, Thirteenth Edition
Business ETHICS
Ethical Decision Making and Cases
O.C. Ferrell
Auburn University
John Fraedrich
Southern Illinois University—Carbondale
Linda Ferrell
Auburn University
Australia • Brazil • Canada • Mexico • Singapore • United Kingdom • United States
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, Business Ethics: Ethical Decision © 2022, 2019 Cengage Learning, Inc.
Making and Cases, Thirteenth Edition WCN: 02-300
O.C. Ferrell, John Fraedrich and Linda Ferrell
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, To James Collins Ferrell and
George Collins Ferrell.
—O.C. Ferrell
To Emma, Matthew, Hyrum, and
Ammon, who are the future generation.
—John Fraedrich
To Brett Nafziger.
—Linda Ferrell
Copyright 2022 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.
,BRIEF CONTENTS
Part 1: An Overview of Business Ethics 1 9: Home Depot Works on Stakeholder
1: The Importance of Business Ethics 1 Relationships 421
2: Stakeholder Relationships, Social Responsibility, and 10: Brewed to Perfection: New Belgium Brewing 431
Corporate Governance 26 11: Google’s Search for Solutions to Privacy Issues 441
3: Sustainability: Social and Ethical Dimensions 53 12: Big-Box Retailer Walmart Makes Big Moves in Social
Responsibility 457
Part 2: Ethical Issues and the
13: Volkswagen Cleans Up Reputation After Emissions
Institutionalization of Business Ethics 84
Scandal 468
4: The Institutionalization of Business Ethics 84
14: Zappos Finds the Perfect Fit 475
5: Emerging Business Ethics Issues 110
15: Starbucks Serves Up Its Social Responsibility
Part 3: The Decision-Making Process 135 Blend 484
6: Ethical Decision Making 135 16: The Hershey Company’s Bittersweet Success 496
7: Individual Factors: Moral Philosophies and 17: Wells Fargo Banks on Recovery 508
Values 158 18: Whole Foods Market Refreshes Its Commitment to
8: Organizational Factors: The Role of Ethical Culture and Stakeholders 516
Relationships 184 19: The NCAA Enforces Penalties in College
Athletics 526
Part 4: Implementing Business Ethics
20: Enron: Not Accounting for the Future 535
in a Global Economy 208
9: Developing and Implementing an Effective Ethics Endnotes 546
Program 208 Glossary 576
10: Global Business Ethics Issues 235
Index 583
11: Ethical Leadership 269
12: Technology: Ethics and Social Responsibility
Issues 305
Part 5: Cases 330
1: From the Outside In: Corporate Social Responsibility at
Patagonia 332
2: Tesla Accelerates the Transition to Sustainable
Energy 338
3: An Apple a Day: Ethics at Apple Inc. 349
4: TOMS Reinvents the One for One Movement 364
5: CVS Smokes the Competition in Corporate Social
Responsibility 374
6: Bayer Rounds Up Monsanto 387
7: Uber Collides with Controversy 398
8: Herbalife Nutrition Achieves Success by Managing
Risks 407
iv
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, CONTENTS
Part 1: An Overview of Issues in Social Responsibility 35
Business Ethics 1 Social Responsibility and the Importance of a Stakeholder
Orientation 37
Corporate Governance Provides Formalized Responsibility
Chapter 1: The Importance of Business Ethics 1
to Stakeholders 38
Chapter Objectives, 1 | Chapter Outline, 1
Views of Corporate Governance, 41 • The Role
An Ethical Dilemma 2 of Boards of Directors, 42 • Greater Demands for
Business Ethics Defined 4 Accountability and Transparency, 43 • Executive
Compensation, 43
Why Study Business Ethics? 5
Implementing a Stakeholder Perspective 45
A Crisis in Business Ethics, 5 • Specific Issues, 6 •
The Reasons for Studying Business Ethics, 7 Step 1: Assessing the Corporate Culture, 46 •
Step 2: Identifying Stakeholder Groups, 46 • Step 3:
The Development of Business Ethics 8
Identifying Stakeholder Issues, 46 • Step 4: Assessing
Before 1960: Ethics in Business, 8 • The 1960s: The Organizational Commitment to Stakeholders and
Rise of Social Issues in Business, 9 • The 1970s: Social Responsibility, 47 • Step 5: Identifying Resources
Business Ethics as an Emerging Field, 10 • The 1980s: and Determining Urgency, 47 • Step 6: Gaining
Business Ethics Reaches Maturity, 10 • The 1990s: Stakeholder Feedback, 47
Institutionalization of Business Ethics, 11 • The 2000s:
Contributions of a Stakeholder Perspective 48
Twenty-First Century Business Ethics, 11 • The 2010s:
New Challenges in Business Ethics, 12 • The 2020s and Summary 48
Beyond, 15 Important Terms for Review, 50 | Resolving Ethical
Developing Organizational and Global Ethical Business Challenges, 51 | Check Your EQ, 52
Cultures 16
The Benefits of Business Ethics 16 Chapter 3: Sustainability: Social and Ethical
Ethics Contributes to Employee Commitment, 17 •
Dimensions 53
Ethics Contributes to Investor Loyalty, 18 • Ethics Chapter Objectives, 53 | Chapter Outline, 53
Contributes to Customer Satisfaction, 18 • Ethics An Ethical Dilemma 54
Contributes to Profits, 19
Defining Sustainability 55
Our Framework For Studying Business Ethics 20
How Sustainability Relates to Ethical Decision Making and
Summary 22 Social Responsibility 56
Important Terms for Review, 23 | Resolving Ethical Global Environmental Issues 58
Business Challenges, 24 | Check Your EQ, 25
Atmospherics, 58 • Water, 61 • Land, 62
Chapter 2: Stakeholder Relationships, Social Environmental Legislation 66
Responsibility, and Corporate Governance 26 Environmental Protection Agency (EPA), 67 •
Chapter Objectives, 26 | Chapter Outline, 26 Environmental Regulations, 67
An Ethical Dilemma 27 Alternative Energy Sources 71
Stakeholders Define Ethical Issues in Business 28 Wind Power, 71 • Geothermal Power, 71 • Solar Power,
Identifying Stakeholders, 30 • A Stakeholder 72 • Nuclear Power, 72 • Biofuels, 72 • Hydropower, 73
Orientation, 31 Business Response to Sustainability Issues 73
Social Responsibility and Business Ethics 33 Green Marketing, 74 • Greenwashing, 75
v
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,CONTENTS (Continued)
Strategic Implementation of Environmental Chapter 5: Emerging Business Ethics Issues 110
Responsibility 76 Chapter Objectives, 110 | Chapter Outline, 110
Recycling Initiatives, 77 • Stakeholder Assessment, 77 • An Ethical Dilemma 111
Risk Analysis, 77 • The Strategic Environmental Audit, 78
Recognizing an Ethical Issue (Ethical Awareness) 112
Summary 79
Foundational Values for Identifying Ethical Issues 113
Important Terms for Review, 81 | Resolving Ethical
Business Challenges, 82 | Check Your EQ, 83 Integrity, 113 • Honesty, 114 • Fairness, 114
Emerging Ethical Issues and Dilemmas in Business 115
Misuse of Company Time and Resources, 115 • Abusive
Part 2: Ethical Issues and or Intimidating Behavior, 116 • Lying, 118 • Conflicts of
Interest, 119 • Bribery, 119 • Corporate Intelligence, 120
the Institutionalization of • Discrimination, 122 • Sexual Harassment, 123 • Fraud,
Business Ethics 84 124 • Consumer Fraud, 126 • Financial Misconduct, 128
• Insider Trading, 129
Chapter 4: The Institutionalization The Challenge of Determining an Ethical Issue in
of Business Ethics 84 Business 130
Chapter Objectives, 84 | Chapter Outline, 84 Summary 131
An Ethical Dilemma 85 Important Terms for Review, 132 | Resolving Ethical
Business Challenges, 133 | Check Your EQ, 134
Managing Ethical Risk Through Mandated, Core, and
Voluntary Practices 86
Mandated Requirements for Legal Compliance 88
Part 3: The Decision-
Laws Regulating Competition, 90 • Laws Protecting
Consumers, 92 • Laws Promoting Equity and Safety, 94 Making Process 135
The Sarbanes–Oxley (SOX) Act 95
Public Company Accounting Oversight Board, 96 • Chapter 6: Ethical Decision Making 135
Auditor and Analyst Independence, 97 • Whistle-Blower Chapter Objectives, 135 | Chapter Outline, 135
Protection, 98 • Cost of Compliance, 98 An Ethical Dilemma 136
Dodd–Frank Wall Street Reform and Consumer A Framework for Ethical Decision Making in
Protection Act 98 Business 137
Financial Agencies Created by the Ethical Issue Intensity, 137 • Individual Factors, 139 •
Dodd–Frank Act, 99 • Consumer Financial Protection Organizational Factors, 141 • Opportunity, 144 • Business
Bureau, 99 • Whistle-Blower Bounty Program, 99 Ethics Intentions, Behavior, and Evaluations, 146
Laws that Encourage Ethical Conduct 100 Using the Ethical Decision-Making Model to Improve
Federal Sentencing Guidelines for Organizations 101 Ethical Decisions 147
Core or Best Practices 103 Normative Considerations in Ethical
Voluntary Responsibilities, 103 • Cause-Related Decision Making 148
Marketing, 104 • Strategic Philanthropy, 104 • Social Institutions as the Foundation for Normative Values, 148
Entrepreneurship, 105 • Implementing Principles and Core Values in Ethical
The Importance of Institutionalization in Business Decision Making, 151
Business Ethics 105 Understanding Ethical Decision Making 153
Summary 106 Summary 154
Important Terms for Review, 107 | Resolving Ethical Important Terms for Review, 155 | Resolving Ethical
Business Challenges, 108 | Check Your EQ, 109 Business Challenges, 156 | Check Your EQ, 157
vi
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, Chapter 7: Individual Factors: Moral Part 4: Implementing
Philosophies and Values 158 Business Ethics in a
Chapter Objectives, 158 | Chapter Outline, 158
Global Economy 208
An Ethical Dilemma 159
Moral Philosophy Defined 160 Chapter 9: Developing and Implementing
an Effective Ethics Program 208
Moral Philosophies 162
Chapter Objectives, 208 | Chapter Outline, 208
Instrumental and Intrinsic Goodness, 163 • Teleology, 164
• Deontology, 166 • Relativist Perspective, 167 • Virtue An Ethical Dilemma 209
Ethics, 169 • Justice, 170 The Responsibility of the Corporation to
Applying Moral Philosophy to Ethical Decision Stakeholders 210
Making 173 The Need For Organizational Ethics Programs 211
Cognitive Moral Development and Limitations 174 An Effective Ethics Program 213
White-Collar Crime 176 An Ethics Program Can Help Avoid
Individual Factors in Business Ethics 179 Legal Problems, 213 • Values versus Compliance
Programs, 215
Summary 180
Codes of Conduct 215
Important Terms for Review, 181 |
Ethics Officers 217
Resolving Ethical Business Challenges, 182 |
Check Your EQ, 183 Ethics Training and Communication 218
Systems to Monitor and Enforce Ethical Standards 220
Chapter 8: Organizational Factors: The Role
of Ethical Culture and Relationships 184 Continuous Improvement of an Ethics Program, 222 •
Common Mistakes in Designing and Implementing an
Chapter Objectives, 184 | Chapter Outline, 184 Ethics Program, 222
An Ethical Dilemma 185 The Ethics Audit 223
Defining Corporate Culture 186 The Auditing Process, 224 • Informal Ethics Audits, 225 •
The Role of Corporate Culture in Ethical Decision Integrity Measurement Frameworks, 227 • Implementing
Making 188 Programs, Audits, and Measurements to Sustain an
Ethical Frameworks and Evaluations of Corporate Ethical Culture, 230
Culture, 188 • Ethics as a Component of Corporate Summary 230
Culture, 190 • Compliance Versus Values-Based Ethical Important Terms for Review, 232 | Resolving Ethical
Cultures, 192 • Differential Association, 193 • Whistle- Business Challenges, 233 | Check Your EQ, 234
Blowing, 193
Organizational Structure 197 Chapter 10: Global Business Ethics Issues 235
Group Dimensions of Corporate Structure and Chapter Objectives, 235 | Chapter Outline, 235
Culture 199
An Ethical Dilemma 236
Types of Groups, 200 • Group Norms, 201
Global Culture, Values, and Practices 237
Variation in Employee Conduct 202
Economic Foundations of Business Ethics 240
Can People Control Their Actions Within a Corporate
Culture? 203 Economic Systems, 242
Summary 204 Multinational Corporations 245
Important Terms for Review, 205 | Global Organizations to Support Responsible Business 247
Resolving Ethical Business Challenges, 206 | United Nations Global Compact, 247 • Global Business
Check Your EQ, 207 Organizations that Affect Ethical Behavior, 248
vii
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, CONTENTS (Continued)
Global Ethics Issues 250 Defining Technology 307
Bribery, 250 • Antitrust Activity, 254 • Internet Technology Ethics, 308 • Technologies to Watch, 309
Security and Privacy, 255 • Human Rights, 257 Ethics Issues in Technology 314
• Healthcare, 258 • Supply Chain, 259 • Labor
and Right to Work, 259 • Compensation, 260 • Privacy, 315 • Intellectual Property, 317 •
Consumerism, 261 Cybercrime, 318 • The Digital Divide, 320 •
Biotechnology, 320
The Importance of Ethical Decision Making
in Global Business 262 Managing Ethics Issues in Technology 322
Summary 264 The Future of Technology Ethics 324
Important Terms for Review, 265 | Summary 326
Resolving Ethical Business Challenges, 266 | Important Terms for Review, 327 |
Check Your EQ, 268 Resolving Ethical Business Challenges, 328 |
Check Your EQ, 329
Chapter 11: Ethical Leadership 269
Chapter Objectives, 269 | Chapter Outline, 269
An Ethical Dilemma 270
Part 5: Cases 330
Defining Ethical Leadership 271
Requirements for Ethical Leadership 273 Case 1: From the Outside In: Corporate Social
Benefits of Ethical Leadership 276 Responsibility at Patagonia 332
Ethical Leadership and Organizational Culture 277 Case 2: Tesla Accelerates the Transition to Sustainable
Energy 338
Power, 279 • Motivating Ethical Behavior, 282
Case 3: An Apple a Day: Ethics at Apple Inc. 349
Managing Ethical Business Conflicts 283
Case 4: TOMS Reinvents the One for One
Conflict Management Styles, 283
Movement 364
Ethical Crisis Management and Recovery 286
Case 5: CVS Smokes the Competition in Corporate Social
Ethical Leaders Empower Employees 288 Responsibility 374
Ethical Leadership Communication 289 Case 6: Bayer Rounds Up Monsanto 387
Ethical Leadership Communication Skills, 290
Case 7: Uber Collides with Controversy 398
Leader–Follower Relationships 293
Case 8: Herbalife Nutrition Achieves Success by Managing
Ethics Programs and Communication, 293 • Power Risks 407
Differences and Workplace Politics, 294 • Feedback, 295
Case 9: Home Depot Works on Stakeholder
Leadership Styles and Ethical Decisions 296 Relationships 421
The RADAR Model 298 Case 10: Brewed to Perfection: New Belgium
Summary 300 Brewing 431
Important Terms for Review, 302 | Case 11: Google’s Search for Solutions to Privacy
Resolving Ethical Business Challenges, 303 | Issues 441
Check Your EQ, 304
Case 12: Big-Box Retailer Walmart Makes Big Moves in
Chapter 12: Technology: Ethics and Social Responsibility 457
Social Responsibility Issues 305 Case 13: Volkswagen Cleans Up Reputation After
Chapter Objectives, 305 | Chapter Outline, 305 Emissions Scandal 468
An Ethical Dilemma 306 Case 14: Zappos Finds the Perfect Fit 475
viii
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