Fluent Essays

Leadership in Organizations This page is intentionally left blank Leadership in Organizations Gary Yukl State University of New York at Albany William L. Gardner, III Rawls College of Business Texas Tech University N i n t h E d i t i o n ISBN 10: 0-13-489513-4 ISBN 13: 978-0-13-489513-0 Copyright © 2020, 2013, 2010 by Pearson Education, Inc. or its affiliates. All Rights Reserved. Manufactured in the United States of America. This publication is protected by copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise. For information regarding permissions, request forms, and the appropriate contacts within the Pearson Education Global Rights and Permissions department, please visit www.pearsoned.com/permissions/. Acknowledgments of third-party content appear on the appropriate page within the text. PEARSON, ALWAYS LEARNING, and MYLAB are exclusive trademarks owned by Pearson Education, Inc. or its affiliates in the U.S. and/or other countries. Unless otherwise indicated herein, any third-party trademarks, logos, or icons that may appear in this work are the property of their respective owners, and any references to third-party trademarks, logos, icons, or other trade dress are for demonstrative or descriptive purposes only. Such references are not intended to imply any sponsorship, endorsement, authorization, or promotion of Pearson’s products by the owners of such marks, or any relationship between the owner and Pearson Education, Inc., or its affiliates, authors, licensees, or distributors. Library of Congress Cataloging-in-Publication Data Names: Yukl, Gary A., author. | Gardner, William L., III, author. Title: Leadership in organizations / Gary Yukl and William Gardner, University of Albany, State University of New York. Description: Ninth edition. | Boston : Pearson Education, Inc., [2020] | Includes bibliographical references and index. Identifiers: LCCN 2018041734 | ISBN 9780134895130 | ISBN 0134895134 Subjects: LCSH: Leadership. | Decision making. | Organization. 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This page is intentionally left blank BRIEF CONTENTS About the Authors xv Preface xvii Chapter 1 The Nature of Leadership 1 Chapter 2 Leadership Behavior 22 Chapter 3 The Leadership Situation and Adaptive Leadership 46 Chapter 4 Decision Making and Empowerment by Leaders 72 Chapter 5 Leading Change and Innovation 106 Chapter 6 Power and Influence Tactics 138 Chapter 7 Leader Traits and Skills 172 Chapter 8 Charismatic and Transformational Leadership 203 Chapter 9 Values-Based and Ethical Leadership 230 Chapter 10 Dyadic Relations and Followers 255 Chapter 11 Leadership in Teams and Decision Groups 284 Chapter 12 Strategic Leadership in Organizations 315 Chapter 13 Cross-Cultural Leadership and Diversity 349 Chapter 14 Developing Leadership Skills 375 Chapter 15 Overview and Integration 402 References 421 Author Index 505 Subject Index 526 vii This page is intentionally left blank TABLE OF CONTENTS About the Authors xv Preface xvii CHAPTER 1 THE NATURE OF LEADERSHIP Introduction 1 Definitions of Leadership 2 Indicators of Leadership Effectiveness 8 Research Methods for Studying Leadership Effectiveness 10 Major Perspectives in Leadership Theory and Research 11 Level of Conceptualization for Leadership Theories 14 Other Bases for Comparing Leadership Theories 18 Organization of the Book 19 Summary 20 Review and Discussion Questions 21 CHAPTER 2 LEADERSHIP BEHAVIOR Introduction 22 Reasons for Diverse Taxonomies of Leadership Behavior 22 Some Important Types of Leadership Behavior 23 Specific Task-Oriented Leader Behaviors 26 Specific Relations-Oriented Leader Behaviors 34 Summary 42 Review and Discussion Questions 43 CASE: Consolidated Products 43 CASE: Superior Staffing 45 CHAPTER 3 THE LEADERSHIP SITUATION AND ADAPTIVE LEADERSHIP Introduction 46 Different Ways Situations Affect Leaders 46 Stewart Model of Situational Determinants 47 Other Situational Determinants of Leader Behavior 50 Guidelines for Coping with Demands and Constraints 56 Early Contingency Theories of Effective Leader Behavior 59 ix Multiple-Linkage Model 61 Evaluation of Research on the Contingency Theories 65 Guidelines for Flexible, Adaptive Leadership 66 Summary 67 Review and Discussion Questions 68 CASE: Acme Manufacturing Company 69 CASE: Foreign Auto Shop 70 CHAPTER 4 DECISION MAKING AND EMPOWERMENT BY LEADERS Introduction 72 Decision Making by Managers 73 Participative Leadership 75 Normative Decision Model 81 Guidelines for Participative Leadership 85 Delegation 89 Guidelines for Delegating 93 Psychological Empowerment 97 Empowerment Programs 98 Benefits of Empowering Leadership and Programs 100 Summary 101 Review and Discussion Questions 102 CASE: Echo Electronics 103 CASE: Alvis Corporation 104 CHAPTER 5 LEADING CHANGE AND INNOVATION Introduction 106 Types of Change in Teams and Organizations 107 Change Processes 108 Reasons for Accepting or Rejecting Change 110 Implementing Change 112 Guidelines for Implementing Change 116 How Visions Influence Change 121 Collective Learning and Innovation 126 Guidelines for Enhancing Learning and Innovation 130 Summary 133 Review and Discussion Questions 134 CASE: Ultimate Office Products 135 CASE: Ready Foods Company 136 x Table of Contents CHAPTER 6 POWER AND INFLUENCE TACTICS Introduction 138 Sources of Power 138 How Power Is Gained or Lost 143 Consequences of Power 145 Guidelines for Using Power 147 Influence Tactics and Outcomes 151 Types of Proactive Influence Tactics 153 Power and Influence Behavior 158 Effectiveness of Proactive Tactics 159 Guidelines for Using Proactive Influence Tactics 162 Summary 167 Review and Discussion Questions 168 CASE: Sporting Goods Store 168 CASE: The New Dean 170 CHAPTER 7 LEADER TRAITS AND SKILLS Introduction 172 Personality Traits and Effective Leadership 174 Skills and Effective Leadership 185 Managerial Competencies 189 Situational Relevance of Traits and Skills 191 Evaluation of the Trait Approach 195 Guidelines for Leaders 196 Summary 198 Review and Discussion Questions 198 CASE: National Products 199 CASE: Prestige Marketing 201 CHAPTER 8 CHARISMATIC AND TRANSFORMATIONAL LEADERSHIP Introduction 203 Charismatic Leadership 204 Effects of Charismatic Leaders 210 Transformational Leadership 215 Comparison of Charismatic and Transformational Leadership 217 Evaluation of the Theories 219 Guidelines for Inspirational Leadership 221 Table of Contents xi Summary 224 Review and Discussion Questions 225 CASE: Metro Bank 225 CASE: Astro Airlines Part 1 226 CASE: Astro Airlines Part 2 227 CHAPTER 9 VALUES-BASED AND ETHICAL LEADERSHIP Introduction 230 Conceptions of Ethical Leadership 231 Determinants and Consequences of Ethical Leadership 234 Theories of Values-Based Leadership 239 Comparison and Evaluation of Theories 245 Guidelines for Ethical Leadership 248 Summary 250 Review and Discussion Questions 251 CASE: Unethical Leadership at Enron 252 CASE: Restview Hospital 253 CHAPTER 10 DYADIC RELATIONS AND FOLLOWERS Introduction 255 Leader–Member Exchange Theory 256 Leader Attributions About Subordinates 261 Guidelines for Correcting Performance Deficiencies 263 Follower Attributions and Implicit Theories 267 Impression Management by Leaders and Followers 270 Followership 272 Self-Management 274 Guidelines for Followers 276 Summary 279 Review and Discussion Questions 280 CASE: Cromwell Electronics 281 CASE: American Financial Corporation 282 CHAPTER 11 LEADERSHIP IN TEAMS AND DECISION GROUPS Introduction 284 Determinants of Team Performance 285 Functional and Cross-Functional Work Teams 292 Self-Managed Work Teams 297 Guidelines for Leading Teams 300 xii Table of Contents Leading Decision Groups 303 Guidelines for Leading Meetings 306 Summary 310 Review and Discussion Questions 311 CASE: Southwest Engineering Services 311 CASE: Columbia Corporation 313 CHAPTER 12 STRATEGIC LEADERSHIP IN ORGANIZATIONS Introduction 315 Determinants of Organizational Performance 316 How Leaders Influence Organizational Performance 320 Situations Affecting Strategic Leadership 324 Organizational Culture 326 Research on Effects of Strategic Leadership 329 Executive Teams 332 Other Conceptions of Organizational Leadership 335 External Monitoring and Strategy Formulation 338 Guidelines for Strategic Leadership 340 Summary 343 Review and Discussion Questions 344 CASE: Costco 345 CASE: Turnaround at Nissan 347 CHAPTER 13 CROSS-CULTURAL LEADERSHIP AND DIVERSITY Introduction 349 Cross-Cultural and Global Leadership 349 Cultural Values and Leadership 354 Guidelines for Global Leadership 360 Gender and Leadership 362 Summary 371 Review and Discussion Questions 372 CASE: Madison, Jones, and Conklin 373 CASE: A Day in the Life of a Global Leader 374 CHAPTER 14 DEVELOPING LEADERSHIP SKILLS Introduction 375 Leadership Training Programs 376 Learning from Experience 378 Developmental Activities 380 Table of Contents xiii Facilitating Leadership Development 391 Systems Perspective on Leadership Development 394 Summary 397 Review and Discussion Questions 398 CASE: Federated Industries 399 CASE: River Bank 400 CHAPTER 15 OVERVIEW AND INTEGRATION Introduction 402 Major Findings About Effective Leadership 403 Multi-Level Explanatory Processes 407 Ways to Improve Leadership Research 414 General Guidelines for Effective Leadership 419 The State of the Field 420 Review and Discussion Questions 420 References 421 Author Index 505 Subject Index 526 xiv Table of Contents xv ABOUT THE AUTHORS Gary Yukl After more than 45 years of studying leadership, Dr. Gary Yukl is highly qualified to write about the subject. His highest academic degree is a Ph.D. in Industrial-Organizational Psychology from the University of California, Berkeley. He is an emeritus professor at UAlbany, State University of New York, where before retiring he taught courses in leadership at the under- graduate, MBA, and doctoral level. He is a member of the editorial boards for several important journals that publish articles on leadership theory and research. His own publications include many articles on leadership, and he has received a number of awards for best research article, most-cited article, and best convention paper. He has also received two lifetime achievement awards for his research and publications: the 2007 Walter Ulmer Applied Research Award from the Center for Creative Leadership, and the 2011 Eminent Leadership Scholar Award from the Academy of Management Network of Leadership Scholars. He has consulted with several business and public-sector organizations to help improve the effectiveness of their managers, and the leadership development programs he designed for a consulting company were used by managers and administrators in many organizations. Some of the practical guidelines presented in this book are from management development programs found to improve the effectiveness of the participants. For his exceptional research and scholarship he was elected a Fellow of the American Psychological Association, the American Psychological Society, the Society for Industrial-Organizational Psychology, and the Academy of Management. William L. Gardner, III Drawing on his 40-plus years of teaching and researching leadership, Dr. William (Bill) Gardner is well positioned to share his insights on leaders and effective leadership. His highest academic degree is a Doctor of Business Administration (DBA) from Florida State University. He holds the Jerry S. Rawls Chair in Leadership and serves as the Director of the Institute for Leadership Research in the Rawls College of Business at Texas Tech University. He previously held fac- ulty positions at Southern Illinois University, the University of Mississippi, and the University of Nebraska–Lincoln. During his career, he has taught leadership and management courses at the undergraduate, masters, professional MBA, and doctoral levels. Currently, he serves as the Editor-in-Chief for Group & Organization Management and as an Associate Editor for The Leadership Quarterly. He has published numerous high-impact articles focused on leadership in top-tier journals and received several best-paper and most-cited-article awards. In 2011, he received the Distinguished Doctoral Alumni Award from the College of Business at Florida State University. In 2015, Texas Tech recognized him as an “Integrated Scholar,” an honor be- stowed to “a faculty member who not only demonstrates outstanding teaching, research, and service, but is able to generate synergy among the three functions.” In recognition of his exten- sive contributors to the Southern Management Association (SMA), including his service as President and an SMA Fellow, he received the “James G. (Jerry) Hunt Sustained Outstanding Service Award” in 2017. This page is intentionally left blank xvii PREFACE This book is about leadership in organizations. Its primary focus is on managerial leadership as opposed to parliamentary leadership, leadership in social movements, or emergent leadership in informal groups. The book presents a broad survey of theory and research on leadership in formal organizations. Topics of special interest are the determinants of leadership effectiveness and how leadership can be improved. William Gardner was added as a second author for this edition to incorporate his knowledge and perspective on effective leadership. The book is appropriate for use as the primary text in an undergraduate or graduate course in leadership. Such courses are found in many different schools or departments, including business, psychology, sociology, educational administration, public administration, and health-care administra- tion. The book is on the list of required or recommended readings for students in many doctoral programs in leadership, management, and industrial-organizational psychology. With its focus on effective leadership in organizations, the book is especially relevant for students who expect to be- come a manager or administrator in the near future, for people who will be responsible for training or coaching leaders, and for people who will be teaching courses or workshops that include leadership as one of the key topics. The book is also useful for practicing managers and consultants who are looking for something more than vague theories and superficial answers to difficult questions about leadership. The book is widely used in many different countries, and some editions were translated into other languages, including Chinese, Korean, Indonesian, Spanish, Greek, Croatian, and Swedish. The content of the book still reflects a dual concern for theory and practice. We have attempted to satisfy two different audiences with somewhat different perspectives. Most aca- demics prefer a book that explains and evaluates major theories and relevant empirical re- search. They are most interested in how well the research was done, what was found, how well the research supports the theoretical basis for it, and what additional research is needed. Academics tend to be skeptical about the value of prescriptions and guidelines for practitioners and may consider them premature in the absence of further research. In contrast, most practitioners want some immediate answers about what to do and how to do it in order to be more effective as lead- ers. They need to deal with the current challenges of their job and cannot wait for decades until the academics resolve their theoretical disputes and obtain definitive answers. Practitioners are more interested in finding helpful remedies and prescriptions than in finding out how this knowledge was discovered. Readers who desire to improve their leadership effectiveness will find this edition of the book is even more useful than previous editions. The different preferences are one of the reasons for the much-lamented gulf between scientists and practitioners in management and industrial-organizational psychology. We be- lieve it is important for managers and administrators to understand the complexity of effective leadership, the source of our knowledge about leadership in organizations, and the limitations of this knowledge. Likewise, we believe it is important for academics to think more about how their theories and research can be used to improve the practice of management. Too much of our leadership research is designed to examine narrow, esoteric questions that only interest a few other scholars who publish in the same journals. Academics will be pleased to find that major theories are explained and evaluated, find- ings in empirical research on leadership are summarized, and many references are provided to help readers find sources of additional information about topics of special interest. The field of leadership is still in a state of ferment, with many continuing controversies about conceptual and methodological issues. The book addresses these issues, but the literature review was not intended to be comprehensive. Rather than detailing an endless series of weak theories and in- conclusive studies like most handbooks of leadership, this book describes major findings about effective leadership and how they can be applied by readers. For practitioners and students who desire to become effective managers, we attempted to convey a better appreciation of the complexity of managerial leadership, the importance of hav- ing theoretical knowledge about leadership, and the need to be flexible and pragmatic in apply- ing this knowledge. The current edition provides many guidelines and recommendations for improving managerial effectiveness, but it is not a “practitioner’s manual” of simple techniques and secret recipes that guarantee instant success. The purpose of the guidelines is to help the reader understand the practical implications of the leadership theory and research, not to pre- scribe exactly how things must be done by a leader. Most of the guidelines are based on a limited amount of research and they are not infallible or relevant for all situations. Being a flexible, adap- tive leader includes determining which guidelines are relevant for each unique situation. Most chapters end with two short cases designed to help the reader gain a better understand- ing of the theories, concepts, and guidelines presented in the chapter. Most of the cases describe events that occurred in real organizations, but some cases were modified to make them more useful for learning basic concepts and effective practices. For many of the cases, the names of organiza- tions and individuals were changed to keep the analysis focused on the events that occurred in a defined time period, rather than on recent events that may involve different leaders and a different situation. The cases ask a reader to analyze behavioral processes, identify examples of effective and ineffective behavior, and suggest effective ways to handle the situation that is depicted. In this ninth edition, the basic structure of most chapters remains the same, but the order of some chapters was changed, a few topics were moved to a different chapter, some new top- ics were added, and the discussion of some other topics was expanded. Since the book is not intended to be a history of leadership, it seemed appropriate to reduce the amount of detail about early research programs and old theories that are no longer popular, and focus more closely on what we now know about effective leadership. New to This Edition Following is a list of changes we made to make the book easier to understand and more useful to most readers: • The number of chapters was reduced from 16 to 15 to improve the organization of content. • The order of chapters was modified to improve the explanation of related topics. • Every chapter has been updated and revised for clarity and understanding. • New examples of effective and ineffective leadership were added to most chapters. • Personal Reflection exercises were added to most chapters to help students think critically and apply the leadership concepts. • Several new cases were added, and there are now two cases for all but the introduction and overview chapters. • Over 500 citations to recent research were added throughout. • The design of the book was updated, and two colors are used for this edition. Chapter by Chapter Changes • In Chapter 1 (The Nature of Leadership) we added a discussion of the research methods used to study leadership, including new methods such as social networks, biosensor xviii Preface methods, and behavioral genetics. The description of different theoretical approaches for studying leadership was expanded. • In Chapter 2 (Leadership Behavior) the description of distinct types of leadership behav- ior was revised to include new knowledge and theories about these subjects. A new case on leadership behavior was added to the chapter. • In Chapter 3 (The Leadership Situation and Adaptive Leadership) the ways in which leaders are influenced by the leadership situation was expanded to include the discus- sion of leadership in extreme situations such as hospital emergency rooms, SWAT teams, and police work. This chapter also includes some theories of situational determinants and adaptive leadership that were included in a separate chapter on managerial work in the previous edition. • In Chapter 4 (Decision Making and Empowerment by Leaders) we added a discussion of the threshold effect of participative leadership, which explains how there is a minimum level of participative leadership that must be reached before the positive effects on employee performance are realized. In addition, we expanded the discussion of psycho- logical empowerment and empowering leadership. • In Chapter 5 (Leading Change and Innovation) we added a discussion of the differences among developmental, transitional, and transformational change, and organizational cynicism about change was added as another reason for rejecting change. A discussion of the strategic fitness process is included, and it involves a nine-step process of organi- zational change that combats the “silent killers” of organizational effectiveness. This chapter also includes a new case about leading change. • In Chapter 6 (Power and Influence Tactics) the description of how leaders can effec- tively use their power and several different influence tactics was expanded. A new case about power and influence was added to the chapter. • In Chapter 7 (Leader Traits and Skills) we added a discussion of core self-evaluations about a leader’s worthiness, effectiveness, and capacity as a person. In addition, the concept of political skill is discussed in more detail, along with the associated research and practical implications of this skill. • In Chapter 8 (Charismatic and Transformational Leadership) we added a discussion of specific charismatic leadership tactics that leaders use to manage impressions. We also describe how leaders can learn to effectively use these tactics. The discussion of contex- tual factors that contribute to the emergence and impact of charismatic leadership was expanded to include attributional ambiguity. • In Chapter 9 (Value-Based and Ethical Leadership) we added an explanation of the fac- tors that increase the moral intensity of an ethical issue and the effects of moral intensity on ethical leadership. The constructs of ethical culture and ethical climate, and the dif- ferences between them, are discussed, along with their effects on leader and follower behaviors in organizations. We also refined the discussion of authentic leadership by describing the four components: self-awareness, balanced processing, relational trans- parency, and an internalized moral perspective. • In Chapter 10 (Dyadic Relations and Followership) we added a discussion of how a leader’s affective expressions serve as cues about the leader’s enthusiasm for the rela- tionship, which in turn evoke emotional reactions from followers. We also describe how leaders and followers sometimes attribute performance problems to their relationship rather than to internal or external causes, and how leaders and followers may engage in relational work for the purpose of improving the relationship and future performance. Preface xix • In Chapter 11 (Leadership in Teams and Decision Groups) we added a discussion of how a team’s composition affects the emergence of identity-based, resource-based, and knowledge-based subgroups, and the implications of these subgroups are ex- plained. A new case was also added to this chapter. • In Chapter 12 (Strategic Leadership in Organizations) we added a detailed discussion of strategic human resource management, which calls for an alignment and coordination of the firm’s human resource practices across organizational levels to ensure that human capital is deployed strategically to foster enhanced competitiveness. • In Chapter 13 (Cross-Cultural Leadership and Diversity) we introduced the concept of global leadership and added a set of guidelines for effective global leadership and the practical challenges that confront leaders of multinational organizations. We also added a discussion of the “glass cliff” phenomenon, which refers to the tendency of women to be more likely to be appointed to leadership positions that are risky and precarious. We included a discussion of findings from research that investigates the relationships between gender composition on corporate boards and key organizational outcomes. A new case was also added to this chapter. • In Chapter 14 (Developing Leadership Skills) we added a discussion of how return on development investment (RODI) can be used as a metric for assessing the impact of leadership development programs and activities. In addition, we expanded the descrip- tion of factors that facilitate leader development to include the concept of developmental readiness, which is a function of the leader’s ability and motivation to develop. We also added a new case to this chapter. • In Chapter 15 (Overview and Integration) we updated the summary of major findings about effective leadership to include new findings since the eighth edition was written. Ways to improve leadership research in the future are suggested, and we briefly sum- marize some general guidelines for effective leadership. Gary Yukl The Villages, Florida William L. Gardner Lubbock, Texas August, 2018 Instructor Resource Center At Pearson’s Higher Ed catalog, https://www.pearsonhighered.com/sign-in.html, instructors can easily register to gain access to a variety of instructor resources available with this text in down- loadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit https://support.pearson.com/getsupport for answers to frequently asked questions and toll-free user support phone numbers. The following supplements are available with this text: • Instructor’s Resource Manual • Test Bank • TestGen® Computerized Test Bank • PowerPoint Presentation This title is available as an eBook and can be purchased at most eBook retailers. xx Preface https://www.pearsonhighered.com/sign-in.html https://support.pearson.com/ 1 Introduction Leadership is a subject that has long excited interest among people. The term connotes … page i page ii Business Ethics page iii Business Ethics Decision Making for Personal Integrity and Social Responsibility page iv BUSINESS ETHICS: DECISION MAKING FOR PERSONAL INTEGRITY AND SOCIAL RESPONSIBILITY, FIFTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2021 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2018, 2014, and 2011. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 LCR 24 23 22 21 20 ISBN 978-1-260-26049-6 (bound edition) MHID 1-260-26049-6 (bound edition) ISBN 978-1-260-51293-9 (loose-leaf edition) MHID 1-260-51293-2 (loose-leaf edition) Director: Michael Ablassmeir Associate Portfolio Manager: Laura Hurst Spell Marketing Manager: Lisa Granger Content Project Managers: Melissa M. Leick; Emily Windelborn; Karen Jozefowicz Buyer: Susan K. Culbertson Design: Beth Blech Content Licensing Specialist: Brianna Kirschbaum Cover Image: Arrows: Pixel-Shot/Shutterstock; arrow sign: ©RTimages/Shutterstock; landscape: ©imagedepotpro/E+/Getty Images; compass: ©Design Pics/Kristy-Anne Glubish Compositor: SPi Global All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. Library of Congress Control Number: 2019953715 The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites. mheducation.com/highered http://mheducation.com/highered page v To Rachel and Emma. —Laura Hartman To Michael and Matthew. —Joseph DesJardins To Georgia. —Chris MacDonald page vi About the Authors Laura P. Hartman The School of Choice/L’Ecole de Choix (Haiti) Laura Pincus Hartman is Executive Director of the School of Choice Education Organization, a U.S.–based nonprofit that she cofounded, which oversees the School of Choice/L’Ecole de Choix, a unique leadership development education program in Haiti that serves children and families living in extreme conditions of poverty. Hartman also is professor emerita at DePaul University. She held a number of roles during her almost three-decade career there, including Associate Vice President for Academic Affairs, Vincent de Paul Professor of Business Ethics at DePaul University’s Driehaus College of Business, and Director of its Institute for Business and Professional Ethics. From 2015– 2017, Hartman also served as the inaugural Director of the Susilo Institute for Ethics in the Global Economy at Boston University and Clinical Professor of Business Ethics in BU’s Department of Organizational Behavior. She has been privileged to serve as an Associated Professor at the Kedge Business School (Marseille, France) and has taught as a visiting professor at INSEAD page vii (France), HEC (France), the Université Paul Cezanne Aix Marseille III, the University of Toulouse, and the Grenoble Graduate School of Business, and served as the Gourley Professor of Ethics at the Melbourne Business School. Hartman is past president of the Society for Business Ethics and established its Professional Mentorship Program. She is the coauthor of Employment Law for Business (McGraw-Hill). Hartman graduated magna cum laude from Tufts University and received her law degree from the University of Chicago Law School. She divides her time between Haiti and Sint Maarten, and has been a mother to two daughters. Joseph DesJardins College of St. Benedict/St. John’s University Joseph DesJardins holds the Ralph Gross Chair in Business and the Liberal Arts and is professor of philosophy at the College of St. Benedict and St. John’s University in Minnesota. His other books include An Introduction to Business Ethics; Environmental Ethics: An Introduction to Environmental Philosophy; Environmental Ethics: Concepts, Policy & Theory; Contemporary Issues in Business Ethics (coeditor with John McCall); and Business, Ethics, and the Environment: Imagining a Sustainable Future. He has served as president and executive director of the Society for Business Ethics and has published and lectured extensively in the areas of business ethics, environmental ethics, and sustainability. He received his BA from Southern Connecticut State University and his MA and PhD from the University of Notre Dame. Chris MacDonald Ryerson University Chris MacDonald is an associate professor and director of the Ted Rogers Leadership Centre at Ryerson University’s Ted Rogers School of Management in Toronto, Canada, and a senior nonresident fellow at Duke University’s Kenan Institute for Ethics. His peer-reviewed publications range across business ethics, professional ethics, bioethics, the ethics of technology, and moral philosophy, and he is coauthor of a best-selling textbook called The Power of Critical Thinking (4th Canadian Edition, 2016). He is cofounder and coeditor of both the Business Ethics Journal Review and the news and commentary aggregator site Business Ethics Highlights. He is perhaps best known for his highly respected blog, The Business Ethics Blog, which is carried by Canadian Business magazine. page viii Preface We began writing the first edition of this textbook in 2006, soon after a wave of major corporate scandals had shaken the financial world. Headlines made the companies involved in these ethical scandals household names: Enron, WorldCom, Arthur Andersen, KPMG, J.P. Morgan, Merrill Lynch, Morgan Stanley, Citigroup, Salomon Smith Barney. At that time, we suggested that, in light of such significant cases of financial fraud, mismanagement, criminality, and deceit, the relevance of business ethics could no longer be questioned. Sadly, as we enter the fifth edition of this book, these same issues are as much alive today as they were a decade ago. While our second edition was preceded by the unprecedented financial meltdown in 2008–2009 and the ethical problems faced by such companies as AIG, Countrywide, Lehman Brothers, Merrill Lynch, and Bear Stearns, this current edition continues to witness financial and ethical malfeasance of historic proportions and the inability of market mechanisms, internal governance structures, or government regulation to prevent it. But the story is not all bad news. While cases of corporate fraud continue to make headlines (think of the recent Volkswagen, Wells Fargo, and Facebook scandals), countless small and large firms provide examples of highly ethical—and profitable—business enterprises. The emergence of benefit corporations (see Chapter 5 for examples) is only one instance of corporations dedicated to the common good. In this edition, we aim to tell the stories of both the good and the bad in business. As we reflect on both the ethical corruption and the ethical success stories of the past decade, the importance of ethics is all too apparent. The questions today are less about whether ethics should be a part of business strategy and, by necessity, the business school curriculum, than about which values and principles should guide business decisions and how ethics should be page ix integrated within business and business education. This textbook provides a comprehensive, yet accessible introduction to the ethical issues arising in business. Students who are unfamiliar with ethics will find that they are as unprepared for careers in business as students who are unfamiliar with accounting and finance. It is fair to say that students will not be fully prepared, even within traditional disciplines such as accounting, finance, human resource management, marketing, and management, unless they are sufficiently knowledgeable about the ethical issues that arise specifically within and across those fields. Whereas other solid introductory textbooks are available, several significant features make this book distinctive. We emphasize a decision- making approach to ethics, and we provide strong pedagogical support for both teachers and students throughout the entire book. This decision-making approach balances the goals of helping student reach conclusions without imposing someone else’s answers on them. Our goal is to help students make responsible decisions for themselves. But ethical decision making is no small feat, especially in an area that is necessarily multidisciplinary. Numerous small cases and examples aim to help teachers and students integrate concepts and material from philosophy, law, economics, management, finance, and marketing with the very practical goal of making real-life decisions. We aim to bring students into these discussions by regularly grounding our discussions in issues with which they are already familiar, thus approaching them through subjects that have already generated their interest. page x New to the Fifth Edition While our goal for the fifth edition remains the same as for the first—to provide “a comprehensive yet accessible introduction to the ethical issues arising in business”—readers will notice a few changes. As always, the primary incentive of a new edition is to update the text with new and timely cases and topics. Readers will find new discussions of such companies as Facebook and Wells Fargo, as well as such topics as the #MeToo movement and digital privacy. Perhaps the most noticeable change, however, is the elimination of end-of-chapter readings, and this deserves some explanation. When the first edition was published, our goal was to be as current and timely as possible, not only by including up-to-date examples throughout each chapter, but also through the end-of-chapter readings. Our thinking was that these readings would allow students and teachers to dive more deeply into the subject matter and access perspectives to broaden the scope of the conversation. They also could serve as convenient topics for written assignments or in-class discussions. However, at this point, accessing these perspectives has become so easy through the internet and other means that including them is no longer necessary to achieve our original goals. In fact, our choices instead can limit rather than broaden the range of ideas available. Further, the increasing costs of textbooks are a serious concern for everyone in education. Students should know that while they are most directly affected by rising costs, teachers, authors, and, yes, even publishers are also troubled by this and regularly look for ways to reduce the costs of education. As we (the authors and our publisher, McGraw-Hill) looked for ways to control costs, the end-of-chapter readings stood out. Permission fees for reprinting readings have increased significantly in recent years, especially in this era of electronic and custom publishing, and the additional length added by the readings contributes to increasing production costs. We decided that these added costs were no longer justified by the benefits, especially page xi considering that the readings are often readily available online, typically at no costs to students under the “fair use” copyright guidelines. The readings were always included only as a means to supplement the core text, and we have now concluded that students would be better served by eliminating the readings and focusing this edition more on the core text itself. In several cases, we have been able to integrate the content of the reading within the text as a Reality Check or Decision Point. We have retained the same logical structure and chapter organization of previous editions because we have heard from many colleagues and reviewers that this structure works well for a semester-long course in business ethics. But every chapter has been revised to include new and updated material, cases, topics, and readings. Importantly, we continue to provide increased international perspectives, with particular references to Canadian and UK legislation and institutions. Among the changes to this edition are the following: New or revised Opening Decision Points for every chapter, including new cases or in-depth discussions on: ▸ Wells Fargo ▸ Job security and confidentiality ▸ Executive compensation ▸ Free expression in the workplace ▸ Facebook ▸ Digital marketing ▸ The business of food New cases, Reality Checks, or Decision Points within the text on such companies and topics as: ▸ Mylan Epi-Pen ▸ Greed ▸ #MeToo movement ▸ Tesla ▸ Uber ▸ Marijuana in the workplace ▸ Digital privacy ▸ Gender and sexual identity As always, we reviewed and revised the entire text for accessibility, consistency, and clarity. page xii Acknowledgments A textbook should introduce students to the cutting edge of the scholarly research that is occurring within a field. As in any text that is based in part on the work of others, we are deeply indebted to the work of our colleagues who are doing this research. Our book is a more effective tool for both students and faculty because of their generosity. In particular, thanks to Ryerson students Stefania Venneri, Tanya Walia, and Daniel Marotta for their useful suggestions, and to Katrina Myers at the University of Chicago and to Summer Brown at DePaul University for their exceptional research and editing assistance. In addition, we wish to express our deepest gratitude to the reviewers and others whose efforts served to make this manuscript infinitely more effective: Cheryl Adkins Longwood University Lynda Fuller Wilmington University Daniel F. Nehring Morehead State University Richard Stillman The Graduate Center, CUNY Jeffrey Yoder Fairfield University Our thanks also go out to the team at McGraw-Hill Education who helped this book come into existence: Michael Ablassmeir Director Laura Hurst Spell Associate Portfolio Manager Lisa Granger Marketing Manager Melissa M. Leick Senior Content Project Manager page xiii 1 2 3 4 5 6 7 8 9 10 Brief Contents Preface viii Ethics and Business 1 Ethical Decision Making: Personal and Professional Contexts 31 Philosophical Ethics and Business 57 The Corporate Culture—Impact and Implications 91 Corporate Social Responsibility 139 Ethical Decision Making: Employer Responsibilities and Employee Rights 171 Ethical Decision Making: Technology and Privacy in the Workplace 227 Ethics and Marketing 285 Business and Environmental Sustainability 319 Ethical Decision Making: Corporate Governance, Accounting, and Finance 351 Glossary 387 Index 394 page xiv Table of Contents About the Authors vi Preface viii Chapter 1 Ethics and Business 1 Opening Decision Point: Wells Fargo and Consumer Fraud 2 Introduction: Getting Comfortable with the Topic 5 Making the Case for Business Ethics 8 Ethics and the Law 13 Business Ethics as Ethical Decision Making 18 Business Ethics as Personal Integrity and Social Responsibility 20 Chapter 2 Ethical Decision Making: Personal and Professional Contexts 31 Opening Decision Point: Am I About to Lose My Job? What Would You Do? 32 Introduction 33 A Decision-Making Process for Ethics 34 When Ethical Decision Making Fails: Why Do “Good” People Engage in “Bad” Acts? 45 Ethical Decision Making in Managerial Roles 50 Chapter 3 Philosophical Ethics and Business 57 Opening Decision Point: Are CEOs Paid Too Much, Compared to Their Employees? 58 Introduction: Ethical Frameworks—Consequences, Principles, Character 60 Utilitarianism: Making Decisions Based on Ethical Consequences 64 Utilitarianism and Business 66 Challenges to Utilitarian Ethics 70 An Ethics of Principles and Rights 71 Human Rights and Duties 75 Human Rights and Social Justice 77 Human Rights and Legal Rights 79 Challenges to an Ethics of Rights and Duties 80 Virtue Ethics: Making Decisions Based on Integrity and Character 81 A Decision-Making Model for Business Ethics Revisited 87 Chapter 4 The Corporate Culture—Impact and Implications 91 Opening Decision Point: Creating an Ethics Program 92 What Is Corporate Culture? 93 Culture and Ethics 101 Compliance and Values-Based Cultures 105 Ethical Leadership and Corporate Culture 107 Effective Leadership and Ethical, Effective Leadership 112 Building a Values-Based Corporate Culture 114 Mission Statements, Credos, Codes of Conduct, and Statements of Values 114 Developing the Mission and Code 116 Culture Integration: Ethics Hotlines, Ombudspersons, and Reporting 117 Assessing and Monitoring the Corporate Culture: Audits 123 Mandating and Enforcing Culture: The Federal Sentencing Guidelines for Organizations 124 Chapter 5 Corporate Social Responsibility 139 Opening Decision Point: Facebook 140 Introduction 143 Ethics and Social Responsibility 144 Economic Model of CSR 150 page xv Stakeholder Model of CSR 153 Integrative Model of CSR 157 The Implications of Sustainability in the Integrative Model of CSR 157 Exploring Enlightened Self-Interest: Does “Good Ethics” Mean “Good Business”? 161 Chapter 6 Ethical Decision Making: Employer Responsibilities and Employee Rights 171 Opening Decision Point: The Choice to Voice 172 Introduction 174 Ethical Issues in the Workplace: The Current Environment 175 Defining the Parameters of the Employment Relationship 177 Due Process and Just Cause 178 Downsizing 185 Health and Safety 188 Health and Safety as “Acceptable Risk” 189 Health and Safety as Market Controlled 191 Health and Safety as Government-Regulated Ethics 193 Global Applications: The Global Workforce and Global Challenges 195 The Case of Child Labor 201 Rights and Responsibilities in Conflict: Discrimination, Diversity, and Affirmative Action 203 Discrimination 203 Diversity 209 Affirmative Action 213 Chapter 7 Ethical Decision Making: Technology and Privacy in the Workplace 227 Opening Decision Point Being Smart about Smartphones 228 Introduction 229 The Right to Privacy 231 Defining Privacy 231 Ethical Sources of a Right to Privacy 232 Legal Sources of a Right to Privacy in the United States 235 Global Applications 238 Linking the Value of Privacy to the Ethical Implications of Technology 242 Information and Privacy 243 Managing Employees through Monitoring 245 Why Do Firms Monitor Technology Usage? 251 Monitoring Employees through Drug Testing 252 Other Forms of Monitoring 256 Business Reasons to Limit Monitoring 258 Balancing Interests 259 Regulation of Off-Work Acts 261 Tobacco Use 261 Weight Differences 262 Marital and Relationship Status 262 Sexual Orientation and Gender Identity 263 Off-Work Use of Technology 265 Privacy Rights since September 11, 2001 267 Chapter 8 Ethics and Marketing 285 Opening Decision Point: Digital Marketing and Ethics 286 Introduction 288 Marketing: An Ethical Framework 290 Responsibility for Products: Safety and Liability 294 Contractual Standards for Product Safety 295 Tort Standards for Product Safety 296 Strict Product Liability 299 Ethical Debates on Product Liability 299 Responsibility for Products: Advertising and Sales 300 Ethical Issues in Advertising 301 Marketing Ethics and Consumer Autonomy 303 Marketing to Vulnerable Populations 308 Supply Chain Responsibility 312 Chapter 9 Business and Environmental Sustainability 319 Opening Decision Point: The Business of Food 320 page xvi Introduction 322 Business Ethics and Environmental Values 324 Business’s Environmental Responsibility: The Market Approach 328 Business’s Environmental Responsibility: The Regulatory Approach 331 Business’s Environmental Responsibilities: The Sustainability Approach 333 The “Business Case” for a Sustainable Economy 337 Principles for a Sustainable Business 339 Sustainable Marketing 341 Product 341 Price 342 Promotion 343 Placement 345 Chapter 10 Ethical Decision Making: Corporate Governance, Accounting, and Finance 351 Opening Decision Point Volkswagen’s Diesel Fraud 352 Introduction 356 Professional Duties and Conflicts of Interest 357 The Sarbanes-Oxley Act of 2002 365 The Internal Control Environment 367 Going beyond the Law: Being an Ethical Board Member 368 Legal Duties of Board Members 368 Beyond the Law, There Is Ethics 369 Conflicts of Interest in Accounting and the Financial Markets 372 Executive Compensation 374 Insider Trading 378 Glossary 387 Index 394 page 1 page 2 Chapter 1 Ethics and Business It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you’ll do things differently. Warren Buffet Ethics is the new competitive environment. Peter Robinson, CEO, Mountain Equipment Co-op (2000– 2007) No snowflake in an avalanche ever feels responsible. Voltaire, 1694–1778 Opening Decision Point Wells Fargo and Consumer Fraud1 In December 2013, the Los Angeles Times published the results of an ongoing investigation into Wells Fargo. The Times report described high-pressure sales practices that were aimed at marketing additional financial products to present customers, a practice known as cross-selling. The report told of Wells Fargo employees establishing new accounts in customers’ names without their consent or knowledge. The Times story included interviews with numerous branch managers from across the United States who described unreasonably high sales targets and quotas that encouraged such unethical practices. In response to this story, Wells Fargo claimed that it took all legal or ethical lapses seriously but denied any systemic wrongdoing. A spokesperson cited a new corporate Ethics Program Office that would oversee compliance with corporate ethical standards. Following this report, the City of Los Angeles, the State of California, and the U.S. Consumer Financial Protection Bureau (CFPB) began a series of investigations into Wells Fargo. Exactly how aggressive Wells Fargo had been in cross-selling became clear in September 2016 when the CFPB announced that Wells Fargo employees had fraudulently opened millions of unauthorized credit card and deposit accounts in the name of present customers. Wells Fargo admitted to the wrongdoing and agreed to pay fines of $185 million to state and federal authorities. The investigations uncovered a wide range of fraudulent practices that included ordering credit cards, opening new accounts, establishing new lines of credit, or purchasing insurance and overdraft protection. All of this was done without the consent or knowledge of customers. In some cases, employees forged customers’ signatures or used their own address so information about these accounts would be sent to their homes rather than to the defrauded customers. The process involved was reasonably easy. Employees, often in the type of entry-level positions that recent college graduates might fill, had ready access to the information needed to open new accounts: names, addresses, social security numbers, credit reports, and so forth. Applying for and confirming the sale of a new product for an existing customer could be done with a few clicks of a mouse. Investigations revealed that thousands of employees had taken part in the scheme. Much of the activity described by the Los Angeles Times occurred at local branch offices and included every level of employee from tellers to personal bankers to the branch managers themselves. Of course, such widespread fraud could not have gone unnoticed by managers who had oversight of these branch offices. It soon became clear that mid-level management had actively participated in these activities, including providing instructions on how to do it and how to avoid detection by customers. Branch managers who failed to meet sales targets were publicly berated and threatened by their superiors. Employees who missed targets for cross-selling were required to work nights and weekends and were denied promotions and salary increases. It also appears that employees who were reluctant to participate, or who attempted to blow the whistle, not only lost their jobs but also received negative evaluations that effectively prevented them from finding future employment in the banking page 3 industry. Less directly, but perhaps much more effectively, management participated in the practice by creating and enforcing demanding sales quotas and wage and salary structures that rewarded those who met these targets. Wells Fargo had a reputation as a leader in the business strategy of cross- selling, the practice of marketing additional products to existing customers. Traditionally, banks and financial services companies had seen themselves as professionals who provided advisory services to clients in much the same way that an attorney or an accountant provides professional services to his or her clients. In this model, success would be measured in terms of achieving the clients’ interests in managing risks, return on investment, and so forth. This fiduciary model of business aims to align the interests of the firm with the interests of the client so that when the client succeeds, the firm succeeds. But many banks and financial institutions have moved away from this fiduciary model in recent decades to adopt a more transactional, consumerist model in which clients are viewed simply as customers to whom the company sells products. Here, the firm’s success is measured in terms of how many products are sold and how much profit is earned from those sales. Of course, one trade- off of this shift is that client and business interests may not always align in that the business can profit whether or not the customer does. Wells Fargo was among the first banks to move aggressively in this direction. At the time of the 2016 announcement, Wells Fargo admitted that since 2011 employees had opened more than 1.5 million fraudulent accounts and more than 500,000 unauthorized credit card applications in the names of present customers. Further investigations of activities prior to 2011 discovered that more than half a million additional fraudulent online bill-paying accounts also had been opened and hundreds of thousands of fraudulent insurance policies were sold to unsuspecting customers. By early 2018, Wells Fargo had admitted to selling more than 3.5 million unauthorized financial products to customers. In April 2018, the CFPB and the U.S. Comptroller of the Currency announced additional fines to punish Wells Fargo for deceptively adding unneeded insurance to consumer auto loans and manipulating interest rates on mortgages. As many as 600,000 automobile loans might have been subjected to such unneeded additional insurance. Initially, senior Wells Fargo executives, including CEO and Board Chair John Stumpf, claimed that the fault rested with “dishonest” individuals who had been fired for this behavior. In total, 5,300 employees were fired as a result of these frauds. Testifying to the U.S. Senate Banking Committee, Stumpf claimed: “I do want to make it clear that there was no orchestrated effort, or scheme as some page 4 have called it, by the company. We never directed or wanted our employees, whom we refer to as team members, to provide products and services to customers they did not want or need.”2 Stumpf explained the widespread nature of the fraud as likely resulting from employees talking to each other. But closer analysis showed a pattern of decisions, behavior, and tone at the highest executive levels that contributed to a culture in which such widespread fraud flourished. Stumpf himself was known for his mantra, “eight is great,” to promote a target of eight products for each customer in an industry where the average was less than half that. During every quarterly earnings call that took place while the fraud was occurring, Stumpf had boasted to investors of the ever-increasing levels of record cross-selling. Partially as a result, the value of Stumpf’s own stock ownership increased by more than $200 million during the five years that the fraud was prevalent. There was also evidence that senior executives knew of the fraudulent sales well before the practice became public. After all, the Los Angeles Times article was published three years previously. Further, Wells Fargo’s own training manual contained a reminder not to sell products without the explicit consent of customers—a reminder that the manual highlighted and emphasized in such a way to suggest that the practice was known to occur. Wells Fargo executives also had internal reports showing that the steady increase in cross-selling was directly correlated with a steady increase in accounts that were never used by customers. The entire culture of Wells Fargo seemed designed to encourage cheating and discourage honest sales practices. For example, the incentive system, ranging from sales targets for hourly … Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 cengage.com/mindtap Fit your coursework into your hectic life. Make the most of your time by learning your way. Access the resources you need to succeed wherever, whenever. Study with digital flashcards, listen to audio textbooks, and take quizzes. Review your current course grade and compare your progress with your peers. Get the free MindTap Mobile App and learn wherever you are. Break Limitations. Create your own potential, and be unstoppable with MindTap. MINDTAP. POWERED BY YOU. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Business Ethics Case Studies and Selected Readings 9E Marianne Moody Jennings Arizona State University Australia • Brazil • Mexico • Singapore • United Kingdom • United States 72544_fm_ptg01_i-xx.indd 1 01/08/17 8:44 PM Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. 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To learn more about Cengage Learning Solutions, visit www. cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Business Ethics: Case Studies and Selected Readings, Ninth Edition Marianne Jennings Senior Vice President: Erin Joyner Vice President, Business & Economics: Mike Schenk Senior Product Manager: Vicky True-Baker Project Manager: Julie Dierig Content Developer: Kayci Wyatt, MPS Product Assistant: Christian Wood Marketing Manager: Katie Jergens Content Project Manager: Jennifer Ziegler Sr. Digital Project Manager: Derek Drifmeyer Manufacturing Planner: Kevin Kluck Sr. Art Director: Michelle Kunkler Cover Image: iStockphoto/alphaspirit Art and Cover Direction, Production Management, and Composition: Lumina Datamatics, Inc. 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May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 iii Preface xii Acknowledgments xx UNIT 1 Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas 1 SECTION A Defining Ethics 2 SECTION B Resolving Ethical Dilemmas and Personal Introspection 29 UNIT 2 Solving Ethical Dilemmas and Personal Introspection 49 SECTION A Business and Ethics: How Do They Work Together? 50 SECTION B What Gets in the Way of Ethical Decisions in Business? 61 SECTION C Resolving Ethical Dilemmas in Business 84 UNIT 3 Business, Stakeholders, Social Responsibility, and Sustainability 115 SECTION A Business and Society: The Tough Issues of Economics, Social Responsibility, and Business 116 SECTION B Applying Social Responsibility and Stakeholder Theory 130 SECTION C Social Responsibility and Sustainability 179 SECTION D Government as a Stakeholder 184 UNIT 4 Ethics and Company Culture 191 SECTION A Temptation at Work for Individual Gain and That Credo 192 SECTION B The Organizational Behavior Factors 196 SECTION C The Psychological and Behavior Factors 217 SECTION D The Structural Factors: Governance, Example, and Leadership 243 SECTION E The Industry Practices and Legal Factors 273 SECTION F The Fear-and-Silence Factors 300 SECTION G The Culture of Goodness 335 UNIT 5 Ethics and Contracts 349 SECTION A Contract Negotiations: All Is Fair and Conflicting Interests 350 SECTION B Promises, Performance, and Reality 366 UNIT 6 Ethics in International Business 385 SECTION A Conflicts between the Corporation’s Ethics and Business Practices in Foreign Countries 386 SECTION B Bribes, Grease Payments, and “When in Rome …” 411 UNIT 7 Ethics, Business Operations, and Rights 425 SECTION A Workplace Safety 426 SECTION B Workplace Loyalty 429 SECTION C Workplace Diversity and Atmosphere 442 Brief Contents 72544_fm_ptg01_i-xx.indd 3 01/08/17 8:44 PM Copyright 2018 Cengage Learning. 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WCN 02-200-203 iv Brief Contents SECTION D Workplace Diversity and Personal Lives 450 SECTION E Workplace Confrontation 460 UNIT 8 Ethics and Products 471 SECTION A Advertising Content 472 SECTION B Product Safety 477 SECTION C Product Sales 501 UNIT 9 Ethics and Competition 513 SECTION A Covenants Not to Compete 514 SECTION B All’s Fair, or Is It? 525 SECTION C Intellectual Property and Ethics 536 The Ethical Common Denominator (ECD) Index: The Common Threads of Business Ethics 541 Alphabetical Index 553 Business Discipline Index 559 Product/Company/Individuals Index 569 Topic Index 607 72544_fm_ptg01_i-xx.indd 4 01/08/17 8:44 PM Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 v Contents Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xii Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xx Ethical Theory, Philosophical Foundations, Our Reasoning Flaws, and Types of Ethical Dilemmas SECTION A Defining Ethics 2 Reading 1 .1 You, Your Values, and a Credo 2 Reading 1 .2 What Did You Do in the Past Year That Bothered You? How That Question Can Change Lives and Cultures 4 Reading 1 .3 What Are Ethics? From Line-Cutting to Kant 6 Reading 1 .4 The Types of Ethical Dilemmas: From Truth to Honesty to Conflicts 14 Reading 1 .5 On Rationalizing and Labeling: The Things We Do That Make Us Uncomfortable, but We Do Them Anyway 19 Case 1 .6 “They Made Me Do It”: Following Orders and Legalities: Volkswagen and the Fake Emissions Test 24 Reading 1 .7 The Slippery Slope, the Blurred Lines, and How We Never Do Just One Thing: The University of North Carolina and How Do I Know When an Ethical Lapse Begins? 25 Case 1 .8 Blue Bell Ice Cream and Listeria: The Pressures of Success 27 SECTION B Resolving Ethical Dilemmas and Personal Introspection 29 Reading 1 .9 Some Simple Tests for Resolving Ethical Dilemmas 29 Reading 1 .10 Some Steps for Analyzing Ethical Dilemmas 34 Reading 1 .11 On Plagiarism 34 Case 1 .12 The Little Teacher Who Could: Piper, Kansas, and Term Papers 36 Case 1 .13 The Car Pool Lane: Defining Car Pool 38 Case 1 .14 Puffing Your Résumé: Truth or Dare 39 Case 1 .15 Dad, the Actuary, and the Stats Class 42 Case 1 .16 Wi-Fi Piggybacking and the Tragedy of the Commons 42 Case 1 .17 Cheating: Hows, Whys, and Whats and Do Cheaters Prosper? Culture of Excellence 43 Case 1 .18 Speeding: Hows, Whys, and Whats 45 Case 1 .19 Moving from School to Life: Do Cheaters Prosper? 46 Case 1 .20 The Pack of Gum 46 Case 1 .21 Getting Out from under Student Loans: Legal? Ethical? 46 U N I T 1 72544_fm_ptg01_i-xx.indd 5 01/08/17 8:44 PM Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 vi Contents Solving Ethical Dilemmas and Personal Introspection SECTION A Business and Ethics: How Do They Work Together? 50 Reading 2 .1 What’s Different about Business Ethics? 50 Reading 2 .2 The Ethics of Responsibility 51 Reading 2 .3 Is Business Bluffing Ethical? 52 SECTION B What Gets in the Way of Ethical Decisions in Business? 61 Reading 2 .4 How Leaders Lose Their Way: The Bathsheba Syndrome and What Price Hubris? 61 Reading 2 .5 Moral Relativism and the Either/or Conundrum 64 Reading 2 .6 P = f(x) The Probability of an Ethical Outcome Is a Function of the Amount of Money Involved: Pressure 65 Case 2 .7 BP and the Deepwater Horizon Explosion: Safety First 66 Case 2 .8 Valeant: The Company with a New Pharmaceutical Model and Different Accounting 78 SECTION C Resolving Ethical Dilemmas in Business 84 Reading 2 .9 Framing Issues Carefully: A Structured Approach for Solving Ethical Dilemmas and Trying Out Your Ethical Skills on an Example 84 Case 2 .10 What Was Up with Wall Street? The Goldman Standard and Shades of Gray 85 Case 2 .11 Penn State: Framing Ethical Issues 96 Case 2 .12 Deflategate and Spygate: The New England Patriots 108 Case 2 .13 Damaging Reviews on the Internet: The Reality and the Harm 112 Business, Stakeholders, Social Responsibility, and Sustainability SECTION A Business and Society: The Tough Issues of Economics, Social Responsibility, and Business 116 Reading 3 .1 The Social Responsibility of Business Is to Increase Its Profits 116 Reading 3 .2 A Look at Stakeholder Theory 121 Reading 3 .3 Business with a Soul: A Reexamination of What Counts in Business Ethics 124 Reading 3 .4 Appeasing Stakeholders with Public Relations 127 Reading 3 .5 Conscious Capitalism: Creating a New Paradigm for Business 128 Reading 3 .6 Marjorie Kelly and the Divine Right of Capital16 129 SECTION B Applying Social Responsibility and Stakeholder Theory 130 Case 3 .7 Turing Pharmaceutical and the 4,834% Price Increase on a Life-Saving Drug 130 Case 3 .8 Walmart: The $15 Minimum Wage 133 Case 3 .9 Chipotle: Buying Local and Health Risks 134 Case 3 .10 Guns, Stock Prices, Safety, Liability, and Social Responsibility 137 Case 3 .11 The Craigslist Connections: Facilitating Crime 145 U N I T 2 U N I T 3 72544_fm_ptg01_i-xx.indd 6 01/08/17 8:44 PM Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Contents vii Case 3 .12 Planned Parenthood Backlash at Companies and Charities 146 Reading 3 .13 The Regulatory Cycle, Social Responsibility, Business Strategy, and Equilibrium 147 Case 3 .14 Fannie, Freddie, Wall Street, Main Street, and the Subprime Mortgage Market: Of Moral Hazards 151 Case 3 .15 Ice-T, the Body Count Album, and Shareholder Uprisings 162 Case 3 .16 Athletes and Doping: Costs, Consequences, and Profits 168 Case 3 .17 Back Treatments and Meningitis in an Under-the-Radar Industry 174 Case 3 .18 CVS Pulls Cigarettes from Its Stores 176 Case 3 .19 Ashley Madison: The Affair Website 177 SECTION C Social Responsibility and Sustainability 179 Case 3 .20 Biofuels and Food Shortages in Guatemala 179 Case 3 .21 The Dictator’s Wife in Louboutin Shoes Featured in Vogue Magazine 180 Case 3 .22 Herman Miller and Its Rain Forest Chairs 181 SECTION D Government as a Stakeholder 184 Case 3 .23 Solyndra: Bankruptcy of Solar Resources 184 Case 3 .24 Prosecutorial Misconduct: Ends Justifying Means? 185 Ethics and Company Culture SECTION A Temptation at Work for Individual Gain and That Credo 192 Reading 4 .1 The Moving Line 192 Reading 4 .2 Not All Employees Are Equal When It Comes to Ethical Development 193 SECTION B The Organizational Behavior Factors 196 Reading 4 .3 The Preparation for a Defining Ethical Moment 196 Case 4 .4 Swiping Oreos at Work: Is It a Big Deal? 199 Reading 4 .5 The Effects of Compensation Systems: Incentives, Bonuses, Pay, and Ethics 199 Reading 4 .6 A Primer on Accounting Issues and Ethics and Earnings Management 204 Case 4 .7 Law School Application Consultants 214 Case 4 .8 Political Culture: Daiquiris and Ferragamo Shoes and Officials 215 SECTION C The Psychological and Behavior Factors 217 Reading 4 .9 The Layers of Ethical Issues: Individual, Organization, Industry, and Society 217 Case 4 .10 Rogues: Bad Apples or Bad Barrel: Jett and Kidder, Leeson and Barings Bank, Kerviel and Société Générale, the London Whale and Chase, Kweku Adoboli and UBS, and LIBOR Rates for Profit 226 Case 4 .11 FINOVA and the Loan Write-Off 237 Case 4 .12 Inflating SAT Scores for Rankings and Bonuses 241 Case 4 .13 Hiding the Slip-Up on Oil Lease Accounting: Interior Motives 242 U N I T 4 72544_fm_ptg01_i-xx.indd 7 01/08/17 8:44 PM Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 SECTION D The Structural Factors: Governance, Example, and Leadership 243 Reading 4 .14 Re: A Primer on Sarbanes-Oxley and Dodd-Frank 243 Case 4 .15 WorldCom: The Little Company That Couldn’t After All 247 Case 4 .16 The Upper West Branch Mining Disaster, the CEO, and the Faxed Production Reports 264 Reading 4 .17 Getting Information from Employees Who Know to Those Who Can and Will Respond 268 Case 4 .18 Westland/Hallmark Meat Packing Company and the Cattle Standers 271 SECTION E The Industry Practices and Legal Factors 273 Reading 4 .19 The Subprime Saga: Bear Stearns, Lehman, Merrill, and CDOs 273 Case 4 .20 Enron: The CFO, Conflicts, and Cooking the Books with Natural Gas and Electricity 280 Case 4 .21 Arthur Andersen: A Fallen Giant 293 Case 4 .22 The Ethics of Walking Away 299 SECTION F The Fear-and-Silence Factors 300 Case 4 .23 HealthSouth: The Scrushy Way 300 Case 4 .24 Dennis Kozlowski: Tyco and the $6,000 Shower Curtain 307 Reading 4 .25 A Primer on Whistleblowing 318 Case 4 .26 Beech-Nut and the No-Apple-Juice Apple Juice 318 Case 4 .27 VA: The Patient Queues 324 Case 4 .28 NASA and the Space Shuttle Booster Rockets 327 Case 4 .29 Diamond Walnuts and Troubled Growers 330 Case 4 .30 New Era: If It Sounds Too Good to Be True, It Is Too Good to Be True 332 SECTION G The Culture of Goodness 335 Case 4 .31 Bernie Madoff: Just Stay Away from the Seventeenth Floor 335 Case 4 .32 Adelphia: Good Works Via a Hand in the Till 337 Case 4 .33 The Atlanta Public School System: Good Scores by Creative Teachers 341 Case 4 .34 The NBA Referee and Gambling for Tots 343 Case 4 .35 Giving and Spending the United Way 344 Case 4 .36 The Baptist Foundation: Funds of the Faithful 346 Ethics and Contracts SECTION A Contract Negotiations: All Is Fair and Conflicting Interests 350 Case 5 .1 Facebook and the Media Buys 350 Case 5 .2 Subprime Auto Loans: Contracts with the Desperate 350 Case 5 .3 The Governor and His Wife: Products Endorsement and a Rolex 352 Case 5 .4 Subway: Is 11 Inches the Same as 12 Inches? 359 Case 5 .5 Sears and High-Cost Auto Repairs 360 Case 5 .6 Kardashian Tweets: Regulated Ads or Fun? 364 U N I T 5 viii Contents 72544_fm_ptg01_i-xx.indd 8 01/08/17 8:44 PM Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 SECTION B Promises, Performance, and Reality 366 Case 5 .7 Pension Promises, Payments, and Bankruptcy: Companies, Cities, Towns, and States 366 Case 5 .8 “I Only Used It Once”: Returning Goods 373 Case 5 .9 Government Contracts, Research, and Double-Dipping 374 Case 5 .10 When Corporations Pull Promises Made to Government 377 Case 5 .11 Intel and the Chips: When You Have Made a Mistake 379 Case 5 .12 Red Cross and the Use of Funds 382 Case 5 .13 The Nuns and Katy Perry: Is There a Property Sale? 383 Ethics in International Business SECTION A Conflicts between the Corporation’s Ethics and Business Practices in Foreign Countries 386 Reading 6 .1 Why an International Code of Ethics Would Be Good for Business 386 Case 6 .2 Chiquita Banana and Mercenary Protection 390 Case 6 .3 Pirates! The Bane of Transnational Shipping 394 Case 6 .4 The Former Soviet Union: A Study of Three Companies and Values in Conflict 395 Case 6 .5 Bangladesh, Sweatshops, Suicides, Nike, Apple, Foxconn, Apple, and Campus Boycotts 397 Case 6 .6 Bhopal: When Safety Standards Differ 404 Case 6 .7 Product Dumping 406 Case 6 .8 Nestlé: Products That Don’t Fit Cultures 407 SECTION B Bribes, Grease Payments, and “When in Rome …” 411 Reading 6 .9 A Primer on the FCPA 411 Case 6 .10 FIFA: The Kick of Bribery 415 Case 6 .11 Siemens and Bribery, Everywhere 418 Case 6 .12 Walmart in Mexico 420 Case 6 .13 GlaxoSmithKline in China 422 Ethics, Business Operations, and Rights SECTION A Workplace Safety 426 Reading 7 .1 Two Sets of Books on Safety 426 Case 7 .2 Trucker Logs, Sleep, and Safety 427 Case 7 .3 Cintas and the Production Line 428 SECTION B Workplace Loyalty 429 Case 7 .4 Aaron Feuerstein and Malden Mills 429 Case 7 .5 JCPenney and Its Wealthy Buyer 431 Case 7 .6 The Trading Desk, Perks, and “Dwarf Tossing” 432 Case 7 .7 The Analyst Who Needed a Preschool 434 U N I T 6 U N I T 7 Contents ix 72544_fm_ptg01_i-xx.indd 9 01/08/17 8:44 PM Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Case 7 .8 Edward Snowden and Civil Disobedience 437 Case 7 .9 Boeing and the Recruiting of the Government Purchasing Agent 438 Case 7 .10 Kodak, the Appraiser, and the Assessor: Lots of Backscratching on Valuation 440 SECTION C Workplace Diversity and Atmosphere 442 Case 7 .11 English-Only Employer Policies 442 Case 7 .12 Employer Tattoo and Piercing Policies 443 Case 7 .13 Have You Been Convicted of a Felony? 444 Case 7 .14 Office Romances 445 Case 7 .15 On-the-Job Fetal Injuries 446 Case 7 .16 Political Views in the Workplace 448 SECTION D Workplace Diversity and Personal Lives 450 Case 7 .17 Julie Roehm: The Walmart Ad Exec with Expensive Tastes 450 Case 7 .18 Facebook, YouTube, Instagram, LinkedIn, and Employer Tracking 452 Case 7 .19 Tweeting, Blogging, Chatting, and E-Mailing: Employer Control 454 Case 7 .20 Jack Welch and the Harvard Interview 457 SECTION E Workplace Confrontation 460 Reading 7 .21 The Ethics of Confrontation 460 Reading 7 .22 The Ethics of Performance Evaluations 463 Case 7 .23 Ann Hopkins and Price Waterhouse 465 Case 7 .24 The Glowing Recommendation 469 Ethics and Products SECTION A Advertising Content 472 Case 8 .1 T-Mobile, Ads, and Contract Terms 472 Case 8 .2 Eminem vs . Audi 474 Case 8 .3 The Mayweather “Fight” and Ticket Holders 475 SECTION B Product Safety 477 Reading 8 .4 A Primer on Product Liability 477 Case 8 .5 Peanut Corporation of America: Salmonella and Indicted Leaders 480 Case 8 .6 Tylenol: The Swing in Product Safety 482 Case 8 .7 Samsung Fire Phones 486 Case 8 .8 Ford and GM: The Repeating Design and Sales Issues 486 Case 8 .9 E. Coli, Jack-in-the-Box, and Cooking Temperatures 496 Case 8 .10 The Tide Pods 497 Case 8 .11 Buckyballs and Safety 498 Case 8 .12 Energy Drinks and Workout Powders: Healthy or Risky? 499 x Contents U N I T 8 72544_fm_ptg01_i-xx.indd 10 01/08/17 8:44 PM Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 SECTION C Product Sales 501 Case 8 .13 Chase: Selling Your Own Products for Higher Commissions 501 Case 8 .14 The Mess at Marsh McLennan 502 Case 8 .15 Silk Road and Financing Sales 504 Case 8 .16 Cardinal Health, CVS, and Oxycodone Sales 505 Case 8 .17 Frozen Coke and Burger King and the Richmond Rigging 506 Case 8 .18 Wells Fargo and Selling Accounts, or Making Them Up? 509 Ethics and Competition SECTION A Covenants Not to Compete 514 Reading 9 .1 A Primer on Covenants Not to Compete: Are They Valid? 514 Case 9 .2 Sabotaging Your Employer’s Information Lists before You Leave to Work for a Competitor 516 Case 9 .3 Boeing, Lockheed, and the Documents 516 Case 9 .4 Starwood, Hilton, and the Suspiciously Similar New Hotel Designs 521 SECTION B All’s Fair, or Is It? 525 Reading 9 .5 Adam Smith: An Excerpt from the Theory of Moral Sentiments 525 Case 9 .6 The Battle of the Guardrail Manufacturers 526 Case 9 .7 Bad-Mouthing the Competition: Where’s the Line? 528 Case 9 .8 Online Pricing Differentials and Customer Questions 528 Case 9 .9 Brighton Collectibles: Terminating Distributors for Discounting Prices 529 Case 9 .10 Park City Mountain: When a Competitor Forgets 530 Case 9 .11 Electronic Books and the Apple versus Amazon War 531 Case 9 .12 Martha vs . Macy’s and JCPenney 532 Case 9 .13 Mattel and the Bratz Doll 533 SECTION C Intellectual Property and Ethics 536 Case 9 .14 The NCAA and College Athletes’ Images 536 Case 9 .15 Louis Vuitton and the Hangover 537 Case 9 .16 Tiffany vs . Costco 538 Case 9 .17 Copyright, Songs, and Charities 538 The Ethical Common Denominator (ECD) Index: The Common Threads of Business Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541 Alphabetical Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553 Business Discipline Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559 Product/Company/Individuals Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569 Topic Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607 Contents xi U N I T 9 72544_fm_ptg01_i-xx.indd 11 01/08/17 8:44 PM Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright …