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1 Chapter 02 Business Ethics True / False Questions 1. (p. 49) Libertarianism refers to a philosophical system developed in considerable part by Robert Nozick which takes essentially a free market view of ethics. 2. (p. 50) Virtue ethics, as espoused by Plato and Aristotle, focuses on the classic notion of character rather than following rules. 3. (p. 51) Utilitarianism is the foremost branch of deontology. 4. (p. 52) Kant's categorical imperative is the notion that every person should act only on those principles that he/she, as a rational person, would prescribe as universal laws. 5. (p. 57) Some surveys find Americans concerned about a general moral decline in the U.S. 6. (p. 61) According to scholar Carol Gilligan, the feminine conception of morality typically emphasizes care, support, and responsiveness rather than an impartial, right/wrong analysis. 2-1

2 7. (p. 66) The 2002 Sarbanes-Oxley Act significantly increased criminal penalties for corporate fraud. 8. (p. 67) The FCPA forbids "grease" payments to political parties where the purpose of the payments is to secure the performance of a routine governmental action. 9. (p. 67) In many nations, bribes to public officials are a routine ingredient of doing business. 10. (p. 67) The Foreign Corrupt Practices Act was passed to bring United States business practices in line with those of most other nations in the world. 11. (p. 68) In a 2004 study, the United States was perceived to be the least corrupt government. 12. (p. 71) Among its major provisions, the False Claims Act creates new crimes and raises penalties to as much as 25 years imprisonment along with heavy fines. 13. (p. 71) The passage of the Sarbanes-Oxley Act has significantly increased the importance of corporate codes of ethics for publicly traded corporations. 14. (p. 74) Sarbanes-Oxley discourages whistle blowing in the private sector. 2-2

3 15. (p. 74) Whistle-blowing by an employee is usually appreciated and justly rewarded by the company involved. Multiple Choice Questions 16. (p. 48) An existentialist believes: A. in absolute adherence to the letter of the law. B. in maximizing Christian love. C. no actions are inherently right or wrong. D. conduct can be rationally justified. 17. (p. 49) Which of the following philosophical systems that takes essentially a free market view of ethics, was developed in considerable part by Robert Nozick? A. Teleology B. Deontology C. Virtue ethics D. Libertarianism 18. (p. 50) Virtue ethics, as espoused by Plato and Aristotle, focuses on the classic notion that the key to good ethics lies in: A. character. B. responsibilities. C. rights. D. rules. 19. (p. 51) A(n) ethical system emphasizes the consequences of an act. A. deontological B. teleological C. existential D. libertarian 2-3

4 20. (p. 51) A(n) believes principle is primary and consequence is secondary or even irrelevant. A. deontologist B. situationalist C. teleologist D. existentialist 21. (p. 51) A(n) believes that good must be weighed against evil in reaching an ethical decision. A. formalist B. libertarian C. utilitarian D. existentialist 22. (p. 51) Teleological ethical systems are often referred to as: A. formalist ethical systems. B. maximization ethical systems. C. deontologist ethical systems. D. consequentialist ethical systems. 23. (p. 51) A father may be morally committed to saving his son from a burning building, rather than saving another person who might well do more total good for society. The approach of the father would be primarily: A. teleological. B. deontological. C. utilitarian. D. consequentialist. 2-4

5 24. (p. 51) Sarah is president of a company that must become more profitable to stay in business. She believes it would be better if all employees took a 10 percent pay cut, instead of laying off 10 percent of the workers, as this would benefit the greatest number of people and would not severely harm anyone. Her approach is primarily: A. teleological. B. libertarian. C. deontological. D. religious. 25. (p. 51) In sum, the principle to be followed for the utilitarian is: A. the rightness of rules. B. what is right for one is right for all. C. the greatest good for the greatest number. D. moral worth springs from one's decision to discharge one's duty. 26. (p ) In the formalistic view of ethics: A. a decision that maximizes the ratio of good over evil for all those concerned is the ethical course. B. the rightness of an act depends little on the results of the act. C. the moral person renders ethical decisions based on the consequences of the decision. D. the moral person may be forced to shun a particular act that would result in greater immediate good. 27. (p. 52) Kant's categorical imperative: A. requires one to adhere to all the rules of conduct by which society reaps the greatest value. B. is one's goal is to identify the consequences of a particular act to determine whether it is right or wrong. C. is based on the idea that a decision that maximizes the ratio of good over evil for all those concerned is the ethical course. D. is the notion that every person should act on only those principles that he/she, as a rational person, would prescribe as universal laws to be applied to the whole of humankind. 2-5

6 28. (p. 61) Which of Lawrence Kohlberg's six universal stages of moral development was identified as being highest (i.e., the last in the evolutionary chain)? A. Conform to meet the expectations of others. B. Doing right is one's duty; obey the law and uphold social order. C. Follow self-chosen universal ethical principles. D. Follow rules only if it is in your own self-interest, but let others do the same. 29. (p. 61) According to Kohlberg, which of the following universal stages is grouped into the conventional level? A. Adhere to stereotypical images. B. Obey rules to avoid punishment. C. Follow rules only if it is in own interest, but let others do the same. D. Laws and duty are obeyed on rational calculations to serve the greatest number. 30. (p. 61) The idea of a "feminine voice" states that women usually: A. give a high priority to "rights" when making a decision. B. make decisions the same way men do. C. consider relationships and the needs of others in making decisions. D. place their own self-interest as the highest priority in decisions. 31. (p. 66) The Sarbanes-Oxley Act: A. requires publicly traded companies to adopt a code of ethics for senior financial officers or to explain why they have not done so. B. is the chief federal weapon against bribery abroad. C. was enacted in 1977 in response to disclosure of widespread bribery by American firms. D. requires rigorous internal accounting controls and careful record keeping to ensure that bribes cannot be concealed via "slush funds" and other devices. 2-6

7 32. (p. 67) World Transit, a United States business, is establishing an African office with Mary Jones as manager. After two months of frustration and effort, Mary is informed that in order to get utilities, she must give some money to the local electric company agent as an "encouragement," just as all other businesses do. Under the Foreign Corrupt Practices Act, this payment is probably: A. illegal, since it is a bribe to a foreign government official. B. legal, as long as all other businesses do the same thing. C. legal, since that is the only way she can get utilities. D. legal, since it is merely "grease" money to expedite routine action. 33. (p. 67) The Foreign Corrupt Practices Act: A. was enacted in 2002 and encourages all publicly traded companies to voluntarily develop ethics codes. B. does not forbid grease payments to foreign officials/political parties where the purpose of the payments is to secure the performance of a routine governmental action. C. was passed after Enron and other corporate scandals as a way to discourage financial and accounting fraud, thus maintaining confidence in America's financial markets. D. defines a code of ethics as written standards that are reasonably designed to deter wrongdoing and to promote such behaviors as honest conduct and full disclosure in reports. 34. (p. 68) According to the 2006 Gallup Worldwide Corruption Index, which of the following countries is least corrupt? A. The United States B. Japan C. Russia D. Denmark 35. (p. 74) Which of the following statements about whistle blowing is true? A. The Whistleblower Protection Act of 1991 helps government employees. B. The SOX Act forbids employer retaliation against an employee who reports information about corporate fraud. C. A recent survey found that 73 percent of full-time American employees observed wrongdoing on the job and actually reported that wrongdoing to bosses. D. The False Claims Act encourages whistle blowing in the private sector by specifically requiring auditors to set up a whistle-blowing hotline for employees who want to report accounting and auditing complaints. 2-7

8 Essay Questions 36. (p ) Explain how religion, libertarianism and virtue ethics contribute to moral analysis. Religion: Judeo Christian beliefs, Islam, Confucianism, Buddhism, and other faiths are powerful ethical voices in contemporary life. They often feature efforts such as the Golden Rule to build absolute and universal standards. Scholarly studies indicate that most American managers believe in the Golden Rule and take it to be their most meaningful moral guidepost. From a religious point of view, the deity's laws are absolutes that must shape the whole of one's life, including work. Faith, rather than reason, intuition, or secular knowledge, provides the foundation for a moral life built on religion. Libertarianism: Contemporary philosopher Robert Nozick built an ethical theory rooted in personal liberty. For him, morality coincided with the maximization of personal freedom. Justice and fairness, right and wrong are measured not by equality of results (such as wealth) for all, but from ensuring equal opportunity for all to engage in informed choices about their own welfare. Hence Nozick took essentially a free market stance toward ethics. Virtue ethics: In recent years, an increasing number of philosophers have argued that the key to good ethics lies not in rules, rights, and responsibilities but in the classic notion of character. As Plato and Aristotle argued, attention should be given to strategies for encouraging desirable character traits such as honesty, fairness, compassion, and generosity. Aristotle believed that virtue could be taught much as any other skill. Virtue ethics applauds the person who is motivated to do the right thing and who cultivates that motivation in daily conduct. A part of the argument is that such persons are more morally reliable than those who simply follow the rules but fail to inspect, strengthen, and preserve their own personal virtues. 2-8

9 37. (p. 51) Compare and contrast teleological ethical systems with deontological ones. Give an example of each. Teleological ethical systems (often referred to as consequentialist ethical systems) are concerned with the consequences of an act rather than the act itself. A teleological view of life concerns itself with ends, goals, and the ultimate good. Duty and obligation are subordinated to the production of what is good or desirable. For the teleologist/consequentialist, the end is primary and that end or result is the measure of the ethical quality of a decision or act. For example, Sarah is the president of a company that must become more profitable to stay in business. She believes it would be better if all employees took a 10 percent pay cut, instead of laying off 10 percent of the workers, as this would benefit the greatest number of people and would not severely harm anyone. To the deontologist, on the other hand, principle is primary and consequence is secondary or even irrelevant. Maximizing right rather than good is the deontological standard. The deontologist might well refuse to lie even if doing so would maximize good. Deontology, derived from the Greek word meaning duty, is directed toward what ought to be, toward what is right. Relationships among people are important because they give rise to duties. Deontology considers motives. For example, why a crime was committed may be more important than the actual consequences of the crime. 38. (p. 67) What is a major criticism of the Foreign Corrupt Practices Act? The FCPA has been controversial from the outset. Some businesspeople see it as a blessing both because it is an honorable attempt at a firm moral stance and because it is often useful for an American businessperson abroad to say, "No, our laws forbid me from doing that." On the other hand, some have seen the act as damaging to our competitiveness. Now other nations are recognizing that corruption is a great risk to the global economy. Once believing that bribery aided the poor, most industrial countries are now moving toward the zero tolerance view held by the United States. 2-9

10 39. (p ) Discuss white collar crime in the U.S. and how the federal sentencing guidelines impact it. Martha Stewart served five months in prison, the Enron bosses were successfully prosecuted, and dozens of other prominent executives and corporations have been punished in recent years. While great corporations have collapsed and many good people have lost their life savings, we can find some satisfaction in a system that brings the mighty to justice. The scandals, however, persist. Executives are now threatened with jail for their roles in stock option backdating schemes. The subprime mortgage mess, only beginning to unfold at this writing, may produce a new round of prosecutions. Accounting manipulation, bribery, inside trading, consumer fraud, price fixing, and the like continue. In late 2007, Forbes, the business magazine, summed up the disturbing situation with the headline: "Corporate Crime Wave Unabated." The 2007 PricewaterhouseCoopers Global Economic Crime Survey found that over 43 percent of the 5,400 companies surveyed in 40 nations reported having been victims of at least one substantial economic crime during the two previous years. Significantly, the report concluded that companies cannot rely on internal fraud controls alone to stop this misconduct. One of the results of the failure to control crime, as The Wall Street Journal reported, is that corporations and their bosses may be at greater risk of prosecution than ever before in American history. Federal sentencing guidelines, issued by the United States Sentencing Commission, provide ranges (e.g., months imprisonment) within which judges are advised to impose sentences. Relying on the crime's "offense level" and the defendant's "criminal history" the punishment range for each category of both white-collar and "street" crime is established. The guidelines are designed to provide greater predictability and consistency in punishment. Companies must develop programs to prevent and detect crime, provide ethics training and monitor the success of compliance efforts. Responsibility for compliance rests explicitly with the board of directors and top-level executives. Companies, directors and officers complying with the guidelines may receive leniency while those engaging in aggravating behaviors such as a leadership role in crime may face increased punishment. Recent Supreme Court decisions have undercut the power of the guidelines by restoring federal judges' authority to deviate from them. Judges who follow the guidelines are presumed to have acted reasonably, but departures from the guidelines are now permissible. One of the results of the Supreme Court rulings is that sentences, for at least some classes of crime, are likely to be somewhat more lenient than under strict conformity to the guidelines. 2-10

11 40. (p. 71) Identify three provisions of the 2002 Sarbanes-Oxley Act that are designed to address corporate crime. Among its major provisions, the Sarbanes-Oxley Act (1) establishes an independent board to oversee the accounting profession. (2) Requires corporate executives to personally certify the accuracy of their financial reports. (3) Creates new crimes and raises penalties to as much as 25 years imprisonment along with heavy fines. (4) Requires publicly traded companies to establish internal control systems designed to assure the accuracy of financial information (Section 404, perhaps the key provision). (5) Requires publicly traded companies to disclose whether they have adopted an ethics code for senior financial management, and if not, why they have not done so. 2-11