BADM 2133 UNIT 3

Business Ethics: Cases and
Selected Readings, 7th Ed.
Marianne M. Jennings
Unit 3
© 2012 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.

91
Milton Friedman
• The primary responsibility of a corporation is
to__________________________.
• Managers as agents
• Business and the political processes
• When is voluntary action appropriate?
• What is the relationship between government
and business?

92
R. Edward Freeman
• Stakeholders
• Who are they?
• How do we weigh in with them?
• What is the goal of stakeholder theory?

93
Freeman’s Stakeholders

Entine and Jennings
1. Does the company comply with the law?
2. Does the company have a sense of
propriety?
3. How honestly do product claims match with
reality?
4. How forthcoming is the company with
information?
94© 2012 Cengage Learning. All Rights Reserved. May not be

Entine and Jennings (cont’d)
5. How does the company treat its employees?
6. How does the company handle third-party
ethics issues?
7. How charitable is the company?
8. How does the company react when faced
with negative disclosures?

96
Robert Halfon
• Why do corporations engage in social
responsibility?
• What impact does social responsibility have
on a corporation’s virtue ethics?

97
Michael Novak’s
Contrasting Stakeholders
• The Homestead Act Stakeholder: Property
ownership, work, and freedom from
government control
• Social Democracy Stakeholder: Those who
deem themselves entitled to make demands
on the system and receive from it

98
Michael Novak on the
Corporation in Society
“The corporation is what it is and does what it
does; but it is an invention of free people, not
a cold meteor fallen from the skies.”

99
Marjorie Kelly –
Divine Right of Capital
• What is the current relationship between
shareholders, employees, and corporations?
• What issues, problems, inequities, does Kelly
believe results from these interrelationships?
• What data does she use to support her hypotheses?
• What changes does Kelly believe should be made?
• Are there flaws in Kelly’s reasoning and reforms?

100
Kelly – 6 and 6
• Economic Aristocracy
– Worldview
– Privilege
– Property
– Governance
– Liberty
– Sovereignty
• Economic Democracy
– Enlightenment
– Equality
– Public Good
– Democracy
– Justice
– Evolution

101
Schools of Thought on
Social Responsibility
Moral question: Whose
interest should corporation
serve?
Policy question: Best way to
serve interest is if the
corporation is responsive to:
Inherence Shareholders only Shareholders only
Enlightened
Self-Interest
Shareholders only Larger society
Invisible Hand Larger society Shareholders only
Social
Responsibility
Larger society Larger society
Adapted with permission of American Business Law Journal from D. Hatano, “Should Corporations
Exercise Their Freedom of Speech Rights?” 22 A.B.L.J. 165 (1984).

102
A Few Quiz Questions
What CEO said, “We are the good guys. We are
on the side of angels.” and “We are doing God’s
work here”?

Jeffrey Skilling – while CEO of
Enron, circa 2000
Lloyd Blankfein – CEO, Goldman
Sachs, November 2009
103

104
“My integrity is intact.”

105
Former Arthur Andersen
CEO, Joe Berardino
Following Enron’s, WorldCom’s, Waste
Management’s, Baptist
Foundation’s, Global
Crossing’s, Sunbeam’s, etc. collapses

106
Guess Who Said It?
"Ethical standards and practices in the
workplace are the pillars of successful
employment and ultimately the benchmark
for a strong business."

107
Franklin Raines, former CEO of
Fannie Mae (ousted in 2005)
Final report on what went wrong
concludes: “[management was]
manipulating earnings and creating an
‘unethical and arrogant culture’”

108
Guess Who Said It!
“It’s more than just money. You’ve got to give
back to the community that supported you.”

109
John Rigas, former CEO of
Adelphia,
Convicted of embezzlement,
15-year sentence

Guess Who Said It!
“Go after the men who seek out
prostitutes.”
110

Eliot Spitzer, 2004, as New York
Attorney General in setting up a
special task force and new laws to
end prostitution in New York
111

Guess Who Said It?
“I have done absolutely nothing
wrong.”
112

Rod R. Blagojevich,
former governor of Illinois
113

Guess Who Said It!
“In today’s regulatory environment,
it’s virtually impossible to violate
the rules. It’s impossible for a
violation to go undetected,
certainly not for a considerable
period of time.”
114

Bernie Madoff: October 7, 2007

Guess Who Said It!
“Embezzlement cannot be condoned in any
manner. [n]ot only did he steal from the
stockholders . . . But he breached the fiduciary
duty placed in him. Wrongdoing of this nature
against society is considered a grave matter. . .
[h]e should receive the maximum sentence.”
116

117

118
Guess Who Said It!
“I have the highest ethical standards.”

119
Dr. William McGuire
Former CEO United Health Group, to his
board when confronted by it with an
investigation that revealed backdating on
one-half billion in his stock options

120
Guess Who Said It?
“We have ethics here.”

121
Ellen Frishberg
Former student loan director at Johns
Hopkins, in an interview with the
Baltimore Sun, one month before she was
placed on leave after the discovery that
she had $130,000 in consulting
arrangements with the university’s
preferred lenders. She has resigned.

122Time
Latency Awareness Activism Regulation/Litigation
Social/Regulatory/Litigation Cycle
Public
Moves
the
Cycle

123
Regulatory Cycle: Time and
Options
COST
TIME
OPTIONS

124
Cell Phone Distractions

FOAs at Countrywide
NAME/TITLE AMOUNT RATE YEARS
Franklin Raines $982,253 5.125% 10
Former CEO $986,340 4.125% 10
Fannie Mae
Jamie Gorelick $960,149 5.00% 10
Vice Chair
Fannie Mae
James Johnson $971,650 3.875% 3
Former CEO
Fannie Mae
Daniel Mudd $2,965,000 4.250% 7
COO/CEO
Fannie Mae
125

Countrywide Mortgage
• Directors’ friends were given breaks on
interest rates and lending policies
• Management gave the board members a
great many perks
• Management also gave friends favorable
loans (FOAs: Friends of Angelo)
• Company was intertwined with regulators
through campaign contributions and close
friendships
126

The A-Rod Explanation
“I knew we weren’t taking Tic Tacs.
. . . I wanted to prove to everyone
that I was worth, you know, and
being one of the greatest
baseball players of all time.”
Alex Rodriguez on his steroid use from 2001-2003

Two People Under Pressure, Together
“Clemens was determined to prove he wasn’t fading,
and McNamee, having just arrived at the Show, was
committed to staying there. So there would be other
injections, but with the first one the two men crossed
a stark line into territory they would never escape.
Clemens became a cheater, and McNamee became his
enabler.”
Teri Thompson, Nathaniel Vinton, Michael O’Keeffe,
and Christian Red, American Icon: The Fall of Roger
Clemens and the Rise of Steroids in America’s
Pastime, Alfred Knopf (2009)
128

129
The Great Disposable
Diaper Debate
PRO CON
Only 2% of solid waste 7,800 diapers/child
Greater environmental 2-5 years for plastic to break down
impact of cloth if energy
and water laundry 20 states regulate municipal in
included regulations
4 of 5 Americans prefer
disposable

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BADM 2133 UNIT 3