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BADM 350 – CHAP. 3: ETHICS AND BUSINESS DECISIONMAKING

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on 15 January 2016

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Transcript of BADM 350 – CHAP. 3: ETHICS AND BUSINESS DECISIONMAKING

BADM 350 – CHAP. 3: ETHICS AND BUSINESS DECISIONMAKING
A. What is ethics? How do we define it?
L. Six guidelines to judge corporate actions:
CASE: Lechery Vs. Profit
- The study of what constitutes right or wrong behavior
B. What role does ethics play in our business environment?
- Guides behavior
C. Not just theory, but practical, useful, and essential!
D. Do ethics apply to all businesses regardless of organizational form?
YES!
E. Law serves as a moral ethical minimum
Play greed film: Is greed bad?
F. What is greed?
Excessive acquisitiveness.
G. Is America about competition and rising above the rest?
H. Is wealth a zero sum game?
I. Can the wealth pie be enlarged? How?
J. Will profit make producers perform better as opposed to nonprofit enterprises? Why?
F. Are people most satisfied in areas where they are motivated by greed? E.G., supermarkets, movies, transportation as distinguished by nonprofit activities such as education, police, highway construction?
G. In a free market, do you get more by serving others as opposed to relying on generosity, love, friendship?
H. Exceptional abuses are no the rule. Don't be fooled. Run the numbers!
I. Is Greed a productive force?
1. What is fiduciary duty?
- A duty of utmost trust and care to act in the interest of another.
2. Can a company Possess a dual code of ethics, one that applies to employees, but not to MGMT? I.E., "Do As I say, not as I do."
3. Are managers/supervisors role models?
-What does this mean?
CASE: Ronald Thump Real Estate investment (Reit) Trust vs. Hapless Helpless Hopeless Tilly
FACTS: The Thump REIT owns a high rise apartment complex in Minneapolis. It has a housing contract with the federal U.S. dept. Of housing and urban development to provide low cost housing to 2,000 elderly, handicapped, and mentally disabled citizens who cannot afford their own housing due to inability to work.
The annual REIT-HUD contract is coming up for renewal. Congress, however, has not passed HUD’s budget and the govt appears headed for a shutdown. When the govt shuts down, Thump REIT will not be paid. The anticipated death struggle between republicans and democrats appears headed for a many month delay as an election year approaches.
FACTS CONT: The annual REIT-HUD contract is coming up for renewal. Congress, however, has not passed HUD’s budget and the govt appears headed for a shutdown. When the govt shuts down, Thump REIT will not be paid. The anticipated death struggle between republicans and democrats appears headed for a many month delay as an election year approaches. Thump REIT has conducted its own market survey and determined it could re-rent the apartments leased by HUD for 15% more than HUD is paying. Thump sees an opportunity to increase its bottom line, but where will the 2000 impoverished go?
ISSUES:
1. What is the ethical decision for Thump to make?
2. On what basis do you make your decision?
Who are the stakeholders in this ethical decision?
1. Thump Reit Management
2. HUD
3. Impoverished tenants
4. Shareholders
K. Ethical models or approaches to ethical reasoning
1. Norman Vincent Peale model(Not in Book-My Favorite!)
A. Is it legal?
B. Is it fair or balanced?
C. How does it make me feel?
- E.G., Walter Pavlo, Enron quarterly earnings report-Are you cheating??????
2. What is Kantian ethics?
-Holds a categorical imperative is that individuals should evaluate their actions in light of the consequences that would follow if everyone in society acted in a similar manner E.G.,
1. Hiding Corp. debt from bond rating agencies and banks making line of credit and loan decisions like Enron, Worldcom, Healthsouth.
2. Executives using Corp. Jets and property for personal reasons.
3. Cheating on expense accounts.
4. Paying bonuses when the Co. is not making a profit like AIG?
3. What is the principle of rights model?
-How does the business decision affect the rights of others--Employees, investors, suppliers, community, consumers. E.G., Enron
4. What is utilitarianism?
-What decision produces the greatest amount of good involving
1. A determination of which individuals will be affected by the action in question and
2. A cost-benefit analysis assessing the negative and positive effects of alternate courses of action and
3. A choice among alternatives that produces maximum societal utility. E.G., Apt. House K decision involving HUD tenants
5. What is the corp. socal responsibility (CSR) model?
-It involves the philosophy that those who manage business ARE ACCOUNTABLE TO SOCIETY FOR THEIR ACTIONS taking into account both stakeholder and corp. Citizenship responsibilities
1.The law --- is the action under consideration legal?
2. Rules and procedures-Are you following company internal rules?
3. Values-Are you following society's values or trying to find a loophole?
4. Conscience - if you feel any guilt, let your conscience be your guide.
5. Promises-Does the proposed action trust with your stakeholders?
6. Heroes-Is this an action our hero would take?
M. How do you investigate and solve ethics problems?
1. Inquiry-Find out the facts and record them.
2. Discussion-Develop action options.
1. Decision-Craft a consensus decision.
2. Justification-Does the consensus decision withstand moral scrutiny?
3. Evaluation-Does the solution proposed satisfy corporate, community, and individual values?
N. What is the foreign corrupt practices act (FCPA)?
1. Applies to all U.S. companies, their directors, officers, shareholders, employees, and agents.
2. Prohibits bribery of officials of foreign govts. for the purpose to get their official act to provide business opportunities.
3. Does not apply to "grease" payments which are facilitating payments for ministerial actions that are going to be performed anyone; just accellerates them.
4. FCPA also prohibits making false statements to accountants or false account entries, E.G., agents' fees.
FACTS: Freddy Smudlap is the VP for marketing in Quackers Unlimited, a company that makes duck whistles. Freddy is the best marketing executive Quackers has ever had. He not only is responsible for the company’s financial turnaround, he is mastermind of a new advertising program that will capture a majority market share in the game whistle industry. He is the company’s single most valuable employee among 1000 employees, and everyone in the company knows it.
The CEO is the majority shareholder of the company and has a written policy against employees engaging in sexual or fraternizing conduct with subordinates. Punishment is immediate dismissal.
Late one evening when she opens the door to clean his office, the cleaning lady discovers the marketing VP and his secretary in sexual extracurricular activity on his office couch. She subsequently reports this to her custodial supervisor who reports it up his chain all the way to the CEO. By this time everyone in the company has heard about it through the informal network.
ISSUE: What should the CEO do? DECIDE.
Who are the stakeholders?
1. CEO
2. Employees
3. Shareholders
4. Consumers
O. How is UNETHICAL culture created?
1. Competition so intense business survival is threatened
2. Managers make poor judgments
3. Employees have few or no personal values
4. Culture of Greed
5. If corruption seeps into one leg of corp, entire organization is off-balance; what is the message being sent?
P. How is an ETHICAL culture created?
1. Starts at top
2. Code of Ethics
3. Ethics training for all employees annually and upon employment
4. System for reporting ethical and legal violations
5. investigation and follow-up; No silence
6. Action
7. Sox minimum requirements
8. Send clear signals!
J. Why is employee ethics training necessary?
CASE: SCOTT V. CARPANZANO, U.S. CT. APPEALS 5TH CIR. (2014)

FACTS: SCOTT DEPOSITED $2 MIL IN AN ESCROW ACCOUNT MAINTAINED BY A COMPANY OWNED BY SALVATORE CARPANZANO. IN VIOLATION OF THE ESCROW AGREEMENT, THE FUNDS WERE WITHDRAWN SHORTLY AFTER SCOTT DEPOSITED THEM. WHEN SCOTT WAS UNABLE TO RECOVER HIS MONEY, HE SUED CARPANZANO AND HIS DAUGHTER. IN THE COMPLAINT, SCOTT MADE NO ALLEGATIONS OF WRONGDOING BY CARPANZANO’S DAUGHTER. SALVATYORE FAILED TO COOPERATE WITH DISCOVERY AND FAILED TO ANSWER ATTEMPTS TO CONTACT HIM BY CERTIFIED MAIL, REGULAR MAIL, OR EMAIL. HE DID NOT FINALIZE A SETTLEMENT PREPARED BY HIS ATTORNEYS EITHER. THE DAUGHTER MAINTAINED SHE WAS NOT INVOLVED IN HER FATHER’S BUSINESS OR SCOTT’S TRANSACTION. THERE WAS NO OFFER OF PROOF TO THE CONTRARY.
THE TRIAL COURT FOUND THAT ALL THE DEFENDANTS INTENTIONALLY FAILED TO RESPOND AND ISSUED A JUDGMENT OF $6 MIL IN SCOTT’S FAVOR. THEY APPEALED.
RULE: INTENTIONAL FAILURE TO RESPOND TO DISCOVERY AND LITIGATION PROCESS CONSTITUTES WILLFUL DEFAULT AND INTENTIONAL FAILURE.
ANALYSIS: THE EVIDENCE SUBSTANTIALLY SUPPORT’S THE TRIAL COURT’S FINDING AS TO MR. CARPANZANO, BUT THERE IS NO EVIDENCE THAT HIS DAUGHTER ALSO WILLFULLY DEFAULTED.
CONCLUSION: TRIAL COURT JUDGMENT AFFIRMED WITH RESPECT TO MR. CARPANZANO, BUT REVERSED AS TO HIS DAUGHTER.
ISSUE: DID ALL THE DEFENDANTS WILLFULLY DEFAULT IN THIS LITIGATION BY INTENTIONALLY FAILING TO RESPOND TO THE LITIGATION?
CASE: MAY V. CHRYSLER GROUP, LLC, U.S. COURT OF APPEALS 7TH CIR. (2013)
FACTS: MAY WAS EMPLOYED AS A PIPEFITTER AT A CHRYSLER PLANT. DURING WORK HE WAS THE TARGET OF OVER FIFTY RACIST, HOMOPHOBIC, AND ANTI-SEMETIC MESSAGES AND GRAFITTI. HE RECEIVED DEATH THREATS, HAD HIS BIKE AND CAR TIRES PUNCTURED, AND HAD SUGAR POURED INTO THE GAS TANKS OF HIS TWO CARS. MAY COMPLAINED TO CHRYSLER.
THE EMPLOYER DOCUMENTED THE COMPLAINTS AND INITIATED AN INVESTIGATION. WHILE THE HARASSERS WERE NEVER CAUGHT, THE INCIDENTS BECAME FEWER AND FEWER EVENTUALLY STOPPING ALTOGETHER. MAY FILED SUIT AGAINST CHRYSLER FOR HOSTILE WORK ENVIRONMENT. A JURY AWARDED MAY $709,000 IN COMPENSATORY DAMAGES AND $3.5 MIL IN PUNITIVE DAMAGES, BUT THE JUDGE OVERTURNED THE PUNITIVE DAMAGES AWARD, SO MAY APPEALED.

ISSUE: IS THERE SUFFICIENT EVIDENCE THAT CHRYSLER ACTED WITH MALICE OR RECKLESS INDIFFERENCE TO FEDERALLY PROTECTED RIGHTS SO AS TO MERIT PUNITIVE DAMAGES?
RULE: EVIDENCE OF MALICE OR RECKLESS INDIFFERENCE IS NECESSARY TO SUPPORT AN AWARD OF PUNITIVE DAMAGES.
ANALYSIS: CHRYSLER IMPLEMENTED A PROTOCOL FOR HANDLING INCIDENTS AGAINST MAY, HELD DIVERSITY MEETINGS WITH EMPLOYEES, MADE PROMPT CLEANUP OF GRAFITTI, DOCUMENTED THE INCIDENTS, AND HIRED INVESTIGATORS AND HANDWRITING ANALYSTS TO POLICE THE HARASSMENT.
CONCLUSION: AFFIRMED TRIAL COURT JUDGMENT OVERTURNING PUNITIVE DAMAGE AWARD AS EVIDENCE IS INSUFFICIENT TO SUPPORT FINDING CHRYSLER ACTED WITH MALICE OR RECKLESS INDIFFERENCE TOWARD MAY.

JOHNSON CONSTRUCTION CO. V. SHAFFER, LA. CT. OF APPEALS, 2012
FACTS: A TRUCK OWNED BY JOHNSON CONSTRUCTION NEEDED REPAIRS. THE TRUCK AND ITS TRAILER WERE TAKEN TO SHAFFER’S AUTO AND DIESEL REPAIR. WHEN THE TRUCK WAS FIXED, JOHNSON PAID THE BILL BUT IT CONTINUED TO LEAK OIL AND WATER SO IT WAS RETURNED TO SHAFFER A SECOND TIME FOR REPAIR. AFTER CLAIMING TO HAVE FIXED THE TRUCK AND THE BILL BEING PAID, JOHNSON DISCOVERED IT STILL WAS NOT FIXED SO RETURNED IT A THIRD TIME. WHILE SHAFFER GAVE A VERBAL ESTIMATE OF $1000 FOR REPAIRS, SHAFFER SUBSEQUENTLY INVOICED JOHNSON FOR $5863.49. JOHNSON OFFERED TO SETTLE ONLY FOR $2840 WHICH CONSISTED OF THE ORIGINAL ESTIMATE AND PARTS AND SHIPPING. SHAFFER REFUSED THE OFFER AND WOULD NOT RETURN THE TRUCK UNTIL HE WAS PAID CHARGING $50 P/DAY STORAGE FEE PLUS 18% INTEREST ON THE $5863 REPAIR BILL.
JOHNSON FILED SUIT AGAINST SHAFFER ALLEGING UNFAIR TRADE PRACTICES. THE TRIAL COURT DETERMINED NO WORK HAD BEEN PERFORMED AND THAT SHAFFER HAD ACTED DECEPTIVELY BY RETAINING POSSESSION OF THE TRAILER. IT AWARDED JOHNSON $3500 IN GENERAL DAMAGES AND $750 IN ATTORNEY’S FEES. SHAFFER WAS AWARDED THE INITIAL $1000 ESTIMATE AND APPEALED.

ISSUE: IS THERE EVIDENCE OF A CONTRACT AND IS THE JUDGMENT OF THE TRIAL COURT CLEARLY WRONG?
RULE: THE EXISTENCE OR NONEXISTENCE OF A CONTRACT IS A QUESTION OF FACT TO BE DETERMINED BY THE TRIAL COURT AND MAY NOT BE SET ASIDE UNLESS IT IS CLEARLY WRONG.
ANALYSIS: THE TRIAL COURT DID NOT BELIEVE JOHNSON WAS INFORMED OF THE COST OF THE ADDITIONAL WORK. IT VIEWED MR. SHAFFER’S TESTIMONY AS “DISINGENOUS” WHICH IS THE TRIAL COURT’S PREROGATIVE.
CONCLUSION: AFFIRMED TRIAL COURT JUDGMENT.
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