Instructor Supplement

Understanding Ethics – Ghillyer

CHAPTER 3 – Organizational Ethics

LESSON OVERVIEW
The purpose of this lesson is to introduce the student to organizational ethics.

You will give students an understanding of organizational ethics and the ethical challenges that are present
in various departments within an organization.

CHAPTER OUTLINE
The textbook outlines the chapter with the following eight headings. As an instructor, you can use the
headings to focus and direct your major lecture topics.

o Defining organizational ethics

o The Ethics of Research and Development (R&D)
o Ethics in Manufacturing
o Ethics in Marketing
o Ethics in Human Resources
o Ethics in Finance
o Ethical Challenges
o So When Does It Start to Go Wrong?

CHAPTER OBJECTIVES
You will find notations throughout the support material indicating the appearance of the objectives. The
notations will appear, for example, as OBJ 3.1 for Chapter 3, objective 1.

Upon completion of this chapter, the students will be able to:

1. Understand the significance of an organization’s ethical culture.
 Assessment Method –
 Progress check questions
 Assignments/activities
2. Understand the ethical challenges facing the following departments: research and development
(R&D), manufacturing, marketing, and finance.
 Assessment Method –
 Progress check questions
 Assignments/activities
3. Understand the key responsibilities of the finance function within an organization.
 Assessment Method –
 Progress check quiz
 Assignments/activities
4. Understand the ethical challenges presented by generally accepted accounting principles (GAAP).
 Assessment Method –
 Progress check quiz
Assignments/activities
5. Recognize potential conflicts of interest within any organizational function.
 Assessment Method –
 Progress check quiz
 Assignments/activities
6. Identify the key elements of an organizational ethical culture.
 Assessment Method –
Progress check quiz
 Assignments/activities

Chapter 3 – Page 1
Instructor Supplement
Understanding Ethics – Ghillyer

ASSESSMENT TOOLS
This chapter supplement includes quizzes, homework assignments, a test bank, projects, and group
exercises.

KEY TERMS AND CONCEPTS

Key terms and concepts are posted in the student textbook margins. They are compiled here alphabetically
for your quick reference. You can use this table to check off terms as they are covered in class.

Write the terms you will be covering in your lesson on the board prior to class. Refer to the board during
the lecture time. Also do a quick review of the terms after the breaks by asking students to provide an
extemporaneous definition. It will help students refocus prior to resuming the lecture.

For online faculty, post “terms of the day” for students to review.

Include a definition quiz as part of your daily lesson. Select the key terms from the board, give the
definition, and have the students write the correct term.

Term Definition Page

The function that keeps track of all the company's financial
transactions by documenting the money coming in (credits) and
money going out (debits) and balancing the accounts at the end
Accounting function of the period (daily, weekly, monthly, quarterly, annually). 48
The certification of an organization's financial statements, or
"books," as being "accurate" by an impartial third-party
Auditing function professional. 49
A situation where one relationship or obligation places you in
Conflict of interest direct conflict with an existing relationship or obligation. 50
The Generally Accepted Accounting Principles that govern the
accounting profession--not a set of laws and established legal
precedents, but rather a set of "standard" operating procedures
GAAP within the profession. 49
The values, beliefs, and norms that are shared by all of the
Organizational culture employees of that organization. 40
Actions are taken out of duty and obligation to a purely moral
ideal rather than based on the needs of the situation, since the
universal principles are seen to apply to everyone, everywhere, all
Universal ethics the time. 46
Ethical choices that offer the greatest good for the greatest
Utilitarianism number of people. 46
The key functional inputs that an organization provides in the
transformation of raw materials into a delivered product or
Value chain service. 40

Chapter 3 – Page 2
Instructor Supplement
Understanding Ethics – Ghillyer

LESSON OUTLINE
Estimated Topic Description Asset
time
5 minutes Administrative  Take attendance. Roster

10 to 25 Chapter 3  Defining Organizational Ethics Textbook

minutes Introduction p. 39 – 42
OBJ 3.1 1. An organization’s operating culture can be
described as the values, beliefs, and norms
that are shared by all of the employees of that
organization. PowerPoint
slide 3
2. A value chain is composed of the key
functional inputs that an organization provides
in the transformation of raw materials into a
delivered product or service.

3. Supporting each of these functional areas are

the line functions.

Objectives
Discuss each of the objectives to be completed during
the lesson with the class.

Upon completion of this chapter, the student will be

able to:

1. Understand the significance of an

organization’s ethical culture.

2. Understand the ethical challenges facing the

following departments: research and
development (R&D), manufacturing,
marketing, and finance.

3. Understand the key responsibilities of the

finance function within an organization.

4. Understand the ethical challenges presented

by generally accepted accounting principles
(GAAP).

5. Recognize potential conflicts of interest

within any organizational function.

6. Identify the key elements of an organization’s

ethical culture.

Chapter 3 – Page 3
Instructor Supplement
Understanding Ethics – Ghillyer

LESSON OUTLINE
Estimated Topic Description Asset
time
25 to 60 Chapter 3  The Ethics of Research and Development (R&D) Textbook
minutes Lecture 1 1. Research and Development is directly involved in p. 42 – 49
OBJ 3.2 & future growth.
3.3 PowerPoint
2. It is a critical commitment to product quality, safety, slides 4 – 9
and reliability.

Teaching tip: Ask students if ‘better, cheaper,

faster,’ means compromises have to be made to meet
a targeted cost figure. Students should unanimously
agree that unethical compromises should never be
made.

 Ethics in Manufacturing
1. The relationship between R&D and manufacturing is
often a challenging one.

2. “Do you want it built fast, or do you want it built

right?” From an organizational perspective, you want
both.

3. Compromises have to be made in order to

manufacture a product – which corners can be cut and
by how much.

 Ethics in Marketing
1. Marketers see themselves as providing products (or
services) to customers who have already expressed a
need for and a desire to purchase those products.

Teaching tip: Ask students if they feel marketing is a

manipulative process whereby unsuspecting
customers are included to buy products they don’t
really need. Answers may vary.

 Ethics in Human Resources

1. The human resources function within an organization
should ideally be directly involved in the relationship
between the company and the employee throughout
the employee’s contact with the company.

2. Many advocates of ethical business conduct argue that

HR should be at the center of any corporate code of
ethics—not as the sole creator of the code.

 Ethics in Finance
1. The finance function of an organization can be
divided intro three distinct areas: financial
transactions, the accounting function, and the auditing
function.

2. As an organization grows and eventually “goes

Chapter 3 – Page 4
Instructor Supplement
Understanding Ethics – Ghillyer

LESSON OUTLINE
Estimated Topic Description Asset
time
public” by selling stock in the organization on a
public stock exchange, the need for certified financial
documents becomes even greater.

Chapter 3 – Page 5
Instructor Supplement
Understanding Ethics – Ghillyer

FRONTLINE FOCUS:

‘Just Sign The Forms’

Matt, a new employee at TransWorld Industries, showed up bright and early for his first day of orientation.
He was very excited. He had applied for several jobs in the area, but TWI was the one he really wanted. He
had friends there and they had told him that the company seemed to be growing very quickly with lots of
new products coming online. To Matt, growth meant new opportunities, and he was looking forward to
applying to the management-training program as soon as he finished his 90-day probationary period.

Scott, Matt’s new boss was waiting for him as soon as he reached the factory floor. “Hey Matt, very
punctual, I like that,” said Scott, looking at this watch.

“Listen kid, I know HR gave you a list of things to be checked-off today – payroll paperwork, training
videos, parking pass and ID and all that stuff – but we could really use an extra pair of hands around here.
Your position was vacant for quite a while and we’ve built a nasty backlog of work that needs to get caught
up ASAP.

We could really use your help on the Morton6000 – you’ve worked with one of those before, right?”

Matt nodded, not quite sure where this was going.

“Well, here’s the deal,” said Scott. “The way I see it, all those videos are going to do is tell you not harass
any of the young babes around here, (which won’t be difficult since none of them are young or babes); not
to insult anyone’s race, and not to do anything unethical, which you weren’t going to do anyway, right?”

Matt nodded again, still not sure where this was going.

“So I think all that time spent watching TV would be put to better use on that backlog of work on the
Morton6000. We can book the shipments, get paid by the customers that have been waiting very patiently,
and you can make a good impression on your first day – sound good to you, kid?”

“But what about the videos?” asked Matt.

“Oh, don’t worry about them,” said Scott. “We keep them here in the office. You just sign the forms saying
you watched the videos and take them up to HR after lunch when you do all your other paperwork, OK?”

1. HR requires that these training videos be viewed for a reason. What risks is Scott taking here? Review
the four reasons why HR should be directly involved in any Code of Ethics on page 47 why HR should
be directly involved in any code of ethics.

While he may not realize it, Scott is putting the company in jeopardy even though he is claiming to be
acting in the best interests of the corporation’s shareholders. If any HR issue occurs and there is legal
action as a result, the company will be called upon to prove that they were proactive in their
recruitment and training to make sure HR events didn’t occur. Any evidence of ‘end-runs’ around the
system such as this would definitely weaken that argument and also weaken the company’s defense.

2. Do you think Scott’s argument for skipping the training videos is justified?

Scott is putting the interests of his department over those of the organization. Taking care of a backlog
of work to generate revenue can certainly be justified as acting in the best interests of shareholders,
but it’s a very short-term viewpoint. By cutting corners and not following the required HR procedures,
Scott is placing Matt in a difficult position if his paperwork were ever to be checked, and exposing
Matt, the company, and himself, should the HR department ever come under any scrutiny in the future.

3. What should Matt do now?

Chapter 3 – Page 6
Instructor Supplement
Understanding Ethics – Ghillyer

Matt obviously wants to start off on good terms with his new boss, and refusing to follow orders
wouldn’t be a good start. He could get started on the backlog of work on the Morton6000 and then
stay late to watch the videos so that he can sign the forms and honestly state that he watched them
rather than failing to disclose the truth.

Chapter 3 – Page 7
Instructor Supplement
Understanding Ethics – Ghillyer

LESSON OUTLINE
Estimated Topic Description Asset
Time
60 to 85 Chapter 3  Ethical Challenges Textbook
minutes Lecture 2 p. 49 – 52
OBJ 3.4, 3.5, 1. For internal employees in the finance, accounting,
& 3.6 and auditing departments, the ethical obligations are PowerPoint
no different from those of any other employee of the slide 10
organization.

2. The accounting profession is governed not by a set of

laws and established legal precedents, but rather a set
of Generally Accepted Accounting Principles,
typically referred to as GAAP.

3. The exact process by which you arrive at your profit

figures is far from clear and places considerable
pressure on accountants to manage expectations of
their clients.

4. It is legal to defer receipts from one quarter to the

next to manage your tax liability. However,
accountants face ethical challenges when requests are
made to use creative bookkeeping techniques that are
illegal.

Teaching tip: Ask students if accountants

experience undue pressure from their superiors.
Answers may vary.

5. Conflicts of interest can arise when an accounting

firm has a relationship with their client that is being
audited.

 So When Does It Start to Go Wrong

1. Employees learn very quickly about “the rules of the

game” in any work environment, and make the choice
to “go with the flow” or, if the rules are unacceptable
to their personal value systems, to look for
employment elsewhere.

Teaching tip: Ask where the pressure or

performance expectations come from to make
unethical behavior necessary. The answer can be
captured in one word: profit.

Chapter 3 – Page 8
Instructor Supplement
Understanding Ethics – Ghillyer

Progress Check Questions:

1. Explain the term ‘organizational culture’.

The values, beliefs, and norms that are shared by all of the employees of that organization

2. Define the term ‘value chain’.

The key functional inputs that an organization provides in the transformation of raw materials into a
delivered product or service

3. List the five key functional areas within an organization.

 Research and Development (R&D) that develops and creates new product designs.
 Manufacturing that sources the components and builds the product.
 Marketing (and Advertising)
 Sales
 Customer Service.

4. List the four primary line functions.

 Human Resource Management (HRM)

 Finance
 Information Systems (IS or IT)
 Management

5. Identify the three functional components of the marketing process.

 Advertising
 Public Relations
 Sales

6. Explain why marketers feel that their involvement in the production and delivery of goods and services
is an ethical one.

“Marketers see themselves as providing products (or services) to customers who have already
expressed a need for and a desire to purchase those products. In this respect, marketers are simply
communicating information to their customers about the functionality and availability of the product,
and then communicating back to the organization the feedback they receive from those customers.”

7. Explain the opposing argument that marketing is an unethical process.

“Critics of marketing tend to see it as a more manipulative process whereby unsuspecting customers
are induced to buy products they don’t really need and could quite easily live without by ‘slick’ and
entertaining commercials and advertisements in several different media – magazines, radio, television,
the internet, etc.”

8. Which argument do you support? Provide an example to explain your answer.

Answers will vary.

9. Explain why the HR personnel might consider themselves to be the conscience of the organization.

Answers will vary. Look for evidence of the following:

 The creation of the job description for the position.

Chapter 3 – Page 9
Instructor Supplement
Understanding Ethics – Ghillyer

 The recruitment and selection of the right candidate for the position.
 The orientation of the newly hired employee
 The efficient management of payroll and benefits for the (hopefully) happy and
productive employee.
 The documentation of periodic performance reviews.
 The documentation of disciplinary behavior and remedial training if needed.
 The creation of a career development program for the employee.
 And finally, if the employee and the company eventually part ways, the HR department
should coordinate the final paperwork including any severance benefits and the hosting
of an Exit Interview to ensure that anything that the organization can learn from the
departure of this employee is fed back into the company’s strategic plan for future
growth and development.

10. Select one of the ethical transgressions listed in the HR sections and document how you would respond
to that situation as the employee.

Answers will vary.

11. Why is HR’s involvement in the selection of the leaders of the company so important to ethical
business conduct?

“The terrible metaphor of a fish rotting from the head is relevant here. HR must be involved in the
hiring of leaders who not only endorse and support but also model the ethical standards needed to
keep the company out of danger. The biggest challenge here is convincing the leadership team that it’s
not just the rank and file employees who should be put through ethics training.”

12. Why have ethics policies and ethics training suddenly become so important?

“… financial penalties for unethical behavior are now directly connected to evidence of efforts to
actively prevent unethical conduct. The absence of appropriate policies and training programs can
now increase the fines that are levied for unethical behavior.”

13. List the three primary areas of the finance function in an organization.
 The financial transactions – process by which the flow of money through an organization
is handled – receiving money from customers and using that money to pay employees,
suppliers and all other creditors (taxes, etc.) with hopefully enough left over to create a
profit that can either be reinvested back into the business or paid out to
owners/shareholders. Part of this function may be outsourced to specialists such as
Paychex or ADP, for example.
 The Accounting function which keeps track of all those financial transactions by
documenting the money coming in (credits) and the money going out (debits) and
balancing the accounts at the end of the period (daily, weekly, monthly, quarterly,
annually). The accounting function can be handled by accounting professionals that are
hired by the company, outside accounting firms that are contracted by the company, or
usually a combination of the two.
 The auditing function. When an organization’s financial statements or ‘books’ have been
balanced, they must then be reported to numerous interested parties. For small
businesses, the most important customers are government agencies – state income and
sales tax, and the IRS for taxes on the profits generated by the business. In addition,
lenders and creditors will want to see financial statements that have been certified as
‘accurate’ by an impartial 3rd party professional. That certification is offered by Auditors
– typically Certified Professional Accountants and/or Auditing Specialists.

Chapter 3 – Page 10
Instructor Supplement
Understanding Ethics – Ghillyer

14. Explain how the Accounting Profession is governed by ‘GAAP’.

“The accounting profession is governed not by a set of laws and established legal precedents, but
rather by a set of Generally Accepted Accounting Principles, typically referred to as ‘GAAP’ (‘gap’).
These principles are accepted as ‘standard’ operating procedures within the industry, but like any
operating standard they are open to interpretation and abuse. The taxation rates that Uncle Sam
expects you to pay on generated profits may be very clear, but the exact process by which you arrive at
that profit figure is far from clear and places considerable pressure on accountants to manage the
expectations of their clients.”

15. Why would audited accounts be regarded as being ‘clean’?

“A set of accurate financial statements that present an organization as financially stable,

operationally efficient, and positioned for strong future growth, can do a great deal to enhance the
reputation and goodwill of an organization. The fact that those statements have been certified by an
objective 3rd party to be ‘clean’ only adds to that. However, that certification is meant to be for the
public’s benefit rather than the corporation’s.”

16. Why was there a ‘conflict of interest’ between Arthur Andersen and Enron?

As Enron’s auditing company, Arthur Andersen was assigned the task of producing an objective, 3rd
party audit of Enron’s financial statements. However, at the same time, Arthur Andersen’s Consulting
Division was also contracted to work on multiple million-dollar projects for Enron. The ‘conflict of
interest’ here was that any questioning of Enron’s accounting practices by the Auditing Division
would automatically place the consulting revenue in jeopardy. It was extremely difficult for the
auditors to fulfill their mission of ‘objectivity’ when their colleagues in the Consulting Division were
encouraging them to ‘keep the client happy’.

Case 3.1: A Firm Production Date

1. Tom was obviously overconfident in the final stages of the testing process, but was his behavior
unethical? Why or why not?

Answers will vary. Some students will feel that Scott was misled by Tom’s confident response. Others
will feel that Scott’s ‘browbeating’ behavior backed Tom into a corner. Tom should, however, have
kept Scott apprized of the problems with the pilot run and the changes that were made.

2. Given Scott’s concerns over R&D’s credibility, should he have taken Tom’s production date as being
“absolutely firm”?

No, if he was as concerned about R&D’s credibility as he claimed, he should have requested more
frequent progress reports rather than committing to a major ad campaign on the basis of Tom’s word.
Things can go wrong even in the best situations, and Scott should have been prepared for that.

3. In fact, Scott was so skeptical of Tom’s production date that he recorded their original conversation
without Tom’s knowledge and then produced the recording when Tom denied giving a firm production
date. Tom’s responded: “You taped my conversation without telling me! That’s unethical” Was it?

Answers will vary. Some students will accept Scott’s behavior as protecting his own back. Others will
see it as devious and a deliberate attempt to set Tom up. In either case, recording a conversation
without the other person being aware of it doesn’t demonstrate ethical behavior.

4. Has Scott’s behavior damaged future relations between Marketing and R&D? In what way? How could
this situation have been avoided?

Chapter 3 – Page 11
Instructor Supplement
Understanding Ethics – Ghillyer

Most likely yes. From Scott’s opening remarks, the relations weren’t that good to begin with, but the
behavior on both sides of this situation have really just confirmed the suspicions of both sides and
cemented the mutual distrust even further. Scott’s approach was accusatory and demanding which led
Tom to conceal critical information for fear of inciting Scott’s wrath and the inevitable ‘I told you so’.
Scott’s decision to secretly tape the meeting simply confirmed Tom’s low opinion of Scott as being
devious and only out for himself. An open and honest dialogue about this situation and an ongoing
communication pattern could have prevented this from happening.

Case 3.2: The Ford Pinto

1. Should a manufacturer go beyond government standards if it feels there may be a potential safety
hazard with its product?

Definitely. Such an act would meet the definition of the ‘right thing to do’ for customer safety.
Government standards are typically minimum standards, not maximums. However, if the decision to
go beyond government standards incurs additional manufacturing costs, it is unlikely that the
organization would pursue that since a lower cost would, from their perspective, be in the greater
interest of their shareholders.

2. Once the safety issue became apparent, should Ford have recalled the vehicle and paid for the retrofit?
Should they have invited owners to pay for the new barrier if they so chose? If only half the owners
responded to the recall, what would the company’s obligation be?

If there was concrete evidence that the vehicle represented a safety risk to their customers, then the
ethical obligation on Ford’s part should have been to recall the vehicle and pay for the retrofit. That
may have incurred a cost, but it would also have been an explicit statement of Ford’s commitment to
the safety of their drivers (a choice made by Ford CEO Jacques Nasser many years later in deciding
to replace Firestone tires on all Ford Explorers).

Inviting customers to pay for the extra safety would have been an abandonment of Ford’s
responsibility to deliver a safe vehicle for their customers to drive.
If only half the owners responded to the recall, Ford should at least try to reach the other half and
make sure they have the correct contact information. Beyond that, they will have fulfilled their ethical
obligation to notify them of the problem. If the customer chooses not to take advantage of the
opportunity of the retrofit, Ford cannot be held responsible for that.

3. Is there a difference for a consumer between being able to make a conscious decision about upgrading
safety features (such as side airbags) and relying on the manufacturer to determine features such as the
tensile strength of the gas tank?

A manufacturer should be able to survey its customers and determine what are minimum safety
requirements and what are preferred upgrades. From a business perspective, that would make its
product more marketable since it reflects the purchase expectations of its customers. A consumer
should have the right to expect a minimum level of safety with the option to increase that safety if the
issue is a particular concern to him or her.

4. Once the Pinto gained a poor reputation, they were often sold at a discount. Do private sellers have the
same obligations as Ford if they sell a car they know may have design defects? Does the discount price
absolve sellers from any responsibility for the product?

Caveat Emptor or ‘buyer beware’ is an accepted standard of retail practice. Once you start dealing
with a private buyer that is not subject to industry regulations that govern public and private
corporations, your rights are significantly diminished. While you should do your homework on any
purchase you make, a car purchased from a private seller is unlikely to come with a warranty (unless

Chapter 3 – Page 12
Instructor Supplement
Understanding Ethics – Ghillyer

there is a portion of the manufacturer’s original warranty remaining). The car would be sold ‘as is’
with very little likelihood that the private seller would tell you: “by the way, there’s a recall in effect
for this car because it’s a firetrap”!

FRONTLINE FOCUS:

‘Just Sign The Forms’ – Matt makes a decision

Matt really wanted this job, and he really wanted to make a good first impression with Scott. Plus, Scott
was right; he wasn’t going to harass anyone or insult their race, and he certainly wasn’t going to risk his
chances at the management-training program by doing anything unethical. What’s the worst that could
happen? If anyone from HR ever found out that he didn’t watch the training videos, he could show them
how the company had benefited from his making up the backlog on the Morton6000, and he was sure that
Scott would back him up.

Matt signed the forms and got to work.

Three months later Matt finished his probationary period and met with the HR Director to review his
performance and, Matt hoped, discuss his application for the management-training program. The HR
Director was very friendly and complimentary about Matt’s performance over the last 90 days. But he had
one question for Matt:

“The production log for the Morton6000 shows that you made a big dent in our backlog on your first
morning here. I’m curious how you managed to do that when your paperwork shows that you spent three
hours watching training videos as part of your new employee orientation?”

1. What should Matt tell the HR Director?

Matt has been caught fair and square and the HR Director is looking for an answer. Matt’s best
approach should be honesty – he did what his new boss asked him to do on his first day. He didn’t
demonstrate very good judgment and should admit to that in the hope of demonstrating that he has
learned a lesson from this.

2. What do you think the HR Director’s reaction will be?

While I am sure the HR Director will be disappointed in Matt’s behavior, I would expect him to be
more concerned about Scott’s behavior in not following an established procedure. As a new employee,
Matt could be given some leeway for simply following instructions from his new boss, but Scott should
have known better.

3. What are Matt’s chances of joining the Management Training program now?

To start off with a black mark on your record such as this certainly doesn’t help his
case. The fact that he showed such a willingness to work on the Morton6000 backlog
won’t count for much because he demonstrated both poor judgment and a lack of
concern for corporate policies. The company would be expecting its’ future managers
to be the keepers and enforcers of those policies.

Chapter 3 – Page 13
Instructor Supplement
Understanding Ethics – Ghillyer

END OF CHAPTER QUESTIONS

Review Questions:

1. Provide three examples of unethical behavior that you have observed at the company you work for (or
a company you have worked for in the past). What was the outcome of this behavior?

Answers will vary.

2. Should the HR department be the ethics champion in the organization? Why or why not?

Answers will vary.

3. What are ‘creative bookkeeping techniques’?

‘Creative bookkeeping techniques’ involve financial reports that push the limits of Generally Accepted
Accounting Principles (GAAP). Examples of this would include deferring income and/or expenses to
manipulate tax liability; recognizing future income as present income to boost revenue numbers;
hiding debt in off-balance sheet transactions – all of which Enron tried to do.

4. Would you leave your position with a company if you saw evidence of unethical business practices?
Why or why not?

Answers will vary. Hopefully students will see the fallacy of expecting job security with a company that
has a lax attitude to ethical business practices.

Review Exercise:

AMBUSH MARKETING:

As billboards, radio commercials, print ads, and 30-second or 60-second TV spots become increasingly lost
in blurred onslaught of advertising, the larger advertising companies are increasingly turning to more
‘creative’ means to get the name of their product or service in front of the increasingly overloaded attention
span of Joe Public.

Consider the following:

 Imagine you’re at [the Washington Monument] when a young couple with a camera approaches
and kindly asks if you’ll take their picture. They seem nice enough, so you grab the camera. As
you’re lining up the shot, the gentleman explains it’s the newest model, he got it for only $400 and
it does this, that and the other. Cool. You take the picture and walk away. It’s nice to help people.
 The New York bar is crowded, with a line of people three deep. Just as you manage to flag [the
bartender’s] attention, a neighboring patron tries to latch on to your good luck. “Say, buddy, I see
you’re about to order a couple of drinks,” your neighbor says. “If I give you a ten-spot, could you
get me a Peach Royale?” The request seems harmless. Why not?
 A colorful cardboard box plastered with a well-known logo of a certain computer maker sits in the
lobby of your building for several days. Not only does the trademark get noticed, but residents
may also assume a neighbor has made the purchase. So the computer company gets a warm
association in the minds of certain consumers.

All perfectly reasonable and innocent everyday occurrences, right? But how would you feel if the couple at
the Washington Monument raving about their new camera was really a pair of actors planted in targeted
locations to extol the virtues of digital cameras to an unsuspecting public? Your innocent neighbor in the
bar was actually performing a ‘lean-over’ – a paid commercial for ‘Peach Royale’; and the computer box

Chapter 3 – Page 14
Instructor Supplement
Understanding Ethics – Ghillyer

was left in the lobby of your building deliberately at the minimal cost of a ‘contribution’ to the building’s
doorman.

So now you get really paranoid. You’ve heard of product placement, where movies offer lingering shots on
specific products (funny how the actors always drink Coke or Heineken beer; and didn’t Halle Berry look
great in that Coral-colored Ford Thunderbird in the James Bond Movie ‘Die Another Day’ – did you know
you could buy a Thunderbird with that exact color?). But what if that group of commuters on your morning
train discussing a new movie or TV show or book was planted there deliberately? What if the friendly
woman with the cute 6yr old at the playground who was talking about how her son loves his new video
game was also an actress?

Such tactics take the concept of ‘target marketing’ to a whole new level. Advertisers plant seemingly
average folks in the middle of a demographically desirable crowd and begin to sing the praises of a new
product or service while conveniently failing to mention that they have been hired to do so, and may have
never even heard of the product or service before they took the gig.

1. Is this unethical marketing? Explain why or why not?

Answers will vary. Some will see no malicious intent here and no real harm being done. Others will
recognize the unethical misrepresentation of the transaction, probably justified under the utilitarian
ethics position of the end justifying the means.

2. Critics argue that such campaigns “blur the lines between consumerism and con artistry.” Is that a fair
assessment? Why or why not?

Answers will vary. Some will compare this to the microscopic small print at the bottom of print ads
and the legal disclaimers spoken at several hundred words a minute that precede radio spots. Others
will recognize the unethical misrepresentation of the transaction.

3. How would you feel if you were involved in such an ambush?

Answers will vary. Some students will feel misled, others may see the act as non-invasive and
appreciate the opportunity to learn about a new product or service that they may have overlooked in
the regular advertising media.

4. If we accept that the majority of consumers are already skeptical about most advertising they are
exposed to, how do you think the general public would feel about such marketing campaigns?

Most likely not surprised that marketers have found another sneaky way to intrude on their privacy
and bring another unwanted message into their consciousness.

5. Supporters of these campaigns argue that our economy is built on consumerism and that if you don’t
find more effective ways to reach consumers, the entire economy will suffer. Does that make the
practice OK? Should we just accept it as a nuisance and a necessary evil like solicitation calls during
dinner?

This is the universal ethics justification of the end justifying the means. They have an obligation to
their shareholders to grow their businesses and this methodology simply represents a creative
approach to the constant marketing challenge of getting your message in front of as many eyes as
possible. Whether or not anyone is really hurt by these campaigns is open for debate, and many would
argue, from a CSR perspective, that it’s a lot more resource efficient than the millions of unwanted
CD’s that America Online mailed to unwilling recipients.

6. Would your opinion change if the advertisers were more obvious in their campaigns – such as
admitting after each ‘skit’ that the raving fans were really actors?

Chapter 3 – Page 15
Instructor Supplement
Understanding Ethics – Ghillyer

Such an admission would certainly be more respectful of your prospective customers. Inquisitive (and
acquisitive) customers might be willing to try a new camera or a new beverage if it’s presented to
them in an honest manner, but finding out afterwards that they have been deliberately misled in these
interactions could produce the wrong result and explicitly alienate them to your brand.

Internet Exercise:

Locate the Website for The Institute of Internal Auditors: www.theiia.org

1. What is the stated mission of the IIA?

“The mission of The Institute of Internal Auditors is to provide dynamic leadership for the global
profession of internal auditing. Activities in support of this mission will include, but will not be limited to: 

 Advocating and promoting the value that internal audit professionals add to their organizations;
 Providing comprehensive professional educational and development opportunities; standards and
other professional practice guidance; and certification programs;
 Researching, disseminating, and promoting to practitioners and stakeholders knowledge
concerning internal auditing and its appropriate role in control, risk management, and
governance;
 Educating practitioners and other relevant audiences on best practices in internal auditing; and
 Bringing together internal auditors from all countries to share information and experiences.”

2. What are the two essential components of the IIA’s Code of Ethics?

1. “Principles that are relevant to the profession and practice of internal auditing;

2. Rules of Conduct that describe behavior norms expected of internal auditors. These rules are an
aid to interpreting the Principles into practical applications and are intended to guide the ethical
conduct of internal auditors.”

3. Why did Cynthia Cooper become one of the IIA’s most well known members?

She led the internal auditing team that first uncovered questionable accounting practices at
WorldCom.

Team Exercises:

1. Is It Ethical to Ambush?

Divide into two teams. One team must prepare a presentation advocating for the use of the ‘ambush
marketing’ tactics described in Review Exercise #1. The other team must prepare a presentation explaining
the ethical dilemmas presented by those tactics.

FOR:
 “Marketers see themselves as providing products (or services) to customers who
have already expressed a need for and a desire to purchase those products. In this
respect, marketers are simply communicating information to their customers about
the functionality and availability of the product, and then communicating back to the
organization the feedback they receive from those customers.”
 The marketers are fulfilling their obligation to their client in finding new and
creative ways to reach prospective customers.

Chapter 3 – Page 16
Instructor Supplement
Understanding Ethics – Ghillyer

 The actions are no more misleading that fine print in magazine ads or disclaimers in
radio ads (which are both accepted standards of practice in this industry).
 The need to resort to this methodology is simply an acknowledgement of the extent to
which media channels are now overwhelmed with advertising messages. This is
merely the creation of a new message channel.

AGAINST:
 “Critics of marketing tend to see it as a more manipulative process whereby
unsuspecting customers are induced to buy products they don’t really need and
could quite easily live without by ‘slick’ and entertaining commercials and
advertisements in several different media – magazines, radio, television, the internet,
etc.”
 Customers are being misled here – they are being led to believe that someone is
giving them a personal, non-biased assessment or endorsement of a product, when
in reality they are receiving a promotional ‘pitch’ for it by paid representatives of
the organization.
 If you were asked by a young couple to take their picture and they then turned
around and delivered a sales pitch to you, you would most likely be offended by that
and then think twice about doing it for anyone else in case you received another
pitch. That is unfair to anyone who would make a genuine request for your help in
taking his or her picture.

2. In Search of an Ethical Department

Divide into groups of three or four. Each group must select an organizational department (HR, R&D,
Marketing, Sales) and document the potential areas for unethical behavior in that department. Prepare a
presentation outlining an example of an ethical dilemma in that department and propose a solution for
resolving it.

Answers will vary.

Discussion Exercise 3.1

Johnson & Johnson and the Tylenol Poisonings

1. Although Johnson & Johnson took a massive short-term loss by its actions, it was cushioned by the
relative wealth of the company. Should it have acted the same way if the survival of the firm were at
stake?

Yes it should have since there were lives at stake. Would it have been as easy to make the decision with
only a few million dollars in sales? Probably not, but it would still have been the ‘right thing to do’.

2. James E. Burke reportedly said that he felt that there was no other decision he could have made. Do
you agree? Could he, for example, have recalled Tylenol only in the Midwest? Was there a moral
imperative to recall all Tylenol?

With so little information on the motive for the tampering and the extent of the damage, they simply
couldn’t take the risk. There was no indication that this was only a regional event, and in the absence
of any information to the contrary, they had a moral imperative to protect the lives of their customers
and pursue the worst-case scenario.

3. What was the moral minimum required of the company in this case? Would it favor some stakeholders
more than others? How would you defend balancing the interests of some stakeholders more than
others?

Chapter 3 – Page 17
Instructor Supplement
Understanding Ethics – Ghillyer

The moral minimum was to protect the lives of their customers once they were notified of the
tampering. In following their credo, taking care of customers and society would take care of their
stockholders. In the short-term, the customers would be favored by this action, with stockholders
having to wait for the situation to rebound. If J&J hadn’t pursued this course of action, many more
people could have been killed and lawsuits would most likely have followed. This would have inflicted
much greater damage on the company and consequently on all the stakeholders of the company.

4. Imagine that a Third World Country volunteers to take the recalled product. Its representatives make
assurances that all the tablets will be visually inspected and random samples taken before distribution,
Would that be appropriate in these circumstances? Would it have been a better decision than
destroying all remaining Tylenol capsules?

No. Lives in a Third World Country would carry the same value as those here at home. Visual
inspections and random samples would still expose people to a tremendous risk, and the first death
from a tainted bottle of Tylenol would carry just as much negative publicity, if not more.

5. Apparently Johnson & Johnson was not sued by any relatives of the victims. Would they have a moral
case if they had? Should the company have foreseen a risk and done something about it?

The deaths were cruel and unjust, but given the lack of precedent for such a terrible event, it’s unlikely
that any company could be held negligent for not having tamper-proof containers on their medicines.
However, if the company had chosen to suppress the news and leave the bottles on the shelves in full
understanding of the risks involved, the relatives of the victims would have had a moral case. Now that
the possibility of tampering has been demonstrated, every company must take steps to prevent it.

6. How well do you think a credo works in guiding action? Would you prefer a typical mission statement
or a clear set of policy outlines, for example? Do you see any way in which the Johnson & Johnson
credo could be improved or modified?

Their credo sets a moral standard rather than a public relations message. If the employees ever need
guidance, they can measure their potential decisions against that standard. The fact that the credo has
been in place without modification since the 1940’s would suggest that it doesn’t need modification.

Discussion Exercise 3.2

WorldCom’s Creative Accounting

1. Who are the stakeholders in the case?

Every recognized stakeholder is impacted by this creative accounting – customers, vendor partners,
employees, shareholders, federal and state agencies, and the local communities around WorldCom’s
offices.

2. What actions should Vinson have taken and when? What prevented her from taking such actions?

The fact that CEO Bernie Ebbers endorsed the transactions denied Vinson of a receptive internal
audience for her concerns, so should have gone to the appropriate regulatory authorities to notify
them of the creative accounting practices. Her personal situation (sole breadwinner and insurance
provider) as well as her belief in Sullivan’s reputation as a CFO persuaded her to go along with the
decision.

3. What actions should Vinson’s colleagues have taken?

They could have contacted the same regulatory agencies and/or left the organization in order to
distance themselves from transactions that they knew to be irregular and unethical.

Chapter 3 – Page 18
Instructor Supplement
Understanding Ethics – Ghillyer

4. Who is ultimately responsible for the accounting regularities?

The senior executive team of the organization (CEO, CFO, COO) must ultimately be accountable for
any accounting decisions made. Ironically, once the irregularities were uncovered, CEO Bernie
Ebbers denied any knowledge of the activities. The auditing firm that signed-off on WorldCom’s
financial reports as being ‘clean’ would also carry some responsibility, since investors would have
taken that assertion as a sign of financial stability when, in fact, the company was losing hundreds of
millions of dollars.

5. Who is legally responsible for the accounting irregularities?

The senior executive team of the organization (CEO, CFO, COO) must ultimately be accountable for
any accounting decisions made. Now, under Sarbanes-Oxley, the CEO and CFO must personally sign
the financial reports in order to attest to their accuracy. The auditing firm that signed-off on
WorldCom’s financial reports as being ‘clean’ would also carry some responsibility, since investors
would have taken that assertion as a sign of financial stability when, in fact, the company was losing
hundreds of millions of dollars.

6. Who is morally responsible for the accounting irregularities?

The senior executive team of the organization (CEO, CFO, COO) must ultimately be accountable for
any accounting decisions made.

DVD NOTES:

Title 1: The Container Store

Summary

The Container Store was voted the best company to work for in America and was the runner-up on two
other occasions. The company stocks more than 10,000 products designed to streamline and simplify your
life, and is regarded as being staffed by some of the happiest and most empowered employees to ever work
in retail.

The underlying philosophy behind Container’s success is tied to Maslow’s Hierarchy of Needs. The video
also provides a useful overview of the basic schools of management thought – Taylor, Mayo, Maslow,
McGregor, Ouchi, Herzberg, Drucker, and Vroom.

This video provides a useful balance to many of the negative work environments featured in the text and
offers the opportunity for students to discuss their own work experiences in comparison to this idealized
environment.

Discussion Questions

1. Consider the HR policies of the company you currently work for or one you have worked for in the
past. Were they similar to those of The Container Store? If so, how? If not, how were they different?
2. Could The Container Store’s HR policies be applied in other organizations? Why or why not?
3. Would you work at The Container Store? Why or why not?

Discussion Answers

1. Given the attention paid to The Container Store as the Best Company to Work for in America, it’s
unlikely that students work for organizations that share the same HR philosophies and policies. Of

Chapter 3 – Page 19
Instructor Supplement
Understanding Ethics – Ghillyer

greater interest is the extent to which the policies of their current or past employers differ from those
of the Container Store.
2. Answers will vary. Some students will see the policies as ideals that could only be implemented in a
new company being built from the ground-up. Others would argue that it would require a major
philosophical shift for most employers to even contemplate such employee-centric policies.
3. Unless they found the environment to be too much like a cult, most students would probably jump at
the chance, if only for the 50-100% pay premium.

Title 2: Loyalty in the Workplace

Summary

Joel Baglole won an internship at Canada’s largest daily newspaper, The Toronto Star. At the end of the
internship, he happily accepted a full-time position with the company. Six weeks later he took a position
with the more prestigious Wall Street Journal. Joel quit The Toronto Star without remorse: “They paid me
and I worked hard…I didn’t feel beholden to anyone.”

Critics argue that “loyalty has become the forgotten value in the workplace today.” However, when we
consider that obvious expendability of the thousands of workers laid-off in countless downsizing and
outsourcing initiatives, is it reasonable to demand loyalty from employees in such an environment? Or
should it be everyone for themselves?

The video argues that this may be a generational issue and that it may be too late to fix the damage that has
been done in the past in the name of fiscal responsibility. The loyalty debate represents a good discussion to
balance many of the HR policy debates and also the Ethics & Technology debates in Chapter 8.

Discussion Questions

1. Do you agree or disagree with Joel Baglole’s affirmation that he did nothing wrong in leaving The
Toronto Star for the Wall Street Journal? Why?
2. Does the availability of sites such as ‘monster.com’ and the ability to get job opening information
almost immediately make the decision to switch jobs more or less ethical? Explain.
3. What can employers do to encourage employee loyalty?

Discussion Answers

1. Answers will vary. Students who have experienced layoffs themselves or with family members will
probably applaud Baglole’s self-preservationist approach. Others may feel that employee loyalty is a
significant feature in their personal value system and disagree with him.
2. As the editor of The Toronto Star points out in the video, it does put temptation in your way far more
frequently than the classified ads in your local newspaper, and if you’re having a bad day, you might
be tempted to follow-up on a few of those opportunities, “just to see what’s out there.”
3. Invest in the relationship for the long-term with training and career development, and avoid the quick
fix of layoffs when you need short-term cost containment. Treat your employees as valued associates
rather than production resources.

Title 3: Wild Oats Market: A People-Centered Organization

Summary

Wild Oats Market was founded in Boulder, Colorado in 1987 and is the number 2 Organic Foods retailer
behind Whole Foods Market. The company has ranked among Business Ethics Magazine’s 100 Best
Corporate Citizens and was the highest ranking food retailer on the list.

Chapter 3 – Page 20
Instructor Supplement
Understanding Ethics – Ghillyer

The video discusses Wild Oats’ commitment to:

 Careful Hiring
 Lots of Training
 Building Trust through Sharing Information.

This video could also be used in Chapter 4: Corporate Social Responsibility.

Discussion Questions

1. New employees go through 30 days of training (‘Natural Foods 101’) at Wild Oats Market. How does
that compare to the training you received at your company? Do you think you would feel differently
about your current employer if they had invested 30 days in training you? Why or why not?
2. After the 30 days of training employees must pass a written examination. Is that ethical?
3. Wild Oats Market maintains an Ethics Line to allow employees to leave anonymous feedback for
behavior the feel is unethical. Does your company offer something like this? If they did, would you use
it? Why or why not?

Discussion Answers

1. This extensive training commitment will probably exceed the experiences of most of the students.
Hopefully students would equate a greater training investment to a longer-term and mutually
rewarding employment relationship.
2. After making such an extensive investment in a new employee, Wild Oats Market should be able to
measure the effectiveness of that training. However, many students may see the examination as harsh
in comparison to most probationary periods where not burning down the place or alienating your boss
are the only obstacles to permanent employment.
3. The term ‘Ethics Line’ is more culturally focused than ‘Whistleblower Hotline’. Students may have
worked at organizations with similar mechanisms in place. Of greater interest will be the extent to
which those students trusted the promised anonymity of such mechanisms.

Title 4: Overworked Employees

Summary

Attention Deficit Disorder (ADD) has been accepted as a diagnosed medical condition. This video
discusses the concept of Vacation Deficit Disorder. 26% of Americans take no vacation at all, and 13% of
American companies don’t even offer vacation benefits to their employees. While this may seem unethical,
there is no law in the USA mandating that companies offer vacation benefits. The industry average of 10
days still seems low compared to other nations – 25 paid days in France, 20 in Italy and Great Britain, and
15 in China.

Critics of requests for more vacation time bring-up the ‘trade-off for time-off’ where increased paid days
off will, it is argued, lead to lost jobs if employers can’t cover the increased costs with either increased
productivity or lower wages.

Of greater concern is the cultural pressure placed on this issue. Employees who pursue quality time with
their families feel as though they are abandoning their job responsibilities and acquiesce by answering
emails and voicemails while on vacation.

Discussion Questions

1. Should there be a legally enforced vacation benefit in the USA? Why or why not?
2. Is it unethical to put pressure on employees to cover their work responsibilities while on vacation?
3. Have you ever felt pressured to not take all your vacation days? How did you react to that pressure?

Chapter 3 – Page 21
Instructor Supplement
Understanding Ethics – Ghillyer

Discussion Answers

1. Most students would argue in favor of a mandated vacation benefit, irrespective of the ‘trade-off for
time-off’ argument.
2. Putting pressure on employees to cover their work responsibilities while on vacation is a very short-
term mentality and can lead to employee burn-out since that employee (Type ‘A’ or not) is denied the
opportunity to rest and recharge.
3. Answers will vary. Most students that do admit to feeling pressure will probably also admit to giving-
in to that pressure by shortening their vacation, covering emails and voicemails while away from work,
or postponing the trip altogether.

Chapter 3 – Page 22