BADM 2133 UNIT 6

Business Ethics: Cases and
Selected Readings, 7th Ed.
Marianne M. Jennings
Unit 6
© 2012 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly accessible

The Parallels in Safety vs.
Financial Books
• One set of books is disclosed; the other is not
• One reflects real performance; the other does
not
• Both sets are relevant to determining how the
company is doing
• If both sets emerge, the public trust will be
lost
• Two sets is a nonsustainable strategy
247

The Parallels in Safety vs.
Financial Books
• Company focuses on what’s reported, not
what’s real and believes those results
• When information becomes public, company
will need to address the issue, usually with
regulatory oversight
• There is always a minefield waiting when
there is nondisclosure
248

Cintas & Results
Pressure: Probability of an
ethical outcome from the
Financial Analysts Institute
P = f(x)
x = amount of money involved
249

Cintas and Tension
“Since these events, we’ve been cooperating with
OSHA as its inspectors reviewed these incidents –
working with inspectors as they studied the
washroom equipment, interviewed
employees, examined each person’s actions, and
reviewed our policies and training records. It’s
important to note that much of what the
inspectors found was in compliance, reflecting our
long-standing commitment to workplace safety.”
Company statement released upon settlement of case and
agreement to pay 90% of proposed fine of $2.78 million
250

Aaron Feuerstein on Ethics
• “In a situation where there is no righteous
person, try to be a righteous person.”
• “Not all who increase their wealth are wise.”
251

Automakers and Wages
• Average for US workers
• Toyota
• Honda
• Hyundai
• With benefits (non-
Detroit)
• With benefits (Detroit)
• $28.42 per hour
• $26 per hour
• $24 per hour
• $21 per hour
• $44.20 per hour
• $73.21 per hour
252
Center for Automotive Research

Pensions and Auto Industry
• Ratio of UAW retirees to UAW workers: 3:1
• GM ratio: 4.6 to 1
253

Auto Market Shares
254

255
JCPenney Buyer and
Categories of Ethical Breaches
• Taking things that don’t belong to you
• Personal decadence
• Conflicts of interest
• False impressions
• Interorganizational abuse

256
JCPenney Buyer: Who Was
Affected?
• Shareholders of Penney’s
• Penney’s customers
• Other buyers
• Other vendors, suppliers, manufacturer’s
reps
• Penney’s employees
• Locklear’s family(ies?)

Stuff and Conflicts
• Believe in conflicts of interest!
• We are influenced by stuff.
• Remember the two ways to manage a conflict:
– Don’t
– Disclose
257

Stuff and Peter Lynch
“In asking the Fidelity equity trading desk for
occasional help locating tickets, I never
intended to do anything inappropriate and I
regret having made those requests.”
U2
Santana
Golf
Nutcracker
Lion King
258

Resistance to Stuff as a Conflict
“He doesn’t deserve to be lumped in with this
other crowd. It was only tickets; it wasn’t
expensive cases of Bordeaux or trips on jets
like these other cases.”
“[The Ryder Cup] has some real historical
significance to Mr. Lynch because he used to
caddy there.”
Doug Bailey, spokesperson for Fidelity
259

Tone at the Top
“The tone is set at the top. If higher-ups request tickets
from a trading desk, it may send a message to the
traders that such misconduct is tolerated and could
contribute to the breakdown of the compliance
culture on the desk.”
Walter Ricciardi, SEC deputy director of enforcement on Peter Lynch
of Fidelity asking trading desk to get him $15,948 in tickets
(U2, Santana, Lion King, and golf tournaments)
Kara Scannell, Susanne Craig, and Jennifer Levitz, “’Gifts’ Case Nabs a
Star,” Wall Street Journal, March 6, 2008, pp. C1 and C3.
260

Enforcement is Absolute,
Unequivocal, and Egalitarian
“If the janitor had taken the liquor, he
would have been fired.”
Student’s observation on discussion of
tolerance for a manager who “borrowed”
three bottles of vodka on a Friday night for her
birthday party after work and brought in
replacements on Monday morning.
261

262
Perks for Doctors from Pharmas
• An event called “Why Cook?” in which doctors are given the chance
to review drug studies and product information at a restaurant as
their meals are being prepared – they can leave as soon as their
meals are ready and they are treated to appetizers and drinks as
they wait
• An event at Christmas tree lots at which doctors can come and
review materials and pick up free Christmas trees
• Flowers sent to the doctors’ offices on Valentine’s Day with
materials attached
• Manicures/pedicures as they study materials on new drugs
• Free car washes during which they can study materials
• Free books with materials enclosed
• Free CDs with materials attached
• Bottles of wine sent with materials attached
• Events at Barnes & Noble where doctors can browse and pick out a
book for themselves for free so long as they take along some
materials on a new drug

Docs, Pharmas, and Conflicts
• Human nature is human nature: The Pizza Studies
– One minute over pizza with salespersons increases their
sales to you by 16%
– Five minutes over pizza with salespersons increases their
sales to you by 52%
• There are only two ways to manage a conflict of
interest:
– Don’t do it
– Disclose
• The fact that you say, “I would not be influenced by
that” is proof of the conflict. It is not a justification
for not doing it or not disclosing it.
263

Avandia and Compensation
• “I have not given any talk to doctors’ groups
promoting Avandia.”
– Dr. David Capuzzi, member of FDA Advisory
Committee that dealt with question of whether to
allow Avandia to remain on the market
– Avandia is a GlaxoSmithKline product
– Dr. Capuzzi had accepted compensation from
GlaxoSmith Kline for speeches to doctor’s groups
on Glaxo products
website, in whole or in part.
264

A Quick Look at Jack Grubman
and Stuff Writ Large
• The Bargain with Sandy Weill for AT&T help
• A follow-up e-mail from Mr. Grubman to Carol
Cutler, another New York analyst, connected
the dots:
I used Sandy to get my kids in the 92nd Street Y pre-
school (which is harder than Harvard) and Sandy
needed Armstrong’s vote on our board to nuke
Reed in showdown. Once the coast was clear for
both of us (i.e., Sandy clear victor and my kids
confirmed) I went back to my normal self on AT&T.
265

Facebook, YouTube, and Privacy
“In today’s online world, what our mother told
you is true, only more so: people can really
judge you by your friends.”
“Quotation of the Week,” New York Times, March
21, 2010, p. SB2.
266

None of Our Business?
Office and company
• Harry Stonecipher/Boeing
• Dennis Kozlowski/Tyco
• Richard Scrushy/
HealthSouth
• Mark Hurd/HP
Activity
• Affair with an employee; e-
mails of questionable
judgment
• Affair; use of company
funds for donations and
personal expenses
• Use of company funds for
personal expenses; three
marriages; rock band
• Improper relationship with
vendor; travel expenses
267

Impact of Personal Conduct
• Drop in share price (HP)
• Perceived higher risk in market place (Boeing)
• Loss of leadership credibility with employees
• Loss of executive without adequate time for
transition and succession planning (HP; Boeing)
• Questions about company information and
trustworthiness; credibility among stakeholders
• Distraction to company efforts and strategy
• Possible attention of regulators focused on
company (SEC and Welch)
268

Randi W Case:
Employment History
• Mendota District
• Tranquility District
• Golden Plains District
• Muroc District
• Livingstone District
• “Sexual remarks”;
“sexual situations”
• “Panty raid”; “sexual
remarks”; “sexual
overtures”
• “Parent complaints”
• “Sexual touching”
allegations
• “Molested and
touched Randi W”
269

Confrontation Principles
• Determine the facts
• If you don’t know the facts or cannot
determine the facts, present the issue to
those affected
• Always give the opportunity for self-remedy
• Don’t fear failure and hassle
270

271
Hopkins and the Evaluation
Language
“Deft touch” “overly aggressive”
“Outstanding professional” “unduly harsh”
“strong character, independence, “difficult to work with”
integrity”
“extremely competent, intelligent”
“impatient with staff”
“macho”
“strong and forthright”
“overcompensated for being a woman”
“very productive, energetic, creative”
“needs to take a course at charm school”
“intellectual clarity”
“lady using foul language”
“stimulating conversationalist”
“appealing lady partner candidate”
“highly competent”
“walk more femininely, talk more femininely, dress
more femininely, wear make-up, have her hair
styled, and wear jewelry”

Damage to Prince William Sound:
Spill covered 1,000 square miles
1,000 dead otters
34,400 dead sea birds
151 Bald Eagles
Fishing industry
Damages Assessed and Costs to Exxon:
$2 billion clean-up
$50,000 fine - Hazelwood
800 civil suits still pending
$287 million to 180,000 fishers
(settlement)
$1.5 billion for damages to wildlife
$1.15 billion fine (criminal case by U.S.
and Alaska)
$900,000,000 (civil case by U.S. and
Alaska)
$9.7 million for damages to Native
American land
$20 million to native Alaskans for
damages to their villages
$4.5 billion punitive damage (after
lengthy litigation)
272
Exxon and Valdez

BP Texas City Refinery Issues
• 15 deaths; 170 workers injured
• 4,000 suits totaling $2.1 billion in damages
• OSHA found 271 safety violations at the plant
prior to the explosion (unaddressed)
• After the explosion, OSHA found 439 “willful and
egregious violations”
• $87 million OSHA fine (4X the last largest fine)
• $50 million fine to EPA
• Maintenance budget cut each year
273

Findings on BP Atlantis
Problems: Consultant’s Report
• “Put off repairing the pump in the context of a
tight cost budget.”
• “Leadership did not clearly question the safety
impact of the delay in repair.”
• Employee safety officer: “You only ever got
questioned on why you couldn’t spend less.”
274

BP Headlines
• “BP Crew Focused on Costs,” Wall Street Journal, June 15, 2010, p. A1.
• “Unusual Decisions Set Stage for BP Disaster,” Wall Street Journal, May
27, 2010, p. A1.
• “Oil Execs: BP Didn’t Meet Standards,” USA Today, June 16, 2010, p. 1B.
• “Members of Past Disaster Panels See Recurring Pattern,” Wall Street
Journal, June 16, 2010, p. A4.
• “The Five Shortcuts That Prioritized Time and Money Over Safety,” Wall
Street Journal, June 16, 2010, p. A4.
• “BP Chose Riskier of Two Options for Well Casing,” Wall Street
Journal, May 27, 2010, p. A1.
• “Safety and Cost Drives Clashed As CEO Hayward Remade BP,” Wall Street
Journal, June 30, 2010, p. A1.
• “BP Relied on Cheaper Wells,” Wall Street Journal, June 19-20, 2010, p.
A1.
275

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