Hartman: Business Ethics: 1. Ethics and Business Text © The McGraw−Hill Decision−Making for Companies, 2008 Personal Integrity and Social Responsibility C h a p t e r 1 Ethics and Business Good people do not need laws to tell them to act justly, while bad people will find a way around the laws. Plato It is difficult to get a man to understand something when his salary depends upon his not understanding it. Upton Sinclair 1 Hartman: Business Ethics: 1. Ethics and Business Text © The McGraw−Hill Decision−Making for Companies, 2008 Personal Integrity and Social Responsibility 2OpeningChapter 1 Ethics and Decision Business Point Loyalty after a Crisis: Should Aaron Feuerstein Rebuild and Pay His Employees in the Meantime? During the early evening hours of December 11, 1995, a fire broke out in a textile mill in Lawrence, Massachusetts. By morning, the fire had destroyed most of Malden Mills, the manufacturer of Polartec fabric. The fire seemed a disaster to the company, its employees, its customers, and the surrounding communities. Malden Mills was a family-owned business, founded in 1906 and run by the founder’s grandson Aaron Feuerstein. Polartec is a high-quality fabric well known for its use in the outdoor apparel featured by such popular companies as L.L. Bean, Lands’ End, REI, J. Crew, and Eddie Bauer. The disaster promised many headaches for Malden Mills and for the numerous businesses that depend on its products. But the fire also was a disaster for an entire community. The towns surrounding the Malden Mills plant have long been home to textile manufacturing. But the industry effectively died during the middle decades of the twentieth century when outdated factories and increasing labor costs led many companies to abandon the area and relocate, first to the nonunionized South, and later to foreign countries such as Mexico and Taiwan. As happened in many northern manufacturing towns, the loss of major industries, along with their jobs and tax base, began a long period of economic decline from which many have never recovered. Malden Mills was the last major textile manufacturer in town, and with 2,400 employees it supplied the economic lifeblood for the surrounding communities. With both its payroll and taxes, Malden Mills contributed approximately $100 million a year into the local economy. As CEO and president, Aaron Feuerstein faced some major decisions. He could have used the fire as an opportunity to follow his local competitors and relocate to a more economically attractive area. He certainly could have found a location with lower taxes and cheaper labor and thus have maximized his earning potential. He could have simply taken the insurance money and decided not to reopen at all. Instead, as the fire was still smoldering, Feuerstein pledged to rebuild his plant at the same location and keep the jobs in the local community. But even more surprising, he promised to continue paying his employees and extend their medical coverage until they could come back to work. • What do you think of Feuerstein’s decision? What would you have done had you been in his position? • What facts would be helpful as you make your judgments about Feuerstein? • How many different ethical values are involved in this situation? What kind of man is Feuerstein? How would you describe his actions after the fire? Can you describe the man and his actions without using ethical or evaluative words? • Whose interests should Feuerstein consider in making this decision? How many different people were affected by the fire and the decision? • What other options were available for Feuerstein? How would these alternatives have affected the other people involved? • Were Feuerstein’s actions charitable, or was this something he had a duty or obligation to do? What is the difference between acts of charity and obligatory acts? 2 Hartman: Business Ethics: 1. Ethics and Business Text © The McGraw−Hill Decision−Making for Companies, 2008 Personal Integrity and Social Responsibility Chapter 1 Ethics and Business 3 Chapter Objectives After reading this chapter, you will be able to: 1. Explain why ethics is important in the business environment. 2. Explain the nature of business ethics as an academic discipline. 3. Distinguish the ethics of personal integrity from the ethics of social responsibility. 4. Distinguish ethical norms and values from other business-related norms and values. 5. Distinguish legal responsibilities from ethical responsibilities. 6. Explain why ethical responsibilities go beyond legal compliance. 7. Distinguish ethical decision making from other practical decision situations. Introduction: Making the Case for Business Ethics From the time Enron Corporation collapsed in 2001, business ethics has seldom strayed from the front pages of the press. The list of corporations and business leaders that have been involved with legal and ethical wrongdoing is, sadly, incredibly long. Reflect for a moment on the businesses that have been involved in recent scandals: Enron, WorldCom, Tyco, Adelphia, Cendant, Rite Aid, Sunbeam, Waste Management, HealthSouth, Global Crossing, Arthur Andersen, Ernst & Young, Imclone, KPMG, JPMorgan, Merrill Lynch, Morgan Stanley, Citigroup Salomon Smith Barney, Marsh & McLennan, Credit Suisse First Boston, and even the New York Stock Exchange itself. Individuals implicated in ethical scandals include Martha Stewart, Kenneth Lay, Jeffrey Skilling, Andrew Fastow, Dennis Kozlowski, John J. Rigas, Richard M. Scrushy, Samuel Waksal, Richard Grasso, and Bernard Ebbers. Beyond these well-known scandals, consumer boycotts based on allegations of unethical conduct have targeted such well-known fi rms as Nike, McDonald’s, Home Depot, Gap, Shell Oil, Levi-Strauss, Donna Karen, Kmart, and Wal-Mart. This chapter will introduce business ethics as a process of responsible decision making. Simply put, the scandals and ruin experienced by all the institutions and every one of the individuals just mentioned were brought about by ethical failures. This text provides a decision-making model that, we hope, can help individuals understand such failures and avoid future business and personal tragedies. As an introduction to that decision-making model, this chapter reflects on the nature of ethics and business. Ethical decision making in business is not limited to the type of major cor- porate decisions with dramatic social consequences listed above. At some point every worker, and certainly everyone in a managerial role, will be faced with an issue that will require ethical decision making. Not every decision can be cov- ered by economic, legal, or company rules and regulations. More often than not, 3 Hartman: Business Ethics: 1. Ethics and Business Text © The McGraw−Hill Decision−Making for Companies, 2008 Personal Integrity and Social Responsibility 4 Chapter 1 Ethics and Business responsible decision making must rely on the personal values and principles of the individuals involved. Individuals will have to decide for themselves what type of person they want to be. At other times, of course, decisions will involve significant general policy issues that affect entire organizations, as happened in all the well-known corpo- rate scandals and in the Malden Mills case described at the start of this chapter. The managerial role especially involves decision making that establishes organi- zational precedents and has organizational and social consequences. Hence, both of these types of situations—the personal and the organizational—are reflected in the title of this book: Business Ethics: Decision Making for Personal Integrity and Social Responsibility. As recently as the mid-1990s, articles in such major publications as The Wall Street Journal , the Harvard Business Review , and U.S. News and World Report questioned the legitimacy and value of teaching classes in business ethics. Few disciplines face the type of skepticism that commonly confronted courses in busi- ness ethics. Many students believed that, like “jumbo-shrimp,” “business ethics” was an oxymoron. Many also viewed ethics as a mixture of sentimentality and personal opinion that would interfere with the efficient functioning of business. After all, who is to say what’s right or wrong? Throughout the 1980s and 1990s, this skeptical attitude was as common among business practitioners as it was among students. But this simply is no longer the case in contemporary business. The questions today are less about why o r should ethics be a part of business, than they are about which values and principles should guide business decisions and how ethics should be integrated within business. 1 Students unfamiliar with the basic concepts and categories of ethics will find themselves as unprepared for careers in business as students who are unfamiliar with accounting and finance. Indeed, it is fair to say that students will not be fully prepared even within fields such as accounting, finance, human resource manage- ment, marketing, and management unless they are familiar with the ethical issues that arise within those specific fields. You simply will not be prepared for a career in accounting, finance, or any area of business if you are unfamiliar with the ethi- cal issues that commonly occur in these fields. To understand the origins of this change, consider the range of people who 1 were harmed by the collapse of Enron. Stockholders lost over $1 billion in stock OBJECTIVE value. Thousands of employees lost their jobs, their retirement funds, and their health care benefits. Consumers in California suffered from energy shortages and blackouts that were caused by Enron’s manipulation of the market. Hundreds of businesses that worked with Enron as suppliers suffered economic loss with the loss of a large client. Enron’s accounting firm, Arthur Andersen, went out of busi- ness as a direct result. The wider Houston community was also hurt by the loss of a major employer and community benefactor. Families of employees, investors, and suppliers were also hurt. Many of the individuals directly involved will them- selves suffer criminal and civil punishment, including prison sentences for some.