market, the long-term viability and profitability of the organization may require that customers come first, or, at times, some other stakeholder group (see a€?Conscious Capitalisma€? in Section 2.4 "Corporations and Corporate Governance").
Exercise self-restrainta€”be disciplined, know the difference between what you have a right to do and what is right to do.
These pressures and constraints tend to compromise ideal or the most ethical solutions for individuals and for organizations. This view largely follows the idea of Milton Friedman that the duty of a manager is to maximize return on investment to the owners. He may feel impelled by these responsibilities to devote part of his income to causes he regards as worthy, to refuse to work for particular corporations, even to leave his joba€¦But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation.
Insofar as his actions raise the price to customers, he is spending the customersa€™ money. Thus they contend that a corporation, through its management, has a set of responsibilities toward nonshareholder interests. A stakeholder is anyone who most would agree is significantly affected (positively or negatively) by the decision of another moral agent. Thus it is government (and its laws) that makes limited liability happen through the corporate form.
Milton Friedmana€™s position suggests that having gone along with legal duties, the corporation can ignore any other social obligations.
A socially responsible corporation is likely to consider the impact of its decisions on a wide range of stakeholders, not just shareholders. Often, the culture of a corporation is the best defense against individuals within that firm who may be tempted to break the law or commit serious ethical misdeeds. If the CEO is firm about acting ethically, others in the organization will take their cues from him or her.
The best ethics codes are aspirational, or having an ideal to be pursued, not legalistic or compliance driven. The same is true of any kind of training that the company undertakes, whether it be in racial sensitivity or sexual harassment. The guidelines require judges to consider a€?aggravating and mitigatinga€? factors in determining sentences and fines.

Jeffrey Pfeffer, professor of organizational behavior at Stanford University, observes how the belief that a€?stock price is all that mattersa€? has been hardwired into the corporate psyche. But if an individual, a team, or a company does whatever it takes to win, then all other values are thrown out in the goal to win at all costs. Not without some accuracy, the company billed itself as a€?the place where Americans shop.a€? But in 1992, Sears was charged by California authorities with gross and deliberate fraud in many of its auto centers.
Californiaa€™s department of consumer affairs found that Sears had systematically overcharged by an average of $223 for repairs and routinely billed for work that was not done. When customers came in to redeem their coupons, sales staffers would convince them to authorize additional repairs. Sears, like other sellers of goods and services, took advantage of a market system, which, in its ideal form, would not permit such information distortions. In a way, this fits with the notion that a€?might makes right,a€? or that power is the ultimate measure of right and wrong. Armed with this information, the board would have had the information necessary to make an informed and reasoned decision concerning the risks of renegotiating the merger agreement with Vista, pressing Vista for the additional $100 million in aggregate equity value, or whether to change its recommendation before the stockholder vote on the merger. The court found that Goldman Sachs, having served as the primary negotiator with Vista in the bidding process, allegedly concealed critical information from the Tibco board that Vista had indeed relied upon the share count error when it made its final bid in the merger. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time. We encourage you to read the legal notices posted on those sites, including their privacy policies. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. Legal compliance alone no longer serves the long-term interests of many companies, who find that sustainable profitability requires thinking about people and the planet as well as profits.
For example, if North Korea is characterized by the US president as part of an a€?axis of evil,a€? or if we conclude that WorldCom or Enron acted a€?unethicallya€? in certain respects, then we are making judgments that their collective actions are morally deficient. In the first set of judgments, we use the word good but mean something other than ethical or moral; only in the second instance are we using the word good in its ethical or moral sense.
There are lots of legal maneuvers that are not all that ethical; the well-used phrase a€?legal loopholea€? suggests as much. Although an organization is not a person in the usual sense, the goodwill that people feel about the organization is based on their perception of its better qualities by a variety of stakeholders: customers or clients, suppliers, investors, employees, government officials). Fundamentally, the difference comes down to incompatible moral perspectives, a clash of basic values.
In addition, life is still lived in the short run, and there are many occasions when something short of perfect conduct is a lot more profitable. Years later, there are people who will not go near a Sears Auto Center; the customers who lost trust in the company will never return, and many of their children may avoid Sears Auto Centers as well. A criminal case based on this shredding resulted in a conviction, later overturned by the Supreme Court. Others would recommend considering ethical problems from a variety of different perspectives. But the issue in most of these cost-benefit analyses is usually (1) put exclusively in terms of money and (2) directed to the benefit of the person or organization doing the analysis and not to the benefit of society as a whole. Kant therefore uses a€?universalizinga€? as a form of rational thought that assumes the inherent equality of all human beings.
But if everyone lied, then there would be no point to lying, since no one would believe anyone. One response might be, a€?Without government, there would be no corporations.a€? Thomas Hobbes believed that people in a a€?state of naturea€? would rationally choose to have some form of government. People can give up freedom-oriented rights (such as the right of free speech or the right to be free of unreasonable searches and seizures) to secure order (freedom from fear, freedom from terrorism). Etzioni was a founder of the Communitarian Network, which is a group of individuals who have come together to bolster the moral, social, and political environment. In Singapore during the 1990s, even indirect criticismsa€”mere hintsa€”of the political leadership were enough to land you in jail or at least silence you with a libel suit. Yet another is between economic or social rights (adequate food, work, and environment) and political or civic rights (the right to vote, the right to equal protection of the laws, the right to due process). Aristotle is often recognized as the first philosopher to advocate the ethical value of certain qualities, or virtues, in a persona€™s character.
The qualities on the second list have something in commona€”they are distinctively ethical characteristics. As for a company, its good reputation also has an incalculable value that when lost takes a great deal of time and work to recover.
They decide that on a cost-benefit basis, it makes more sense to wait until there are more accidents and more data. Keep promisesa€”keep your word, honor your commitments, and pay your debts; return what you borrow. For a business, one essential problem is that ethics can cost the organization money or resources, at least in the short term. Because the directors of a corporation do not meet that often, ita€™s possible for the officers hired (top management, or the a€?C-suitea€?) to be selective of what the board knows about, and directors are not always ready and able to provide the oversight that the shareholders would like.
In essence, managersa€™ legally prescribed duties are those that make their employment possible. If these are a€?social responsibilities,a€? they are the social responsibilities of individuals, not of business.
Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment.
The benefit of limited liability for shareholders of a corporation meant that larger pools of capital could be aggregated for larger enterprises; shareholders could only lose their investments should the venture fail in any way, and there would be no personal liability and thus no potential loss of personal assets other than the value of the corporate stock. That is, only through the consent of the state and armed with the charter granted by the state can a corporationa€™s shareholders have limited liability.
But there are others (such as advocates of stakeholder theoryThe view that all stakeholders to a corporate decision deserve some kind of moral consideration and that corporations that keep all stakeholders in mind will, over the long term, deliver superior results to shareholders.) who would say that a corporationa€™s social responsibilities go beyond just staying within the law and go beyond the corporationa€™s shareholders to include a number of other important stakeholders, those whose lives can be affected by corporate decisions. As Table 2.1 "The Stakes of Various Stakeholders" indicates, stakeholders have very different kinds of interests (a€?stakesa€?) in the actions of a corporation. People at the top tend to set the target, the climate, the beliefs, and the expectations that fuel behavior. Intentionally or not, those who told on others, or blew the whistle, have rocked the boat and become unpopular with those whose defalcations they report on and with the managers who dona€™t really want to hear the bad news.
If the message is not continuously reinforced, or (worse yet) if the message is undermined by managementa€™s actions, the real message to employees is that violations of the ethics code will not be taken seriously, or that efforts to stop racial discrimination or sexual harassment are merely token efforts, and that the important things are profits and performance. It dictates not only how people judge the worth of their company but also how they feel about themselves and the work that they are doing. The desire of some people within Sears & Roebuck Companya€™s auto repair division to win by gaining higher profits resulted in the situation portrayed here. As a management tool, Sears had also established quotas for each of their sales representatives to meet. Nor does Section 102(b)(7) immunize an aider and abettor from monetary liability for a board's breach of the duty of care—that is even when the board itself is exculpated from such liability. October 20, 2015), the Court of Chancery held the plaintiff stockholder's amended complaint stated a claim for relief against Tibco Software Inc.'s financial adviser for aiding and abetting the Tibco board's breach of the fiduciary duty of care in connection with a share count error that reduced the expected aggregate deal consideration in the merger of Tibco with a private equity fund. But, because Tibco's board was exculpated from liability for a breach of the duty of care under Tibco's charter, the court dismissed the plaintiff's duty-of-care claims against Tibco's directors.
The court explained that the failure to disclose this material information created an "informational vacuum" at a critical juncture when the board was still assessing its options in response to the share count error to possibly secure from Vista or Goldman Sachs some or all of the $100 million shortfall in the aggregate equity value.
We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website. Ethics would be morality as applied to any number of subjects, including journalistic ethics, business ethics, or the ethics of professionals such as doctors, attorneys, and accountants. These are hot-button issues because society is divided, not so much over facts, but over basic values. Here, we take a brief look at (1) utilitarianism, (2) deontology, (3) social justice and social contract theory, and (4) virtue theory. An action (or set of actions) is generally deemed good or right if it maximizes happiness or pleasure throughout society.
It considers all humans as equal, not in the physical, social, or economic sense, but equal before God, whether they are male, female, Pygmy, Eskimoan, Islamic, Christian, gay, straight, healthy, sick, young, or old.
When I have the job, I can prove that I was perfect for it, and no one is hurt, while both the employer and I are clearly better off as a result!) Kantian ethicists would answer that your chosen course of action should be a universal onea€”a course of action that would be good for all persons at all times.
It is only because honesty works well for society as a whole and is generally practiced that lying even becomes possible! If some amount of pollution can allow employment and the harm is minimal or distant, Kantian thinking is not all that helpful. Certain economists, such as the late Milton Friedman (see the sidebar in Section 2.4 "Corporations and Corporate Governance") also reject the notion that a corporation has a duty to give to unmet needs in society, believing that the government should play that role.
He called this the social contractThe idea that people in a civil society have voluntarily given up some of their freedoms to have ordered liberty with the assistance of a government that will support that liberty.
For example, many citizens in Russia now miss the days when the Kremlin was all powerful; there was less crime and more equality and predictability to life in the Soviet Union, even if there was less freedom. As LaRue Hosmer has noted, Aristotle saw the goal of human existence as the active, rational search for excellence, and excellence requires the personal virtues of honesty, truthfulness, courage, temperance, generosity, and high-mindedness. That is, they are commonly seen as moral or ethical qualities, unlike the qualities on the first list.
When asked what values people hold dear, what values they wish to be known by, and what values they wish others would exhibit in their actions, six values consistently turn up: (1) trustworthiness, (2) respect, (3) responsibility, (4) fairness, (5) caring, and (6) citizenship.
Moreover, it is possible to have and practice core ethical values even if you take on heavy debt, knock down several drinks a night, or have frequent premarital sex. Shell, Nike, and other companies have discovered that there is a market for morality, however difficult to measure, and that not paying attention to business ethics often comes at a serious price. After a hundred or more accidents and nearly fifteen fatalities, the company institutes a selective recall, still not notifying NHTSA, which has its own experts and the authority to order XYZ to do a full recall of all affected models. Doing the most ethical thing will often appear to be something that fails to maximize profits in the short term or that may seem pointless because if you or your organization acts ethically, others will not, and society will be no better off, anyway.
Nor does the law require officers to be shareholders, so that officersa€™ motivations may not align with the best interests of the company.
In terms of the legal organization of the corporation, the shareholders elect directors who hire managers, who have legally prescribed duties toward both directors and shareholders. Or that, at the expense of corporate profits, he is to hire a€?hardcorea€? unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty. Before New Jersey and Delaware competed to make incorporation as easy as possible and beneficial to the incorporators and founders, those who wanted the benefits of incorporation had to go to legislaturesa€”usually among the statesa€”to show a public purpose that the company would serve. This is a right granted by the state, a right granted for good and practical reasons for encouraging capital and innovation.
The corporate response was consistent with that code, which was lived and modeled by the top of the organization. Many companies will claim that it is one bad apple that has caused the problem; the guidelines invite these companies to show that they are in fact tending their orchard well. And, over time, it has clouded judgments about what is acceptable corporate behavior.Steven Pearlstein, a€?Debating the Enron Effect,a€? Washington Post, February 17, 2002.
The Court of Chancery recently had the opportunity to address whether a financial adviser may still be liable for aiding and abetting after a board's breach of the duty of care was dismissed under a Section 102(b)(7) exculpation provision in the company's charter. But, because the Tibco board's conduct after discovery of the share count error constituted at most a breach of its duty of care, the court dismissed the plaintiff's duty of care claims against the Tibco board itself under the Section 102(b)(7) exculpation provision in Tibco's charter. The court noted the "powerful incentive" of Goldman Sachs, having 99 percent of its fee contingent on the merger's consummation, to conceal this important information from the board to avoid jeopardizing the merger, or to avoid having the board seek a reduction of its fee. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.
We will venture a definition of ethics, but for our purposes, ethics and morality will be used as equivalent terms. Understanding the varied moral perspectives and values in public policy debates is a clarifying benefit in following or participating in these important discussions. Even before the conviction, many clients had found other accounting firms that were not under suspicion, and the Supreme Courta€™s reversal came too late to save the company.
We are leaving out some important perspectives, such as general theories of justice and a€?rightsa€? and feminist thought about ethics and patriarchy. Originally intended as a guide for legislators charged with seeking the greatest good for society, the utilitarian outlook may also be practiced individually and by corporations. There are two requirements for a rule of action to be universal: consistency and reversibility.
Finally, we should note that the well-known Golden Rule, a€?Do unto others as you would have them do unto you,a€? emphasizes the easier of the two universalizing requirements: practicing reversibility (a€?How would I like it if someone did this to me?a€?). Even the most dedicated free-market capitalist will often admit the need for some government and some forms of welfarea€”Social Security, Medicare, assistance to flood-stricken areas, help for AIDs patientsa€”along with some public goods (such as defense, education, highways, parks, and support of key industries affecting national security). Hobbes and Locke are generally regarded as the preeminent social contract theorists., where people give up certain rights to government in exchange for security and common benefits.
The use of reason leads to excellence, and so happiness can be defined as the active, rational pursuit of personal excellence, or virtue. You can be, like the Athenian Alcibiades, brilliant but unprincipled, or, like some political leaders today, powerful but dishonest, or wealthy but uncaring. Some would dispute this, saying that you cana€™t really lead a virtuous life if you get into debt, drink heavily, or engage in premarital sex. In the past fifteen years, the career of ethics and compliance officer has emerged, partly as a result of criminal proceedings against companies but also because major companies have found that reputations cannot be recovered retroactively but must be pursued proactively.
This is the a€?agency problema€? often discussed in corporate governance: how to get officers and other top management to align their own interests with those of the shareholders.
Those legally prescribed duties are a reflection of the fact that managers are managing other peoplea€™s money and have a moral duty to act as a responsible agent for the owners. But with this right comes a related duty, not clearly stated at law, but assumed when a charter is granted by the state: that the corporate form of doing business is legal because the government feels that it socially useful to do so. Consider James Alexander at Enron Corporation, who was deliberately shut out after bringing problems to CEO Ken Laya€™s attention.John Schwartz, a€?An Enron Unit Chief Warned, and Was Rebuffed,a€? New York Times, February 20, 2002.
Sears Auto Center sales also dropped about 15 to 20 percent after news of the scandal broke.
Accordingly, the court concluded that these allegations sufficiently pleaded that Goldman Sachs had aided and abetted the Tibco board's alleged breach of its fiduciary duty of care. Consider reversibility: if you make a decision as though you didna€™t know what role or position you would have after the decision, you would more likely make an impartial onea€”you would more likely choose a course of action that would be most fair to all concerned, not just you. In your own lives and in this course, you will see an ongoing balancing act between human desires for freedom and human desires for order; it is an ancient tension. You can, in short, have a number of admirable qualities (brilliance, power, wealth) that are not per se virtuous. But the point here is that since people do disagree in these areas, the ethical traits of thrift, temperance, and sexual abstinence do not have the unanimity of approval that the six core values do. For individuals, Aristotle emphasized the practice of virtue to the point where virtue becomes a habit. For example, a CEO might trade insider information to the detriment of the companya€™s shareholders.
When Sherron Watkins sent Ken Lay a letter warning him about Enrona€™s accounting practices, CFO Andrew Fastow tried to fire her.Warren Bennis, a€?A Corporate Fear of Too Much Truth,a€? New York Times, February 17, 2002. I could answer all of those questions with a yes, yet you would still not know any of his moral qualities.
Again, deontologyA theory that judges the morality of choices not by results (or a€?goodsa€?) but by adherence to moral norms.
Some commentators also see a kind of social contract between corporations and society; in exchange for perpetual duration and limited liability, the corporation has some corresponding duties toward society. Just because Harold is rich or good-looking or has a good sense of humor does not mean that he is ethical.
Even board members are susceptible to misalignment of interets; for example, board members might resist hostile takeover bids because they would likely lose their perks (short for perquisites) as directors, even though the tender offer would benefit stockholders.
But if I said that he was honest, caring, forthright, and diligent, volunteered in local soup kitchens, or tithed to the church, many people would see Daniel as having certain ethical or moral qualities.
The duty to act in accord with these norms is one that bears no relation to the expected consequences of the action. Also, if a corporation is legally a a€?person,a€? as the Supreme Court reaffirmed in 2010, then some would argue that if this corporate person commits three felonies, it should be locked up for life and its corporate charter revoked! But if Harold is honest and caring (whether he is rich or poor, humorous or humorless), people are likely to see him as ethical. Among other attempted realignments, the use of stock options was an attempt to make managers more attentive to the value of company stock, but the law of unintended consequences was in full force; managers tweaked and managed earnings in the bubble of the 1990s bull market, and a€?managing by numbersa€? became an epidemic in corporations organized under US corporate law. Friedman emphasized the primacy of this duty in his writings about corporations and social responsibility. If I said that he keeps the Golden Rule as well as anyone I know, you could conclude that he is an ethical person. The rights of shareholders can be bolstered by changes in state and federal law, and there have been some attempts to do that since the late 1990s. But if I said that he is a€?always in controla€? or a€?always at the top of his game,a€? you would probably not make inferences or assumptions about his character or ethics. But as owners, shareholders have the ultimate power to replace nonperforming or underperforming directors, which usually results in changes at the C-suite level as well.

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