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EIGHTH EDITION
Shaw
Business Ethics
William H. Shaw
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EIGHTH EDITION
Business Ethics
William H. Shaw
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Business Ethics
8th
e di t i o n
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Business Ethics
8th
e di t i o n
W i l l i a m H . Shaw
S a n J o s e S t a t e Un i ve r s i t y
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Business Ethics, Eighth Edition
William H. Shaw
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Contents
Preface ix
pa rt on e | mor a l ph i l osoph y a n d busi n e s s 1
Chapter 1 The Nature of Morality 1
Ethics 3
Moral versus Nonmoral Standards 5
Religion and Morality 10
Ethical Relativism 13
Having Moral Principles 15
Morality and Personal Values 19
Individual Integrity and Responsibility 20
Moral Reasoning 24
Study Corner 30
Case 1.1: Made in the U.S.A.—Dumped in Brazil, Africa, Iraq . . . 31
Case 1.2: Just Drop off the Key, Lee 34
Case 1.3: The A7D Affair 37
Chapter 2 Normative Theories of Ethics 40
Consequentialist and Nonconsequentialist Theories 42
Egoism 43
Utilitarianism 46
Kant’s Ethics 53
Other Nonconsequentialist Perspectives 59
Utilitarianism Once More 66
Moral Decision Making: A Practical Approach 68
Study Corner 70
Case 2.1: Hacking into Harvard 71
Case 2.2: The Ford Pinto 74
Case 2.3: Blood for Sale 77
Chapter 3 Justice and Economic Distribution 80
The Nature of Justice 83
The Utilitarian View 86
The Libertarian Approach 90
Rawls’s Theory of Justice 97
v
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vi
CONTENTS
Study Corner 106
Case 3.1: Eminent Domain 107
Case 3.2: Battling over Bottled Water 109
Case 3.3: Poverty in America 111
pa rt t wo | A m e r ic a n Busi n e s s a n d I ts B a sis 114
Chapter 4 The Nature of Capitalism 114
Capitalism 116
Key Features of Capitalism 119
Two Arguments for Capitalism 121
Criticisms of Capitalism 125
Today’s Economic Challenges 133
Study Corner 139
Case 4.1: Hucksters in the Classroom 140
Case 4.2: Licensing and Laissez Faire 142
Case 4.3: One Nation under Walmart 144
Case 4.4: A New Work Ethic? 147
Case 4.5: Casino Gambling on Wall Street 148
Chapter 5 Corporations 150
The Limited-Liability Company 152
Corporate Moral Agency 154
Rival Views of Corporate Responsibility 158
Debating Corporate Responsibility 164
Institutionalizing Ethics within Corporations 169
Study Corner 176
Case 5.1: Yahoo! in China 177
Case 5.2: Drug Dilemmas 179
Case 5.3: Levi Strauss at Home and Abroad 182
Case 5.4: Free Speech or False Advertising? 186
Case 5.5: Charity to Scouts? 188
pa rt THREE | busi n e s s AND SOCIETY 191
Chapter 6 Consumers 191
Product Safety 193
Other Areas of Business Responsibility 205
Deception and Unfairness in Advertising 214
The Debate over Advertising 224
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cONTENTS vii
Study Corner 227
Case 6.1: Breast Implants 229
Case 6.2: Hot Coffee at McDonald’s 231
Case 6.3: Sniffing Glue Could Snuff Profits 232
Case 6.4: Closing the Deal 234
Case 6.5: The Rise and Fall of Four Loko 236
Chapter 7 The Environment 239
Business and Ecology 242
The Ethics of Environmental Protection 246
Achieving Our Environmental Goals 251
Delving Deeper into Environmental Ethics 256
Study Corner 264
Case 7.1: Hazardous Homes in Herculaneum 265
Case 7.2: Poverty and Pollution 267
Case 7.3: The Fordasaurus 269
Case 7.4: The Fight over the Redwoods 270
Case 7.5: Palm Oil and Its Problems 273
PART F OUR |
THE ORG ANI Z ATION
AND THE PEOPLE IN IT 276
Chapter 8 The Workplace (1): Basic Issues 276
Civil Liberties in the Workplace 277
Hiring 283
Promotions 289
Discipline and Discharge 291
Wages 295
Labor Unions 298
Study Corner 307
Case 8.1: AIDS in the Workplace 308
Case 8.2: Web Porn at Work 310
Case 8.3: Speaking Out about Malt 311
Case 8.4: Have Gun, Will Travel . . . to Work 312
Case 8.5: Union Discrimination 314
Chapter 9 The Workplace (2): Today’s Challenges 316
Organizational Influence in Private Lives 317
Testing and Monitoring 323
Working Conditions 329
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viii
CONTENTS
Redesigning Work 337
Study Corner 341
Case 9.1: Unprofessional Conduct? 342
Case 9.2: Testing for Honesty 344
Case 9.3: She Snoops to Conquer 346
Case 9.4: Protecting the Unborn at Work 348
Case 9.5: Swedish Daddies 351
Chapter 10 Moral Choices Facing Employees 353
Obligations to the Firm 354
Abuse of Official Position 358
Bribes and Kickbacks 364
Gifts and Entertainment 368
Conflicting Obligations 370
Whistle-Blowing 372
Self-Interest and Moral Obligation 377
Study Corner 381
Case 10.1: Changing Jobs and Changing Loyalties 382
Case 10.2: Conflicting Perspectives on Conflicts of Interest 383
Case 10.3: Inside Traders or Astute Observers? 384
Case 10.4: The Housing Allowance 386
Case 10.5: Ethically Dubious Conduct 388
Chapter 11 Job Discrimination 390
The Meaning of Job Discrimination 393
Evidence of Discrimination 394
Affirmative Action: The Legal Context 399
Affirmative Action: The Moral Issues 404
Comparable Worth 408
Sexual Harassment 410
Study Corner 414
Case 11.1: Minority Set-Asides 415
Case 11.2: Hoop Dreams 417
Case 11.3: Raising the Ante 419
Case 11.4: Consenting to Sexual Harassment 420
Case 11.5: Facial Discrimination 423
Suggestions for Further Re ading 425
Notes 429
Inde x 449
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Preface
It is difficult to imagine an area of study that has greater importance to society or greater relevance to
students than business ethics. As this text enters its eighth edition, business ethics has become a wellestablished academic subject. Most colleges and universities offer courses in it, and scholarly interest
continues to grow.
Yet some people still scoff at the idea of business ethics, jesting that the very concept is an oxymoron.
To be sure, recent years have seen the newspapers filled with lurid stories of corporate misconduct and
felonious behavior by individual businesspeople, and many suspect that what the media report represents
only the proverbial tip of the iceberg. However, these scandals should prompt a reflective person not to
make fun of business ethics but rather to think more deeply about the nature and purpose of business in
our society and about the ethical choices individuals must inevitably make in their business and professional lives.
Business ethics has an interdisciplinary character. Questions of economic policy and business
practice intertwine with issues in politics, sociology, and organizational theory. Although business ethics
remains anchored in philosophy, even here abstract questions in normative ethics and political philosophy
mingle with analysis of practical problems and concrete moral dilemmas. Furthermore, business ethics is
not just an academic study but also an invitation to reflect on our own values and on our own responses to
the hard moral choices that the world of business can pose.
•••
Goals, Organization, and Topics
Business Ethics has four goals: to expose students to the important moral issues that arise in various
business contexts; to provide students with an understanding of the moral, social, and economic environments within which those problems occur; to introduce students to the ethical and other concepts that are
relevant for resolving those problems; and to assist students in developing the necessary reasoning and
analytical skills for doing so. Although the book’s primary emphasis is on business, its scope extends to
related moral issues in other organizational and professional contexts.
The book has four parts. Part One, “Moral Philosophy and Business,” discusses the nature of morality
and presents the main theories of normative ethics and the leading approaches to questions of economic
justice. Part Two, “American Business and Its Basis,” examines the institutional foundations of business,
focusing on capitalism as an economic system and the nature and role of corporations in our society. Part
Three, “Business and Society,” concerns moral problems involving business, consumers, and the natural
environment. Part Four, “The Organization and the People in It,” identifies a variety of ethical issues and
moral challenges that arise out of the interplay of employers and employees within an organization, including the problem of discrimination.
Case studies enhance the main text. These cases vary in kind and in length, and are designed to
enable instructors and students to pursue further some of the issues discussed in the text and to analyze
them in more specific contexts. The case studies should provide a lively springboard for classroom discussions and the application of ethical concepts.
Business Ethics covers a wide range of topics relevant to today’s world. Three of these are worth
drawing particular attention to.
ix
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x
Preface
Business and Globalization
The moral challenges facing business in today’s globalized world economy are well represented in the book
and seamlessly integrated into the chapters. For example, Chapter 1 discusses ethical relativism, Chapter
4 outsourcing and globalization, and Chapter 8 overseas bribery and the Foreign Corrupt Practices Act; and
there are international examples or comparisons throughout the book. Moreover, almost all the basic issues
discussed in the book (such as corporate responsibility, the nature of moral reasoning, and the value of the
natural world—to name just three) are as crucial to making moral decisions in an international business
context as they are to making them at home. In addition, cases 1.1, 2.3, 5.1, 5.2, 5.3, 6.3, 7.2, 7.5, 9.5,
and 10.4 deal explicitly with moral issues arising in today’s global economic system.
The Environment
Because of its ongoing relevance and heightened importance in today’s world, an entire chapter, Chapter
7, is devoted to this topic. In particular, it highlights recent environmental disasters, the environmental
dilemmas and challenges we face, and their social and business costs, as well as the changing attitude of
business toward the environment and ecology.
Health and Health Care
Far from being a narrow academic pursuit, the study of business ethics is relevant to a wide range of
important social issues—for example, to health and health care, which is currently the subject of much
discussion and debate in the United States. Aspects of this topic are addressed in the text and developed in
the following cases: 2.3: Blood for Sale, 4.2: Licensing and Laissez Faire, 5.2: Drug Dilemmas, 6.1: Breast
Implants, 8.1: AIDS in the Workplace, and 9.4: Protecting the Unborn at Work.
•••
Changes in this Edition
Your Textbook
Instructors who have used the previous edition will find the organization and general content of the book
familiar. They will, however, also be struck by its fresh design and by the graphs, tables, photographs, and
other information that now supplement the pedagogical features introduced in previous editions.
Feedback from students and instructors suggests that readers benefit greatly not only from marginal
summaries and highlights but also from visual breaks, visual guidance, and visual presentation of data and
information. So, the new design was crafted to help readers navigate the text more easily, retain content
more effectively, and review and prepare for tests more successfully. In addition, the Study Corner now
also includes “For Further Reflection,” a set of open-ended questions intended to help students articulate
their own response to some of the issues discussed in the text. An updated Suggestions for Further
Reading is intended to provide appropriate material for independent research by students on topics covered in Business Ethics.
The text itself has been thoroughly revised. I have updated and reorganized material throughout the
book in order to enhance the clarity of its discussions and the accuracy of its treatment of both philosophical and empirical issues. At all times the goal has been to provide a textbook that students will find clear,
understandable, and engaging.
Forty-nine case studies—more than ever before—now supplement the main text. Of the cases
that are new to this edition, two relate to the financial and mortgage industries: Case 1.2, “Just Drop Off
the Key, Lee,” broaches the ongoing foreclosure crisis while Case 4.5, “Casino Gambling on Wall Street,”
discusses one of the financial instruments involved in the recent financial meltdown. Case 4.1, “Hucksters
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Preface xi
in the Classroom,” deals with commercial intrusion into schools. The ethics of sales is the focus of Case
6.4, “Closing the Deal,” while Case 6.5, “The Rise and Fall of Four Loko,” highlights the question of regulating consumer products on paternalistic grounds. Case 8.5, “Union Discrimination,” examines some of
the ethical issues posed by unions. The environment and the push and pull between business and environmentalists are well illustrated in Case 7.5, “Palm Oil and Its Problems.” Case 9.5, “Swedish Daddies,”
shows how the sometimes conflicting demands of parenthood and work life challenge today’s employees
and employers. Cases 10.2, “Conflicting Perspectives on Conflicts of Interest,” and 10.3, “Inside Traders
or Astute Observers?,” provide recent examples of some of the ethical struggles employees can confront.
Finally, the issue of comparable worth is the focus of Case 11.3, “Raising the Ante.”
Your Media Tools
The Business Ethics CourseMate is new to this edition. It can be accessed by searching for this book on
CengageBrain.com. There you will find an array of online tools designed to reinforce theories and concepts
and help students to understand and better retain the book’s content, and to review and study for tests:
Self-Tests
Tutorial Quizzes (with answers)
Essays
Flashcards
Current Events
Glossary
PowerPoint Slides
Web Links
In addition to these CourseMate offerings, video tutorials will complement each chapter. Watching and
reflecting on these can help students improve their grades.
Finally, Global Business Ethics Watch exposes viewers to a wealth of online resources, from photographs to videos and articles. Updated several times a day, the Global Business Ethics Watch is an ideal
one-stop site for classroom discussion and research projects for all things related to business ethics. You and
your students will have access to the latest information from trusted academic journals, news outlets, and
magazines. You also will receive access to statistics, primary sources, case studies, podcasts, and much more.
•••
Ways of Using the Book
A course in business ethics can be taught in a variety of ways. Instructors have different approaches to
the subject, different intellectual and pedagogical goals, and different classroom styles. They emphasize
different themes and start at different places. Some of them may prefer to treat the foundational questions
of ethical theory thoroughly before moving on to particular moral problems; others reverse this priority. Still
other instructors frame their courses around the question of economic justice, the analysis of capitalism, or
the debate over corporate social responsibility. Some instructors stress individual moral decision making,
others social and economic policy.
Business Ethics permits teachers great flexibility in how they organize their courses. A wide range of
theoretical and applied issues are discussed; and the individual chapters, the major sections within them,
and the case studies are to a surprising extent self-contained. Instructors can thus teach the book in whatever order they choose, and they can easily skip or touch lightly on some topics in order to concentrate on
others without loss of coherence.
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xii
Preface
•••
Acknowledgments
I wish to acknowledge my great debt to the many people whose ideas and writing have influenced me over
the years. Philosophy is widely recognized to involve a process of ongoing dialogue. This is nowhere more
evident than in the writing of textbooks, whose authors can rarely claim that the ideas being synthesized,
organized, and presented are theirs alone. Without my colleagues, without my students, and without
a larger philosophical community concerned with business and ethics, this book would not have been
possible.
I particularly want to acknowledge my debt to Vincent Barry. Readers familiar with our textbook and
reader Moral Issues in Business1 will realize the extent to which I have drawn on material from that work.
Business Ethics is, in effect, a revised and updated version of the textbook portion of that collaborative
work, and I am very grateful to Vince for permitting me to use our joint work here.
William H. Shaw and Vincent Barry, Moral Issues in Business, 12th ed. (Belmont, Calif.: Wadsworth/Cengage Learning,
2013).
1
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pa rt one | mor a l philosoph y a nd business
Ch a pter 1
The Nature of Morality
Introduction
sometimes the rich and mighty fall. Take
same time that he and other executives were cashing in their
Kenneth Lay, for example. Convicted by a jury in 2006 of
shares and bailing out.
conspiracy and multiple counts of fraud, he had been chairEnron’s crash cost the retirement accounts of its employman and CEO of Enron until that once mighty company took
ees more than a billion dollars as the company’s stock fell
a nose dive and crashed. Founded in the 1980s, Enron soon
from the stratosphere to only a few pennies a share. Outside
became a dominant player in the field of energy trading, growinvestors lost even more. The reason Enron’s collapse caught
ing rapidly to become America’s seventh biggest company. Wall
investors by surprise—the company’s market value was $28
Street loves growth, and Enron was its darling, admired as
billion just two months before its bankruptcy—was that Enron
dynamic, innovative, and—of course—
had always made its financial records
profitable. Enron stock exploded in value,
and accounts as opaque as possible. It
increasing 40 percent in a single year.
did this by creating a Byzantine financial
The reason Enron’s
The next year it shot up 58 percent and
structure of off-balance-sheet specialcollapse caught investors
the year after that an unbelievable 89
purpose entities—reportedly as many
by surprise . . . was
percent. The fact that nobody could quite
as 9,000—that were supposed to be
that Enron had always
understand exactly how the company
separate and independent from the
made its financial
made its money didn’t seem to matter.
main company. Enron’s board of direcAfter Fortune magazine voted it “the
tors condoned these and other dubious
records and accounts as
most innovative company of the year”
accounting practices and voted twice
opaque as possible.
in 2000, Enron proudly took to calling
to permit executives to pursue personal
itself not just “the world’s leading energy
interests that ran contrary to those of
company” but also “the world’s leadthe company. When Enron was obliged
ing company.” But when Enron was later forced to declare
to redo its financial statements for one three-year period, its
bankruptcy—at the time the largest Chapter 11 filing in U.S.
profits dropped $600 million and its debts increased $630
history—the world learned that its legendary financial prowess
million.
was illusory and the company’s success built on the sands of
Still, Enron’s financial auditors should have spotted these
hype. And the hype continued to the end. Even with the comand other problems. After all, the shell game Enron was playing
pany’s financial demise fast approaching, Kenneth Lay was still
is an old one, and months before the company ran aground,
recommending the ompany’s stock to its employees—at the
c
Enron Vice President Sherron Watkins had warned Lay that
1
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2 part one moral philosophy and business
Enron’s stock price in U.S. dollars in late 2001, before its spectacular collapse
the company could soon “implode in a wave of accounting
scandals.” Yet both Arthur Andersen, Enron’s longtime outside
auditing firm, and Vinson & Elkins, the company’s law firm, had
routinely put together and signed off on various dubious financial deals, and in doing so made large profits for themselves.
Arthur Andersen, in particular, was supposed to make sure
that the company’s public records reflected financial reality, but
Andersen was more worried about its auditing and consulting
fees than about its fiduciary responsibilities. Even worse, when
the scandal began to break, a partner at Andersen organized the shredding of incriminating Enron documents before
investigators could lay their hands on them. As a result, the
eighty-nine-year-old accounting firm was convicted of obstructing justice. The Supreme Court later overturned that verdict
on a technicality, but by then Arthur Andersen had already
been driven out of business. (The year before Enron went
under, by the way, the Securities and Exchange Commission
fined Andersen $7 million for approving misleading accounts at
Waste Management, and it also had to pay $110 million to settle
a lawsuit for auditing work it did for Sunbeam before it, too, filed
for bankruptcy. And when massive accounting fraud was later
uncovered at WorldCom, it cam…
