BADM 2133 UNIT 6

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BADM 2133 UNIT 6

  1. 1. Business Ethics: Cases andSelected Readings, 7th Ed.Marianne M. JenningsUnit 6© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible
  2. 2. The Parallels in Safety vs.Financial Books• One set of books is disclosed; the other is not• One reflects real performance; the other doesnot• Both sets are relevant to determining how thecompany is doing• If both sets emerge, the public trust will belost• Two sets is a nonsustainable strategy© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible247
  3. 3. The Parallels in Safety vs.Financial Books• Company focuses on what’s reported, notwhat’s real and believes those results• When information becomes public, companywill need to address the issue, usually withregulatory oversight• There is always a minefield waiting whenthere is nondisclosure© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible248
  4. 4. Cintas & ResultsPressure: Probability of anethical outcome from theFinancial Analysts InstituteP = f(x)x = amount of money involved© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible249
  5. 5. Cintas and Tension“Since these events, we’ve been cooperating withOSHA as its inspectors reviewed these incidents –working with inspectors as they studied thewashroom equipment, interviewedemployees, examined each person’s actions, andreviewed our policies and training records. It’simportant to note that much of what theinspectors found was in compliance, reflecting ourlong-standing commitment to workplace safety.”Company statement released upon settlement of case andagreement to pay 90% of proposed fine of $2.78 million© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible250
  6. 6. Aaron Feuerstein on Ethics• “In a situation where there is no righteousperson, try to be a righteous person.”• “Not all who increase their wealth are wise.”© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible251
  7. 7. Automakers and Wages• Average for US workers• Toyota• Honda• Hyundai• With benefits (non-Detroit)• With benefits (Detroit)• $28.42 per hour• $26 per hour• $24 per hour• $21 per hour• $44.20 per hour• $73.21 per hour© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible252Center for Automotive Research
  8. 8. Pensions and Auto Industry• Ratio of UAW retirees to UAW workers: 3:1• GM ratio: 4.6 to 1© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible253
  9. 9. Auto Market Shares© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible254
  10. 10. © 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible255JCPenney Buyer andCategories of Ethical Breaches• Taking things that don’t belong to you• Personal decadence• Conflicts of interest• False impressions• Interorganizational abuse
  11. 11. © 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible256JCPenney Buyer: Who WasAffected?• Shareholders of Penney’s• Penney’s customers• Other buyers• Other vendors, suppliers, manufacturer’sreps• Penney’s employees• Locklear’s family(ies?)
  12. 12. Stuff and Conflicts• Believe in conflicts of interest!• We are influenced by stuff.• Remember the two ways to manage a conflict:– Don’t– Disclose© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible257
  13. 13. Stuff and Peter Lynch“In asking the Fidelity equity trading desk foroccasional help locating tickets, I neverintended to do anything inappropriate and Iregret having made those requests.”U2SantanaGolfNutcrackerLion King© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible258
  14. 14. Resistance to Stuff as a Conflict“He doesn’t deserve to be lumped in with thisother crowd. It was only tickets; it wasn’texpensive cases of Bordeaux or trips on jetslike these other cases.”“[The Ryder Cup] has some real historicalsignificance to Mr. Lynch because he used tocaddy there.”Doug Bailey, spokesperson for Fidelity© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible259
  15. 15. Tone at the Top“The tone is set at the top. If higher-ups request ticketsfrom a trading desk, it may send a message to thetraders that such misconduct is tolerated and couldcontribute to the breakdown of the complianceculture on the desk.”Walter Ricciardi, SEC deputy director of enforcement on Peter Lynchof Fidelity asking trading desk to get him $15,948 in tickets(U2, Santana, Lion King, and golf tournaments)Kara Scannell, Susanne Craig, and Jennifer Levitz, “’Gifts’ Case Nabs aStar,” Wall Street Journal, March 6, 2008, pp. C1 and C3.© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible260
  16. 16. Enforcement is Absolute,Unequivocal, and Egalitarian“If the janitor had taken the liquor, hewould have been fired.”Student’s observation on discussion oftolerance for a manager who “borrowed”three bottles of vodka on a Friday night for herbirthday party after work and brought inreplacements on Monday morning.© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible261
  17. 17. © 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible262Perks for Doctors from Pharmas• An event called “Why Cook?” in which doctors are given the chanceto review drug studies and product information at a restaurant astheir meals are being prepared – they can leave as soon as theirmeals are ready and they are treated to appetizers and drinks asthey wait• An event at Christmas tree lots at which doctors can come andreview materials and pick up free Christmas trees• Flowers sent to the doctors’ offices on Valentine’s Day withmaterials attached• Manicures/pedicures as they study materials on new drugs• Free car washes during which they can study materials• Free books with materials enclosed• Free CDs with materials attached• Bottles of wine sent with materials attached• Events at Barnes & Noble where doctors can browse and pick out abook for themselves for free so long as they take along somematerials on a new drug
  18. 18. Docs, Pharmas, and Conflicts• Human nature is human nature: The Pizza Studies– One minute over pizza with salespersons increases theirsales to you by 16%– Five minutes over pizza with salespersons increases theirsales to you by 52%• There are only two ways to manage a conflict ofinterest:– Don’t do it– Disclose• The fact that you say, “I would not be influenced bythat” is proof of the conflict. It is not a justificationfor not doing it or not disclosing it.© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible263
  19. 19. Avandia and Compensation• “I have not given any talk to doctors’ groupspromoting Avandia.”– Dr. David Capuzzi, member of FDA AdvisoryCommittee that dealt with question of whether toallow Avandia to remain on the market– Avandia is a GlaxoSmithKline product– Dr. Capuzzi had accepted compensation fromGlaxoSmith Kline for speeches to doctor’s groupson Glaxo products© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessiblewebsite, in whole or in part.264
  20. 20. A Quick Look at Jack Grubmanand Stuff Writ Large• The Bargain with Sandy Weill for AT&T help• A follow-up e-mail from Mr. Grubman to CarolCutler, another New York analyst, connectedthe dots:I used Sandy to get my kids in the 92nd Street Y pre-school (which is harder than Harvard) and Sandyneeded Armstrong’s vote on our board to nukeReed in showdown. Once the coast was clear forboth of us (i.e., Sandy clear victor and my kidsconfirmed) I went back to my normal self on AT&T.© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessiblewebsite, in whole or in part.265
  21. 21. Facebook, YouTube, and Privacy“In today’s online world, what our mother toldyou is true, only more so: people can reallyjudge you by your friends.”“Quotation of the Week,” New York Times, March21, 2010, p. SB2.© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible266
  22. 22. None of Our Business?Office and company• Harry Stonecipher/Boeing• Dennis Kozlowski/Tyco• Richard Scrushy/HealthSouth• Mark Hurd/HPActivity• Affair with an employee; e-mails of questionablejudgment• Affair; use of companyfunds for donations andpersonal expenses• Use of company funds forpersonal expenses; threemarriages; rock band• Improper relationship withvendor; travel expenses© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible267
  23. 23. Impact of Personal Conduct• Drop in share price (HP)• Perceived higher risk in market place (Boeing)• Loss of leadership credibility with employees• Loss of executive without adequate time fortransition and succession planning (HP; Boeing)• Questions about company information andtrustworthiness; credibility among stakeholders• Distraction to company efforts and strategy• Possible attention of regulators focused oncompany (SEC and Welch)© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible268
  24. 24. Randi W Case:Employment History• Mendota District• Tranquility District• Golden Plains District• Muroc District• Livingstone District• “Sexual remarks”;“sexual situations”• “Panty raid”; “sexualremarks”; “sexualovertures”• “Parent complaints”• “Sexual touching”allegations• “Molested andtouched Randi W”© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible269
  25. 25. Confrontation Principles• Determine the facts• If you don’t know the facts or cannotdetermine the facts, present the issue tothose affected• Always give the opportunity for self-remedy• Don’t fear failure and hassle© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible270
  26. 26. © 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible271Hopkins and the EvaluationLanguage“Deft touch” “overly aggressive”“Outstanding professional” “unduly harsh”“strong character, independence, “difficult to work with”integrity”“extremely competent, intelligent”“impatient with staff”“macho”“strong and forthright”“overcompensated for being a woman”“very productive, energetic, creative”“needs to take a course at charm school”“intellectual clarity”“lady using foul language”“stimulating conversationalist”“appealing lady partner candidate”“highly competent”“walk more femininely, talk more femininely, dressmore femininely, wear make-up, have her hairstyled, and wear jewelry”
  27. 27. Damage to Prince William Sound:Spill covered 1,000 square miles1,000 dead otters34,400 dead sea birds151 Bald EaglesFishing industryDamages Assessed and Costs to Exxon:$2 billion clean-up$50,000 fine - Hazelwood800 civil suits still pending$287 million to 180,000 fishers(settlement)$1.5 billion for damages to wildlife$1.15 billion fine (criminal case by U.S.and Alaska)$900,000,000 (civil case by U.S. andAlaska)$9.7 million for damages to NativeAmerican land$20 million to native Alaskans fordamages to their villages$4.5 billion punitive damage (afterlengthy litigation)© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible272Exxon and Valdez
  28. 28. BP Texas City Refinery Issues• 15 deaths; 170 workers injured• 4,000 suits totaling $2.1 billion in damages• OSHA found 271 safety violations at the plantprior to the explosion (unaddressed)• After the explosion, OSHA found 439 “willful andegregious violations”• $87 million OSHA fine (4X the last largest fine)• $50 million fine to EPA• Maintenance budget cut each year© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible273
  29. 29. Findings on BP AtlantisProblems: Consultant’s Report• “Put off repairing the pump in the context of atight cost budget.”• “Leadership did not clearly question the safetyimpact of the delay in repair.”• Employee safety officer: “You only ever gotquestioned on why you couldn’t spend less.”© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessiblewebsite, in whole or in part.274
  30. 30. BP Headlines• “BP Crew Focused on Costs,” Wall Street Journal, June 15, 2010, p. A1.• “Unusual Decisions Set Stage for BP Disaster,” Wall Street Journal, May27, 2010, p. A1.• “Oil Execs: BP Didn’t Meet Standards,” USA Today, June 16, 2010, p. 1B.• “Members of Past Disaster Panels See Recurring Pattern,” Wall StreetJournal, June 16, 2010, p. A4.• “The Five Shortcuts That Prioritized Time and Money Over Safety,” WallStreet Journal, June 16, 2010, p. A4.• “BP Chose Riskier of Two Options for Well Casing,” Wall StreetJournal, May 27, 2010, p. A1.• “Safety and Cost Drives Clashed As CEO Hayward Remade BP,” Wall StreetJournal, June 30, 2010, p. A1.• “BP Relied on Cheaper Wells,” Wall Street Journal, June 19-20, 2010, p.A1.© 2012 Cengage Learning. All Rights Reserved. May not bescanned, copied or duplicated, or posted to a publicly accessible275

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