DEFINITION: For the purposes of this exam question, an Ethical Issue includes both a situation in which the action the Entity would LIKE to take, for its own benefit, will lead to harm that is morally unacceptable; and/or also a situation in which there are two morally “right” courses of action which are in conflict — taking the one prevents the Entity from taking the other, thus creating uncertainty about which one to pick.
Pick an ethical issue that arises in the management of a multinational corporation. Describe succinctly the situation. It should be either one actual situation in which the issue arose in an important way, or else it could be a synthesis of situations that arise that all contain the same issue in essential the same kind of factual situation.
Show how the situation you have picked contains an ethical issue as defined above. Articulate the issue clearly, and say how it fits the definition above. It can come out of environmental issues, human resource management issues, worker safety issues, scientific honesty issues, international contracting situations, and the like.
The archives (which you can find in the Marist College online library) of the Christian Science Monitor, the New York Times, the Wall Street Journal, Bloomberg BusinessWeek, the Atlantic Magazine, and similar publications should provide you with plenty to choose from.
After you have shown how the issue you picked meets the definition given above, identify the normative stakeholders (using the Phillips and Freeman definition) and the derivative stakeholders (Phillips and Freeman definition) most affected, both short-term and long-term. (In other words, you don’t have to identify and classify ALL the stakeholders, just the major ones in each category.) Explain the basis on which you did each classification.
THEN, classify those stakeholders another way: Entities Harmed you may call “EHs” and Entities Benefitted you may call “EBs”. Explain the harms and the benefits for each stakeholder.
Then make a recommendation as to
How the decisionmaking process should be approached
What the resolution of the issue should be, and why.
The safest way to organize your answer will be to follow the above instructions paragraph by paragraph. However, if you have an alternative way to do it that will be as good or better, you are free to do that.
You will do well to re-read the materials in Resources, particularly What Does “Ownership” Mean to Stockholders? and the Lecture Notes on Ethical Decisionmaking. You may also find sources in there which you want to pursue and/or update when you are looking for approaches to the last two questions, above.
Make sure that you footnote copiously, using Chicago style with full information footnotes at the bottom of the page. EACH fact gets its own footnote. There is no specific word limit, but being overly vague or general will not yield good results, and neither will being wordy. The way you ORGANIZE your paper WILL count for part of your grade, as will the quality of your research, and the sufficiency of your footnotes. Instructions for Chicago Style footnotes can be found in the Marist Online Library. Go to Research Tools>Reference Shelf>Citation Styles (blue tab)>Chicago/Turabian>Chicago Manual of Style Online.
Make sure your upload is a WORD document. Make sure it is ONE single Word document….do not create a bibliography as a separate document. Make the bibliography PART of your answer document.
Once you’ve researched and written it, leave it for a day, then come back and edit it. The way or ORGANIZE your paper WILL count for part of your grade, as usual, as will the quality of your research and the sufficiency of your footnotes.
Attachments:What Does “Ownership” Mean to Stockholders? Corporate Governance Meets Management Strategy.
Caroline V. Rider, Marist College School of Management, Poughkeepsie, NY 2008
Abstract. This paper examines what “ownership” means to stockholders, and what “value” means in this context. It suggests that the logic of shareholder ownership requiring highest priority on share price and/or on per share earnings, especially short-term, is inherently flawed. There is an urgent need for new theory in the area of corporate governance, and specifically in the articulation of the fiduciary duties of directors. The new theory needs to take into account both the globalized nature of business and corporations, and the increased urgency of adapting corporate governance to the need to make global business activity environmentally sustainable.
In an extremely globalized, post-Enron world, questions of how corporate governance and corporate management should relate to each other become more and more important. As it becomes clear that time grows short for governments around the world to devise regulatory frameworks that will reduce negative externalities produced by business activity sufficiently to ensure global sustainability, corporate leaders and environmental activists alike are emphasizing that corporations must, on their own, lead the way.
But what about “unconstrained shareholder wealth maximization”? (Santos et al., 2007) What about shareholder theory versus stakeholder theory? This is an opportune time to re-examine the rights, responsibilities, and priority in the rewards stream that each stakeholder group should have, because if the global community of large corporations (which control so many resources that they can dramatically affect the lives of vast numbers of people and even, perhaps, the viability of our physical environment) does not find a balance which is perceived as legitimate by the voting public in the democracies, and by governments in general, there will most likely be a global patchwork of governmental regulatory attempts to address the problem, but in all likelihood they will be too late and will create many unintended adverse side effects.
Such a re-examination is a vast undertaking, but one can perhaps usefully start with a fresh look at the mantra that corporate executives and the boards that they control use to justify much of what they do: Maximize Shareholder Value. The shareholders are the owners, the corporation is the agent of the owners, so the stockholders-owners-principals come first.
Friedman (1987), Jensen (2002), Coelho et al. (2003), and Marcoux (2003), and others argue that the corporation’s only legitimate function is to maximize shareholder wealth within a society’s legal restraints.
DO Stockholders “Own” the Corporation?
Sometimes debate can be more clearly illumined by questioning basic assumptions. What if “ownership” is a much more complex phenomenon than most users of the term assume? What if there is NOT a compelling logical connection between ownership of stock and using the corporation as the instrument primarily of the stockholders?
This paper examines what “ownership” means to stockholders, and what “value” means in this context. It suggests that the logic of shareholder ownership requiring highest priority on share price and/or on per share earnings, especially short-term, is inherently flawed.
If this argument has merit, then what is required of a Board of Directors when it tries to fulfill its fiduciary duty to the corporation and the shareholders, as required by law? It is argued that at present we have no valid theory which will answer this question across industries, legal systems, and national boundaries, but that in this era of globalized business and questions of environmental sustainability, such a theory is sorely needed.
OWNERSHIP denotes a bundle of rights, and often also responsibilities, with respect to property.
Most generally, these are rights which the owner can, pursuant to applicable law, exercise, but which others cannot, precisely because the law has given those particular rights in that particular situation, to the one(s) labeled “owner.”
Ownership often also includes RESPONSIBILITIES, such as the legal duty of the owner of a life estate in real property not to commit waste, because that would adversely affect the benefit of ownership to the future owner(s). Your neighbor has a responsibility not to do things on his or her property which overflow in a nasty fashion on to your property – this is the common law concept of “nuisance”.
The Rights and Responsibilities of ownership of any given piece or quantity of property DEPEND on
what the property IS (land? Stock? Laundry detergent? Cat? Emission credit?)
note that local law defines what may and may not be considered to be “property”…..for example, in our legal system, people cannot be “property”
who the Owner is ( the four-year-old owner of a piece of real property has different ownership rights from the forty-year-old owner of an identical piece of real property; a government owning a piece of real property may in many respects have different rights and responsibilities from a non-governmental owner; a fiduciary who owns a piece of property has different rights and responsibilities from a non-fiduciary who owns identical property, and so on)
the legal regime that applies (a) to the property, and/or (b) to the owner
o a citizen of Germany who inherits real property in New York from a U.S. relative may not have the same rights with respect to that property that a U.S. citizen would have, either because of the laws of Germany to which the inheritor is subject, or because of U.S. real estate or tax laws…..
o a person of any sort who owns a piece of residential real estate in Dutchess County has different rights and responsibilities with respect to that property from the rights and responsibilities that a person who owned a piece of residential property in Nantes, France would have, or that a person who owned a piece of residential property in rural Montana would have
To make this concept clearer, we can look at two hypothetical specific examples:
a) (1) Jane Q. Public owns a house on five acres of land in a residential subdivision in the Town of Beekman, in Dutchess County, New York. She wants to plant two acres of tomatoes and sell her organically raised tomatoes at the local farm market. Although she is the Owner of the land, she is not allowed to do this because No Business Uses are allowed in the residential zone, and her subdivision’s restrictive covenants expressly forbid any business or commercial agricultural use.
(2) Jane Q. Public also owns a house on five acres of land in an agricultural zone in Columbia County, New York. She IS allowed to plant two acres of tomatoes on THIS land and sell them at the local farm market. Same person, same type of property, but subject to different legal regime shows that “ownership” of the land does not mean the same thing in both cases
(3) Jane Q. Public also owns a house on five acres of land zoned agricultural in Greene County AS TRUSTEE for her niece Jeanna.
One fine day Jane Q. Public decides she hates growing tomatoes and never wants to see a tomato plant again. She wants to rip out all the tomato plants on both agricultural parcels, and shred them into little bits.
In our system, the tomato plants have no right to object, BUT nevertheless Jane will not be allowed to destroy the tomato plants she owns on the land she owns in Greene County because in that case she is a FIDUCIARY, and she is not allowed to do anything with or to the land that might be adverse to the financial and other interests of the beneficiary, Jeanna.
So in this case, the owner’s identity as fiduciary means she has FEWER legal rights and GREATER legal responsibilities with respect to what she does on the land than she does on functionally identical land and tomatoes across the river.
b) If I go out and purchase a dress at Saks Fifth Avenue, I may, if I wish, and after I have paid for it, rip it into little bits and deposit the bits in the nearest dumpster, even though my niece, whom I have named residuary legatee in my will and who would inherit the dress, objects violently. In this case, ownership includes the right to destroy the property arbitrarily and capriciously.
If, on the other hand, I own a life estate in a house in Rhinebeck, and the remainderman is the very same niece, I am NOT allowed to destroy the house because a Life Tenant (person who owns a life estate) in realty is required by law to maintain the value of the property for the benefit of the future owner…..the details of this vary from jurisdiction to jurisdiction. But in this case, ownership of the property does not give me the right to destroy the house, as I could the dress.
THE POINT IS THAT WITHOUT DETAILED ANALYSIS OF THE NATURE OF THE PROPERTY, THE IDENTITY OF THE OWNER, AND THE IDENTIFICATION OF THE PARTICULAR LEGAL REGIME WHICH APPLIES TO EACH, ONE CANNOT KNOW WHAT “OWNERSHIP” MEANS, EXCEPT THAT IT ALMOST CERTAINLY MEANS THAT THE ONE DEFINED AS “OWNER” HAS SOME RIGHTS WHICH THE VAST MAJORITY OF OTHERS DO NOT HAVE WITH RESPECT TO THAT PROPERTY IN THAT TIME AND PLACE.
Turning then to STOCK OWNERSHIP in a CORPORATION: what does it mean to say that one is an OWNER of common stock in Corporation X?
Answer: it totally depends.
It MAY mean that you may sell the stock whenever you wish. On the other hand, it may NOT mean that. It may be that you must have the permission either of the other shareholders, or of the Board of Directors, or both; or of the Securities and Exchange Commission.
It MAY mean that you have the right to receive dividends — but you and the other shareholders, even acting together, cannot compel the Board of Directors to declare a dividend except in extreme circumstances. And if the corporation is not profitable, most state laws FORBID the declaration of dividends, so that shareholders may not suck money out of a corporation that needs the money to try to stay a going concern.
In most cases it means that you have the right to participate with other stockholders in the election of the members of the Board of Directors. However, the amount of influence you have is greatly dependent on the particulars of the corporation law of the state in which the corporation is incorporated; upon the number of shareholders the corporation has; upon the ByLaws that the Board of Directors has adopted; and upon the proportionate size of your holdings.
It also means that you have the right to cast a vote, yea or nay, on certain major corporate transactions, such as mergers, certain acquisitions, dissolution, and the like. Again, however, the amount of influence you as an individual shareholder have, or even that the common stockholders as a functional group have, depends on the factors listed above.
It means that you have the right to expect management and the Board of Directors to fulfill their primary fiduciary duty TO THE CORPORATION – to the business as a going concern, putting that interest before their own personal interests. And you have the right to participate in a shareholder derivative action, ON BEHALF OF the corporation, if they fail to do so. Such a lawsuit brings money back TO THE CORPORATION, not to the shareholders as such.
It means that you have the right to expect management and the Board of Directors to fulfill their fiduciary duty to the shareholders, putting the shareholders’ interests before their own personal interests, and you have the right to participate in a direct shareholder action, to recover money yourself, if they fail to do so .
It means that if the corporation becomes insolvent, you have the right to receive, on a pro-rated basis, whatever jetsam and flotsam is left over after all creditors have been paid.
It means that if the corporation is liquidated (which could be by takeover, or by voluntary dissolution, and so on) when it is NOT insolvent, you have the right to receive, on a pro-rated basis, your share of the corporate assets after all creditors have been paid.
Each of these rights is valuable, but more valuable in some contexts than in others.
For example, if you are a SOLE SHAREHOLDER of a corporation which owns a patent for a process which would absolutely put another corporation you own (and of which you are the CEO) out of business if the patented process were used, then you have CONTROL of an immense potential threat…..you can simply use your control of the patent-owning corporation to make sure that that patent is not used, which takes that process off the table completely. Or………CAN you? Can the employees assert that you are breaching your fiduciary duty to the corporation — since you control absolutely the Board of Directors — as a going concern by “stifling” it for the sake of eliminating competition?
But clearly, shareholders as a group do not “own” a corporation in the same way that one owns a car. Shareholders have much less right to control corporate decisionmaking, at the Board level or at executive management level, than a car owner has with respect to any question of ownership or operation of his or her car. Shareholders are by law given a bundle of indirect, contingent rights which, taken together, constitute a rather limited form of ownership. Many of what we might normally consider to be incidents of ownership of some types of property are, in the case of corporations, parceled out to the directors and to the corporate executives. The stockholders do not have the right to participate in the budgeting or other financial processes of the corporation. They do not have any say in who the CEO shall be. They are not allowed to determine when they shall receive dividends, or when the corporation will buy back their stock.
In point of fact, they are NOT “owners” of the corporation in any usual sense of the word. They are persons with a particular kind of financial claim on the corporation, and with some limited power to influence the corporation’s overall behavior by organizing, if they can, to remove from the Board of Directors those members whose philosophies, policies, or actions they do not like; or to vote for or against mergers, acquisitions, and dissolutions.
Could it be that there is guidance in the words of the state corporations statutes, which say that the directors’ fiduciary duty is to “the corporation and its shareholders”? Clearly that implies that the interests of the corporation may not be the same as the interests of the shareholders, or there would be no need to use both terms, which both Delaware (the state of incorporation of large numbers of corporations whose stock is publicly traded) and New York (a large state with large numbers of corporations doing business under its laws) do.
What if, for example, next quarter’s earnings per share will rise if the directors authorize the CEO to cut the workforce by twenty percent, but it will almost certainly impair the corporation’s ability to remain viable in the competition against privately held, “right-sized” corporations the minute the next upturn begins? Or what if next quarter’s earnings per share can be boosted substantially by selling of the corporation’s R&D operation, even though that places in jeopardy the corporation’s ability to keep a competitive flow of new products going to market when the current range of products has reached the end of its life cycle? Should the directors give priority to the current shareholders’ present financial interest, in the name of “maximizing shareholder value”? Or should the directors give priority to the continuing viability and long-term profitability of the corporation itself? Where does their primary fiduciary duty lie?
Interestingly, the New York legislature felt a need to address this question, which they did in 1989, more than fifteen years ago, in a permissive rather than a directive way. Section 717 of the New York Business Corporation Law, entitled “Duty of Directors”, had a whole new subsection added to it:
(b) In taking action, including, without limitation, action which may involve or relate to a change or potential change in the control of the corporation, a director shall be entitled to consider, without limitation, (1) both the long-term and the short-term interests of the corporation and its shareholders and (2) the effects that the corporation’s actions may have in the short-term or in the long-term upon any of the following:
(i) the prospects for potential growth, development, productivity and profitability of the corporation;
(ii) the corporation’s current employees;
(iii) the corporation’s retired employees and other beneficiaries receiving or entitled to receive retirement, welfare or similar benefits from or pursuant to any plan sponsored, or agreement entered into, by the corporation;
(iv) the corporation’s customers and creditors; and
(v) the ability of the corporation to provide, as a going concern, goods, services, employment opportunities and employment benefits and otherwise to contribute to the communities in which it does business.
Nothing in this paragraph shall create any duties owed by any director to any person or entity to consider or afford any particular weight to any of the foregoing or abrogate any duty of the directors, either statutory or recognized by common law or court decisions.
This conclusively puts an end, at least in New York, to the idea that the directors’ primary fiduciary duty is to the shareholders. Rather, it makes it clear that the directors are legally allowed to take a long-term view instead of a short-term view, and that they may regard the long-term viability of the corporation as a going concern to be of equal priority to, or even greater priority than, increases in earnings per share.
Other states’ business corporation laws may not explain “the interests of the corporation and its shareholders” as clearly or in as much detail as the New York statute now does. But statutes and cases across the country use the basic terminology, and it is argued that the public’s increasingly alarmed recognition of the need for corporations to do their profitmaking in a way that IS sustainable on earth, will powerfully influence courts which have to interpret this phrase to do it in decisional law the way New York has done it by amendment to the statute, thus putting an end to the extraordinary influence of those who argued that the law itself contemplated profit maximization as the highest and indeed only purpose of a corporation.
So much, then, for the concept that the shareholders “own” the corporation and are therefore entitled to first priority all the time. Now to the concept of “value.”
What is the Shareholder Value that is to be Maximized, in Shareholder Theory?
There is both financial value (different financial value to different stockholders, though) inherent in each right that a stockholder has, and there is social value — the exercise or non-exercise of each right has consequences for the overall health of the communities/states in which the corporation operates.
From this perspective, what does “maximize shareholder VALUE” mean? Which value are we maximizing? For which shareholders?
Publicly traded shares
In the US stock exchanges Short-term
share price to cash in stock
dividends Long term
appreciation Could be short
term share price,
Could be dividends,
Could be accumula-
tion of specific assets
Very attractive to takeover
Shares not traded on the
Exchanges, of companies
domiciled in the US Appreciation
in total market
value of the
going concern Steady
dividends He can’t put
his 401(k) Can’t have
its portfolio Appreciation
In total market
value of the
Table 1. Stock has different financial VALUE to different shareholders at different times.
It is thus apparent that it is impossible to maximize “shareholder value” for all shareholders at once. Why, then, do corporate executives and finance professors tend to say that maximizing shareholder value means maximizing the next quarter’s share price on the stock exchange and/or its earnings per share? Clearly there are large groups of shareholders in many corporations for whom that is NOT the value to be maximized. Retirees couldn’t care less what the share price is of the stocks in their investment portfolio so long as they pay regular, fat dividends. Active employees, on the other hand, ARE interested in share price appreciation for the shares in their retirement accounts, but only long-term, so that when they retire they can cash some of the stock out at a nice, high price and buy annuities to reduce their dependence on dividends, which go up OR down at the discretion of the Board of Directors.
Tangpong and Pesek (2007) suggest that shareholder value ideology is attractive to corporate managers because it provides them with a normative framework for resolving moral dilemmas in which the interests of present shareholders conflict with the interests of other stakeholders. That it resolves such dilemmas in a way which is financially favorable to corporate executives and directors compensated with stock options, and to other groups of shareholders who have short-term interests, such as venture capitalists, would seem to be a large part of its attraction.
If not shareholder ideology, then what?
However, if we have, through careful consideration of the “ownership” and “value” assumptions underlying the shareholder value ideology, severely impaired the logic and legal status of that ideology, how SHOULD directors apprehend their fiduciary duties?
Stakeholder theorists (Phillips, 2203, 2004; Phillips, Freeman, & Wicks, 2003) argue basically according to the norm of reciprocity: that since corporations TAKE from society in myriad ways, they must, ethically, GIVE to society in whatever ways are required to maintain their continuing social legitimacy. Operationalizing that principle in the managerial decision making context, however, has been difficult to do in any systematic way.
Others are now arguing that neither stockholder ideology nor stakeholder theory is supported by empirical evidence showing that the desirable outcomes alleged by each camp in fact occur (Tangpong & Pesek, 2007; Young & Thyvil, 2008). Young and Thyvil propose a multi-disciplinary, international model for corporate governance, in which stakeholders in general and shareholders in particular are only one component.
Scholars have also grappled with the problem of how to build into corporate governance a way of ensuring that environmental sustainability becomes an integral part of the decision making process. Shareholder ideology compels one to use legal regulation to turn things which are now negative externalities into factors the corporation must deal with internally, but that, as alluded to at the beginning, is costly, slow, and unpredictable from country to country. Stakeholder theorists attempt to make “nature” a stakeholder, but have an exceedingly difficult time operationalizing what that should mean to a board of directors.
Cartwright and Craig (2006), writing in New Zealand, a common law jurisdiction, propose an ingenious “predictive model for wealth and the environment” which allows the graphic visualization of where the corporations’ decisions have to lie in order for the corporation to be a net contributor to global sustainability and at the same time increase shareholder wealth enough to remain a viable, going concern.
They argue that “win-win” innovations [good for the environment, good for profits] which help the corporation reach net sustainability will, in a shareholder-uber-alles model, be adopted only to the extent necessary to stay in minimal legal compliance with environmental rues, and that given governmental weakness in the face of globally migratory capital and business lobbying, this will be insufficient to get corporations above the necessary sustainability curve.
They take the position that the most powerful driver toward sustainability will therefore be managers and directors who take an ethical stance that attaining sustainability is the Right Thing To Do, and who then educate their shareholders to refrain from demanding the usual short-term earnings maximization. But it will be much easier for such managers and directors to do that if they understand that at least the concept of “ownership” of stock as it is treated in the U.S. legal system does NOT in fact require them to put shareholder value in front of all other values.
Reliance on the concept of “ownership” is a fatal flaw in the conceptual underpinnings of shareholder-wealth-maximization ideology, as are the inherent ambiguities as to which shareholders’ wealth a corporation should maximize, and what would in fact constitute “value” for any given group of shareholders.
There is an urgent need for new theory in the area of corporate governance, and specifically in the articulation of the fiduciary duties of directors. The new theory needs to take into account both the globalized nature of business and corporations, and the increased urgency of adapting corporate governance to the need to make global business activity environmentally sustainable.
Cartwright, W., & Craig, J.L. 2006. Sustainability: aligning corporate governance, strategy and operations with the planet. Business Process Management Journal, 12(6):71.
Coelho, P.R. P., McClure, J.E., Spry, J.A. 2003. “The social responsibility of corporate management: a classical critique,” Mid-American Journal of Business, 18(1):15-24
Friedman, M. 1987. “The social responsibility of business,” in The Essence of Friedman, Ed. R. Kurt, Stanford, CA, Hoover Institution Press.
Jensen, N. 2002. “Value maximization, stakeholder theory and the corporate objective function,” Business Ethics Quarterly, 12(2):235-256.
Marcoux, A. M. 2003. “A fiduciary argument against stakeholder theory.” Business Ethics Quarterly, 13(1-24)
Phillips, R. 2003. “Stakeholder legitimacy,” Business Ethics Quarterly, 13(1):25-41.
Phillips, R. 2004. “Ethics and a manager’s obligations under stakeholder theory,” Ivey Business Journal Mar./Apr, pp. 1-5
Phillips, R., Freeman, E.R., Wicks, A.C. 2003. “What stakeholder theory is not,” Business Ethics Quarterly, 13(4):479-502.
Santos, M.R., Vega, G., Barkoulas, J.T. 2007. “An improved pedagogy of corporate finance: a constrained shareholder wealth maximization goal,” Academy of Educational Leadership Journal, 11(3):107-131
Tangpong, C., Pesek, J.G. 2007. “Shareholder value ideology, reciprocity and decision making in moral dilemmas,” Journal of Managerial Issues 19(3):379-399.
Young, S., Thyvil, V. 2008. “A holistic model of corporate governance: a new research framework,” Corporate Governance, 8(1):94-
MBA 603 Ethical Decision-Making in the Global Arena – Week Three Lecture Notes and Reading Assignment
You have probably heard the term “corporate social responsibility” and have a general idea of what it means. Another term that is beginning to be used instead of “corporate social responsibility” is “corporate citizenship”, which kind of takes the ethical component of CSR out, and then “business citizenship”, which puts it back in. So you are to read “Business Citizenship: from Individuals to Organizations”, by Wood and Logsdon. You should be able to find it in Proquest in the Marist online library.
You also need to read “What Stakeholder Theory Is Not,” by Robert Phillips, R. Edward Freeman, and Andrew C. Wicks. It’s in Business Ethics Quarterly, Vol. 13(4), pp. 479-502 (Oct. 2003). You can find it in our online library by going to ABI Inform or Business Premier or any of the big scholarly journal databases. You need to pay particular attention to the definitions of normative stakeholders, derivative stakeholders, primary stakeholders, and secondary stakeholders. You also need to get a firm grip on the idea that stakeholder management doesn’t mean managing the stakeholders…..it means managing the corporation in a way that distributes the benefits and detriments of the corporation’s activities in an ethically acceptable manner, both for the good of society, the protection of stakeholders who deserve protection, and the preservation of the social legitimacy of the corporation in the eyes of its customers and the public in general.
But then there is the issue of how YOU, as an individual decisionmaker, might approach an ethical problem. An ethical problem is one which involves conflict: either because two opposite courses of action both seem like the right one, but you can’t do both; or because a contemplated course of action provides significant short term good for you, but significant harm for others; or because a course of action which you know to be the just or moral one will subject you to significant disadvantage or harm; or because to YOU one course of action seems clearly right and ethical, whereas to another involved person, a different course of action seems like the right and ethical, or at least not unethical.
So the question is: how can such conflicts be resolved?
Here are three possibilities:
ONE: The Full Harm Picture
First, I think that the stakeholder approach (which we haven’t gotten to yet, but many of you probably know what it is, and if you don’t, use the online library to find out!!!) IS very useful in this area because it prods us to list all the people/entities who have a STAKE in what the corporation does: who either stand to BENEFIT from what the corporation does, or who stand to be HARMED by what the corporation does.
And in many cases, flawed ethical decisionmaking comes from failing to first sit down and make a VERY COMPLETE list of all the people and/or entities who will be harmed by a given corporate decision and resultant action or inaction.
The list should include DIRECT harms and INDIRECT harms.
It should include IMMEDIATE harms, MIDDLE-TERM harms, and LONG-TERM harms.
It should include harms that are CERTAIN to occur, harms that PROBABLY will occur, and harms that MAY VERY WELL occur.
It should include FINANCIAL harms and NON-FINANCIAL harms.
It should include QUANTIFIABLE harms and NON-QUANTIFIABLE harms.
It should IDENTIFY as well as possible the persons and/or entities who will or who probably will or who may very well SUFFER those harms.
Then you need to think about all those harms, and all the people/entities possibly harmed, and evaluate them. Some, of course, we specifically say, in our system, that we will tolerate. If I decide to go into business to make a kind of tomato sauce that is much better than the one your company makes, your business will be harmed….but we say….that’s OKAY. Fair competition and the business harms that come from it are OKAY. Of course, we have to decide what we mean by fair…..
But if I am going to embark upon a business process which is going to make a very attractive consumer good, but it is going to generate chemical waste which is not yet illegal but which my scientists tell me is probably pretty toxic to various parts of the marine ecosystem into which I will be discharging the waste…..now I know there is a high probability of harm to an important stakeholder – the natural environment – and a reasonable possibility of future, not-presently-quantifiable harm to people’s health and to the health of foodstocks.
When you look at “the full harm picture” and not just at what is legal, and what is quantifiable, a much better basis for ethical decisionmaking emerges.
TWO: Circle of Values Analysis
Particularly in the international arena, but by no means only there, situations come up where two or more of your OWN values are in conflict with each other, and/or your values are in conflict with the cultural values of people you are supposed to work with.
The Circle of Values Analysis gives you a way to walk yourself through the conflict and come out the other side with a plan of action.
Make a Diagram:
Three concentric circles: outer one = peripheral values next one in = strong values center circle = core values
You have to figure out what your values are in a given situation, and then categorize them as above….generally, you can and should compromise peripheral values to arrive at common ground; you MIGHT compromise a bit on a strong cultural value if the other side did the same; you probably ought to walk away if you’re asked to compromise a truly core value…….except…..sometimes people find that if they tolerate behavior for a WHILE that violates one of their core values BECAUSE they think that with a bit of time they can get the other person/institution to change its behavior, things can work out.
Here is a simple example of a manager doing a Circle of Values Analysis…..
Jane Goodkind has been sent from New York to Bangkok to manage the setting up and opening of the restaurant chain’s first restaurant in Thailand. One of the things she has to do is to hire, train, and supervise all the staff. The landlord of the property has met with Jane and, after dealing with landlord-tenant relationship issues, has introduced her to an acquaintance of his who, he says, will do an excellent job of finding people for Jane to interview for various positions in the restaurant. Jane thanks the landlord and agrees to interview people that the man finds during the following week. They agree that if she hires any, she will pay a recruiter’s fee of 15% of the first month’s wage. She strongly suspects that the landlord will be getting part of that.
The next week she interviews seven people that the man brings to her, and hires three of them. The recruiter is very pleased, and offers to bring more the next week, to which proposal Jane agrees.
One of the people hired is a woman in her late twenties or early thirties, who is to be an ingredient prep person. Jane introduces her to the chef, who came from Italy via the restaurant chain’s flagship restaurant in New York City.
Two days later, when Jane goes out to the kitchen to see how everyone is getting along, she finds that there are two young children in the kitchen. One is chopping nuts, the other is washing and drying greens. When she asks the chef who they are, and what they are doing there, he points to the ingredients prep lady.
Jane asks the ingredients prep lady what is going on, and is told that the two children are HER children. She brought them to work to help her be the best ingredient prep person the chef could hope to have…..three pairs of hands, even if two are small, are better than one. She hopes that Jane will pay her just a little bit extra, since having the children there will be less bother than having another adult worker, and less expensive even if Jane DOES pay her a little bit extra.
Jane is upset, but tries not to show it. She asks the woman how old her children are, and is told that they are nine and seven. She tells the lady that they are very sweet and most industrious, and that she will consider the request.
She then hotfoots it to her office and calls the recruiter. She explains that in the United States it is highly illegal to employ children — they can only be part-time at sixteen, and not full time until eighteen…..and that whether or not it is illegal in Thailand, it is also, to her, unethical. Children need to be at school, and outdoors playing….. not being exploited in a restaurant kitchen.
The recruiter counters that a very high percentage of children work instead of going to school, and that if they didn’t, the family wouldn’t have enough money to feed, clothe, and shelter its members. If Jane insists on rejecting the children, they may have to do even worse work, perhaps even be beggars or sold into the sex trade. Also, the woman will probably quit, because she will lose face if her children are not allowed to work in the kitchen of the restaurant — she will feel that they have been found not good enough.
Jane is between a rock and a hard place. She sits down to do a Circle of Values analysis.
Refraining from profiting from the exploitation of children is, she feels, a Core value of hers.
On the other hand, refraining from doing something which will probably result in even worse exploitation, not to mention real physical and psychic danger, even if she doesn’t profit from the exploitation, is ALSO a Core value of hers.
The ingredient prep lady’s Core value is to have enough money coming in to the family so that they can all eat, have clothes, and have shelter.
A Strong value is to work, and have her children work, at the highest-prestige job possible.
Another Strong value is not to lose Face (be dissed), and to distance herself from people and situations in which she is made to lose face.
We could do this in more detail, but to make a long story short, Jane is going to have to compromise one of her two Core values because in this situation they cannot both be upheld, AND Jane is going to have to persuade the ingredient prep lady to compromise both of her Strong values somewhat…..
Without going into how to bring it about (which YOU could do because of our reading and discussion on resolving conflicts), the end result COULD be that the children are allowed to work there for four hours in the afternoon IF they go to school for three hours in the morning and then have an hour outside in the middle. Jane agrees to pay the same “extra” that she would have paid if the children had worked the same hours as their mother, AND to pay for the tutor; and the mother agrees to use part of the “extra” to pay for books and supplies. She also agrees to tell everyone that she has GAINED face, not lost it, because her children are getting education that may help them rise in status later.
Jane has to tolerate the fact that those young children ARE working hard in the kitchen, which she truly, truly thinks is wrong….but it’s a clean, safe kitchen, and their mother is there…..in order to avoid feeling as though she sent those two children into certain degradation. She gets some solace from knowing that she is forcing their mother to spend at least a little bit of money on the children’s education. She has to sell her bosses on the expense of the tutor.
THREE: Ethical Quick-Tests
Sometimes you have no TIME to sit down and think through what your decision in a challenging ethical situation should be.
In those cases, you can still run through the following:
1) How would I feel if my participation in this decision/action were described in detail on the front page of a respected national newspaper? (If the thought makes you cringe, don’t participate.)
2) How would I feel if my participation in this decision/action were described in detail to my family and friends? (If you would be embarrassed, or ashamed, don’t participate.)
3) Would I feel it was acceptable for another person to do to me what I am about to do to him or her, or for another company to do what my company is asking me to participate in doing? (If not, do not participate.)
4) Does this decision or action “smell fishy” to me? (If so, trust your instinct and don’t participate.)
Try to run several of those Quick Tests in your head….really fast. If most or all of them are pointing in the same direction, go with that direction.
It may require evasive action. Think of the Arthur Anderson employees in Texas who were told one afternoon to get upstairs to the copy room and shred boxes of corporate (Enron) documents. Most of those employees probably could not tell whether the action they were being asked to take was legal or illegal, ethical or unethical, but…..it didn’t pass the Smells Fishy test: shredding documents outside the normal course of one’s job description is inherently suspect, and having a group of people be summoned to do that in haste is even fishier.
A resourceful person would get upstairs, see what was happening, and suddenly develop signs of being about to vomit; have to run to the bathroom, make all the appropriate noises in case anyone followed, then drag limply back to one’s desk, gather one’s things and go home sick.
Once home, one would call a relative OUT OF STATE who might have a decent lawyer, and one would explain that one was going to need a consultation right away. When a corporation is about to do something that you think might be really bad, you do NOT want to let them know you know, because you don’t want them blackballing you, firing you before you resign, or even arranging for you to have an accident. So you need to take a quick trip to someplace out of state to see an attorney to figure out how to move forward.
These are just a few tools among many possible ones, but they have proven useful to real people. Which ones you use depends on the context at the time!
© Caroline V. Rider 2011, 2014