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Chapter 2

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vanessa arena

on 11 August 2013

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Transcript of Chapter 2

Chapter 2: Defining Business Ethics
Pages 20-39
Presented By: Bianca Strano, Manuel Pena, Courtney Mendez and Natalie Davies

Here are some Chapter 2 concepts that can better help you understand the chapter.
Chapter 2 Summary
History of Business Ethics

• Employees start voicing their opinions on the irresponsible or unethical behaviour of their employers
• Corporate responsibility becomes a performance-assessment issue with legal liabilities
• Corporate ethics becomes more mainstream with selection of corporate ethics officers
• Codes of ethics matured into performance-assessment documents that are being shared with stakeholders

Ethical Dilemma: a situation where there is no obvious right or wrong decision but a right or right answer.

• A situation that puts you as an employee between conflicting values of personal values and the values of the organization

Thinking Critically: Phoenix or Vulture? Summary
Page 36-37
BMW Purchased Rover Group in 1994, then they broke the group apart and sold the pieces of the company to various places. Amongst these deals ex- Rover Chief Executive John Towers Purchased the MG Rover assets for $20. After being the owner of these parts John Towers made it seem to the British Public and Government that himself and his group “Phoenix Consortium” would be over hauling the business structure to save the only remaining mass production car manufacturer in Britain. During this time he had borrowed £427 Million form BMW, which was not enough then decided to ask for a £120 Million loan from the government. This proposition was rejected and they only received £6.5 Million to hold them over until a deal with SAIC went through that brought in £1 Billion Dollars. Meanwhile this chaos was occurring John and 3 other partners had a compensation package that lead them to leaving the company with £42 million over the 5 years they were in operation. As this was building they let the company suffer and after the company failed the government launched an investigation but the compensation packages were air tight and structured so well that they could not prosecute them.
Discussion Exercise Questions
Page 37
1. Why would BMW sell millions of pounds of assets for £10 and lend the buyer an additional £427 million?
Our Answers
3. After going through the amount of effort to keep the company and then asking the British Government for a loan to make sure that the deals went through I feel as though they went out of their way to receive extra funding that would go in their pocket at the end of the day. They made the situation seem like it was going to be something positive but all along had no intention of restoring the company.
Business Ethics
The application of ethical standards to business behaviour.
Someone with a share or interest in a business enterprise.
Corporate Governance
The system by which business coporations are directed and controlled.
2. Why would SAIC want to buy 70 percent of a company that was losing money for £1 billion?
3. With compensation packages already locked in, do you think the executives were committed to making the SAIC's or Tata Motor's deals work?
4. If MG Rover had been successful in winning a £120 million loan from the government rather than a £6.5 million loan, would the outcome of the SFO investigation have been any different?
5. The Phoenix Four maintain they did nothing wrong. How would you defend their conduct from a business ethics perspective?
Discuss the
of ALL possible decisions/choices/outcomes relating to the discussion scenario. Utilize rationalization and ethical analysis.

• Had the choice to kept all assets of the Rover Group
• BMW decides to buy Rover Group from British Aerospace
• BMW made a decision to sell assets of the company.
• Kept parts of the company which made them money i.e reborn Mini
• Sold assets of MG Rover for £10 in May 2000 because it was losing money

• Contributing to MG Rover’s interest-free loan of £427 million


• BMW had the choice of selling/keeping assets

• BMW could have decided to keep MG Rover, which could have cost them more money

MG Rover

• Commitment to turning around the last domestically owned mass-production car company in Britain
• 2004 MG Rover signed a development agreement with Shanghai Automotive Industry Company giving them 70% of shares
• MG Rover asked the British government for a loan

• Phoenix Consortium gave themselves good contracts with compensation packages
• MG Rover closes because they have no funds left
• Lost money for 4 years


• MG Rover went to Shanghai for new car ideas

• MG Rover cut 3000 jobs
• Phoenix Consortium made sure they were taken care of financially
• Focusing more on compensation packages/pensions then the company


• Buying MG Rover for 20 pounds leads to an interest free loan
• Phoenix Four remain innocent

• MG Rover was in debt for £1.3 billion
• MG Rover closed
• Loss of 6000 jobs
• Poor financial management leads to a audit report
• National Audit Office report leads to an investigation by Serious Fraud Office has to do with the misuse of taxpayer funds by MG Rover

Defining Business Ethics

Business Ethics: the application of moral conduct to business circumstances.

• Business ethics should not differ from personal ethical standards
• Ethical behaviour should be synonymous inside and outside the business environment
Stakeholders: someone with a share or interest in a business.

Corporate Governance: the system that businesses are directed and controlled

• Because of past business downfalls (Example: Enron/ WorldCom: lied about finances to stakeholders, Walmart/Denny’s: race and gender discrimination, GE: environmental contamination, etc.) people don’t believe businesses have ethics at all
• Silver lining: 3rd party guarantees of ethical conduct (Ethics and Compliance Officer Association, Ethics Resource Center, etc. offer guidance and training for businesses to act more ethically)

Code of Ethics: a company’s written standard of ethical behaviour.

• A company’s code of ethics is a message to the stakeholder’s to show their high standard of ethical behaviour
• Internally it guides the decisions of managers and employees


Truth vs. Loyalty: tell the truth or stay loyal to the business
Short vs. Long Term: are the consequences short or long term?
Justice vs. Mercy: is this issue a question of dispensing justice or mercy?
Individual vs. Community: will the choice affect one individual or a community?
After choosing which resolution to take you must consider the 3 resolution principles:
Ends-based: which decision would provide the greatest good for the greatest number of people?
Rules-based: what would happen if everyone made the same decision as you?
The Golden Rule: do unto others what you would have them do unto you.

Saul Gullerman’s “4 commonly held rationalizations that can lead to misconduct”
1. A belief that the activity is within reasonable ethical and legal limits
2. A belief that the activity is in the individual’s or the corporation’s best interest
3. A belief that the activity is safe because it will never be found out or publicized
4. A belief that because the activity helps the company, the company will condone it and even protect the person who engages in it

The combination of two contradictory terms such as "deafening silence" or "jumbo shrimp."
Code of Ethics
A company's written standards of ethical behaviour that are designed to guide managers and employees in making the decisions and choices they face every day
Ethical Dilemma
A situation in which there is no obvious right or wrong decision, but rather a right or right answer.
6. What do you think the outcome should have been for the Phoenix Four?

BMW bought the Rover Group and made money splitting up the assets
Ghillyer, A. (2012). BusinessEthicsNow. (pp. 20-39). New York, NY: McGraw-Hill
How Concepts from the Chapter Relate
Business Ethics
Involves the application of standards of moral behaviour to business situations.
-Ethical behaviour should be the same both inside and outside a business situation. The interests of the "phoenix four" were never the stakeholders, community or anyone else besides themselves. Thousands of jobs were lost, factories closed, etc. Everyone lost in this situation except for the people with the power and authority to make the decisions. They had no value conflicts; they willingly and knowingly deceived an entire industry and government.

Someone with a share or interest in a business enterprise.
- This is why it worked so well, John Towers and his other partners become stakeholders of the company Towers used to own, giving them credibility, in what seemed an attempt to save the British auto manufacturer.

Corporate Governance
The system by which business corporations are directed and controlled.
- Corporations in America are governed by these rules that seem to be inexistent. From major food chain's to investment banks, they all engage in risky businesses at the expense of others (taxpayers dollars, deposits, etc.) , situation where the average citizen would be legally prosecuted for engaging in criminal activity. These people, are sometimes the CEO's, CFO's, investors, etc. are the same people plotting against them. With the upside that when the company fails or goes bankrupt, these high executives walk away with millions of dollars and zero accountability.

Code of Ethics
A company’s written standards of ethical behaviour that are designed to guide managers and employees in making the decisions and choices they face every day.
- It's obvious that the four partners violated many codes of ethics. But since ethic has almost no legal weight and anything that does, stomps ethics. The fact that the British government launched a full investigation and couldn't find any legal grounds to prosecute them, is a clear indication that other interests where in the works as well. Many of these high profile cases have government, investment banks, insurance companies, etc. interests involved in the process.

Ethical Dilemma
A situation in which there is no obvious right or wrong decision, but rather a right or right answer.
- There was no ethical dilemma for Towers and his partners. The ethical dilemma lies in the failure of the British legal and judicial system, that has no problem in delivering "justice" to someone who steals $500.00 but fails to the same when a group of four people tries to defraud the government for $120 million dollars.

1. BMW most likely sold their part of the company back to Phoenix Consortium, as there most likely are a lot of expenses involved in getting rid of the assets to a company such as building expenses and maintenance fees. By loading of their product to someone who knows the system they skip over any of the labor that needed to be done. Also the cars were still in parts so they knew that Phoenix Consortium didn’t have any money to produce these cars so they lent them the money to produce them and gain interest on your investment.

2. SAIC would want to buy a company that was losing money because they would be able to purchase the company for very cheap but would be able to have complete say over operations as they own 70% of the company. Also by having the previous owners stay they are more likely to do well with consumers as in the public eye Phoenix Consortium was attempting to preserve British car manufacturing.
4. No, the outcome would be the exact same, they would find a way to sink the company, waste taxpayers dollars and at the end of the day get a huge payout and live comfortably. Thankfully the £120 million bailout did not go through, as these Four would be roaming the streets with extra money in their pockets, when the funding could be going to something productive.
5. From an ethical standpoint the Phoenix Consortium attempted and succeeded in deceiving the British Community and Government by making it seem as though they were building a brighter future for British Car Manufacturers. When things began to go south instead of taking the money and investing it back in the company, as they should they proceeded to make sure that they would be comfortable when it failed. Unfortunately this came at the hands of British Tax Payers as the government handed over £6.5 Million in order to bail them out when in reality that money was circulated but ended up as a part of the compensation package for the four.
6. The outcome for the Phoenix Four should have been that they would have to return their compensation package as it was done in a manner that was selfish as opposed to following their word and turning the company around into something that both themselves, and Britain could have benefited from. As it was taxpayers’ money the money should have gone to a situation where the money was actually needed.
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