Test Bank For Business Ethics Case Studies and Selected Readings 7th Edition by Marianne M. Jennings

UNIT THREE – BUSINESS, STAKEHOLDERS, SOCIAL RESPONSIBILITY, AND SUSTAINABILITY True/False Questions T 1. T 2. F 3. F 4. T 5. T 6. T 7. F 8. T 9. T 10. F 11. T 12. F 13. F 14. T 15. F 16. F 17. T 18. F 19. T 20. F 21. R. Edward Freeman is a proponent of the stakeholder theory of the corporation. Stakeholders include employees and customers. Suppliers are not stakeholders in the corporation. Robert Halfon is a proponent of stakeholder theory of the corporation. Robert Halfon sees activist movements as a threat to corporate property rights. Halfon and Freeman are in agreement on the basics of stakeholder theory. Halfon and Friedman are in agreement on the social responsibility of a corporation. Tocqueville was a proponent of socialism. Novak equated stakeholder theory with serfdom. A decision not to sell realistic-looking toy guns is an example of an ethical choice not mandated by law. Decisions on corporate charitable contributions carry no ethical implications. Milton Friedman supports social spending by businesses if they can show a benefit to the shareholders. Employment contracts have an implied morals clause. Michael Novak believes corporations’ role in society is the same as the role of nonprofit organizations. Michael Novak has seven internal responsibilities of business. Michael Novak does not believe businesses have external responsibilities. Freeman’s stakeholder theory is grounded in ethical egoism. Outsourcing manufacturing jobs from the United States to developing countries is an example of a utilitarianism application. Michael Novak’s “seven plus seven” responsibilities of a corporation relate to the social responsibilities of a corporation. Michael Novak believes imposing socialist or aristocratic ideals on business is destructive. Once begun, the regulatory cycle cannot be reversed. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. F 22. The asbestos industry moved down the cycle very rapidly. Multiple Choice Questions 1. 2. 3. 4. 5. 6. 7. Who said, “What’s good for me is good for all shareholders”? a. The chairman of General Motors b. Jeff Dachis of Razorfish c. Bill Gates d. Sir Alfred Coke Who said a corporation has no conscience? a. The chairman of General Motors b. Jeff Dachis of Razorfish c. Bill Gates d. Sir Alfred Coke According to Milton Friedman, an executive imposes taxes on shareholders when: a. He or she uses corporate funds for social causes. b. He or she fails to take all available deductions. c. He or she pays dividends. d. All of the above Who said, “All businesses, forewarned, should be proactive, not reactive. They must be prepared to fight fire with fire and, if necessary, should be prepared to take their case all the way to the court”? a. R. Edward Freeman b. Milton Friedman c. Michael Novak d. Robert Halfon Who said, “The task of management in today’s corporation is akin to that of King Solomon”? a. R. Edward Freeman b. Milton Friedman c. Marjorie Kelly d. Robert Halfon Which of the following is not considered a stakeholder? a. Competitors b. Suppliers c. Customers d. Shareholders e. All of the above are considered stakeholders Who said, “Stakeholders are all those who deem themselves entitled to make demands on the system and to receive from it”? a. R. Edward Freeman © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. b. Milton Friedman c. Michael Novak d. Marjorie Kelly 8. Who said, “Shareholder primacy is the wrench in the gears of evolution”? a. R. Edward Freeman b. Milton Friedman c. Marjorie Kelly d. Robert Halfon 9. Which of the following is not a principle in Kelly’s economic democracy? a. Enlightenment b. Equality c. Privilege d. Evolution e. All of the above are principles of economic democracy 10. Who would take issue with the philosophy, “Treat employees well because then stockholders will prosper”? a. Immanuel Kant b. Marjorie Kelly c. Michael Novak d. Bothaandb e. All of the above 11. Which of the following were convicted of bank fraud and securities fraud? a. John Rigas b. Michael Rigas c. Ellen Rigas d. All of the above were convicted 12. What was the issue with the Ice-T Body Count CD? a. People objected because the lyrics suggested killing police officers b. The lyrics were obscene c. The CD was not selling d. None of the above 13. Who said, “The question is not about business, it’s about responsibility”? a. President Clinton b. Charlton Heston c. Tracy Morrow d. David Geffen 14. Who said, “I don’t think that people in the media can say that advertising influences consumers to buy cars or shirts, and then argue that violence on television or in music has no impact”? a. President Bush b. Charlton Heston c. CEO of Nicole Miller © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. d. David Geffen 15. What group sold its Time Warner stock following the Ice-T Body Count CD release? a. NOW b. NEA c. Philadelphia municipal pension fund d. Madonna 16. Who said, “I don’t condone cop killing. [But] to reach a more just and equitable society everybody’s voice must be heard”? a. Madonna b. Nicole Miller c. David Geffen d. Jerry of Ben & Jerry’s Ice Cream 17. Who spoke in protest of the Ice-T CD at Time Warner’s annual meeting? a. Madonna b. Charlton Heston c. Jerry of Ben & Jerry’s Ice Cream d. David Geffen 18. What past changes had Time Warner made based on public protests on content? a. Withdrew Madonna’s book b. Withdrew Last Temptation of Christ c. Corrected Porky Pig’s stutter d. All of the above 19. What percentage of total record sales is rap music? a. 10% b. 20% c. 30% d. 18% 20. Following Body Count: a. Ice-T left the Time Warner label. b. Ice-T became impoverished. c. Ice-T became a detective on Law and Order. d. a,bandc e. aandconly 21. Following Body Count: a. Time Warner went exclusively into rap music. b. Time Warner shifted strategically into family-oriented entertainment. c. Time Warner released no more rap albums. d. Bothbandc 22. Businesses must face social issues because: © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. a. It is the right thing to do. b. They can affect profits. c. The U.S. Constitution requires them to do so. d. None of the above 23. The Body Shop founder Anita Roddick said that she didn’t care about making money; she only cared about making the world a better place. Into which school of social responsibility would you place Ms. Roddick? a. Inherence b. Enlightened self-interest c. Invisible hand d. Social responsibility 24. Nobel economist Milton Friedman said that the social responsibility of a business is to make money for its shareholders. Into which school of social responsibility would you place Dr. Friedman? a. Inherence b. Enlightened self-interest c. Invisible hand d. Social responsibility 25. A company CEO said, “If it’s legal, it’s ethical. I do nothing more.” Into which school of social responsibility would you place this CEO? a. Inherence b. Enlightened self-interest c. Invisible hand d. Social responsibility 26. XYZ Corporation expects its managers and employees to testify at congressional hearings and appear before state legislatures to advocate policy positions on everything from taxes to activities in national parks. Into which school of social responsibility would you place XYZ Corporation? a. Inherence b. Enlightened self-interest c. Invisible hand d. Social responsibility 27. Which player wrote a book that named names of baseball players who used steroids? a. Jose Canseco b. Mark McGwire c. Curt Schilling d. Sammy Sosa 28. When was Major League Baseball’s first policy on steroid use issued? a. 1988 b. 1991 c. 2005 d. 2007 29. When were the Congressional hearings on Major League Baseball players’ steroids use held? © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. a. 1988 b. 1991 c. 2005 d. 2007 30. Who wrote Game Of Shadows? a. Jose Canseco b. George Mitchell c. Two newspaper reporters d. Fay Vincent 31. Who wrote the 2007 report on steroid use among major league baseball players? a. Bud Selig b. Fay Vincent c. George Mitchell d. Two newspaper reporters 32. The conclusion of the 2007 report on steroid use among major league baseball players was: a. That use was isolated and limited. b. That use was pervasive and affected all clubs. c. That use stopped in 1998. d. That the union should be responsible for monitoring steroid use among players. e. Bothaandd 33. Who said that the social responsibility of business is to earn a profit? a. Warren Buffett b. Albert Carr c. The Sadhu d. Milton Friedman e. None of the above 34. Which of the following’s views is aligned most closely with the inherence school of social responsibility? a. Milton Friedman b. Anita Roddick of the Body Shop c. Ben & Jerry d. Bothbandc e. None of the above 35. The enlightened self-interest school of social responsibility: a. Holds that the primary responsibility of business is to accommodate the community. b. Holds that the primary responsibility of business is to earn a profit. c. Does not acknowledge the interest of others beyond shareholders. d. Bothbandc e. None of the above 36. The conflicting values in the Time Warner Ice-T case are: © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. a. First Amendment rights and duty of business to its larger community. b. Conflicts of interest and personal honesty. c. There were no conflicting values because everyone agreed with Time Warner. d. Purchasing conflicts and investments. e. None of the above 37. Which of the following is not a stakeholder in a business? a. Suppliers b. Customers c. Employees d. Community members e. All of the above are stakeholders 38. The definition of “stakeholder”: a. Is precise and definitive. b. Is very limited. c. Is not yet completed. d. Was developed by Milton Friedman. e. None of the above 39. Which school of social responsibility most closely matches Freeman’s Stakeholder Theory? a. Inherence b. Social Responsibility c. Invisible Hand d. Enlightened Self-Interest 40. Freeman’s Stakeholder Theory: a. Requires business to consider other groups beyond shareholders when making decisions. b. Is a free market theory. c. Require property rights before allowing input on a decision. d. Bothbandc e. None of the above 41. Which of the following are not stakeholders under Freeman’s theory? a. Customers b. Employees c. Community d. Bothaandc e. All of the above are stakeholders 42. Milton Friedman’s view on executive compensation is: a. That government should control it. b. That there should be established ranges. c. That shareholders should undertake controls if they deem it necessary. d. None of the above 43. Which of the following is not one of Novak’s seven internal responsibilities of a corporation? © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. a. To create new wealth b. To defeat envy c. To make charitable contributions d. To create new jobs 44. Who said, “A business is not a church; not a state; not a welfare agency; not a religious association; not a political institution”? a. Adam Smith b. Marjorie Kelly c. Michael Novak d. Albert Carr 45. Who said, “All sensible businessmen prefer to be truthful, but they seldom feel inclined to tell the whole truth”? a. Marjorie Kelly b. Adam Smith c. Michael Novak d. Albert Carr 46. Social responsibility by a business: a. Is a doctrine developed by economist Milton Friedman. b. Requires a business to examine how its decisions affect its stakeholders, not just its shareholders. c. Is not part of a discussion of business ethics. d. None of the above 47. Rain forest chic: a. Is a Ben & Jerry’s flavor of ice cream. b. Is a label for branding strategies that focus on social responsibility. c. Is a slogan for the Body Shop. d. Is a Friedman term for social responsibility. 48. Whom does Marjorie Kelly believe should be rewarded the most for the creation of wealth in a corporation? a. The shareholders b. The executive team c. The employees d. aandb e. All of the above 49. In which stage of the regulatory cycle do scientific studies document an evolving issue? a. Latency b. Awareness c. Activism d. Regulation/litigation 50. What was the impact of the Community Reinvestment Act on Fannie Mae? a. It had to stop purchasing mortgage loans. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. b. It could only purchase loans that were not high credit risks. c. It enabled Fannie Mae to expand its portfolio substantially. d. None of the above 51. Who were “Friends of Angelo”? a. Friends of Angelo were the members of Countrywide’s board. b. Friends of Angelo were those who received favorable and expedited mortgage decisions through Angelo Mozilo. c. Members of Countrywide’s staff who received favorable mortgage terms. d. None of the above 52. What resulted when Whole Foods CEO John Mackey took a position via a Wall Street Journal op- ed piece opposing health care legislative reform? a. b. c. d. 53. What is a. b. c. d. John Mackey was fired Whole Foods had boycotts from those wanted health care reform Whole Foods was only boycotted by those who opposed health care reform Whole Foods was boycotted by both groups the order of the stages in the regulatory cycle? Latency, awareness, activism, and regulation/litigation Latency, activism, awareness, regulation/litigation Latency, activism, regulation/litigation, awareness Latency, regulation/litigation, awareness, activism 54. As the regulatory cycle progresses: a. Options increase and cost decreases. b. Options decrease and cost decreases. c. Options decrease and cost increases. d. Options increase and cost increases. 55. Where in the regulatory cycle would you place text messaging? a. Latency b. Awareness c. Activism d. Regulation/Litigation 56. Which of the following is not a stage in the regulatory cycle? a. Awareness b. Activism c. Latency d. Ethical options e. All of the above are stages 57. Place the following in the order of their progression in the regulatory cycle: I. Activism II. Awareness III. Latency IV. Regulation/Litigation © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. a. I, II, III, IV b. II, III, I, IV c. III, I, II, IV d. III, II, I, IV e. None of the above is the correct order 58. Why does a company act voluntarily in implementing procedures and equipment beyond the statutory requirements? a. To avoid criminal penalties if there is ever a misstep b. For purposes of good relations with regulators and community c. To maximize shareholder value over the long term d. Bothbandc e. a,bandc 59. The Arthur D. Little study on cloth diapers vs. disposable diapers found that: a. Cloth diapers are better and more environmentally friendly. b. Cloth diapers are cheaper and better for babies. c. Cloth diapers use more resources than disposable diapers. d. Disposable diapers are more expensive than cloth diapers. e. None of the above 60. With reference to question #59, on the Arthur Little study, which of the following created a conflict of interest? a. Little’s results b. Little being paid by Procter & Gamble to do the study c. Little’s other consulting contracts d. The EPA e. None of the above 61. Who created Fannie Mae? a. Shareholders b. The federal government c. The Federal National Insurance Company d. None of the above 62. Which of the following lists did Fannie Mae not make? a. Fortune’s Best Companies for Minorities b. Best Companies for Working Mothers c. Business Ethics Most Ethical Company in America d. All of the above 63. What was branded in the brains of Fannie Mae employees? a. That ethics and integrity are critical to Fannie Mae’s success b. 6.46 c. Compliance with SOX requirements d. Diversity 64. Fannie Mae’s policies on amortization: © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. a. Met accounting standards. b. Were developed by the CFO and controller. c. Were adjusted for arbitrary volatility. d. All of the above 65. How did Fannie Mae discover the flaws in its computer model for amortization? a. The OFHEAO report disclosed them b. Former employee Roger Barnes raised concerns c. Bothaandb d. None of the above 66. What was the amount of Fannie Mae’s restatement of its revenue? a. $125 million b. $90 million c. $115 million d. $6.3 billion 67. The music industry’s warning labels on CDs: a. Represent a new regulation of rock music. b. Are an unconstitutional infringement of free speech. c. Are a means of halting the regulatory cycle. d. Were voluntary and initiated originally because of industry self-examination. e. None of the above Short Answer/Essay Questions 1. Describe a situation in which Dr. Friedman would support a corporation taking voluntary or socially responsible action. SUGGESTED ANSWER: Dr. Friedman would allow a corporation to take voluntary or socially responsible actions if its managers could show a connection between those actions and profits for the shareholders. An example would be installing scrubbers on a plant so as to reduce pollution when the reduction of that pollution saves on health care costs for employees, allows the company to recruit better employees, and reduces taxes in the area for the company and employees. 2. Describe John Rigas, the former CEO of Adelphia. SUGGESTED ANSWER: Mr. Rigas was generous with his community and individuals. He employed many of the citizens of Coudersport and was respected and revered there. 3. How would you describe Adelphia’s treatment of its stakeholders? SUGGESTED ANSWER: Adelphia was a generous corporate citizen and a good corporate citizen. It sponsored arenas, Christmas parties, inexpensive movie nights, and many other charitable causes. Adelphia was © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. generous with its employees and kind to them. However, its shareholders did suffer because the funds were siphoned off from the company to the various favorite causes of the Rigases. 4. Describe Dayton-Hudson’s experience with charitable contributions. SUGGESTED ANSWER: Dayton-Hudson was boycotted by pro-life customers when it gave to Planned Parenthood. When it halted the contributions to Planned Parenthood, it was boycotted by its pro-choice customers. The experience of the company is an illustration of the sensitivity of some social issues and that companies can be caught in situations in which they lose customers because of positions they take on social issues. 5. Using the MLB steroids case as an example, explain how unethical choices by some players harms players who comply with the rules. SUGGESTED ANSWER: Students should discuss the competitive disadvantage non-using players suffer when they comply and there is no enforcement. Also, the students should discuss that there is no way to compare players’ performances when some have acted illegally. 6. Leslie Fay Companies was a clothing conglomerate that produced lines of women’s clothing and lingerie under the brand names Leslie Fay, Joan Leslie, Albert Nipon, Theo Miles, Kasper, Le Suit, Nolan Miller, Castleberry, and Castlebrook. In early 1993, it was discovered that senior Leslie Fay executives, in an effort to inflate profits and to mask an actual loss of $13.7 million, had perpetrated an accounting fraud. Paul Polishan, Leslie Fay’s chief operating officer, was placed on leave without pay in January 1993, along with Donald F. Kenia, the corporate controller. Mr. Kenia had first alerted the company to the accounting manipulations and worked with auditors to untangle the books. By April 1993, Leslie Fay, under intense pressure from creditors, filed for Chapter 11 bankruptcy (reorganization) in Manhattan. Both Mr. Polishan and Mr. Kenia were fired. Mr. Kenia, charged with two counts of filing false statements with the SEC, has entered into a plea bargain with the U.S. Attorney in exchange for his cooperation in the continuing investigation of the Leslie Fay accounting improprieties. Also in April 1993, two new outside directors were named to the Leslie Fay board. The audit committee of the board discovered, through continuing investigation, that accounting irregularities had inflated the company’s profits for at least five quarters beginning in the fall of 1990. As Leslie Fay continued its climb from bankruptcy, it was discovered that its law firm, Weil Gotshall & Manges, had failed to disclose its close ties to two board audit committee members. A federal bankruptcy judge ordered the law firm to pay fines totaling $800,000, which was the cost of having an independent review of the law firm’s representation and conduct in the case. In March 1995, Leslie Fay placed its flagship dress and retail business up for sale and offered its CEO a success fee of $1.5 million if those businesses were sold. Also in March 1995, a report detailing accounting improprieties was released by the audit committee of the Leslie Fay board. The board found that when executives realized they would not meet pre-established goals, they would ship goods out to a Wilkes-Barre, Pennsylvania, facility to inflate sales. The executives also forged inventory tags, multiplied the value of inventory, developed phantom inventory and altered records to meet sales target. Some goods were invoiced to be shipped in the final day of a quarter even though they were not actually shipped © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. until the next quarter. Numerous shareholders have filed suit against the Leslie Fay board and BDO Seidman, the company’s auditor during this period. John Pomerantz continued as CEO from 1993 onward. The company has tried to find a buyer but has remained unsuccessful in doing so. a. What signals about the importance of earnings at Leslie Fay were sent to the officers who committed the accounting improprieties? b. Wouldn’t employees have been aware of the financial fraud? Why didn’t they speak up? Why didn’t they tell someone? c. How might Leslie Fay have prevented what happened? d. If you were the new chief financial officer, what message would you most want to impress upon all Leslie Fay employees? e. Of what significance are the law firm’s ties to the board’s audit committee members? Did these ties set a poor tone at the top? SUGGESTED ANSWERS: a. The pressure to make quarterly earnings was so intense that the officers were willing to engage in deception, fabrication, shifting of sales, etc. to meet the earnings figures. b. Employees may very well have been aware of the fraud, but with an ethical culture in which the officers were involved, it wouldn’t have done any good to speak up. In a culture such as this one, employees would be afraid to bring such matters to anyone’s attention. c. Changing the signals to officers would have helped. The intense focus on earnings and pressure to meet goals set the stage for the deception. d. The message would be: Earnings the Right Way Earnings Through Sales and Satisfaction Integrity Without Compromise e. There are conflicts of interest. Legal counsel for a business (which owes its business and account to the company) is not a good source for audit committee members. The ties suggest “good ol’ pal network” and “you scratch my back...”. Note: At the time of the discovery of the earnings misrepresentation, Leslie Fay’s stock was at $13 per share. In June, 1995, the price had dropped to 13/22. Leslie Fay continues to attempt to struggle out of bankruptcy. 7. Albertson’s, the grocery retailer, has the highest profit margins in the industry at 6%. A union has filed suit against Albertson’s for its “off-the-clock” without pay practices with respect to manager trainees. These trainees worked 4-5 hours extra each week without pay and did not complain because of promises of progression in the organization. When progression did not materialize, the trainees returned to checking positions and their union filed a class action suit on their behalf. The potential for back pay and penalties in the case is $200 million. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Albertson’s notes that some managers may prod trainees to work longer without pay but that such is not company policy. a. Who is responsible for the “off-the-clock” policy? b. Is it each store manager or Albertson’s? c. Is “off-the-clock” an ethical policy? SUGGESTED ANSWERS a. Students should discuss management’s role in encouraging the practice even though individuals decide. b. Students should discuss pressure for breaches. c. The policy takes unfair advantage of employees who wish to advance and is a technical rules violation. 8. Fifty-nine auto dealers around the country were fined $200,000 by the Department of Labor for child labor violations. The car dealers hire 16- and 17-year olds to move cars from service bays to customer pick-up areas and from lots to show rooms. They are also employed to wash cars. The teenagers move the cars literally only hundreds of feet in the process, but they are driving the cars. Under the Fair Labor Standards Act and the federal regulations, only those employees who are age 18 or above are permitted to drive as part of job requirements. The fine for a violation is $1,100. The Department of Labor contacted dealerships and asked for the names of their employees under the age of 18. Once the Department had the names, it contacted the young employees to question them about their job duties. Upon discovery of the driving, the dealerships were fined. About one-half of the dealerships have paid the fines and the remainder are protesting. The result has been that dealerships will now employ only those who are 18 and older because it is impossible to have an employee responsible for washing cars and not be able to move the car. The result has been that many special job programs for minority students and students in vocational schools have been eliminated. a. Do you think this type of driving was intended to be covered in the child labor statutes? b. Are auto dealers taking advantage of children or helping them? SUGGESTED ANSWERS: a. Students should discuss purposes of law and protection of children. b. Discussion of impact of employing teenagers: pro and con. Issue of unfair advantage is important. 9. Discuss the benefits for a company of not downsizing, as in the case of Aaron Feuerstein and Malden Mills. SUGGESTED ANSWER: © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The benefits are that the employees’ morale increases because of the positive manner in which they are treated. Also, the company avoids the costs of having to retool and retrain once it does return to normal size or even requires a period of time for growth. Companies that perceive their employees to be assets also seem to reap greater productivity rewards and fewer employee disagreements and union disputes. In short, there may be long-term benefits to be gained from not downsizing and providing for employees. There are also alternatives such as employees agreeing to reduced salaries or fewer work days so that all of them can survive the crunch or crisis. 10. Explain who stakeholders are. SUGGESTED ANSWER: Customers, employees, community, suppliers 11. List and explain three schools of ethical thought. SUGGESTED ANSWER: Inherence Enlightened Self-Interest Invisible Hand Moral Question: Whose Interest Should Corporation Serve? Shareholders Only Shareholders Only Larger Society Larger Society Because he feels they have a distinct structure, purpose, and role from all other organizations in society. 13. Raymond Randall is an attorney with the Federal Trade Commission. A 19-year veteran with the agency, Mr. Randall was known as a good trial attorney. The FTC charged William Farley, the chairman of Fruit of the Loom, Inc., with violations of the reporting provisions of the Hart-Scott- Rodino Act, when he purchased shares of West Point-Pepperell Corporations prior to a Fruit of the Loom takeover bid. The Hart-Scott-Rodino Act requires investors to notify the government when their holdings in a firm pass $15 million. The FTC sought a fine of $10,000 per day against Mr. Farley, for a total of $910,000. Mr. Farley did notify the FTC once Fruit of the Loom made its decision to acquire West Point-Pepperell. Randall was assigned the Farley case. The FTC took a position of refusing to disclose to Farley and his attorneys documents relating to the case. Mr. Randall felt that the documents pointed to weaknesses in the FTC case and supported Mr. Farley's point that he notified the FTC once the takeover position was announced. Mr. Randall leaked the documents to Mr. Farley's lawyer. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Social Responsibility 12. Why does Michael Novak distinguish corporations’ responsibilities? SUGGESTED ANSWER: Policy Question: Best Way To Serve Interest Is If The Corporation Is Responsive To: Shareholders Only Larger Society Shareholders Only Larger Society Mr. Farley's lawyers were concerned that they should not be in possession of government documents returned the documents and resigned from the case because they had seen the documents. Mr. Farley's new attorneys went to court demanding production of the documents. The documents were ordered produced by the court. When the FTC refused to produce them, the case against Mr. Farley was dismissed by a federal district judge. a. Did Mr. Randall do the right thing in disclosing the documents to Farley's attorneys? b. Did Mr. Farley's lawyers do the right thing in returning the documents to the FTC? SUGGESTED ANSWERS: a. Mr. Randall was engaged in a form of civil disobedience. He knew that the documents were government property and enjoyed the protection of the courts, but he also felt that Mr. Farley was being prosecuted without sufficient evidence. Mr. Randall's principles, values and ethics took control of the situation and he sent the documents as a means of allowing Mr. Farley access to the information. It is important to note that Mr. Randall's action should have been his last choice. Did he go to those within the agency and attempt to resolve the problem? He should also consider his loyalty to his employer and his responsibilities as an attorney before taking the action that he did which was a form of civil disobedience. b. Mr. Farley's attorneys acted with the utmost integrity in returning the documents and resigning from the case. They made some difficult choices and not only followed the law but then resigned from the case because they had seen things they were not permitted to see. Their forthright actions probably helped Mr. Farley with the court and provided great credibility for Mr. Farley and his new attorneys as they successfully pursued the dismissal. 14. Lee Iacocca, chairman and CEO of Chrysler Corporation, announced on January 27, 1988, that the automaker would be closing its Kenosha, Wisconsin, plant. Iacocca and his board of directors were under significant pressure from shareholders due to Chrysler’s continuing poor financial performance. Chrysler had acquired the Kenosha plant when it purchased American Motors Corporation in 1987. In his announcement, Iacocca blamed national trade policy for Chrysler’s declining sales and resultant earnings problems. At the Kenosha plant, which manufactured the Dodge Omni and the Plymouth Horizon, 5,500 of the 6,500 workers were to be laid off and production moved to a Detroit plant. Kenosha, a city of 77,000 on the shores of Lake Michigan, depended heavily on Chrysler’s presence. The announcement of the closing came at a critical time. Chrysler was negotiating to renew its contract with the United Auto Workers (UAW). Also, the Kenosha plant carried a history of union financial assistance. The UAW had loaned American Motors over $60 million to keep the Kenosha plant running, and Chrysler had assumed the loan obligations as part of the acquisition. Also, Wisconsin had paid $5 million for job training at the Kenosha plant in 1987 after Chrysler promised that the plant would build Omnis and Horizons for at least five more years. Peter Pfaff, a member of the UAW Local 72 of Kenosha and an employee at the plant since 1972, said: “I was there. We’ve got it on tape and in writing. They said they’d stay. Greenwald (then Chrysler Motors chairman) keeps saying Chrysler never said that, but I was there when he said it.” The Kenosha local threatened to delay negotiations on renewing the national contract with 64,000 workers. After the threat, Iacocca announced that Chrysler would establish a $20 million trust fund to aid the 5,500 Kenosha workers through housing payments and educational funding. This © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. fund would be in addition to severance pay, extended unemployment benefits, and repayment of the UAW loans. While denying that Chrysler was setting a precedent, Iacocca declared it had a “moral obligation” to Kenosha. Wisconsin threatened to sue Chrysler over the job training program but agreed to hold off in exchange for Iacocca’s promise to extend production at the plant for several months into the fall of 1988. Iacocca stated that Chrysler was “guilty as hell of being cockeyed optimists. Blame us for being dumb managers, for spending $200 million to put two old cars (the Chrysler Fifth Avenue and the Dodge Diplomat) in an eighty-six-year-old plant, but please don’t call me a liar when I’ve got to close it sooner than I thought.” Iacocca sought congressional support for converting the Kenosha plant to defense work by Chrysler. Chrysler and the UAW negotiated a contract that provided additional unemployment benefits for the 5,500 laid-off workers and more job security for the 1,000 workers who would transfer to other Chrysler operations. Ultimately, the plant closing resulted in 3,700 layoffs. By mid-1990, Kenosha was enjoying unprecedented economic growth. At a July 1990 ceremony in which engineers detonated explosives to destroy the 250-foot-high smokestack of the Chrysler plant, dignitaries and former workers cheered. Kenosha resident T. R. Garcia said at the blasting, “I think it’s about time they got rid of it. What we need to do is develop the lake front, and this thing is the last to leave.” City planner Ray Forgianni, Jr., added, “The community’s image is probably the best it’s been in 100 years. The closing was almost like a catalyst. The handwriting was on the wall-the economy needed to diversify.” a. Did Chrysler have a moral obligation to the Kenosha workers and Wisconsin, or was it just responding to pressure? b. Do arrangements like Chrysler had with the UAW loans and Wisconsin interfere with the ability to make business decisions? Review Iacocca’s quote on business mistakes as you evaluate the issue. c. Were the shareholders required to pay twice for the closing - once in severance pay and again in extended benefits? d. Was Chrysler simply putting its duty to shareholders above its duty to Wisconsin, Kenosha, and its workers? Is this proper? Is it ethical? e. Was Chrysler’s action just a catalyst for needed economic development? f. Iacocca, after having stepped down as chairman of Chrysler, made a takeover offer for Chrysler in 1995. What would Chrysler’s ethical culture be like if Mr. Iacocca had succeeded in his takeover bid? SUGGESTED ANSWERS: a. There are differing schools of thought in ethics regarding the obligation of employers who close down plants to the workers from that plant and the communities in which they are located. One group imposes an obligation on the employer to leave the town whole. This obligation requires placement of the workers and economic redevelopment of the community all at the employer's cost with some contributions from governmental entities. Another school of thought sees such additional obligations as a double tax to shareholders. Not only must they bear the cost of the cutbacks and economic downturn, © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. they must now ensure that the workers and the community do not have to share in such losses. This view advances the notion that workers are always insulated from financial losses and economic downturns and may not have the appropriate incentives to retool. b. Obligations to restore the workers and communities add costs to downsizing and prevent flexibility in making allocation and resource decisions. An additional cost is added to becoming more efficient and the incentives may make it easier to remain inefficient. c. The rights of shareholders are often ignored in the interest of protecting the employees and communities. On the other hand, the communities give the employers the right to use the air and water sheds and the opportunity to benefit from the support of the government resources and often tax breaks. d. Yes, Chrysler defined its duty as first and foremost to its shareholders. Businesses do have a primary obligation to their investors, but Chrysler did take on more investors here (community). e. Chrysler’s withdrawal may have ultimately benefited the community. f. Mr. Iacocca’s focus would be on Chrysler’s earnings. There are ethical risks with such a focus. 15. In Unit (CRI), part of the University of East Anglia in Great Britain, appeared on several Internet file- servers and could be downloaded by the public. The University has yet to determine whether the posting of the proprietary files were the result of a hacker’s effort or whether they were posted by a whistleblower with CRI. CRI’s research and data have been used by the UN’s Intergovernmental Panel on Climate Change (IPCC) as the basis for its support for both the Kyoto and Copenhagen Protocols, a form of international treaty that would have countries agree to curb their carbon emissions. The Kyoto Protocol fizzled when the United States declined to adopt it. The meeting at Copenhagen for the adoption of emissions standards began on December 7, 2009. Fossil-fuel industries would be affected by the Protocol. Those industries include oil and gas, auto industry, and fossil-fuel based utilities (coal, oil, and gas). Those industries did undertake voluntary reductions following the demise of the Kyoto Protocol. To date, businesses and industries in the United States have achieved one-half of the reductions that Kyoto would have mandated. The 1,000+ e-mails from the scientists at CRI reveal what MIT scientist Michael Schrage has called “malice, mischief, and Machiavellian maneuverings” among the scientists with regard to their data and research on climate change. The e-mails include the following revelations:  Ongoing efforts to manipulate the peer-review process for manuscripts that were submitted for publication in academic journals if those manuscripts challenged the research and conclusions of CRI scientists. From: Phil Jones. To: Many. March 11, 2003 “I will be emailing the journal to tell them I’m having nothing more to do with it until they rid themselves of this troublesome editor.” Professor Jones appears to be lobbying for the dismissal of the editor of Climate Research, a scientific journal that published papers downplaying climate change. From Phil Jones To: Michael Mann (Pennsylvania State University). July 8, 2004 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. November 2009, a large cache of e-mails and technical documents from the Climate Research "I can't see either of these papers being in the next IPCC report. Kevin and I will keep them out somehow – even if we have to redefine what the peer-review literature is!"  There was considerable disagreement acrimony among the CRI scientists about the results, meaning, and interpretation of their data and work – something not revealed in either their publications or speeches.  Significant portions of data from CRI were withheld from public disclosure or examination by scientists outside CRI.  University of Arizona professor Jonathan Overpeck expressed concern to his colleagues in the e-mails, “Please write all e-mails as though they will be made public.”  CRI scientists ignored requests for the release of raw data.  One CRI scientist deleted his e-mails after demands for the data were made public. However, he neglected to delete an e-mail that revealed his actions in response to a British Freedom of Information Act (BFOIA), “I am supposed to go through my emails and he can get anything I’ve written about him. About 2 months ago I deleted loads of emails, so have very little – if anything at all.” There is an investigation of possible violations of the BFOIA.  That the CRI scientists were aware that the reconstruction of the earth’s climate (paleoclimatology) during periods prior to actual human measurement and recording is a massive and complicated undertaking that is dependent upon statistical interpretation of raw data, interpretation that would ordinarily result in intense academic controversy. However, the e-mails reflect efforts to prevent or obscure the controversy. Again, CRI Scientist Phil Jones’ e-mail: From: Phil Jones. To: Many. Nov 16, 1999 "I've just completed Mike's Nature [the science journal] trick of adding in the real temps to each series for the last 20 years (i.e., from 1981 onwards) and from 1961 for Keith's to hide the decline."  An e-mail from a U.S. climatologist included in the releases reflected, “I support the continued collection of such data, but I am disturbed by how some people in the paleo community try to oversell their product.”  Another scientist wrote, “I’m not political. If anything, I would like to see the climate change happen, so the science could be proved right, regardless of the consequences.”  An outside scientist brought into the loop wrote, “That fact is that we can’t account for the lack of warming at the moment [since 1998] and it is a travesty that we can’t.” The University of East Anglia is conducting an investigation of the e-mails and CRI, but has warned, "The selective publication of some stolen emails and other papers taken out of context is mischievous and cannot be considered a genuine attempt to engage with this issue in a responsible way." Prominent government and NGO officials have responded by indicating that regardless of the conduct of the scientists there is a climate problem that must be addressed. List all of the ethical issues you see. Be sure to include a discussion of any social responsibility issues that you see. SUGGESTED ANSWER: Students should discuss giving or allowing false impression, withholding information, conflicts of interest, and organizational abuse. Students should also focus on whether the falsification of data and suppression of information is justified if those who engage in this behavior have enough of a belief in their cause. Students should also discuss the long-term harm that comes from disclosure of misconduct in science. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16. The American Board of Internal Medicine (ABIM) has taken some sort of disciplinary action against 140 docs who cheated on their ABIM certification exams. In a lawsuit that the ABIM had filed previously against Arora Board Review, a company that does exam review courses for certification, the discovery process yielded information that proved to be more damaging for the docs than for Arora. The documents in the now-settled case included e-mails and other correspondence from the docs to Arora. The e-mails and correspondence revealed that the docs knew many of the questions and, indeed, followed up by sending along memorized test questions from their own certification exams to Arora in order to help the cert-docs-in-waiting along. List the stakeholders in this situation. SUGGESTED ANSWER: Doctors Patients Hospitals Future doctors The review course The exam administrators Insurers (malpractice higher if docs don’t know their stuff) Medical schools (their reputations affected by conduct of doctors or lack of knowledge) Others who have to take standardized exams because of security issues 17. In 2008, Starbucks placed a red light on 600 planned openings. Starbucks says it was excused from the leases because of economic conditions. Landlords note that Starbucks is driving down property values by allowing the leased spots to lie fallow. The landlords also note that they are victims because Starbucks’ expansion plans were too ambitious, even for a good economy. Discuss the social responsibility of Starbucks in this situation. SUGGESTED ANSWER: Students should identify the stakeholders: landlords, other tenants, other business owners in the area, local governments and lost revenues, and a host of vendors, contractors, and potential employees. Issues are whether there is a commitment to honor contracts or whether the shifting of the economic burden to others is appropriate. What are the norms for behavior on economic downturns? 18. Why do companies have moral clauses in their contracts with stars who are appearing in their ads? SUGGESTED ANSWER: The use of stars or athletes who run into legal or behavior problems can cause customers to boycott the company or at least refrain from buying from the company. The effect of the star or athlete’s relationship with the company is negative and brings backlash to the company. 19. A group of food retailers and manufacturers banded together to self-regulate their ads, particularly on the Internet, for their products. Discuss why the manufacturers and retailers would make such a joint agreement? SUGGESTED ANSWER: They are trying to control the regulatory cycle. If they behave more responsibly in their restraint, their ads will not be prohibited. Their self-control also addresses social issues such as childhood