Business Ethics – Final Exam

1. Define what is referred to as an anti-fraternization policy. Draft a policy regarding employee fraternization, addressing issues which you deem important to include in such a policy (not to exceed one page). (Snoyenbos: 394)

(DeGeorge: 226-232)
(LA Times, 03 Feb 2007)

Anti-fraternization policies aim to sidestep potential conflicts of interest that arise from work-related relationships involving people who are relatives or dating/marrying within the company. It is also designed to stop friendships within the workplace from decreasing productivity. While it is illegal for employers to stop their workers from fraternizing to discuss working conditions (LA Times, 03 Feb 2007), an ethical and effective policy should be put in place to address the following concerns:

– Stop preferential treatment in the chain of hierarchy
– Stop unwanted flow of information between departments/divisions
– Stop company time from being used for socialization instead of work

In creating a system that effectively addresses the above concerns while remaining ethical, I would draft a policy with the following components:

– Clearly outline a method in which concerned employees can work with HR to expose and correct any workplace-related issues or concerns due to  fraternization between unequal-powered parties.
– Clearly outline which information is to be shared with which parties
– Employee monitoring to save company time

I would remind employees that their employment is at-will, subject to this policy. Electronic monitoring would be done in an ethical manner, as fully described in prompt #5.

2. Define at will employment. Does an employer have an ethical obligation to an employee prior to terminating his/her employment? (Smalley v. Dreyfus document)
(Snoyenbos: 328-333)
(DeGeorge: 349-351)

At-will employment allows an employee to quit at any time for any reason (or no reason at all). It also allows an employer to terminate its employees at any time and for any reasons not deemed “wrongful.” Firing an employee due to race, color, religion, sex, national origin, age, or handicap status would be a form of wrongful termination. Other forms of wrongful termination include firing an employee that is unwilling to perform illegal acts, firing due to an employee taking a medical leave of absence, firing an employee for failing to limit their constitutional rights (voting), and firing an employee outside of a company’s own termination procedure.

As stated in the Smalley v. Dreyfus article, at-will employees “cannot reasonably rely upon their employers’ promises of continued employment.” It is an employer’s right at any time to terminate an employee at will. Employers have no ethical obligation to an employee prior to terminating his/her employment outside of abstaining from “wrongful termination.”

3. In no more than two paragraphs, what are the duties of an agent to its principal? In no more than two paragraphs, what are the ethical limitations, if any, on the exercise of these duties? (Credit Rating Agencies & Conflicts of Interest document)

(Snoyenbos:, 151-159, 169)
(DeGeorge: 106-107)

It is an agent’s duty to support its principle in every way possible so long as it doesn’t become unethical either via a conflict of interest or otherwise. Generally, the best way to ensure that an agent is supporting its principle is by aligning the interests of these two groups. However, there are exceptions. In the relationship between credit rating agencies (agent) and its principle (companies paying for credit ratings), it may be that the rating agencies give dishonest scores to ensure continued business, both for itself and the principle. In this way, dishonest scores work to hurt those who would otherwise trust the worthiness of an asset as “rated” but “not guaranteed” by such credit rating agencies.

People lower in a hierarchy often feel that they are not responsible for their actions because they are just “following orders” while people highest in such a hierarchy be so far removed from the action they also shrug off moral responsibility. Regardless of how you feel, all people are responsible for their actions and their foreseeable consequences.

In terms of ethical limitations, there is a “role responsibility” to the duties that an agent takes on for his/her/its principal. When you take on a role, you also take on new responsibilities. In exercising these duties, no agent can justify being immoral. In the case that loyalty to one role creates a “clash of moral responsibilities,” it must be resolved in the same way that “clashes of comparable prima facie (first encounter) obligations are resolved.”

4. Using a teleological and deontological approach, discuss when is it ethically required to be a whistleblower (not to exceed three paragraphs)? (Snoyenbos: 379-390)
(DeGeorge: 303-312, 313-317)

It is ethically required to be a whistleblower when failure to “blow the whistle” results in any of the following:

– Lives are endangered (due to improper service or maintenance)
– Legalities are ignored (FAA regulations, federal or state law, etc.)
– Moral obligation supersedes loyalty to the company

There are times when whistleblowing is unethical, as well. Whistleblowing before going through the proper channels to address the issue is unethical. Such an act circumvents policy and works against any positive development while unceremoniously calling attention to an issue that might otherwise be handled internally. Whistleblowing is unethical if it is exploited for the purpose of addressing social policies in opposition to one’s ideology. Such an act is a misuse of whistleblowing, as it serves a personal purpose instead of a societal purpose.

Regardless of the consequence, whistleblowing is ethically required when characteristically immoral practices are used (deontological approach). When negative consequences are likely to occur (endangerment), whistleblowing is ethically required – despite a company’s adherence to an ethical framework (teleological approach).

5. Identify three types of employee monitoring. Discuss the ethical issues that arise as a result of each type of monitoring (not to exceed one page). (Snoyenbos: 197-212, 338-364)
(DeGeorge: 388-394)

Some considers email-monitoring ethical, as email systems are property of a company. Also, a company has a right to stop its trade secrets from being sent to unwanted parties. In that sense, it’s ethical. However, email-monitoring is considered unethical if no policy exists stating informing employees of its existence. Apart from the lack of policy, it is also unethical to “impose sanctions on employees for non-job related behavior.” Simply put, it’s ethical to reprimand and employee for unauthorized use of an electronic system, but it’s unethical to reprimand them based on the content of a non-job-related message. Some claim that it’s only ethical to monitor the content of non-job-related messages if there’s suspicion of illegal activity.

I’d define “metric monitoring” as the systematic collection of statistics based on calls per hour, keystrokes per minute, breaks per day, etc. Companies believe metric monitoring is ethical because it helps set performance expectations and track employees. Many believe that such monitoring increases stress and de-socializes the workplace, ultimately lowering efficiency (statistics support this claim). Many claim that monitoring is unethical if it’s continuous (not intermittent) or if performance evaluations are based solely on metrics. Those who would argue for the ethical implementation of metric monitoring suggest that employees help design and implement such monitoring systems.

Employees consider drug testing an invasive and unethical practice, but statistic prove that its implementation can drastically reduce work-related accidents (you mentioned this in class, so you’re my source). While drug use may occur outside the workplace, drug use can still affect performance on the job. Also, illegal drug use is unethical from a legal perspective. If companies feel that they can monitor the content of personal messages under the suspicion of illegal activity, it follows that they can drug test their employees if they suspect illegal drug use, as well.

I did come across sections that discuss “personality monitoring” of job applicants. Such monitoring could be used electronically in the form of tests and evaluations that occur periodically. They could also be used on employees on the job. Some say that such tests are unethical because they allow employers to judge employees based on personal information. In some cases, applicants were asked to give access to their Facebook accounts during an interview. While employees (and potential employees) may view such practices as unethical, companies feel that they have a right to judge an applicant’s personality as a measure of productivity potential in its workforce.

6. Read the articles in Snoeyenbos on pages 101 and 115. Do you agree with the use of stakeholder analysis in deciding whether a corporation should take a certain action? Explain (not to exceed one page). (Snoyenbos: 101, 115)

While I believe that managers bear a “fiduciary relationship to stakeholders,” I do not believe that every stakeholder should be valued equally. The text states that stakeholders should “participate in determining the future direction” of a firm, but I do not believe each type of stakeholder ought to be valued equally.

Types of stakeholders could be managers, employees, customers, suppliers, or investors. Stakeholders are vital to the survival and success of a corporation, some more than others. On page 108, the text states that the stakeholder theory does not give primacy to one stakeholder group. I disagree. Not giving more consideration to the group(s) of stakeholders more responsible for the firm’s success is unreasonable.

In whose interest should a firm be managed? For whose benefit should it be managed? Every firm wants to “internalize the benefits and externalize the costs of their actions.”

Unlike the text, I do not agree that a firm is responsible for looking after a community after they leave it (108). In much the same way that an employer is not responsible for one of its ex-employees, firms have no ethical obligation to anyone for the hardships experienced due to its departure from an area. I denounce the text’s proposition of an “implicit social contract.” Corporations should instead be held to an explicit, legal framework.

The text offers 3 unique perspectives (110-111). The Feminist Standpoint Theory and the Ecological Principle are severely flawed and idealistic. The only practical approach is the Doctrine of Fair Contracts, which bases value creation in business theories and stakeholder rather than social science and ecology. The Feminist Standpoint Theory emphasizes caring for relationships and networks of stakeholders. This is practical and should be viewed as a utilitarian approach to firm management, not an ethical one.

Though I agree with the Stakeholder Enabling Principle (113), balancing my ethical & business perspective forces me to weigh the opinions of stakeholders in a way that best demonstrates each type’s effect on a firm’s success.

7. You are the human resources director at a publicly traded company. Draft a policy relating to the giving and receipt of gifts by salespersons at your company. (Snoyenbos: 169-178)

After reading pages 169-178 in the Snoeyenbos text and drawing from our class discussion, I’ve formulated the following policy. Bullet list format is, to me, the most effective way of representing a company policy:

– All gifts given in excess of $75 must be made public knowledge.

– All gifts received in excess of 40% of your daily pay must be made public knowledge.

– Any gift offered to you in excess of 150% your daily pay must be refused.

– Gifts from company contacts are subject to these rules even if delivered to your home.

– No gift can be considered an advertisement – all are subject to this policy.

– No strip clubs on any company’s dime (lest this be your business).

– Use of expense account to provide gifts in excess of $75 may result in your wages being docked to compensate/repay the difference.

8. Define insider trading. Discuss whether insider trading is ethical. (Trade Secrets NYLJ document)
(Snoyenbos: 181-196, 394-397)
(DeGeorge: 224-232)

Insider trading can be defined as intentionally obtaining or conveying proprietary information that doesn’t belong to you. Under 18 U.S.C §1832, insider trading is illegal when there is an intention to convert such information to the economic benefit of anyone other than the owner. It is also considered illegal if the entity trading the information has knowledge that such an act would injure the owner of the information.

When someone commits insider trading for the economic benefit of someone other than the owner and it causes harm to another party, there is no ethical ground to support insider trading. To refrain from injuring another party is a social obligation as well as an ethical obligation. The receiving of information via insider trading is a somewhat different scenario, sometimes referred to as “misappropriation.” If inside information is used for the economic benefit of one party without injury to another, I am of the opinion that it is legally unjustified yet ethically justified (like Charlie on D230). It is my opinion that those who divulge inside information are ethically responsible, not the people who receive it.

9. Identify the legal and ethical obligations that a board of directors has in the operation of a publicly held corporation (not to exceed one page). (The Moral Instinct document)
(Snoyenbos: 63)
(DeGeorge: 185-187, 194-201, 233)

“The Sole Responsibility of Business is to Increase Its Profits” is the title of a chapter starting on page 72 of Snoeyenbos. The title alone speaks volumes. The same text believes that board members should be separate from management, but are morally responsible for the tone of the corporation. What other ethical obligations do the board of directors have? A corporation has a “societal obligation to do no harm” and is “morally responsible for its actions to the general public or to the society in general.” With the Pinto case, cost-benefit analysis alone is not enough to fulfill such a moral obligation, regardless of legality. What more can be said of legal obligation?

Milton Friedman (199) believes that corporations and those who control them have a social obligation to adhere to the laws in place, but have no other legal obligation. I agree with Milton. This is the entirety of legal obligations imposed on a board of directors.

The majority of what I’ve learned in this course can be understood by
addressing the different types of obligations that exist. My analysis of the relationship between ethical obligations and legal obligations of a board of directors and the company they control is as follows:

Legal obligation ends with the law. It is up to society, the public, and lawmakers to create and enforce laws, not the corporations and their boards of directors.

A company and its board of directors aim to increase profits by any legal means necessary. Economic incentive is the most powerful force driving development – not ethics. That is part of the business and human condition, ever present and immutable!

There is a quasi-philosophical obligation that we as humans have to protect each other (do no harm) and naturally take responsibility for those we affect. It’s easy to amoralize corporations. However, corporate decisions are made entirely by humans, so human obligations should be present in business activity, too. However, it’s most practical to ensure “humanitarian” behavior via a legal structure.