Ethical Theory and Business EIGHTH EDITION Edited by Tom L. Beauchamp Georgetown University Norman E. Bowie University of Minnesota Denis G. Arnold University of Tennessee PEARSON Prentice Hall Pearson Education International Contents PREFACE xiv Chapter 1 ETHICAL THEORY AND BUSINESS PRACTICE 1 INTRODUCTION 1 FUNDAMENTAL CONCEPTS AND PROBLEMS 1 Morality and Ethical Theory 1 Morality and Prudence 3 Morality and Law 4 The Rule of Conscience 6 Approaches to the Study of Morality and Ethical Theory 7 Relativism and Objectivity of Belief 8 Moral Disagreements 11 The Problem of Egoism 13 NORMATIVE ETHICAL THEORY 18 Utilitarian Theories 18 Kantian Ethics 23 Contemporary Challenges to the Dominant Theories 30 Rights Theories 30 Virtue Ethics 33 Common-Morality Theories 35 vi Contents A Prologue to Theories of Justice 38 The Moral Point of View 39 Chapter 2 THE PURPOSE OF THE CORPORATION 45 INTRODUCTION 45 STOCKHOLDER MANAGEMENT VERSUS STAKEHOLDER MANAGEMENT Milton Friedman, The Social Responsibility of Business Is to Increase Its Profits 51 R. Edward Freeman, Managing for Stakeholders 56 John R. Boatright, What's Wrong—and What's Right—with Stakeholder Management 69 - Wayne F. Cascio, Decency Means More than "Always Low Prices": A Comparison of Costco to Wal-Mart's Sam's Club" 80 LEGAL PERSPECTIVES Michigan Supreme Court, Dodge v. Ford Motor Co. 90 Supreme Court of New Jersey, A. P. Smith Manufacturing Co. v. Barlow 92 Johnson & Johnson: Our Credo 94 CASES Case 1: The NYSEG Corporate Responsibility Program 95 Case 2: Outsourcing at Any Cost? Do Corporations Ever Have a Moral Obligation Not to Outsource? 98 Case 3: Merck and River Blindness 101 Case 4: H. B. Fuller in Honduras: Street Children and Substance Abuse 102 Case 5: From Tension to Cooperative Dialogue: Holcim 104 Suggested Supplementary Readings 106 Chapter 3 ETHICAL TREATMENT OF EMPLOYEES 107 INTRODUCTION 107 THE HIRING AND FIRING OF EMPLOYEES Patricia H. Werhane and TaraJ. Radin, Employment at Will and Due Process 113 Richard A. Epstein, In Defense of the Contract at Will 121 Contents vii OCCUPATIONAL RISK Ruth R. Faden and Tom L. Beauchamp, The Right to Risk Information and the Right to Refuse Workplace Hazards 129 John R. Boatright, Occupational Health and Safety 136 WHISTLE-BLOWING Michael Davis, Some Paradoxes of Whistle-Blowing 147 Ronald Duska, Whistle-Blowing and Employee Loyalty 155 LEGAL PERSPECTIVES Superior Court of New Jersey, Warthenv. Toms River Community Memorial Hospital 159 United States Supreme Court, Automobile Workers v. Johnson Controls Inc. 164 Superior Court of New Jersey, Potter v. Village Bank of New Jersey 167 CASES Case 1: Off-Duty Smoking 171 Case 2: Fired for Drinking the Wrong Brand of Beer 172 Case 3: Exposing Workers to Plutonium 172 Case 4: BP Workers Ill-Trained for Dangers 173 Case 5: Roger Boisjoly and the Challenger Disaster: Disloyal Employee or Courageous Whistle-Blower? 175 Case 6: The Reluctant Secur ...

1. Ethical Theory
and Business
EIGHTH EDITION
Edited by
Tom L. Beauchamp
Georgetown University
Norman E. Bowie
University of Minnesota
Denis G. Arnold
University of Tennessee
PEARSON
Prentice
Hall
Pearson Education International
Contents
PREFACE xiv
Chapter 1
ETHICAL THEORY AND BUSINESS PRACTICE 1

2. INTRODUCTION 1
FUNDAMENTAL CONCEPTS AND PROBLEMS 1
Morality and Ethical Theory 1
Morality and Prudence 3
Morality and Law 4
The Rule of Conscience 6
Approaches to the Study of Morality and Ethical Theory 7
Relativism and Objectivity of Belief 8
Moral Disagreements 11
The Problem of Egoism 13
NORMATIVE ETHICAL THEORY 18
Utilitarian Theories 18
Kantian Ethics 23
Contemporary Challenges to the Dominant Theories 30
Rights Theories 30
Virtue Ethics 33
Common-Morality Theories 35
vi Contents
A Prologue to Theories of Justice 38
The Moral Point of View 39
Chapter 2
THE PURPOSE OF THE CORPORATION 45
INTRODUCTION 45
STOCKHOLDER MANAGEMENT VERSUS STAKEHOLDER
MANAGEMENT
Milton Friedman, The Social Responsibility of Business Is to

3. Increase Its Profits 51
R. Edward Freeman, Managing for Stakeholders 56
John R. Boatright, What's Wrong—and What's Right—with
Stakeholder Management 69
- Wayne F. Cascio, Decency Means More than "Always Low
Prices": A Comparison of Costco
to Wal-Mart's Sam's Club" 80
LEGAL PERSPECTIVES
Michigan Supreme Court, Dodge v. Ford Motor Co. 90
Supreme Court of New Jersey, A. P. Smith Manufacturing Co.
v. Barlow 92
Johnson & Johnson: Our Credo 94
CASES
Case 1: The NYSEG Corporate Responsibility Program 95
Case 2: Outsourcing at Any Cost? Do Corporations Ever Have a
Moral Obligation Not
to Outsource? 98
Case 3: Merck and River Blindness 101
Case 4: H. B. Fuller in Honduras: Street Children and Substance
Abuse 102
Case 5: From Tension to Cooperative Dialogue: Holcim 104
Suggested Supplementary Readings 106
Chapter 3
ETHICAL TREATMENT OF EMPLOYEES 107
INTRODUCTION 107

4. THE HIRING AND FIRING OF EMPLOYEES
Patricia H. Werhane and TaraJ. Radin, Employment at Will and
Due Process 113
Richard A. Epstein, In Defense of the Contract at Will 121
Contents vii
OCCUPATIONAL RISK
Ruth R. Faden and Tom L. Beauchamp, The Right to Risk
Information and the Right
to Refuse Workplace Hazards 129
John R. Boatright, Occupational Health and Safety 136
WHISTLE-BLOWING
Michael Davis, Some Paradoxes of Whistle-Blowing 147
Ronald Duska, Whistle-Blowing and Employee Loyalty 155
LEGAL PERSPECTIVES
Superior Court of New Jersey, Warthenv. Toms River
Community Memorial
Hospital 159
United States Supreme Court, Automobile Workers v. Johnson
Controls Inc. 164
Superior Court of New Jersey, Potter v. Village Bank of New
Jersey 167
CASES

5. Case 1: Off-Duty Smoking 171
Case 2: Fired for Drinking the Wrong Brand of Beer 172
Case 3: Exposing Workers to Plutonium 172
Case 4: BP Workers Ill-Trained for Dangers 173
Case 5: Roger Boisjoly and the Challenger Disaster: Disloyal
Employee or Courageous
Whistle-Blower? 175
Case 6: The Reluctant Security Guard 177
Case 7: A Matter of Principle 180
Suggested Supplementary Readings 181
Chapter 4
DIVERSITY, DISCRIMINATION AND HARASSMENT
IN THE WORKPLACE 184
INTRODUCTION 184
DIVERSITY AND AFFIRMATIVE ACTION
Tom L. Beauchamp, Affirmative Action Goals in Hiring and
Promotion 194
N. Scott Arnold, Affirmative Action and the Demands of Justice
202
James P. Sterba, A Defense of Diversity Affirmative Action 212
George Sher, Diversity 219
SEXUAL HARASSMENT
Larry May, Sexual Harassment and Solidarity 227
Jaimie Leeser and William O'Donohue, Normative Issues in
Defining Sexual Harassment 236

6. viii Contents
LEGAL PERSPECTIVES
United States Supreme Court, Local 28 of the Sheet Metal
Workers' International Association
v. Equal Employment Opportunity Commission 244
United States Supreme Court, Barbara Grutter, Petitioner, u Lee
Bollinger et al. 249
Justice Sandra Day O'Connor, Opinion of the Court 249
Justice Clarence Thomas, Dissenting Opinion 253
Brief for Amid Curiae: 65 Leading American Businesses in
Support of Respondents 255
United States Supreme Court, Meritor Savings Bank, FSB, v.
Vinson et al. 258
United States Supreme Court, Teresa Harris, Petitioner, v.
Forklift Systems Inc. 262
CASES
Case 1: How Would You Vote if You Lived in Michigan? 264
Case 2: Sing's Chinese Restaurant 266
Case 3: Kaiser Aluminum and the United Steelworkers 266
Case 4: Promotions at Uptown Bottling and Canning Company
267
Case 5: Freedom of Expression in the Workplace 268
Case 6: "Harassment" at Brademore Electric 269
Suggested Supplementary Readings 270
Chapter 5
MARKETING AND THE DISCLOSURE OF INFORMATION
273

7. INTRODUCTION 273
ADVERTISING AND DISCLOSURE
Robert L. Arrington, Advertising and Behavior Control 284
David M. Holley, Information Disclosure in Sales 290
MARKETING
George G. Brenkert, Marketing and the Vulnerable 297
Carl Elliott, The Drug Pushers 307
LEGAL PERSPECTIVES
United States Court of Appeals for the First Circuit, Irving A.
Backman u Polaroid
Corporation 317
United States Court of Appeals for the Seventh Circuit, B.
Sanfield Inc. v. FinlayFine
Jewelry Corp. 320
United States Court of Appeals for the Second Circuit, Coca-
Cola Company v. Tropicana
Products Inc. 323
Supreme Court of California, Kasky v. Nike Inc. 325
The Pharmaceutical Research and Manufacturers of America,
Code on Interactions
with Health-Care Professionals 328
Contents

8. CASES
Case 1: More HorsePOWER? 331
Case 2: Advice for Sale: How Companies Pay TV Experts for
On-Air Product Mentions 331
Case 3: Sales at World Camera and Electronics 336
Case 4: Hucksters in the Classroom 336
Case 5: Kraft Foods Inc.: The Cost of Advertising on Children's
Waistlines 339
Case 6: Marketing Malt Liquor 344
Case 7: Merck & Company: The Vioxx Recall 345
Suggested Supplementary Readings 350
Chapter 6
ETHICAL ISSUES IN FINANCE AND ACCOUNTING 352
INTRODUCTION 352
AUDITING AFTER ENRON
Ronald F. Duska and Brenda Shay Duska, Ethics in Auditing:
The Auditing
Function 355
Colin Boyd, The Structural Origins of Conflicts of Interest in
the Accounting
Profession 364
John R. Boatright, Individual Responsibility in the American
Corporate System: Does
Sarbanes-Oxley Strike the Right Balance? 373
"FINANCIAL SERVICES
John R. Boatright, Ethical Issues in Financial Services 387

9. Robert W. McGee, Applying Ethics to Insider Trading 395
LEGAL PERSPECTIVES
United States Supreme Court, United States, Petitioner, v.
James Herman
O'Hagan, 402
American Institute of Certified Public Accountants, Code of
Professional
Conduct 405
CASES
Case 1: An Auditor's Dilemma 408
Case 2: Accounting for Enron 409
Case 3: Enron and Employee Investment Risk 414
Case 4: The Conventions of Lying on Wall Street 415
Case 5: Martha Stewart Living Omnimedia Inc.: An Accusation
of Insider Trading 416
Suggested Supplementary Readings 421
x Contents
Chapter 7
ETHICAL ISSUES REGARDING EMERGING
TECHNOLOGIES 423
INTRODUCTION 423
INFORMATION AND THE WORLD WIDE WEB
Deborah G. Johnson, Privacy 428

10. Jeffery D. Smith, Internet Content Providers and Complicity in
Human
Rights Abuse 442
Richard T. De George, Intellectual Property and the Information
Age 455
PHARMACEUTICAL PATENTS
Richard T. De George, Intellectual Property and Pharmaceutical
Drugs: An Ethical
Analysis 465
Patricia H. Werhane and Michael E. Gorman, Intellectual
Property Rights, Moral
•Imagination, and Access to Life-Enhancing Drugs 477
LEGAL PERSPECTIVES
United States Supreme Court, Sony Corp. v. Universal City
Studios Inc. 486
United States District Court for the Northern District of
California, A&M Records
v. Napster 491
World Trade Organization, Agreement on Trade-Related
Aspects of Intellectual Property
Rights 498
World Trade Organization, Declaration on the TRIPS
Agreement and Public Health 501
CASES
Case 1: Privacy Pressures: The Use of Web Bugs at
HomeConnection 502

11. Case 2: Spiders at the Auction 504
Case 3: Ditto.com 505
Case 4: Patents and the African AIDS Epidemic 507
Case 5: Aventis: Partnerships for Health 509
Suggested Supplementary Readings 510
Chapter Eight
ETHICAL ISSUES REGARDING THE NATURAL
ENVTROMENT 512
INTRODUCTION 512
BUSINESS AND ENVIRONMENTAL OBLIGATIONS
Norman E. Bowie, Morality, Money and Motor Cars 516
Denis G. Arnold and Keith Bustos, Business, Ethics, and Global
Climate Change 523
Contents 3
Joseph Desjardins, -Sustainability: Business's New
Environmental Obligation 533
Dennis R. Cooley, Genetically Modified Organisms and
Business Duties 541
LEGAL PERSPECTIVES
United States Supreme Court, United States, Petitioner, v. Best
Foods et al. 547
United States Supreme Court, Christine Todd Whitman,
Administrator of Environmental
Protection Agency et al., Petitioners, v. American Trucking

12. Associations, Inc., et al. 550
CASES
Case 1: Royal Caribbean: Exotic Promises and Toxic Waters
553
Case 2: Texaco in the Ecuadorean Amazon 555
Case 3: BP: Beyond Petroleum Spills? 558
Case 4: Maintaining a Seat at the Table: The Shell Group 562
Case 5: Interface Corporation and Sustainable Business 565
Case 6: Monsanto's Roundup Ready Wheat 566
Suggested Supplementary Readings 569
Chapter 9
ETHICAL ISSUES IN INTERNATIONAL BUSINESS 571
INTRODUCTION 571
UNIVERSALISM, RELATIVISM, AND HUMAN RIGHTS
Norman E. Bowie, Relativism and the Moral Obligations of
Multinational
Corporations 577
Denis G. Arnold, The Human Rights Obligations of
Multinational Corporations 583
Patricia H. Werhane, Exporting Mental Models: Global
Capitalism in the Twenty-First
Century 590
SWEATSHOPS AND BRIBERY
Ian Maitland, The Great Non-Debate over International
Sweatshops 597

13. Denis G. Arnold and Norman E. Bowie, Sweatshops and
Respect for Persons 608
David Hess and Thomas Dunfee, Taking Responsibility for
Bribery: The Multinational
Corporation's Role in Combating Corruption 624
LEGAL PERSPECTIVES
Supreme Court of Texas, Dow Chemical Company and Shell Oil
Company v. Domingo Castro
Alfaro et al. 633
United States Court of Appeals for the Ninth Circuit, Doe 1 v.
Unocal 638
United Nations, Draft Norms on the Responsibilities of
Transnational Corporations
and Other Business Enterprises with Regard to Human Rights
(2003) 644
United Nations, Global Compact 647
xii Contents
CASES
Case 1: Foreign Assignment 648
Case 2: Facilitation or Bribery: Cultural and Ethical Disparities
650
Case 3: Chrysler and Gao Feng: Corporate Responsibility for
Religious and Political
Freedom in China 651
Case 4: Should Wal-Mart Do More?: A Case Study in Global

14. Supply Chain Ethics 653
Case 5: adidas: Application of Standards of Engagement to
Child Labor Dilemma 657
Case 6: Tackling HIV/AIDS: Unilever Tea Kenya 661
Suggested Supplementary Readings 663
Chapter 10
SOCIAL AND ECONOMIC JUSTICE 665
INTRODUCTION 665
THEORIES OF SOCIAL JUSTICE
John Rawls, An Egalitarian Theory of Justice 674
Robert Nozick, The Entitlement Theory 682
Peter Singer, Rich and Poor 686
COMPENSATION
Jeffrey Moriarty, Do CEOs Get Paid Too Much? 692
GLOBAL JUSTICE
Martin Wolf, Why Globalization Works 702
Thomas Pogge, Priorities of Global Justice 712
LEGAL PERSPECTIVE
United Nations, Universal Declaration of Human Rights 722
CASES
Case 1: Sapora's Patriarchical Society 725
Case 2: Cocaine at the Fortune 500 Level 726
Case 3: CEO Compensation at Qwest 728

15. Case 4: Wages of Failure: The Ethics of Executive
Compensation 729
Case 5: Covering the Costs of Health Care 731
Suggested Supplementary Readings 732