Moral Choices Facing Employees

1. Moral Choices Facing Employees
Chapter 8

2. Overview
 Chapter Ten examines the following topics:
(1) Employees’ obligations to the firm, company loyalty, and the problem of
conflicts of interest.
(2) Insider trading or use of proprietary data.
(3) Domestic and foreign bribery, gifts, kickbacks.
(4) Obligations to third parties and the problem of conflict of duties and
divided loyalties.
(5) Whistle-blowing and its morality.
(6) Self-interest in situations of tough moral choices.

3. Introduction
 Whistle-blowing has become a significant part of the American
workplace.
 It is based on an employee’s right to blow the whistle on a company’s
wrongdoings.
 Questions regarding the employee’s moral duty and possible negative
consequences are always involved.
 What rights do whistle-blowers have?
 What responsibilities do companies have regarding whistle-blowing?

4. Obligations to the Firm
 Loyalty to the firm: The employment contract governs employer-
employee relationships and provides a framework for respective
obligations of employer and employee.
 The notion of company loyalty is commonplace, considered a
coherent and legitimate concept.
 Loyalty requires reciprocity, and workers commonly believe that
it is up to the company to earn and retain their loyalty.

5. Obligations to the Firm
 Conflicts of interest arise when employees have a personal
connection to a transaction – one substantial enough that it might
affect their judgment or lead them to act against the interests of
the organization.
 They are morally worrisome even if the person doesn’t act to the
detriment of the employer.
 Employees should promptly extricate themselves from such
conflicts or avoid them from the start.

6. Obligations to the Firm
 Financial investments: Conflicts of interest may exist when
employees have financial investments in suppliers, customers, or
distributors with whom their organizations do business.
 There is no simple answer as to how much of a financial
investment it takes to create a conflict of interest.
 Company policy usually determines the permissible limits of such
financial interests.

7. Abuse of Official Position
 Using one’s official position for personal gain is likely to violate
one’s obligations to the organization.
 Example: Using corporate funds for private purposes such health
club memberships, extravagant parties, vacation travel, etc.
 Insider trading: The buying or selling of stocks on the basis of
nonpublic information that is likely to affect their price.

8. Abuse of Official Position
 Inside traders defend their actions by claiming that they don’t
injure anyone.
 It’s true that trading by insiders on the basis of nonpublic
information seldom directly harms anyone.
 But moral concerns arise from both indirect injury and direct
injury.

9. Abuse of Official Position
 Insiders and “Misappropriation”: The Securities and Exchange
Commission (SEC) has recently argued that people who trade on
confidential information, but are not traditional company
insiders, are still guilty of insider trading if they have
“misappropriated” sensitive information.

10. Abuse of Official Position
 Critics of insider trading argue that:
 (a) It is unfair.
 (b) It can injure other investors.
 (c) It undermines public confidence in the stock market.
 Defenders say that it performs a necessary and desirable
economic function.
 But executives who do this put their own interests before those of
the company and its shareholders.

11. Abuse of Official Position
 Proprietary data: Companies zealously guard information that
may affect competitive standing.
 Patented or copyrighted information: Novel information that it is
legally protected but not secret – others may access it but are
forbidden to use it (without permission) for the life of the patent
or copyright.
 Trade secrets: Any information that is not generally known, is
valuable to its possessor, and is treated confidentially.

12. Abuse of Official Position
 There are at least three arguments for legally protecting trade
secrets:
(1) Trade secrets are the intellectual property of the company.
(2) The theft of trade secrets represents unfair competition.
(3) Employees who disclose trade secrets violate the confidentiality
owed to their employers.

13. Abuse of Official Position
 Employees who join a competitor: An especially troublesome problem
for high-tech firms, where employees are often privy to sensitive
information and are also prone to job-hopping.
 Two factors conspire to make this a morally complicated problem:
(1) Individual’s right to seek new employment.
(2) Difficulty of separating trade secrets from the technical know-how,
experience, and skills that comprise the employee’s own intellect and
talents.

14. Bribes and Kickbacks
 Bribe: a remuneration for the performance of an act that is
inconsistent with the work contract or the nature of assigned task
– can be money, entertainment, gifts, or preferential treatment.
 Kickback: a form of bribery that involves a percentage payment
to a person who is able to influence or control a source of income.

15. Bribes and Kickbacks
 The Foreign Corrupt Practices Act (FCPA) of 1977 made it illegal
for American companies to engage in bribery overseas.
 It dictates stiff fines and prison sentences for corporate officials
engaging in bribery overseas.
 It requires that corporations establish strict accounting and
auditing controls to guard against the creation of slush funds
from which bribes can be paid.

16. Bribes and Kickbacks
 Limits of the FCPA: It does not prohibit grease payments to employees
of foreign governments who have clerical or ministerial duties.
 The case against FCPA restrictions: Critics say the FCPA puts U.S.
firms at a disadvantage and imposes U.S. standards on foreign
countries.
 The case for FCPA restrictions: Defenders say that bribery can injure
individuals, competitors, and political institutions while hurting
economic growth and damaging the free market system.

17. Bribes and Kickbacks
 Bribery and payoffs are common business practices in other
nations – but this does not imply that they are morally acceptable
in those nations.
 Permitting U.S. companies to engage in foreign bribery
encourages something in other countries that we consider too
harmful to tolerate at home.
 So to allow bribery overseas is to apply a double moral standard.

18. Gifts and Entertainment
 Gifts and entertainment are familiar in business practices and
customer relations worldwide.
 But they can raise conflict-of-interest problems and can border on
bribery.
 Knowing where to draw the line is not always easy.

19. Gifts and Entertainment
 Seven factors that a conscientious businessperson should consider:
(1) The value of the gift (or entertainment).
(2) Its purpose.
(3) The circumstances under which it is given.
(4) The position and sensitivity to influence of the person receiving the
gift.
(5) Accepted business practices in the industry.
(6) Company policy.
(7) What the law says.

20. Conflicting Obligations
 Balancing obligations to employer or organization, friends and
coworkers, and outside parties can create conflicts and divided
loyalties.
 To resolve such moral conflicts, we must identify the relevant
obligations, ideals, and effects – then decide which area to prioritize.
 To reduce rationalization in decision making:
(1) Be willing to publicly defend our moral choice.
(2) Discuss with others to avoid bias.

21. Whistle-Blowing
 Definition: An employee’s informing the public about the illegal
or immoral behavior of an employer or an organization.

22. Whistle-Blowing
 One expert’s definition: A practice in which employees inform the
public or a governmental agency about certain organization activities
that:
 (a) Cause unnecessary harm.
 (b) Are in violation of human rights.
 (c) Are illegal.
 (d) Run counter to the defined purpose of the institution.
 (e) Are otherwise immoral.

23. Whistle-Blowing
 What motivates whistle-blowers?: They believe that the public
interest morally outweighs their loyalty to colleagues and their
duties to the organization.
 Often, whistle-blowers are motivated by a sense of professional
responsibility.

24. Whistle-Blowing
 When is it justified? Norman Bowie says it is morally justified if and
only if the whistle-blower:
(1) Is operating from an appropriate moral motive.
(2) Has exhausted all internal channels for dissent before going public, is
possible.
(3) Has found compelling evidence of wrongdoing.
(4) Has carefully analyzed the dangers.
(5) Has some chance of success.

25. Self-Interest and Moral Obligation
 Concern with self-interest when loyalty and duty conflicts is
understandable and even warranted.
 What weight should self-interest be given in resolving cases of
conflicting obligations?
 Some theorists believe that prudential considerations outweigh moral ones.
 Others say that nothing can outweigh morality but morality itself does not require us to make large sacrifices
to right small wrongs.

26. Self-Interest and Moral Obligation
 Two points about the relationship between prudential and moral
considerations:
(1) Exaggerating the costs to ourselves allows us to rationalize away
the damage we are doing to others.
(2) We have a collective interest in protecting the welfare of society
by encouraging people to act in non-self-interested ways.

27. Self-Interest and Moral Obligation
 The Sarbanes-Oxley Act (2002) legally protects those who report
possible securities fraud.
 The act makes it unlawful for companies to “discharge, demote,
suspend, threaten, harass, or in any other manner discriminate
against” them.
 Companies need to develop explicit, proactive whistle-blower policies.
 In the long run, companies benefit from openness and a receptive
attitude to moral questioning.