Instructors Manual, Chapter 4 1 _____________________________________________________________________________ _

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
Leonard J. Brooks and Paul Dunn South-Western, Cengage Learning, Mason Ohio, 2010

Instructors Manual
Chapter 4 Practical Ethical Decision Making

Learning o !e"ti#es $$$$$$$$$$$$$$$$$$$$$2 Possi le tea"hing a%%roa"hes, using "ases and readings$$$$$$$2 &ns'ers to (uestions )or dis"ussion$$$$$$$$$$$$$$.. * Case +otes$$$$$$$$$$$$$$$$$$$$$$$$.., Multi%le Choi"e -uestions$$$$$$$$$$$$$$$$$$2. Po'erPoints are in a se%arate )ile at '''."engage."o/0a""ounting0 rooks

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 ! _____________________________________________________________________________ _ COMMENTS ON CHAPTER 4 APPROACHES TO ETHICA! DECISION MA"IN# 3333333333333333333333333333333333333333333333333333333333333333333333333333 !earning o$%ecti&es 4here are /an5 %ro le/s 'hi"h e6e"uti#es and %ro)essional a""ountants 'ill )a"e 'hi"h 'ill not e "o#ered e6%li"itl5 in their "o/%an57s "ode, or in their %ro)ession7s "ode. Moreo#er, the %rin"i%les %ro#ided in those "odes /a5 not e hel%)ul in %rote"ting stakeholder interests or /a5 not lead to a "o/%rehensi#el5 ethi"al de"ision. &s a result, /an5 %ro le/s 'ill need to e su !e"ted to )urther anal5sis and data gathering )or the /ost ethi"al solution to e/erge. What to "onsider, and ho' to %ut the data together to generate an ethi"al de"ision 8 and ho%e)ull5 the /ost ethi"al de"ision - is the %ur%ose o) Cha%ter 9. :n %arti"ular, i/%ortant %oints o) learning in"lude; a. . ". d. e. ). 'h5 traditional %hiloso%hi"al a%%roa"hes to ethi"al de"ision /aking are so use)ul, 'h5 ethi"al a"tions need to take stakeholder interests into a""ount, 'hat the )unda/ental interests o) stakeholders are, ho' to assess the i/%a"t o) %ro%osed a"tions on these interests, ho' to /ake these assess/ents "o/%rehensi#e, ho' to use the a%%roa"hes outlined and /oral i/agination to i/%ro#e unethi"al de"isions, and g. ho' to deal 'ith %ro le/s o) the "o//ons. Possi$le teaching approaches' using cases an( rea(ings M5 Po'erPoints are a#aila le on /5 'e site at '''."engage."o/0a""ounting0 rooks. 4he5 'ill sho' the order that : use to de#elo% the /aterial in this "ha%ter. <suall5, : egin 'ith a si/%le "ase like "ar#ell Paper Co. or $or#% $irestone &ire 'ecall or Betaseron to illustrate the traditional %hiloso%hi"al a%%roa"hes and the Modi)ied 1--uestion &%%roa"h to stakeholder i/%a"t anal5sis, and )ollo' on 'ith a dis"ussion o) the "ha%ter /aterial. :n the se"ond "lass, : deal 'ith the Pinto Case and the Moral Standards and Pastin=s a%%roa"hes to stakeholder i/%a"t anal5sis. 4he (ioxx Decisions "ase is a good one )or the students to 'ork 'ith as an assign/ent. 4he "ar#ell Paper Co) Case %ro#ides a good %lat)or/ )or introdu"ing the "on"e%ts o) %hiloso%hi"al and stakeholder anal5sis. 4he stakeholders are eas5 to identi)5 - )or the /ost %art and the "lass usuall5 )orgets to "onsider the un orn in)ants. 4he dis"ussion o) the har/ to the un orn tends to a""entuate the need )or %ro%er stakeholder anal5sis so that all issues 'ill e in"luded in the de"ision )ra/e'ork. 4he issue o) %ro%er treat/ent o) the un orn also unders"ores the need to rank the stakeholders as to their a ilit5 to 'ithstand the i/%a"ts o) the %ro%osed de"ision. 4he issue o) 'hether to a""ord the en#iron/ent a status on its o'n, or !ust a""ording to so"iet5=s %resent needs is also a to%i" 'hi"h gets the "lass in#ol#ed.
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 * _____________________________________________________________________________ _ 4his "ase see/s to )it the %hiloso%hi"al and the Modi)ied 1--uestion &%%roa"h (uite 'ell, ut leads easil5 to a dis"ussion o) the need to e6%and the a%%roa"h to in"lude "ost- ene)it anal5sis instead o) !ust %ro)it, and so"ial "ontra"t ethi"s to !udge )airness. Students also like the 'a5 this "ase e6%oses %oorl5 "onstru"ted Boards o) Dire"tors, and the related dis"ussion o) >due diligen"e> %ro"edures 'hi"h hooks a"k into the en#iron/ental /aterial in this and earlier "ha%ters. 4he %ros%e"t o) 'histle lo'ing is one : usuall5 "lose 'ith. :n )a"t, that=s 'hat ha%%ened, and it stresses the need to "onsider the %otential 'histle lo'ers as stakeholders right u% )ront. :n a se"ond session, : lead o)) 'ith the $or# Pinto Case 'hi"h illustrates ho' /u"h our %er"e%tion o) the #alue o) li)e and health ha#e "hanged, and ho' a %ro%erl5 "ra)ted "ost- ene)it anal5sis is need to kee% "or%orations out o) trou le. 4he need to ring )uture i/%a"ts into the anal5sis is also "riti"al and this "ase sho's ho' this /a5 e done. ?or the traditional otto/line /anager, sho'ing the short-ter/ %ro)it i/%a"ts an# the lon+er,ter- i-pacts on others 'ill e re#ealing. +o intelligent e6e"uti#e should e 'ithout this in)or/ation and no de"ision ased solel5 on short-ter/ %ro)it is likel5 to e "onsidered reasona le in the )uture. ?uture "osts to others are likel5 to i/%a"t u%on the "o/%an5=s %ro)its so/eti/e, so in"luding the/ in the de"ision )ra/e'ork %resents a "o/%lete %i"ture. Students /a5 ha#e heard o) "ost- ene)it anal5sis e)ore, and /a5 think it to e too su !e"ti#e to e 'orth'hile. : "an usuall5 o#er"o/e this 5 illustrating 'ith a )e' e6a/%les )ro/ the health area @like the "osts o) an illness "aused 5 'ork 'hi"h results in ti/e o)), /edi"al treat/ent, drugs and hos%ital ti/eA. &lso : o ser#e that it is usuall5 etter to /ake de"isions ased on data 'hi"h is generall5 "orre"t than %re"isel5 'rong. ?ro/ the Pinto Case it is relati#el5 eas5 to e6tend to the Modi)ied Moral Standards and Modi)ied Pastin=s &%%roa"hes to ethi"al de"ision /aking. 4here is an o#erla%, ut also so/e add-ons. : stress the desira ilit5 o) adding on 'hat the de"ision "alls )or - 'hat te"hni(ues are needed to "o#er all the ases. 4his leads to a dis"ussion o) 'hen one /ethod is /ore a%%li"a le than another. Bou 'ill )ind that 5our "lass /e/ ers 'ill gra#itate to one a%%roa"h or another de%ending on their %ersonal %re)eren"es. .hen co-/inin+ the approaches, it is a/solutel0 essential is that no approach to ethical #ecision -a1in+ is li1el0 to /e co-plete unless all four of the fun#a-ental principles are present2 3ell, offness, fairness, ri+hts an# virtues expecte#) Bou 'ill )ind that 5our students o)ten )orget to in"lude all )our 'hen the5 are anal5Cing a %ro le/ and need to e re/inded. ?igure 9.1 %resents a use)ul o#er#ie' o) a sound iterati#e, "o/%rehensi#e, ethi"al de"ision /aking %ro"ess. :n addition, 5ou should 'ork 'ith a short %ro le/ - %erha%s one assigned as a hand-in - to sho' the students ho' a solution "an e i/%ro#ed on an iterati#e asis, 'ith ea"h iteration eing #ie'ed as a ne' stakeholder i/%a"t anal5sis.

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 4 _____________________________________________________________________________ _ 4he "ha%ter no' has )our illustrations o) "o/%rehensi#e ethi"al de"ision /aking that %ro#ide #er5 use)ul a%%li"ation guides related to; iPhone %ri"ing %oli"5, ri er5 and /oral i/agination in China, aggressi#e a""ounting, and assessing %ro%osed audit ad!ust/ents. 4he :llustrati#e Case &%%li"ation o) Stakeholder :/%a"t &nal5sis )o"uses on the u#it #4ust-ent5 Case and is o))ered in order to e6%ose readers to the anal5ti"al a%%roa"h : 'ould use on su"h /atters. : 'ould suggest that a""ounting students e dire"ted to "onsider this illustrati#e e6a/%le "are)ull5 and e read5 to res%ond or %ose (uestions on it in "lass. & )ull anal5sis is not %ossi le on e#er5 di/ension due to the la"k o) in)or/ation, ut indi"ations are gi#en as to 'hat in)or/ation ought to e sought and 'hat to do 'ith it. :n )a"t, the ranking o) stakeholders to gi#e a))e"t to their a ilit5 to 'ithstand the i/%a"t o) the %ro%osed ad!ust/ent is (uite interesting, and goes e5ond the le#els suggested in the "ha%ter. 4he readings 5 Brooks @"ost- ene)it anal5sisA and 4u"ker @1-(uestion a%%roa"hA are s%e"i)i" to the sessions and are assigned to add a"kground understanding. Bou 'ill )ind that this se(uen"e is #er5 'ell re"ei#ed 5 5our students 'ho 'ill "onsider the %ros%e"t o) using the suggested a%%roa"hes )ar /ore realisti" a)ter, than e)ore. :n#aria l5, the students egin to use the/ in other "lasses like )inan"e, /arketing and strateg5. So e %re%ared )or 5our "olleagues to dro% in and see 5ou )or a"kground /aterial. Do not o#erlook the i/%ortant /aterial on de#elo%ing a /ore ethi"al a"tion @-oral i-a+inationAD "o//on ethi"al de"ision /aking %it)allsD and illustrations o) the ethi"al de"ision /aking a%%roa"hes to to%i"s o) great interest to students and %ra"titioners; .hen #oes a++ressive accountin+ /eco-e frau#ulent5 $and Bri/er0 or 6pportunit0. : also regard the 7-o1ers are 8oo#9 Case as one that 'ill e6"ite so/e "ontro#ers5. 4he ethi"s audit (uestionnaire is %ro#ided to gi#e a gli/%se o) 'hat is in the )uture o) the %ro)ession as assuran"e 'ork roadens. Ans)ers to *uestions +or (iscussion 1. Wh5 should dire"tors, e6e"uti#es, and a""ountants understand "onse(uentialis/, deontolog5, and #irtue ethi"sE Dire"tors, e6e"uti#es and a""ountants )re(uentl5 en"ounter %ro le/s re(uiring de"isions 'here the right a"tion is not "o#ered in la' or a "o/%an57s "ode, or 'here the "ode is eing "reated or re-e6a/ined. :n those instan"es, the traditional %hiloso%hi"al a%%roa"hes to ethi"al de"ision /aking "an raise issues )or "onsideration and %ro#ide guidan"e )or ethi"al de"isions. <nderstanding 'h5 the "onse(uen"es o) an a"t are i/%ortan"e, and ho' to assess the/ 'ith regard to e6%e"tations o) dut5, o ser#an"e o) rights and )airness, and o) #irtues to e de/onstrated, "an %ro#ide i/%ortant insights. :n the )uture, de"isions 'ill e in"reasingl5 s"rutiniCed )or their ethi"alit5 as 'ell as their legalit5 and %ro)ita ilit5, and /ust e, and e seen to e de)ensi le a""ording to traditional "onsiderations.

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 5 _____________________________________________________________________________ _ 2. Prior to the re"ent )inan"ial s"andals and go#ernan"e re)or/s, )e' "or%orate leaders 'ere sele"ted )or their F#irtuesG other than their a ilit5 to /ake %ro)its. Has this "hanged, and i) so, 'h5E Bes. With the re"ent re#ision and sti))ening o) go#ernan"e re(uire/ents, dire"tors are no' e6%e"ted to sele"t and /onitor senior e6e"uti#es @CIO and C?O at leastA ased in %art on their ethi"alit5 as e#iden"ed 5 their "ontri ution o) a 'holeso/e Ftone at the to%G. Without %roa"ti#e ethi"al leadershi%, a "o/%an57s ethi"s %rogra/ @see ?igures 1.J, 1., and 1..A 'ill not su""eed. :s it 'ise )or a de"ision /aker to take into a""ount /ore than %ro)it 'hen /aking de"isions that ha#e a signi)i"ant so"ial i/%a"tE Wh5E Bes. &n organiCation needs the su%%ort o) its %ri/ar5 stakeholders to attain its strategi" o !e"ti#es in the long run. :t "annot a))ord to ignore the interests o) these stakeholders and those that the5 are in)luen"ed 5. Pro)it is usuall5 a shortter/ "on"e%t that needs to e stret"hed into a /ulti-%eriod )ra/e'ork 5 "onsidering /ore than !ust the ne6t u"k. :) a )ra/e'ork )or ethi"al de"ision /aking is to e e/%lo5ed, 'h5 is it essential to in"or%orate all )our "onsiderations o) 'ell-o))ness, )airness, indi#idual rights and duties, and #irtues e6%e"tedE :t is %ossi le )or a set o) stakeholders to e etter o)) as a 'hole, ut the %ro%osed a"tion /a5 e grossl5 un)air to one grou% @sa5, the "hildren in#ol#edA or /a5 o))end the rights o) one or /ore grou%s @sa5, 'o/en or /enA to a degree that /a5 "ause the de"ision to e "onsidered unethi"al. Moreo#er, )ailure to "onsider e6%e"ted duties and #irtues 'ill da/age the "or%oration7s "redi ilit5 and re%utation, there 5 'eakening the su%%ort o) #arious stakeholder grou%s and the organiCation7s a ilit5 to rea"h its strategi" o !e"ti#es. :s the /odi)ied 1-(uestion a%%roa"h to ethi"al de"ision /aking su%erior to the /odi)ied /oral standards or /odi)ied Pastin a%%roa"hE +ot reall5. 4he su%erior a%%roa"h )or a s%e"i)i" %ro le/ de%ends on the nature o) the i/%a"ts in#ol#ed. :) )uture i/%a"ts o) a su !e"ti#e nature are in#ol#ed, then "ost- ene)it anal5sis should e e/%lo5ed. :) the ground rules o) a "o/%an5 are e6%e"ted to in)luen"e the i/%le/entation o) a de"ision, then the5 should e "an#assed. :) a "o//ons is at stake, then e/%lo5ing that "on"e%t /a5 hel% the e6e"uti#es in#ol#ed to anal5Ce the %ro%osed a"tions ethi"all5. & %arti"ular e6e"uti#e7s %re)eren"e or st5le /a5 also ha#e to e taken into a""ount. 4he "ir"u/stan"es 'ill di"tate the a%%roa"h 'hi"h is /ost attra"ti#e0suita le. <nder 'hat "ir"u/stan"es 'ould it e est to use ea"h o) the )ollo'ing )ra/e'orks; the %hiloso%hi"al set o) "onse(uentialis/, deontolog5, and #irtue ethi"sD the /odi)ied 1(uestionD the /odi)ied /oral standardsD and the /odi)ied Pastin a%%roa"hE 4he traditional %hiloso%hi"al a%%roa"hes - "onse(uentialis/, deontolog5, and #irtue ethi"s 8 are ti/e-honored a%%roa"hes that ha#e een re)ined into the /odi)ied 1-(uestionD the /odi)ied Moral StandardsD and the /odi)ied Pastin
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

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Instructors Manual, Chapter 4 : _____________________________________________________________________________ _ a%%roa"hes )or "on#enient de"ision /aking in those instan"es noted elo'. 4he %hiloso%hi"al a%%roa"hes, taken as a set, "an e a%%lied to an5 %ro le/ rather than a s%e"i)i" su -set, and the5 'ould e su%erior 'here there are strong e6%e"tations )or the de/onstration o) dut5 and o) #irtues in the solution. Li#en 'hat has een said in res%onse to the last (uestion, the /odi)ied 1-(uestion a%%roa"h see/s est suited to short-ter/, %ro)it-oriented %ro le/s that "on)ront the la' and i/%a"t the en#iron/ent or re(uire a tailored s%e"i)i" 1th (uestion. 4he /odi)ied /oral standards a%%roa"h is suited to %eo%le-related or )utureoriented %ro le/s 'here e6ternalities are %resent that are not "a%tured in the %ro)it /easure. Modi)ied Pastin=s a%%roa"h suits %ro le/s internal to an organiCation. Ia"h a%%roa"h0or %art thereo) "an e used on al/ost all %ro le/s. J. Ho' 'ould 5ou "on#in"e a CIO not to treat the en#iron/ent as a "ost-)ree "o//onsE De%ending on the %erson in#ol#ed, the5 /a5 e res%onsi#e to; altruis/, the a#oidan"e o) ig )ines @"or%orate 2 %ersonalA or !ailD or to argu/ents that under%ri"ing the use o) the en#iron/ent "an lead to resour"e allo"ations 'hi"h 'ill look )oolish in a )e' 5ears e"ause the "ost stru"tures 'ill "hange, or that o%%ortunities )or o%ening u% ne' /arkets or "o/%etiti#e ad#antages 'ill e lost, or that 'histle- lo'ing or a"ti#ist grou%s 'ill /ake things un"o/)orta le, et". : 'ould sho' the CIO 'hat a "ost- ene)it or risk ene)it anal5sis 'ould look like that 'ould ring su"h )a"tors into the de"ision "o/%utation. 4he de"ision 'ould e u% to the CIO, ut at least all the )a"tors 'ould e on the ta le, not hidden or )orgotten. Ho' "an a de"ision to do'n-siCe e /ade as ethi"al as %ossi le - 5 treating e#er5one e(uall5E +o. I(ual treat/ent @la5ing o)) 5 seniorit5 or age orEA /a5 not e )air to those 'ho "an least 'ithstand it. : 'ould ad#ise uilding in an a%%eals /e"hanis/ to an5 do'nsiCing %ro"ess to allo' )or su"h things as serious i/%a"ts on autisti" "hildren, or the disa led, 'ho 'ould e dis%la"ed, et". Ia"h "ase 'ould ha#e to e su !e"t to the agree/ent o) the unions in#ol#ed, ut : elie#e this a%%roa"h 'ould e re"ei#ed 'ell i) roa"hed in ad#an"e. Me"ent studies ha#e de#elo%ed a "on"e%t o) ethical rene3al that in#ol#es a /e"hanis/ )or )airl5 en"ouraging and e#aluating o%%ortunities to /ake the organiCation etter. Part o) the %ro"ess in#ol#es de#elo%ing trust a/ong e/%lo5ees that the5 'ill e treated )airl5 and 'ill not su))er in the %ro"ess o) "ontinuous i/%ro#e/ent. ?ro/ a #irtue ethi"s %ers%e"ti#e, 'h5 'ould it e logi"al to %ut in %la"e a /anu)a"turing %ro"ess e5ond legal re(uire/entsE De)initel5. & /anu)a"turing %ro"ess that %rote"ted the en#iron/ent or the 'orkers in#ol#ed 'ould engender the su%%ort o) ke5 stakeholder grou%s su"h as en#iron/entalists and 'orkers, leading to "oo%erati#e go#ern/ent and /edia relations and the higher "o//it/ent o) "urrent e/%lo5ees to do their est, and )uture e/%lo5ees to !oin. Me%utational )a"tors are de)initel5 sensiti#e to the
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

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Instructors Manual, Chapter 4 ; _____________________________________________________________________________ _ de/onstration o) e6%e"ted #irtues. 10. List the "o/%anies that ha#e )a"ed ethi"al tragedies due the )ollo'ing )ailings in their ethi"al "ulture; a. La"k o) ethi"al leadershi%; Li#ent, Inron, WorldCo/, 45"o, &del%hia, Sie/ens, Par/alat, Lold/an Sa"hs, Hollinger0Ma#elston . La"k o) "larit5 a out i/%ortant #alues; &rthur &ndersen, NPML, I 2 B @aggressi#e ta6 sheltersA, ?ord, ?irestone ". La"k o) ethi"al a'areness and e6%e"tations 5 e/%lo5ees; Do' Corning, MC: d. La"k o) /onitoring o) ethi"alit5 o) a"tions; Barings Bank, So"iOtO LOnOrale e. <nethi"al re'ard s5ste/s; Sears @auto "entersA, Banker7s 4rust, Mo5al &hold, /an5 rokers ). <nreasona le %ressures )or unrealisti" %er)or/an"e; MC:, HealthSouth 11. Li#e an e6a/%le o) eha#ior that /ight e unethi"al e#en though PPe#er5one is doing it77. Me"hani"s telling "usto/ers the5 need ne' tires e)ore the5 reall5 do. Cell %hone "o/%anies selling 'arrantee %rogra/s on the asis that the5 %ro#ide )or e#er5 e#entualit5, ut re(uire sending 5ou %hone a'a5 )or re%airs )or *-9 'eeks ea"h ti/e, /ulti%le ti/es e)ore the5 'ill gi#e 5ou a ne' %hone. Selling %rodu"ts through un'arranted )latter5 Bla/ing others )or 5our o'n short"o/ings

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 < _____________________________________________________________________________ _ CASE NOTES CHAPTER 4 33333333333333333333333333333333333333333333333333333333333333333333333333333 3 ,IO-- DECISIONS . /ERE THE0 ETHICA!12 3333333333333333333333333333333333333333333 /hat this case has to o++er 4his "ase o))ers the o%%ortunit5 to a%%l5 ethi"al de"ision /aking a%%roa"hes during their e6a/ination o) so/e o) the %otential ethi"al issues related to Qio667 a%%ro#al, /arketing, and the de"ision to lea#e it on the /arket, as 'ell as; Ho' did Mer"k get into the dile//aE Could this ha#e een %re#ented i) Mer"k had and )ollo'ed a stringent Ithi"al De"ision Making @IDMA %ro"essE Did Mer"k dro% the Fethi"alG allE Court "ases are eing "urrentl5 eing de"ided 'hi"h o))er a ri"h o%%ortunit5 )or students to re#ie' the %otential lia ilit5 that "an arise )ro/ haCardous %rodu"ts, %arti"ularl5 )or /anu)a"turers o) %har/a"euti"als and other %rodu"ts that "an ha#e a signi)i"ant i/%a"t on li)e or health. It is interestin+ to speculate, as the stu#ents shoul#, on 3hether there has /een an overall net /enefit to societ0 an# to Merc1 fro- its action in re+ar# to (ioxx)

Teaching suggestions
4here are /an5 e6a/%les o) the dangers o) ignoring e#iden"e o) haCardous %rodu"ts or %ro"esses too long @?ord7s Pinto, ?irestone tires, <nion Car ide Bho%al, and Do' Corning7s sili"one reast i/%lant, to na/e a )e'A and Qio66 /a5 e another o) these. Students need to understand the d5na/i"s )a"ing /anage/ent and dire"tors during these de"isions, and to learn )ro/ the /istakes /ade earlier. Conse(uentl5, it is use)ul to get the students to role %la5 @sa5 2-* students %er sideA a de ate et'een Mer"k7s /anage/ent and the re%resentati#es o) %atients 'ho ha#e egun a "lass a"tion. 4he instru"tor "an ask 'hat the Mer"k dire"tors 'ould ha#e said a out issues de ated 'hen it has "on"luded. ?ollo'ing the de ate, the anal5sis %resented elo' "an e dis"ussed 'ith the "lass. &lternati#el5, the t'o (uestions raised at the end o) the "ase "an e taken u% using the anal5sis %resented elo'. Discussion o+ ethical issues

4his "ase is ased u%on an assign/ent su /itted 5 Mah ar Mahi/%our, one o) the author7s I6e"uti#e MB& students at the Mot/an S"hool o) Manage/ent. He ga#e %er/ission )or this use.
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Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 = _____________________________________________________________________________ _ 1. Utilizing the information provided and availa le from !e sources, use the ethical decision"ma#ing techni$ues discussed in the chapter to form an opinion a out !hether %erc#&s decisions regarding 'ioxx !ere ethical. (ho! )our anal)sis. : ha#e re%rodu"ed elo' Mah ar Mahi/%our7s instru"ti#e anal5sis o) the Qio66 "ase issues in the )or/ o) a res%onse to -uestion 1. Anal3sis o+ So4e Ethical Issues Here 'e use a h5 rid anal5sis o) the Philoso%hi"al &%%roa"h and the Stakeholder :/%a"t &nal5sis to suggest that Mer"k7s de"ision to /arket Qio66 had oth (uanti)ia le and non(uanti)ia le negati#e i/%a"ts on /an5 o) the stakeholders o) the "o/%an5. :nitiall5, it a%%ears that Mer"k /a5 ha#e negle"ted to ensure the )unda/ental interests o) its stakeholders. :denti)i"ation and %rioritiCation o) the stakeholders, and their res%e"ti#e interests @'ell-o))ness, rights, )airnessA, does not a%%ear to ha#e in"luded %atients and their res%e"ti#e )a/ilies as to% %riorit5. Mer"k7s de"ision /aking %ro"ess a%%ears to ha#e een less than "o/%rehensi#eness. 4unnel #ision %ro)it /a6i/iCation /a5 ha#e led Mer"k to /aking a de"ision that has negati#el5 i/%a"ted the "o/%an5 )or a long ti/e. Mer"k7s de"ision to /arket and its su se(uent de"ision to 'ithdra' Qio66 negati#el5 a))e"ted; 1A Mer"k7s Sto"kholders and in#estors, 2A Mer"k7s Manage/ent, *A Mer"k7s e/%lo5ees, 9A %h5si"ians and %atients, 1A general %u li", and KA the regulator5 agen"ies @?D& and Health CanadaA and others as sho'n in I6hi it *. :n +o#e/ er 2000, Mer"k7s o'n Q:LOM studies indi"ated a signi)i"ant in"rease in the risk heart atta"k and stroke in %atients taking Qio66, in a 12-/onth %eriod and as "o/%ared to those taking na%ro6en2. Des%ite kno'ing a out these results it took Mer"k /ore than t'o 5ears to 'ithdra' Qio66 )ro/ the /arket. Were Mer"k7s de"isions intended to ene)it or har/ an5, or all, o) the stakeholdersE &re there lessons to e learned )ro/ 'hat a see/ingl5 i/%ro%er de"ision to rush a drug to /arket onl5 to 'ithdra' laterE Conse*uentialis4 *ere the conse$uences of %erc#&s decision eneficial to its sta#eholders+ Conse(uentialis/ #ie' holds that 'hether an a"t is /orall5 right de%ends onl5 on the "onse(uen"es o) that a"t or o) so/ething related to that a"t. :t is di))i"ult to argue that an5 o) Mer"k7s stakeholders are etter o)) and ha#e ene)ited in the long ter/. :n the short run, Qio667 sales hel%ed in"rease Mer"k7s re#enues, ene)ited sto"kholders and /anage/ent, as 'ell as ene)iting so/e %atients. 4hrough their short ter/ #ision, Mer"k7s /anage/ent )ell into ethi"al de"ision /aking %it)alls. Had Mer"k taken Pastin7s a%%roa"h to re-%rioritiCe its stakeholders and %ut %atients )irst, and look at the long ter/ "onse(uen"es, the results /a5 ha#e een di))erent. FCardio#as"ular I#ents &sso"iated 'ith Mo)e"o6i in a Colore"tal &deno/a Che/o%re#ention 4rial.G >e3 En+lan# ?ournal of Me#icine *12, no. 11 @Mar"h 1J, 2001A;10.2-102. I%u ?e ruar5 11, 2001.
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Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 1@ _____________________________________________________________________________ _ Mer"k7s de"ision to kee% Qio66 on the /arket and not to %resent all s"ienti)i" date to the ?D& /a5 see/ unethi"al. Ho'e#er, Mer"k /a5 argue that 'ithholding s"ienti)i" in)or/ation )ro/ the regulator5 authorities and /arketing o) Qio66 'as ased on its "o//it/ent to deli#ering etter /edi"ines to %atients in need and 'ith no treat/ent alternati#e. 4hat is the greater ene)it to %atients 'as the ulti/ate desired "onse(uen"e. Mer"k /a5 also argue that Qio66 had a utilitarian i/%a"t on so"iet5 and deli#ered a su stantial health ene)it to /an5 %atients and there)ore its laun"h and /arketing /a5 e /orall5 !usti)ied. Ho'e#er, the Co/%an5 a%%ears to ha#e )ailed to /ini/iCe the net negati#e i/%a"t and har/ to all %atients. Mer"k 'as su""ess)ul in deli#ering a high #alue /edi"ine 'ith tre/endous utilit5 to %atients. But 5 a%%arent /isre%resentation o) sele"ti#e data to the ?D& it see/s to ha#e "rossed the /oral line. ?urther/ore, Mer"k had a/%le o%%ortunit5 to 'ithdra' Qio66 )ro/ the /arket @ et'een 1...2009A. Mer"k7s de"ision to kee% Qio66 on the /arket a%%ears not to ha#e een )air or right )or the stakeholders. 4hough the legalit5 o) Mer"k7s "ondu"t 'ill e de"ided in "ourts, it7s "lear that short ter/ "onse(uen"es @%ro)itsA linded Mer"k7s /anage/ent to /an5 long ter/ /oral and ethi"al issues. Deontolog3 *ere %erc#&s decisions legal+ *ere %erc#&s decisions fair, ,ust, or right+ Mer"k7s Q:LOM data @1, 2A sho'ed that Qio66 "ould "ause death in so/e %atients. Should Mer"k ha#e 'ithdra'n Qio66 )ro/ the /arket sooner that it didE :) it is deter/ined that Qio66 dire"tl5 "ontri uted to an5 death, and that Mer"k kno'ingl5 o/itted "ertain data )ro/ its regulator5 su /issions or Mer"k held a"k in)or/ation that "ould ha#e %re#ented deaths, "onse(uen"es /a5 e enor/ous. Nant /ight argue that Mer"k7s o/ission o) in)or/ation 'ould e dee/ed un)air, un!ust, and unethi"al. Mer"k7s a"tions suggest that the "o/%an5 did not res%e"t the rights and autono/5 o) indi#idual %atients. Mer"k /ight argue that sta5ing in the /arket, )or as long as the5 did /ight ha#e /a6i/iCed so"ial ene)its. :n realit5, Mer"k a%%ears not to ha#e atte/%ted to /ini/iCe so"ial in!uries to those 'ho did not ene)it )ro/ Qio66 5 issuing %ro%er 'arnings a out Qio66. Pastin /ight argue that Mer"k there 5 de/onstrated a la"k o) so"ial "ontra"t ethi"s, and hen"e 'as un)air. 4rans%aren"5 and in)or/ation sharing o) risks asso"iated 'ith Qio66, 'ould ha#e allo'ed the %h5si"ians and %atients to /ake a rational and in)or/ed de"ision thus res%e"ting the autono/5 o) the %atient. B5 Nant7s standards Mer"k used the %atients to a"hie#e an end @%ro)itsA. Co/%an5 %ro)its "learl5 ene)ited so/e o) the stakeholders. But /an5 others su))ered. Mer"k /a5 "ontend that des%ite all trans%ired e#ents the net ene)it to so"iet5 as a 'hole 'as 'orth the risks. 4he )a"t that Qio66 had serious ad#erse e))e"ts /ight ha#e "o/e into the risk- ene)it anal5sis at Mer"k. &s a result, so/e %eo%le 'ere e6%e"ted to de#elo% "o/%li"ations or die. Ho'e#er, 5 Nant7s /easures, an ethi"al de"ision should in"lude the )ull res%e"t o) the indi#idual7s right to "hoose, gi#en all the in)or/ation a#aila le. &n in"reased le#el o) trans%aren"5 'ith s"ienti)i" and "lini"al data 'ould ha#e had a di))erent out"o/e. O#erall, one /a5 argue that the non-(uanti)ia le i/%a"t o) Mer"k7s de"ision has had a greater e))e"t on the Co/%an5 than those resulting )ro/ the dro% in its /arket "a%.
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 11 _____________________________________________________________________________ _ ,irtue Ethics Did %erc#&s decisions demonstrate expected virtues+ &s a %har/a"euti"al "o/%an5 Mer"k7s re%utation and %u li" i/age had een uilt o#er /an5 5ears. 4his re%utation entailed i/%li"it #irtues o) relia ilit5, trust'orthiness, "o/%assion, "aring, integrit5, kindness, and res%onsi ilit5. :t does not a%%ear that the de"ision to /arket Qio66, or to sta5 in the /arket )or /u"h longer than e6%e"ted, 'as ased on the "onsideration o) an5 o) these e6%e"ted #irtues. :n its atte/%t to satis)5 the interests o) a li/ited nu/ er o) stakeholders, it a%%ears that Mer"k )ailed to "o/%rehensi#el5 e6a/ine, and there)ore anti"i%ate, all %ossi le out"o/es. Con#ersel5, Mer"k /ight argue that its a"tions 'ere the /ani)estation o) its "o/%assion )or %atients in need. Ho'e#er, in the %u li" e5e, this argu/ent /a5 not hold. One alternati#e o%tion that 'ould ha#e resulted in se"uring Mer"k7s integrit5 /ight ha#e een )or Mer"k to e /ore trans%arent 'ith the s"ienti)i" )indings and also to %resent su))i"ient 'arnings to the %atients. 4hough Mer"k a%%ears to ha#e anal5Ced the %ro)ita ilit5 and legalit5 o) their de"ision, it see/s unlikel5 that the Co/%an5 had "onsidered its )ull dut5 to all stakeholders. +or did Mer"k "onsider the rights o) %atients to li#e 'ithout 'orr5. Su44ar3 :n its de"ision /aking %ro"ess, Mer"k )ailed to identi)5 and %rioritiCe all stakeholders, and to address their res%e"ti#e interests and rights. B5 /arketing Qio66, not onl5 did Mer"k a%%ear to ha#e ignored the asi" rights o) /an5 o) its stakeholders ut also to ha#e eroded the #irtues e6%e"ted )ro/ a %har/a"euti"al "o/%an5. Mer"k7s )o"us on short-ter/ )inan"ial gains "reated an unhealth5 ethi"al de"ision /aking en#iron/ent. Conse(uentl5, its de"ision on Qio66 )ailed to result in sustaina le %ro)its in the long run. Mer"k7s esti/ated "ost o) litigation has had a negati#e i/%a"t on /a!orit5 o) its stakeholders, in"luding; shareholders, /anage/ent, and e/%lo5ees. We )ound the )ollo'ing te6t on Mer"k7s 'e site. FWe elie#e our e/%hasis on ethi"s ene)its our usiness. :t /oti#ates our %eo%le, and hel%s to ins%ire "on)iden"e and trust a/ong do"tors 'ho %res"ri e our /edi"ines as 'ell as regulators 'ho a%%ro#e the/. We "are dee%l5 a out the results 'e a"hie#e8the drugs 'e dis"o#er, our )inan"ial %er)or/an"e and our e/%lo5ees7 satis)a"tion8 ut 'e also "are a out ho' 'e a"hie#e those results, oth inside and outside the 'alls o) Mer"k. +o /atter ho' tough the usiness en#iron/ent, our ethi"s and "ore #alues 'ill "ontinue to guide our su""ess.G Ho'e#er, it a%%ears that the "o/%an5 "ontinues to ignore its /ost i/%ortant stakeholder, the %atient, as the 'ord F%atientG is not /entioned here. E5hi$it 6 Per)or/an"e o) Mer"k7s sto"k )ollo'ing 'ithdra'al o) Qio66 )ro/ the /arket

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 1! _____________________________________________________________________________ _

E5hi$it 7 Mer"k7s stakeholders and their res%e"ti#e relationshi%s

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 1* _____________________________________________________________________________ _

33333333333333 :n addition to Mah ar Mahi/%our7s anal5sis, the students should a%%re"iate the nature and stru"ture o) the "ourt de"isions that are a%%earing. &t this earl5 stage @Ma5 200KA, se#eral de"isions ha#e a%%eared. On &%ril 12, 200K, a !ur5 in +e' Jerse5 a'arded John M"Dar 5, a JJ5ear-old R9.1 /illion in co-pensator0 #a-a+es and R. /illion in punitive #a-a+es* e"ause FQio66 had een a signi)i"ant "ontri uting )a"tor to his heart atta"k and that Mer"k )ailed to 'arn ade(uatel5 o) the drug7s risks.G9 Puniti#e da/age a'ards are "a%%ed at 1 ti/es the "o/%ensator5 da/ages in +e' Jerse5. One anal5st o%ined that the legal "osts )a"ing Mer"k /ight e F"o/%ara le to 'hat W5eth has )a"ed 'ith its 'ithdra'n F)en-%henG diet drugs. W5eth has alread5 taken so/e R21 illion in "harges.G1 :t should e noted that the se"ond %lainti)) @4o/ ConaA in the M"Dar 5 "ase re"ei#ed #irtuall5 no a'ard. &s at &%ril Kth Mer"k had 'on t'o trials, and had een )ound lia le in t'o others.
* 9

FMer"k7s "ost in Qio66 "ase in"reased to R1*.1 /illionG, 5 &nna Dri#er, &oronto 7tar, &%ril 12, 200K, IK : id. 1 : id.

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 14 _____________________________________________________________________________ _ & out 10,000 la'suits 'ere still to e de"ided.K -. .n order to protect the pu lic more full), !hat should the /DA do given the 'ioxx lessons+ 4he ?D& "ould "onsider; Me(uiring i//ediate noti)i"ation 5 /anu)a"turers and0or resear"hers o) serious side e))e"ts ://ediate )ollo'-u% on su"h serious side e))e"ts ://ediate0#er5 earl5 %u li" ad#isor5 a out re%orts o) and in#estigations o) serious side e))e"ts San"tions )or "or%orations and senior e6e"uti#es that; o dela5 in re%orting serious side e))e"ts o "oer"e resear"hers not to dis"lose serious side e))e"ts or edit or hold a"k data to a#oid "lear dis"losure o) %otential su"h e))e"ts.

+ote that, although the "ase does not s%eak to the issue o) su%%ressing in)or/ation on serious side e))e"ts, students 'ill "o/e a"ross arti"les that allege su"h eha#ior. June 200K

8p(ate9Su$se*uent E&ents ?e . 2,, 200, 8 :n settle/ent o) la'suits in ?ederal, Cali)ornia, +e' Jerse5 and 4e6as "ourts, Mer"k o ligated to %a5 R9.,1 illion to 99,000 eligi le <.S. "lai/ants, see htt%;00'''.o))i"ial#io66settle/ent."o/0 ?or "ontinuous "o/%an5 ne's releases, see htt%;00'''./er"k."o/0ne'sroo/0#io660 ?or the Martin Me%ort on the Condu"t o) Senior Manage/ent in the De#elo%/ent and Marketing o) Qio66, see htt%;00'''./er"k."o/0ne'sroo/0#io660/artin3re%ort.ht/l Case 8p(ates Su44ar3 +e's - 200.; Mer"k, insuran"e %lans settle Qio66 suits )or R,0M +e's - Ma5 19, 200.; La'suit Me#eals Mer"k=s ?ake Qio66 Journals
K

FMer"k sto"k tu/ les a)ter Qio66 #erdi"tG, 5 &aron S/ith, C++Mone5."o/, &%ril K, 200K, a""essed on &%ril K, 200K. See also FJur5 )inds Mer"k didn7t 'arn o) Qio66 heart risksG, John Curran, &sso"iated Press, &oronto 7tar, &%ril K, 200K, %. CJ.

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 15 _____________________________________________________________________________ _ +e's - Se%te/ er 2K, 200.; B5 the end o) &ugust, Merk has %aid out 1.9 illion )ro/ its 9.,1 illion settle/ent )und, and 'ill %a5 /ost o) the alan"e o) the R9 illion )und to /ore than 20,000 "lai/ants a)ter Se%t. *0 +e's - O"to er 22, 200.; :n 2010 the )ight to get Canadians "o/%ensation has )inall5 /o#ed to the ne6t stage 'ith "erti)i"ation )inaliCed and dire"tions )or the "lass a"tion "o/ing no' through the Ontario CourtD Merk 2 Co. lost a id in the Canadian Su%re/e Court to %ut a Qio66 la'suit on hold in Ontario, 'hile it 'on a ruling that %re#ents another "ase )ro/ /o#ing )or'ard as a "lass a"tion in Saskat"he'an. +e's - ?e , 2010; & la'suit 'as )iled 5 shareholders 'ho argue that the "o/%an5 /isled the/ 5 do'n%la5ing data that suggested Qio66 raised the risk o) heart atta"ks. Shareholders are elie#ed to ha#e lost a "o/ ined R2, illion. Mer"k agreed to %a5 !ust o#er R12.1 /illion in legal )ees. +e's- Mar"h 1, 2010; Mer"k Loses &ustralian Qio66 La'suit 'hi"h o%en a gate )or hundreds o) si/ilar la'suits Ne)s Sources Mer"k, insuran"e %lans settle Qio66 suits )or R,0M htt%;00in)or/."o/0"ri/e-and-la'0/er"k-insuran"e-%lans-settle-#io66-suits-,0/-K1,909a Co%5right 200. &P ?eatures La'suit Me#eals Mer"k=s ?ake Qio66 Journals Posted 5 Jane &kre 4hursda5, Ma5 19, 200. 2;9J PM IS4 htt%;00'''.in!ur5 oard."o/0national-ne's0la'suit-re#eals-/er"k*.s-)ake-#io66-!ournals.as%6E googleidS2K2.9, Mer"k Pa5ing More 4han *,100 Death Clai/s in Qio66 Settle/ent htt%;00'''. loo/ erg."o/0a%%s0ne'sE%idS20K011102sidSaLP&*PCD)1Ms DC:S:O+ 2010; Canadian Qio66 Clai/s htt%;00'''.adr'orks."o/0Eg"lidSCJ3WJ#LL#a&C?-t61-od:h(1QCanada Su%re/e Court Me)uses Hearing on Qio66 &%%eals htt%;00'''. loo/ erg."o/0a%%s0ne'sE%idS20K010,22sidSa1k1(LM")2K" B5 Joe S"hneider Su%re/es Will Hear Mer"k &%%eal in Qio66 Shareholder La'suit htt%;00 logs.'s!."o/0health0200.00102J0su%re/es-'ill-hear-/er"k-a%%eal-in-#io66-shareholderla'suit0ta 0arti"le0 B5 Ja"o Loldstein +e's *-2; Mer"k Qio66 La'suit 4hursda5, 11. ?e ruar5 2010
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 1: _____________________________________________________________________________ _ htt%;00'''.legal%ara/ount."o/0/er"k-#io66-la'suit020100020 Mer"k Loses &ustralian Qio66 La'suit Date Pu lished; ?rida5, Mar"h 1th, 2010 htt%;00'''.ne'sin)erno."o/0ar"hi#es0"ategor50"lass-a"tion-la'suits &ustralian ruling o%ens )loodgates )or Qio66 "lai/s ?ri Mar 1, 12;1. &M htt%;00"a.ne's.5ahoo."o/0s0a)%0100*010health0health3australia3us3treat/ent3#io66

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 1; _____________________________________________________________________________ _

:8ST DO IT . MA"E THE N8M;ERS

3333333333333333333333333333333333333333333 /hat this case has to o++er 4his /ini-"ase "on#e5s the s"enario that has een a"ted out in "ountless C?O or CIO o))i"es. :t o))ers the o%%ortunit5 to "onsider 8 'hile usin+ an ethical #ecision -a1in+ AEDMB fra-e3or1 8 the; %ressures and /oti#ations that "an "o/e to ear on the CIO and C?O, te"hni(ues that "an e used to oost earnings and0or "ash )lo', )la'ed %ros%e"t that /ani%ulations 'ill e sel)-"an"elling 'hen %ros%e"ts i/%ro#e, "onse(uen"es o) /ani%ulation on all the stakeholders, %ro)essional a""ounting stan"e on /ani%ulations, and 'h5, lessons learned )ro/ earlier /ani%ulation "ases, in"luding; Inron, WorldCo/, Waste Manage/ent, Sun ea/, &del%hia, 45"o, +ortel, HealthSouth, Par/alat, 2 Mo5al &hold. & /ost interesting as%e"t o) the IDM dis"ussion is the opportunit0 to reveal the value of a##in+ #eontolo+ical an# virtue ethics perspectives to the /asic conseCuential or utilitarian fra-e3or1 that -ost /usiness fol1 an# accountin+ professionals naturall0 use. Clearl5 the deontologi"al issues o) rights, )airness and !usti"e are i/%ortant )or )idu"iar5, legal and re%utational %ur%oses, and )or %ro)essional a""ountants taking #irtue e6%e"tations into a""ount is "riti"al. :t is not sur%rising that so/e "or%orations are thought to hire non-a""ounting %ro)essionals @MB&sA as their C?Os, in order that the5 'ill not )eel the %ro)essional ethi"al %ressures that a CP& or C& or CM& 'ould.

Teaching suggestions
&lthough the "ase "an e taken u% 5 the instru"tor, it 'ould e hel%)ul )or a grou% o) students to %resent their "ase solution to the "lass. 4he %resentation "ould then e "riti(ued 5 other grou%s o) students 'ho 'ere allo"ated the roles or issues ulleted a o#e, su"h as; shareholder and other stakeholder i/%a"ts, %ossi le te"hni(ues and the )la'ed assu/%tion o) sel)-re"ti)i"ation, %ro)essional a""ounting "on"erns and e6%e"tations, a%%ro%riate use o) IDM a%%roa"hes, lessons learned )ro/ earlier "ases, and 'h5 are deontologi"al and #irtue ethi"s i/%ortant. Discussion o+ ethical issues 0uestion1 *hat should 2on consider in ma#ing his decision+ Mon, the C?O, should e/%lo5 a )ull IDM anal5sis e)ore /aking his de"ision 8 ut rarel5 'ould there e enough ti/e or the in"lination )or this in real li)e 8 so using this "ase in "lass 'ill
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 1< _____________________________________________________________________________ _ %re%are the students )or )uture "hallenges. 4his )ull IDM anal5sis "ould e si/ilar in )ra/e'ork to that used in the Illustrative pplication of 7ta1ehol#er nal0sis of a Propose# u#it #4ust-ent in"luded in Cha%ter 1 o) the te6t. While the stakeholder i/%a"t anal5sis is ne"essar5 and use)ul to /ake sure all issues are "an#assed, : 'ould suggest that the traditional ethi"al a%%roa"hes not e short-"hanged. Here are so/e thoughts on the ulleted ite/s listed a o#e; %ressures and /oti#ations that "an "o/e to ear on the CIO and C?O, o in"enti#es @greedA, )ear o) losing one7s !o , re%utation erosion o its ho' the ga/e is %la5ed 8 nor/al usiness %ra"ti"e @Nen La5 st5leA te"hni(ues that "an e used to oost earnings and0or "ash )lo', o "a%italiCe and0or de)er e6%enses, o))- alan"e sheet transa"tions, /isre%resentation )la'ed %ros%e"t that /ani%ulations 'ill e sel)-"an"elling 'hen %ros%e"ts i/%ro#e, o %ro)its rarel5 rise as e6%e"ted, o in#entor5 and0or other %ro)it oosts do not auto/ati"all5 "an"el the ne6t 5ear 8 the5 are usuall5 additi#e, and re(uire higher le#els o) /ani%ulation to hide. "onse(uen"es o) /ani%ulation on all the stakeholders, o see :llustrati#e Case %ro)essional a""ounting stan"e on /ani%ulations, and 'h5, o "ode o) "ondu"t dis"ussion, %ro)essionalis/, re%utation "on"ern, lessons )ro other /ani%ulation "ases lessons learned )ro/ earlier /ani%ulation "ases, in"luding; Inron, WorldCo/, Waste Manage/ent, Sun ea/, &del%hia, 45"o, +ortel, HealthSouth, Par/alat, and Mo5al &hold. o Inron 8 o))-state/ent deals, sha/ transa"tions o WorldCo/ 8 "a%italiCation o) line "osts and other e6%enses o Waste Manage/ent 8 "a%italiCed and 0or )ailed to re"ord e6%enses, o#erstated en#iron/ental re#enue reser#es, understated %ro#isions )or in"o/e ta6, et" o Sun ea/ 8 "hannel stu))ing, /isre"ording o) )ees, )alse sales, $ o &del%hia 8 /isre%resentation o) transa"tions o 45"o 8 /isuse o) ene)it %lans, unauthoriCed onuses and "o/%ensation, i/%ro%er "redits o +ortel 8 /isre"ording the ti/ing o) re#enue and e6%ense, so)t reser#es @"ookie !ar a""ountingA o HealthSouth 8 re"ording o) i/aginar5 re#enues o Par/alat 8 )ake transa"tions o Mo5al &hold 8 re"ording o) non-e6istent "o//issions )ro/ su%%liers

: 'ould "on"lude 'ith a dis"ussion o) the i/%ortan"e o) deontolog5 @dut5, res%e"t )or rights, and )airnessA and the de/onstration o) the #irtue e6%e"ted o) senior "o/%an5 o))i"ials and the related dire"tor o#ersight. While it is eas5 to argue that a utilitarian anal5sis /a5 indi"ate no signi)i"ant
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 1= _____________________________________________________________________________ _ net har/ )ro/ an a"tion, an assess/ent o) )air treat/ent a/ong stakeholders is not in"luded, nor is a )or'ard looking assess/ent o) the e6%e"tations o) stakeholders and 'hat 'ill ha%%en i) the5 are not /et. :n this regard, it does not /atter i) those e6%e"tations are e5ond 'hat is "urrentl5 e/ edded in la', the )uture su%%ort o) stakeholder grou%s is )ar /ore i/%ortant to the su""ess o) the "or%oration and the CIO and C?O the/sel#es, not to /ention the dire"tors. June 200K SMO"ERS ARE #OOD <OR THE ECONOM0 . REA!!0 333333333333333333333333333333333333333333333333333 /hat this case has to o++er 4he S/okers are Lood "ase o))ers the o%%ortunit5 )or students to a%%re"iate that; Cost- ene)it anal5ses @CB&A are use)ul, ut the5 are sus"e%ti le to /an5 )la's; Pri"es0"osts are hard to )ind e6a"tl5, and rarel5 are e(ui#alent to he #alue o) s%e"i)i" ite/s or i/%a"ts 8 "onse(uentl5 it is (uite %ossi le Fto )ind the %ri"e o) e#er5thing, ut the #alue o) nothingG, and to e /isled. ?re(uentl5, CB&s do not "a%ture the i/%a"t o) an a"tion on all stakeholders, %arti"ularl5 those on 'ho/ the i/%a"t is indire"t. What is in"or%orated in a /ore )ullso/e ethi"al anal5sis. Teaching suggestions : 'ould re"o//end getting the students in#ol#ed in the "ase 5 asking; Ho' /an5 s/oke no'E Ho' /an5 ha#e re"entl5 (uitE 4hen, to get at the issues o) the "ase; Wh5 do %eo%le s/okeE &re these issues "o#ered in the a"tuarial anal5sis @or CB&AE What does a asi" ethi"al anal5sis in"ludeE What else 'ould e "o#ered in a )ull ethi"al anal5sis as o%%osed to a CB&E What other issues e5ond those in a )ull ethi"al anal5sis or a CB& should e "ontinuedE 4aking e#er5thing into a""ount, is s/oking goodE Discussion o+ ethical issues What does an ethi"al anal5sis in"ludeE <sing a stakeholder i/%a"t anal5sis )ra/e'ork, an ethi"al anal5sis; :denti)ies all the rele#ant stakeholder grou%s a))e"ted 5 the a"ti#it5 :denti)ies all signi)i"ant i/%a"ts on these grou%s PrioritiCes the i/%a"t on ea"h stakeholder grou%
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 !@ _____________________________________________________________________________ _ &sks all the (uestions %er Cha%ter 9 o) the te6t rele#ant to the nature o) the %ro le/0i/%a"t so as to "o#er; rights, )airness and 'ell-o))ness Can an ethi"al anal5sis add to the a"tuarial anal5sis @or CB&AE Bes. Qis"usi7s anal5sis does not in"lude the i/%a"t o) s/oking on all stakeholders a))e"ted, nor does it in"lude all t5%es o) i/%a"t. ?or e6a/%le, Qis"usi does not in"lude the i/%a"t on indire"tl5 a))e"ted stakeholders su"h as )a/ilies o) losing a lo#ed one, 'ho is %ossi l5 a read-'inner, and there is no "ost in"luded )or the %ain and su))ering o) the )a/il5 o) the s/oker. +or is there a s5ste/ati" and ranked "onsideration o) the issues o) rights, )airness and 'ell-o))ness o) all stakeholders. +ature o) the %rodu"t :n this "ase, the %rodu"t @"igarettes and "igarsA is a nor/al in that the ni"otine in"luded in it %rodu"es an addi"tion in the s/oker, so it is di))i"ult )or a s/oker to (uit. Sin"e the le#el o) addi"tion is di))erent and unkno'n )or ea"h s/oker, the %rodu"t /a5 not e "onsidered to re%resent a )air %ur"hase and a "ontinuing )ree "hoi"e e#en though a dis"lai/er F$har/)ul to 5our healthG is %rinted on ea"h %a"kage. What is the alternati#eE S/okers s/oke )or rela6ation and )or satis)a"tion o) their so"ial or a))init5 needs. Lea#ing aside the "ra#ing )or ni"otine, 'hat 'ould s/okers do i) s/okes 'ere not a#aila leE Would the5 turn to drinking or drugs8 'ith 'orse resultsE What 'ould the5 do i) ta6es on s/okes 'ere in"reased signi)i"antl5E Would this de%ri#e lo' in"o/e )a/ilies o) /one5 needed )or sustenan"eE :s there reall5 a good alternati#e to s/okingE :) not, is s/oking not ON i) not goodE

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 !1 _____________________________________________________________________________ _

<ORD PINTO
333333333333333333333333333333333333333333333333333333 /hat this case has to o++er 4he Pinto Case has e"o/e an i"on in usiness ethi"s. :t a))ords the o%%ortunit5 to stress the i/%ortan"e o); 1. <sing a )ra/e'ork )or de"ision /aking 'hi"h "onsiders oth )inan"ial and non-)inan"ial )a"tors su"h as i/%a"ts on li)e and health. Isti/ating and alan"ing )uture i/%a"ts 'ith and against shortter/ i/%a"ts, su"h as %ro)it. Me"ogniCing that the so"ial "ons"iousness o) so"iet5 and e6e"uti#es has "hanged sin"e the Pinto de"ision and 'ill "ontinue to do so. Considering "ost- ene)it anal5sis to e a realisti" and #alua le addendu/ to %ro)it anal5sis.

2. *.

9.

S%e"i)i"all5, the "ase a))ords the o%%ortunit5 to e6%lore the )ollo'ing issues, a/ong others, in a usiness "onte6t; Can0should a %ri"e e %ut on li)eE Wh5 'as the "ost- ene)it anal5sis de)i"ientE Isti/ates o) la'suit settle/ents Lost re%utation - ho' to /easure it Dis"ounting - 'h5 and ho' Didn=t ring the )uture to the %resent When is %rodu"t risk nor/al or a nor/al, a""e%ta le or not a""e%ta leE Was dis"losure an o%tionE What is the general trend in so"ial "ons"ien"e o#er ti/eE Teaching suggestions M5 a%%roa"h to the Pinto Case de%ends on 'hether : use it to start a "lass on ethi"al de"ision /aking @IDMA )ra/e'orks, or to "e/ent the )ra/e'ork issues that : ha#e taught at the eginning o) the "lass. <suall5 : use the Nardell Pa%er Case to introdu"e the >?i#e -uestion0Bo6> ?ra/e'ork in the )irst "lass on IDM. : egin the se"ond 'ith a dis"ussion on
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 !! _____________________________________________________________________________ _ the Moral Standards &%%roa"h @MS&A and "ost- ene)it anal5sis @CB&A 'hi"h : "e/ent 'ith the Pinto Case. : then go on to deal 'ith the #ariations in the MS& 'hi"h are introdu"ed in the Pastin &%%roa"h. Sin"e the "lass has had a dis"ussion on CB&, : laun"h right into the )irst (uestion %osed at the end o) the "ase. 4his doesn=t take long e"ause the de"ision, in hind-sight, is so o))ensi#e to hu/an li)e and health. So/eti/es there is a it o) de ate, ut generall5 the "lass agrees and 'e "an shi)t to the se"ond (uestion a out the CB&. Sin"e ?ord=s CB& does not su%%ort the #ie' that the de"ision 'as unethi"al, it is natural to dis/iss CB& as useless or to look hard to see 'h5. 4here)ore /ost o) the "lass are relie#ed 'hen the CB& is (ui"kl5 sho'n to e )la'ed. During the dis"ussion a out the )la's, : /ake a s%e"ial %oint to unders"ore ho' a %ro%erl5 "ra)ted CB& 'ould ha#e /ost hel%)ull5 rought future "ash )lo's into the IDM to allo' a "o/%lete %i"ture to e asse/ led and a alan"ed de"ision to e /ade. :gnoring the )uture "an e a %erilous short"o/ing. We )inish 'ith the last (uestion 'hi"h is designed to )o"us on the ina%%ro%riateness o) thinking that dis"losure o) a nor/al risks is %ra"ti"al or likel5 to e e))e"ti#e. :n total, it usuall5 takes a out *0 /inutes to deal 'ith the "ase i) it has een read in ad#an"e, 'hi"h : re(uire.

Discussion o+ ethical issues 0uestion 11 Was the de"ision not to install the ru er ladder a%%ro%riateE <se the 1 (uestion0 o6 )ra/e'ork to su%%ort 5our anal5sis.

4he )i#e (uestion )ra/e'ork suggests the identi)i"ation and ranking o) stakeholders and then e/%lo5s the )ollo'ing "hallenges to %ro%osed a"tions - in this "ase 'ith the results indi"ated; :s the %ro%osed a"tion %ro)ita leE &""ording to ?ord=s CB& - Bes :s the %ro%osed a"tion legalE Bes. But it is interesting to note that the ?ord engineers kne' that the Pinto 'ould not %ass 21 /%h "rash test 'hi"h 'as e6%e"ted to e introdu"ed as the go#ern/ent=s /andator5 sa)et5 standard - an introdu"tion 'hi"h 'as >dela5ed> until the late 1.J0=s a)ter the ulk o) the "ourt 'ork on this "ase 'as "o/%lete. :s the %ro%osed a"tion )airE +o, "ertainl5 not to the %eo%le 'ho died or 'ere urned or to their )a/ilies, %ro#ided it is de"ided that the %rodu"t "arried inherent risks 'hi"h 'ere greater than 'as reasona le )or
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 !* _____________________________________________________________________________ _ the u5ing %u li" to e6%e"t. 4his sets u% an interesting dis"ussion o) nor/al and a normal product ris#. I#en a 5=s to5s "arr5 so/e risk to a user, ut i) there is a design )la' or a /anu)a"turing )la' 'hi"h %resents so/e e6tra risk o) signi)i"ant har/, then that 'ould e a nor/al. Moreo#er, i) this a nor/al risk 'as kno'n or should ha#e een kno'n to the "o/%an5, its Dire"tors or /anage/ent, and the5 did nothing a out it, then the5 "an e "onsidered negligent. :n the Pinto "ase, the %la"e/ent o) the gas tank, et"., is usuall5 "onsidered, in hindsight, to "reate an a nor/al risk. Can the e6e"uti#es e "onsidered "ul%a leE Most 'ould sa5 5es, ut the5 )orget that ti/es 'ere di))erent 'hen the de"ision 'as /ade. So"ial "ons"ien"es 'ere not as de#elo%ed and e6e"uti#es 'ere largel5 s"hooled to ignore %ersonal /atters in )a#or o) )inan"ial ones. : usuall5 %la5 de#il=s ad#o"ate on the /atter o) "ul%a ilit5 and )or"e the "lass to argue their 'a5 through the nor/al0a nor/al risk, "ultural "hange issues. So/eti/es this "at"hes the traditionalists 'ho side 'ith /e onl5 to su))er the attention o) their "lass/ates. :s the %ro%osed a"tion rightE +o. :t "learl5 o))ends the right to li)e, and to health, %arti"ularl5 i) the a nor/al risk0negligen"e argu/ent goes against the ?ord e6e"uti#es. So/e %eo%le "an=t elie#e that an5one "ould /ake the tradeo)) o) R11 )or a li)e @a"tuall5 : elie#e the real "ost 'as onl5 R1.10 or soA, ut the )a"t that Lee :a"o""a did it lends a strange "redi ilit5 to the "ase. :s the %ro%osed de"ision sustaina le de#elo%/ent or0E :n this "ase, the issue o) sustaina le de#elo%/ent doesn=t a%%ear to e as i/%ortant other /atters, and so "an e ignored )or the %ur%oses o) "lass dis"ussion. O#erall, the %ro%osed a"tion is sho'n to e unethi"al ased on t'o "hallenges at least, so the %o'er o) an IDM )ra/e'ork is seen to e greater than the li/ited )inan"ial anal5sis that ?ord 'as doing. O) "ourse, ?ord=s anal5sis 'as )ault5 'hi"h leads to a dis"ussion o) the ne6t (uestion. 4he ranking o) stakeholder=s interests does not a%%ear to e needed to rea"h the a o#e "on"lusion.

0uestion -1

What )aults "an 5ou identi)5 in ?ord=s "ost- ene)it anal5sisE

4he /ost )re(uent o ser#ations /ade in res%onse to this (uestion are; ho' "an an5one %ut a #alue on a hu/an li)e, settle/ent "osts look lo', ?ord=s re%utation su))ered ut this not #alued, and there is no dis"ounting o) )uture "ash )lo's. Here are so/e "o//ents on ea"h. Puttin+ a value on hu-an life an# sufferin+; Lrueso/e though it /a5 e, "ourts do it all the ti/e in da/age "ases, generall5 as a )un"tion o) lost )uture earnings %lus da/ages )or %ain and
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 !4 _____________________________________________________________________________ _ su))ering dis"ounted at a reasona le rate o) interest. Conse(uentl5, it the IDM a%%roa"h 'ill e "o/%lete onl5 i) 'e do the sa/e. <n%alata le and ina""urate though it /a5 e, it a%%ears to e use)ul )or IDM %ur%oses to use si/ilar #aluation te"hni(ues. &)ter all, a %er)e"tl5 sa)e "ar 'ould look like a tank and e /ore "ostl5 than /ost "ould a))ord, so tradeo))s 'ill ha#e to "ontinue to e /ade. Cost esti-ates loo1 to lo3; 4rue, ut 'ith hindsight e#er5thing is "learer. :n )a"t, the total "lai/s %aid out ulti/atel5 'as a%%ro6. R110 /illion. :n the <S !udges are ele"ted and, 'hen the %u li" learned /ore a out the "ase it e"a/e outraged at ?ord=s "ondu"t and the settle/ents sk5ro"keted. 4his is a %attern that has re"urred sin"e. >o surro+ate is inclu#e# for lost reputation2 We "an=t /easure the #alue o) lost re%utation dire"tl5, ut 'e "an %ro!e"t the lost units o) sales 'hi"h /ight result )ro/ a %oor de"ision. Ha#ing this nu/ er )or ea"h a series o) )uture %eriods out to a ti/e horiCon o) sa5 10 5ears, 'e "an esti/ate the lost /argin on ea"h and dis"ount the total )or ea"h 5ear a"k to the date o) our anal5sis at a reasona le rate @sa5 10TA. :) )or e6a/%le, ?ord 'as to lose 200,000 units o) sales )or ea"h o) the 10 5ears, and ea"h unit re%resented lost /argin @sales %ri"e less #aria le /anu)a"turing and /arketing "ostsA o) R100, then the )irst 5ear=s "ost 'ould e the %resent #alue o) R20 /illion. O#er the ten 5ear ti/e horiCon, at a dis"ount rate o) 10T, the lost re%utation #alued on this asis 'ould a/ount to RR122.. /illion @see elo'A. Discountin+ is not e-plo0e#; &sk 5our "lass 'hether the5 'ould e /ore 'illing to take their %a5 no' or de)er it )or a 5ear or t'o. Clearl5, there is a ti/e #alue o) /one5 'hi"h ought to e re)le"ted in a %ro%er CB& 5 dis"ounting oth "osts and ene)its. Corre"ting )or these )la's, a re"ast CB& /ight look like that set out elo';

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 !5 _____________________________________________________________________________ _ Cost=;ene+it Anal3sis o+ not installing the gas tank gasket; Benefits of1 :nstallation and /aterial "osts; @R1*J,100,00002 sin"e "ost S a%%ro6. R1.10 not R11 ea.A @&ssu/e "ost in"urred e#enl5 o#er 10 5earsA @Present #alue o) RK,*J1,000 annuit5 at 10TA........................R 3osts of 1 Burn deaths, in!uries, #ehi"les, and legal "osts; @&ssu/e total %a5out is R110,000,000 o#er 10 5earsA @Present #alue o) R11, 000,000 annuit5 at 10TA...................... Lost re%utation; @Lost /argin o) R20,000,000 %er 5ear o#er 10 5earsA @Present #alue o) R20 /illion annuit5 at 10TA.......................$ 4otal "osts Net $ene+its=costs

*..1J9 /il

.2.1J1 122..00 211.0J1 @R1J1.001A

+ote; 4he in"o/e ta6 "onse(uen"es o) these "ash )lo's ha#e not e taken into a""ount. :) this %i"ture o) realit5 had een a#aila le to ?ord e6e"uti#es, the de"ision 'ould (uite likel5 ha#e een di))erent. 0uestion 41 Should ?ord ha#e gi#en its Pinto "usto/ers the o%tion to ha#e the ru ladder installed during %rodu"tion )or, sa5 R20E er

4he i/%ra"ti"alit5 o) this suggestion is o #ious, ut it %ro#ides a !u/%ing o)) %oint to dis"uss the "o//on /is%er"e%tion that dis"losure 'ill /ake an unethi"al a"tion all right. So/eho', telling a #i"ti/ 'hat is in store )or hi/0her is e6%e"ted to %ass the )ro/ the /anu)a"turer to the #i"ti/. Ho'e#er, 'hen su"h "o//uni"ation "an e done 'ithout se#ere "onse(uen"es )or the "o/%an5=s "redi ilit5, the #i"ti/ "an easil5 "lai/ ina ilit5 to understand, or not ha#ing the )reedo/ to "hose another alternate - in 'hi"h "ase the /anu)a"turer 'ill still e stu"k 'ith the %ro le/. <suall5, asking the students ho' to "o/%ose the "o%5 )or the R20 o%tion %ro#ides so/e le#it5 at the end o) the "ase. On"e again, the students 'ill )ind the "ase in#igorating and instru"ti#e, and 'ill /ar#el at the "hanges in so"ial "ons"ien"e o#er ti/e. 8se+ul 8p(ate Re+erence; htt%;00en.'iki%edia.org0'iki0?ord3Pinto Case 8p(ates Su44ar3 On Januar5 11, 1.,0, the ?ord Motor Co/%an5 'ent on trial on "harges o) re"kless ho/i"ide in the 1.J, death o) three :ndiana teenagers 'ho urned to death a)ter their 1.J* ?ort Pinto 'as hit
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 !: _____________________________________________________________________________ _ )ro/ ehind 5 a #an. :ndiana state %rose"utors alleged that ?ord kne' Pinto gasoline tanks 'ere %rone to "at"h )ire during rear-end "ollisions ut )ailed to 'arn the %u li" or )i6 the %ro le/ out o) "on"ern )or %ro)its. 4he trial /arked the )irst ti/e that an &/eri"an "or%oration 'as %rose"uted on "ri/inal "harges Uin this "ase, re"kless ho/i"ide. ?ord 'as a"(uitted in Mar"hD the "ase 'as too "o/%le6. 4he Pinto 'as dis"ontinued in )all 1.,0. Case Ne)s Sources V Bou4u e #ideo; Carnage; Car Sa)et5 2 Car Crashes; Pt 9; High 4oll, Mal%h +ader, Cor#air 2 Pinto htt%;00'''.5outu e."o/0'at"hE#SDLrMa?kL!l:2)eatureSrelated V Mark Do'ie, >Pinto Madness,> Mother Jones, Se%te/ er0O"to er 1.JJ, htt%;00'''./other!ones."o/0ne's0)eature01.JJ00.0do'ie.ht/l V Birs"h, D. @1..9A. :ntrodu"tion; 4he Pinto Contro#ers5. :n D. Birs"h 2 J.H. ?ielder @Ids.A, 4he ?ord Pinto Case; & Stud5 in &%%lied Ithi"s, Business, and 4e"hnolog5 @%. *-19A. @1..9A. State <ni#ersit5 o) +e' Bork Press. V Do'ie, M. @1.JJA. Pinto Madness. :n D. Birs"h 2 J.H. ?ielder @Ids.A, 4he ?ord Pinto Case; & Stud5 in &%%lied Ithi"s, Business, and 4e"hnolog5 @%. 11-*KA. @1..9A. State <ni#ersit5 o) +e' Bork Press. V htt%;00en.'iki%edia.org0'iki0Lee3:a"o""a V '''.autosa)et5.org0arti"le.%h%Es"idS.K2didS122 htt%;00'''. iogs."o/0)a/ous0ia"o""a.ht/l

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 !; _____________________________________________________________________________ _ "ARDE!! PAPER CO> 333333333333333333333333333333333333333333333333333333 /hat this case has to o++er 4he Nardell Pa%er Co. Case in#ol#es de"isions around the ne"essit5 to introdu"e a #er5 e6%ensi#e >"losed loo%> %ollution "ontrol s5ste/ in a %ul% /ill. 4his %ro#ides an e6"ellent o%%ortunit5 to; 1. 2. *. :ntrodu"e and illustrate the stakeholder anal5sis a%%roa"h as it deals 'ith )inan"ial and non-)inan"ial issues 'ith i/%a"ts in oth the long and short ter/. Let the students to gra%%le 'ith the need )or de"isions ased on %artial or un"ertain in)or/ation. I6a/ine ho' a oard o) dire"tors 'orks in go#erning organiCations, and ho' it ought to e "onstituted or o%erated to insure that all stakeholder interests are "onsidered. Learn to anti"i%ate )un"tional )i6ation, "on)li"ts o) interest and other )or/s o) ias )ro/ la'5ers and other ad#isors or de"ision /akers. &%%re"iate 'hat >due diligen"e> re(uire/ents de"ision /akers /ust kee% in /ind to /ini/iCe the i/%a"t o) "harges o) negligen"e 'ith regard to the treat/ent o) the en#iron/ent and the handling o) haCardous 'aste. Con)ront the do'nside @'histle lo'ing, )ines, !ail, "losureA o) su%%ressing in)or/ation or de ate at the de"ision /aking le#els @e6e"uti#e and oardA o) the organiCation. &%%re"iate the "a%a"it5 o) the stakeholder anal5sis a%%roa"h to e used to re)ine a solution to %rodu"e a 'in0'in, "reati#e or etter result.

9. 1.

K.

J.

Teaching suggestions : use the Nardell Co. Case either a)ter de#elo%ing the 1-(uestion0 o6 &%%roa"h @1-&A 'ith the students, or a)ter de#elo%ing the Moral Standards &%%roa"h @MS&A and the Pastin &%%roa"h @P&A as 'ell. : start the dis"ussion 'ith a short s"ene-setting state/ent 'hi"h raises the realit5 o) the "ase setting - a"tuall5 it is an e/ ellished real "ase 'ith "hanged na/es, and 'ith sono6 reall5 eing dio6in, a sus%e"ted "ar"inogen %rodu"es in the %ul% /aking %ro"ess. 4hen : ask the )ollo'ing (uestions, in order;

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 !< _____________________________________________________________________________ _ 1. 2. *. 9. 1. K. J. ,. .. Who are the stakeholders here and 'hat are their interestsE What are the /a!or issues and ho' are the interests o) ea"h stakeholder grou% a))e"ted 5 the/E Whi"h ethi"al de"ision /aking a%%roa"h should e used; 1-&D MS&D P&E Wh5E What are the /a!or de"isions to e /adeE Ho' should the stakeholder=s interests e rankedE Wh5E What )a"ts and anal5ses 'ould 'e like to ha#eE What de"isions 'ould the students /akeE What 'as 'rong 'ith the (ualit5 o) the de ate at the oard o) dire"torsE What is the do'nside i) the right de"ision is not /ade - "onsider e"ono/i" )a"tors and also 'hat Ja"k /ight doE

4he dis"ussion /o#es along (uite (ui"kl5, taking *0-91 /inutes. &t the end o) the "ase, students )eel (uite good a out the de"ision /aking a%%roa"hes and their understanding o) "or%orate go#ernan"e. Discussion o+ ethical issues 7ta1ehol#ers an# their interests; 4he dis"ussion o) stakeholders and their interests %rodu"es the e6%e"ted list e6"e%t that usuall5 neither Ja"k, the te"hni"ian 'ho dis"o#ered the %otential %ro le/ and 'ho is /ost "on"erned 'ith the i/%a"t o) sono6, and the un orn, are /entioned. : usuall5 ha#e to %ro e )or these, and so/eti/es : let the dis"ussion %ro"eed until the (ualit5 o) de ate at the oard le#el "o/es u% e)ore asking 'ho is going to raise their issues and argue )or their interests. & satis)a"tor5 de"ision is unlikel5 unless the5 are re"ogniCed as stakeholders and their interests taken into a""ount. Bou "an del#e into the issue o) 'hether /others "an ade(uatel5 re%resent the un orn or not, ut re/e/ er that /others /a5 su))er )ro/ "on)li"ts o) interest in regard to the %er"ei#ed short-ter/ need )or !o s )or their )a/ilies, et". Si/ilarl5, the issue o) 'hether the en#iron/ent should e a""orded status as a stakeholder in its o'n right, or si/%l5 as an e6tension o) kno'n hu/an needs, is an interesting one. Pointing to the re"ent /o#ie >Medi"ine Man> in 'hi"h Sean Conner5 'as tr5ing to )ind a "ure )or the "an"er in the BraCilian rain )orest, ut 'as %re#ented )ro/ doing so 5 e))orts to "lear )or graCing "attle, is hel%)ul here. 'an1in+ the sta1ehol#erDs interests; 4he ranking o) stakeholders interests "an e done a)ter or in "on!un"tion 'ith the identi)i"ation o) the /a!or de"isions to e taken. Pro#ided sono6 is "onsidered a health risk, the usual ordering o) "on"erns 5 the %u li" 'ould e; li)e, health, (ualit5 o) li)e, )inan"ial. : usuall5 )ind that their is (uite a de ate in "lass o#er the %ri/a"5 o) shareholders "on"erns @)inan"ialA #s. those related to li)e and health. :n the end, it usuall5 oils do'n to ho' serious a health risk the student thinks that sono6 is. 4his is an issue that is unresol#ed in the "ase due to la"k o) in)or/ation @the sa/e as in real li)e - dio6ins are #er5 har/)ul to /onke5s, ut s"ien"e has not een a le to /ake the sa/e "ase )or hu/ans 5etA.

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 != _____________________________________________________________________________ _ Choosin+ an ethical #ecision -a1in+ approach; Be"ause the "ase in#ol#es the en#iron/ent, /ost students 'ant to use the 1-& 'hi"h )eatures the sustaina le de#elo%/ent (uestion. :t also a%%ears to e the /ost si/%le and logi"al sin"e the de"isions a%%ears to lies outside the "on)ines o) the organiCation. Ho'e#er, the students should e re/inded that the %ro)it "hallenge in the 1-& it de)i"ient e"ause it is o)ten short run in )o"us and )ails to "onsider e6ternalities like har/ to the en#iron/ent. 4hese issues "all )or the su%%le/entation o) the 1-& 'ith "ost- ene)it anal5sis as in the MS&. &lso, the issues o) dis"o#ering Nardell=s internal ground rules and e/%lo5ing so"ial "ontra"t ethi"s /a5 e hel%)ul in sha%ing re"o//endations and en"ouraging de"ision /akers to "onsider the do'nside o) the health "on"erns. Sin"e nu/ ers are not a#aila le, aug/enting the %ro)it "hallenge 'ith the "on"e%t o) CB& usuall5 %ro#es to e desira le and rein)or"es the idea o) )ashioning a h5 rid s5ste/ 'here ad#isa le. .hat #ecisions ou+ht to /e consi#ere#5 .hat facts%anal0ses 3oul# 3e li1e to have5; O #iousl5 the de"ision o) 'hether to shut do'n and install the "losed loo% s5ste/ is e)ore the oard. Ho'e#er, the "lass should realiCe that there are a nu/ er o) #ariants 'hi"h should e in#estigated, ti/e %er/itting, 'ith the ulti/ate de"ision de%ending on /ore in)or/ation. ?or instan"e; :s Sono6 reall5 a %ro le/E &re 'e %olluting in su))i"ient (uantities to "ause a %ro le/E &re there alternati#e and less "ostl5 %ro"ess /odi)i"ations 'hi"h 'ould redu"e, ut not eli/inate, our Sono6 dis"hargeE 4he "losed loo% shut do'n and "osts a%%ear high; are their less disru%ti#e0"ostl5 a%%roa"hesE What are the "osts o) dela5E

&s a result, an alternate de"ision 'ould e to de)er the "losed loo% de"ision and seek /ore in)o on one or /ore o) the a o#e. :n the interi/, se#eral de"isions arise; Should the "o//unit5 e in)or/ed o) the %ossi le health risksE WhenE Should ottled 'ater e rought inE WhenE Should the other "o/%etitors e rought into the dis"ussionsE

8ettin+ the class to -a1e #ecisions; : usuall5 )or"e the "lass to #ote on the "losed loo% de"ision right a)ter the "hoi"e o) ethi"al de"ision /aking a%%roa"h. 4he5 resist doing so, and : ask 'h5 then the other (uestions "o/e out. : kee% asking )or a de"ision and this )or"es the grou% to think through ea"h stage o) the %ro"ess. <lti/atel5 the "lass is usuall5 s%lit et'een those 'anting to take the ethi"al >high road> and install the loo% right a'a5, and those 'ho 'hat to /o#e /ore slo'l5. .hat 3as 3ron+ 3ith the Boar# #e/ate5 &t this %oint, it is eas5 to see that the oard 'as not su))i"ientl5 re%resentati#e o) the stakeholders to /eaning)ull5 %resent and understand the i/%ortant issues )a"ing the "o/%an5. Moreo#er, there 'as no one 'ith su))i"ient te"hni"al
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 *@ _____________________________________________________________________________ _ e6%ertise to a%%re"iate the signi)i"an"e o) the health issues or the iologi"al i/%a"t on the en#iron/ent. 4he la'5er /a5 ha#e )elt a "on)li"t o) interest, in that he 'as oth a dire"tor and a %aid "ounsel. :n an5 e#ent, his #ie' 'as li/ited to "urrent and %ast legal %re"edent, not to the )uture, or to non-legal %ers%e"ti#es. 4his is )un"tional )i6ation 'hi"h "an /islead a "or%oration into short-range thinking. 4he result o) this anal5sis should e the realiCation that to %ro%erl5 go#ern a "o/%an5, the oard should ha#e e))e"ti#e re%resentation )ro/ all i/%ortant stakeholder grou%s, and0or e))e"ti#e a""ess to and in)or/ation )ro/ re%resentati#e grou%s or ethi"s e6%erts. 4his anal5sis 'ill highlight the #alue in a%%ointing >outside> dire"tors @'ho don=t rel5 on the organiCation )or their li#elihoodA and also 'o/en dire"tors to insure that all as%e"ts o) an issues 'ill e understood and argued e))e"ti#el5. .hat is the #o3nsi#e5 Ja"k /ight lo' the 'histle i) he thinks that the 'rong de"ision is /ade or i) the %ro"ess is su%%ressed or i) too /u"h dela5 is in#ol#ed. 4his 'ould @didA in#ol#e regulator5 san"tion in"luding )ines, shut do'n, loss o) /arket, loss o) %ro)it, and ulti/atel5 loss o) "ontrol to "reditors. :) Ja"k doesn=t lo' the 'histle, "osts o) ulti/ate "lean-u% and ne' %ro"ess installation "ould rise. :) the de"ision 5 the oard is !ust to 'ait and see 'hat ha%%ens, the5 'ill not e a le to argue that the5 took >due diligen"e> /easures to kee% a reast o) the health risk unless the5 initiate so/e resear"h into the sono6 %ro le/, e#en i) it is a %eriodi" literature sear"h or a retainer arrange/ent 'ith a resear"her to kee% the/ ad#ised. Si/ilarl5, the5 should "ontinue to take readings in the ri#er to /onitor their dis"harge and tr5 to identi)5 other %olluters. Creative solutions2 : )inish the "ase 5 asking 'hether the interests o) "ertain stakeholders "an e e6a/ined to re)ine or %rodu"e etter de"ision. So/eti/es one o) the /ore astute students 'ill s%e"ulate on the %ossi ilit5 o) arranging 'ith go#ern/ent )or su%%ort as a test %ro!e"t )or the "losed loo% s5ste/, or to o))set the "ost o) a shut do'n. &lso, the a%%roa"h to other "o/%etitors on the ri#er "an e e6a/ined, sin"e the5 are likel5 to e in the sa/e oat...as it 'ere.

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 *1 _____________________________________________________________________________ _

Multiple Choice ?uestions

@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@
1A 4he )irst resour"e )or guidan"e 'hen a usiness%erson or a %ro)essional a""ountant )a"es an ethi"al %ro le/ should e; a. . ". d. e. Co//onl5 a""e%ted so"ial nor/s Cor%orate and %ro)essional "odes o) "ondu"t Ithi"al de"ision-/aking )ra/e'orks Co//onl5 a""e%ted %hiloso%hi"al a%%roa"hes &ll o) the a o#e

&+SWIM;
2A 4he &&CSB Ithi"s Idu"ation task)or"e has "alled )or usiness students to e )a/iliar 'ith the )ollo'ing a%%roa"hes to ethi"al de"ision /aking; a. . ". d. e. Conse(uentialis/, deontolog5, and #irtue ethi"s Conse(uentialis/, deontolog5, and /oral i/agination Distri uti#e !usti"e, deontolog5, and #irtue ethi"s Distri uti#e !usti"e, deontolog5, and /oral i/agination Conse(uentialis/, deontolog5, and distri uti#e !usti"e

&+SWIM; a
*A 4hese are "hara"ter traits that dis%ose a %erson to a"t ethi"all5 and there 5 /ake that %erson a /orall5 good hu/an eing; a. . ". d. e. +or/s Moral !udge/ents Qirtues Qalues Ithi"al !udge/ents

&+SWIM; " 9A ?ro/ a stakeholder %oint o) #ie', 'hi"h o) the )ollo'ing /ust e satis)ied )or a de"ision to e "onsidered ethi"alE a. 4he de"ision should de/onstrate #irtues reasona le5 e6%e"ted . 4he de"ision should result in /ore ene)its than "osts ". 4he de"ision should not o))end the rights o) an5 other stakeholders d. 4he distri ution o) ene)its and urdens should e )air e. &ll o) the a o#e /ust e satis)ied )or a de"ision to e "onsidered ethi"al &+SWIM; e
Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 *! _____________________________________________________________________________ _

1A 4he "osts o) en#iron/ental "lean-u%s a sor ed 5 do'nstrea/ indi#iduals, "o/%anies, or /uni"i%alities are re)erred to as; a. . ". d. e. Surrogates I6ternalities ?uture i/%a"ts Collateral da/ages Ithi"al "osts

&+SWIM;
KA 4hese "osts "an e /easured indire"tl5 5 using "osts in"urred in si/ilar "ir"u/stan"es or /irror i/age alternati#es; a. . ". d. e. Surrogates I6ternalities ?uture i/%a"ts Collateral da/ages Ithi"al "osts

&+SWIM;
JA What is the /ost "o//on /easure o) shareholder 'ell- eing; a. . ". d. e. Pro)it or loss Pro)it or loss %lus e6ternalities Pro)it or loss %lus "ost- ene)it anal5sis Pro)it or loss %lus risk- ene)it anal5sis &ll o) the a o#e

&+SWIM; a ,A Whi"h o) the )ollo'ing is not a stakeholder rightE a. Li)e, heath and sa)et5 . 4o earn a reasona le return on an in#est/ent ". ?reedo/ o) s%ee"h d. ?air treat/ent e)ore the la' e. &ll o) the a o#e are stakeholder rights &+SWIM;
.A 4his a%%roa"h in"or%orates the e6%e"ted )uture i/%a"ts o) a de"ision into the anal5sis; a. Qirtue ethi"s . Conse(uentialis/ Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 ** _____________________________________________________________________________ _

". Cost- ene)it anal5sis d. Misk- ene)it anal5sis e. &ll o) the a o#e

&+SWIM; e @: do not understand the di))eren"e et'een -, and -.D 'hen are )uture i/%a"ts not e6%e"ted in an anal5sisE : think that -, should e deletedD :7#e added a re%la"e/ent (uestion at the end.A
10A 4hese #alues are the "o/ inations o) a #alue and the %ro a ilit5 o) its o""urren"e; a. . ". d. e. Pro a le #alues Co//on #alues Present #alues I6%e"ted #alues Misk-ad!usted #alues

&+SWIM; d
11A Whi"h o) the )ollo'ing is not one o) the 1 (uestions in Lraha/ 4u"ker7s original a%%roa"h to ethi"al de"ision /akingE a. . ". d. e. :s it %ro)ita le :s it rightE :s it )airE :s it legalE Does it de/onstrate the #irtues e6%e"tedE

&+SWIM; e
12A 4he )ollo'ing three standards /ake u% the /oral standards a%%roa"h; a. . ". d. e. <tilitarian, :ndi#idual rights, and Justi"e <tilitarian, :ndi#idual rights, and ?airness Legal, :ndi#idual rights, and Justi"e <tilitarian, Moral rights, and Justi"e Legal, Moral rights, and Justi"e

&+SWIM; a
1*A Pastin7s a%%roa"h adds the )ollo'ing "on"e%ts to stakeholder i/%a"t anal5sis; a. . ". d. e. Mule ethi"s Lround rule ethi"s Ind-%oint ethi"s So"ial "ontra"t ethi"s &ll o) the a o#e Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 *4 _____________________________________________________________________________ _ &+SWIM; e

19A 4he )ollo'ing a%%roa"h does not s%e"i)i"all5 in"or%orate a thorough re#ie' o) the /oti#ation )or the de"isions in#ol#ed, or the #irtues or "hara"ter traits e6%e"ted; a. . ". d. e. 1-(uestion a%%roa"h Moral standards a%%roa"h Pastin7s a%%roa"h &ll o) the a o#e @aA and @ A onl5

&+SWIM; d
11A La"k o) a'areness o) the )ollo'ing %ro le/ results in e6e"uti#es not attri uting enough #alue to the use o) an en#iron/ental resour"e; a. . ". d. e. Co//ons %ro le/ Ithi"s %ro le/ Qalue %ro le/ Misk-assess/ent %ro le/ Moral %ro le/

&+SWIM; a
1KA :) a de"ision is e6%e"ted to e un)air to a %arti"ular stakeholder grou%, the de"ision /a5 e i/%ro#ed 5; a. . ". d. e. <sing stakeholder anal5sis <sing a de"ision /aking a%%roa"h :n"reasing the "o/%ensation to that stakeholder grou% :n"reasing the "o/%ensation to all stakeholder grou%s &ll o) the a o#e

&+SWIM; "
1JA Whi"h o) the )ollo'ing is not an e6a/%le o) a "o//on ethi"al de"ision-/aking %it)allE a. . ". d. e. Con)or/ing to an unethi"al "or%orate "ulture ?o"using onl5 on legalities Con)li"ts o) interests ?ailure to identi)5 all stakeholder grou%s +one o) the a o#e

&+SWIM; e

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010

Instructors Manual, Chapter 4 *5 _____________________________________________________________________________ _

1,A ?ailure to identi)5 all rele#ant stakeholder grou%s )or a %ro%er stakeholder i/%a"t anal5sis /a5 e the result o); a. . ". d. e. Bias Con)or/ing to an unethi"al "or%orate "ulture Con)li"ts o) interests ?ailure to "onsider the /oti#ation )or the de"ision &ll o) the a o#e

&+SWIM; e
1.A Co/%leting the )ollo'ing ste%s in this order %ro#ides a sound asis )or "hallenging a %ro%osed de"ision; a. :denti)5 )a"ts and stakeholders, rank stakeholders and their interests, and assess the i/%a"t o) the %ro%osed a"tion . :denti)5 a %ro%er ethi"al de"ision )ra/e'ork, rank stakeholders and their interests, and assess the i/%a"t o) the %ro%osed a"tion ". Mank stakeholders and their interests, identi)5 )a"ts and stakeholders, and assess the i/%a"t o) the %ro%osed a"tion d. :denti)5 a %ro%er ethi"al de"ision )ra/e'ork, identi)5 )a"ts and stakeholders, and assess the i/%a"t o) the %ro%osed a"tion e. Mank stakeholders and their interests, identi)5 a %ro%er ethi"al de"ision )ra/e'ork, and assess the i/%a"t o) the %ro%osed a"tion

&+SWIM; a
20A ?re(uentl5, de"ision /akers ha#e een su !e"t to unreasona le e6%e"tations and unrealisti" deadlines, this is an e6a/%le o); a. . ". d. e. Con)or/ing to an unethi"al "or%orate "ulture ?o"using onl5 on legalities Con)li"ts o) interests ?ailure to identi)5 all stakeholder grou%s ?ailure to rank stakeholder interests

&+SWIM; a

Business & Professional Ethics for Directors, Executives & ccountants , 1e, L.J. Brooks 2 P. Dunn, Cengage Learning, 2010