Research Proposal: Business and Society Ethics

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Business Ethics

Dick Grasso was paid compensation that was deemed to be excessive. Grasso's compensation at one point was in the same ballpark as what the NYSE made. The scandal had poor optics - it looked bad on the NYSE to have paid their top executive so much.

The stakeholders are Grasso, the NYSE, and Eliot Spitzer. Grasso's stake is personal reputation and over $100 million. The NYSE's stake is their reputation. Spitzer's stake is also reputation, that of himself and that of the state of New York's control over the stock market.

The NYSE has no social responsibility to pay Grasso a salary within any band. The board of directors of the NYSE is free to pay Grasso whatever they want, and he is free to accept it. There is no logical or ethical reason for Spitzer and the state to become involved, other than the optics.

Ethically, there is nothing wrong with offering or accepting substantial amounts of compensation. The board of directors of the New York Stock Exchange is responsible to those entities with an ownership stake in the exchange and nobody else. They are all financially savvy individuals and part of their job is to understand executive compensation. Therefore, it is reasonable that they paid Grasso an amount that they felt was fair. No ethical issue can come from that. It may look bad in the public eye, but Grasso's compensation is a professional matter between him and the board. The firing of Grasso smacks of political pandering, and was unjust. Ethically and legally, a firing should be conducted on the basis of job performance, not optics.

Case 7: Character is an essential component of leadership. A business is an organization of people, working towards a goal. The leader must be able to lead the people, and to do that must have their respect. Moreover, the CEO role is a position of trust. The board is entrusting the CEO with substantial amount of power and control. The CEO has that control on the understanding that they are working on behalf of the shareholders, and working in the best interests of other key stakeholders such as the employees. If a CEO lacks integrity, that will trickle down through the organization, as was endemic at Tyco in the early 90s, for example.

The waiter rule is simplistic, but reasonable. When a person is in a position of power, others see them and treat them differently. The key to the waiter rule is that it represents the removal of the veil - you see the person for how they really are rather than how they want you to see them. In that regard, the rule is effective. But it is by no means foolproof. A single incident is not always a valid way in which to judge a person's character. Character is a trait that often emerges over time. The waiter rule is valid is a rule of thumb, but is not something that should be relied upon for a position as important as that of the CEO.

I do agree that boards should consider character when hiring for executive positions, simply because of the level of control executives have, but the waiter rule is not the most effective way to judge character. Moreover, it has been presented as a critical component of CEO hiring, and that is entirely absurd. There are many important parts to the CEO's role, and the waiter test only tests one of those components, and not very well. While I can understand the underlying principle of the waiter rule, its practical application is problematic.

Case 10: Martha Stewart traded stock based on information that Sam Waksal and his family had dumped ImClone stock. The Waksal clan had done this prior to a public announcement about the failure of their new cancer drug to receive FDA approval.

The stakeholders were Stewart, Stewart's broker and the government. Ultimately, the Waksals were not directly involved in Stewart's ethical situation. The issue was whether or not it was unethical to dump ImClone stock based on the information she had. One of the fundamental principles of the market is that it must work fairly for everybody.

What Stewart did was illegal and unethical. I do not feel that she was a scapegoat, except maybe in the media. Many other corporate scandals of the era were resolved with serious jail time; Bernard Ebbers of WorldCom received twenty-five years for his crimes. Stewart's crime was different ethically because she did not directly hurt others, but rather hurt them by proxy by undermining the integrity of the stock market.

The sentence for Stewart was fair. Five months is a tough stand, but in the grand scheme of things it is a light sentence. If I was on the board of MSO, I would not hesitate to bring Ms. Stewart back as an executive. Her ethical misjudgment occurred with her own stock portfolio. There is no evidence that she compromised MSO with her actions. Furthermore, she built the company herself and has proven herself successful in the position.

Her history does not affect my opinion on her products. I feel she made a poor decision, but that her offense is hardly so grave as to warrant an unforgiving attitude.

Case 13: The case surrounds the issue of whether ethics in golf relate to ethics in business. Most CEOs cheat at golf, yet few think they cheat at business. But is it ethical to cheat at golf?

I do feel that we live in a cheating culture. The fact remains that rules are only as good as their enforcement. This is probably one key difference between cheating on the course and cheating in the boardroom. Golf is not managed by strong rule of law - transgressions are rarely prosecuted and punishments, if any, are minimal. Therefore golf course ethics are not an indictment of an executive's character in business. However, they are a measure of the executive's character. If the executive cheats at golf, they are liable to cheat in business, at least when they consider the stakes or the punishment to be low.

But it is that dichotomy surrounding the rule of law that differentiates ethics in one's personal life with those in their professional life. The rule of law plays a significant role in curbing one's tendencies towards unethical behavior. Businesspeople are accustomed to making rational decisions. Therefore, if the punishment for transgression is severe, they will behave ethically. For most of us, ethical transgressions in our personal lives are not punished severely. In the golf game, the punishment is never going to be severe. In business, the CEO could lose his job or go to jail. This marks a fundamental difference between the two situations.

Another fundamental difference is the nature of the rule. Golf rules are, for those not competing in the professional ranks, somewhat arbitrary. A wager is an informal competition, guided only by the rules the competitors agree to. In business, the rules are not arbitrary, but codified laws set out to ensure a high standard of behavior. Moreover, while CEOs on the course are merely hacking around, they are top-level professionals in business.

Case 15: The ethical issue in this case is whether to follow the company rules or not. A second ethical issue exists with regards to Jane's duty to the other sales reps.

In this situation, Jane should have simply filled her expense reports out properly, as she was trained to do. This would absolve her of any ethical issues with regards to the company. Jane owes no duty to the other reps, and therefore there is no ethical quandary with regards to exposing their fraud. Her only duty is to the company and as long as she fulfills that duty, she has no ethical or legal issues to worry about.

For Jane, if she reported the expenses properly, she may have been out of pocket on occasion. However, she would have been in solid legal standing, and the company would have paid her what she was owed. Had she inflated the expense report, she was at risk of losing her job.

Deontological principles could guide Jane here. Ann is appealing to a consequential logic, one in which a small wrong should be committed because the outcome could be negative for others. However, Jane needs to consider that the outcome is only negative because the others have transgressed in inflating their expense reports. Had they behaved ethically in the first place, they would not be exposed. Jane should therefore focus on doing the right thing herself, since her only duty is owed to the company and to herself.

Case 17: There are many ethical issues in this case. First is the issue of whether a person can be considered "illegal," especially in a land almost exclusively populated by immigrants. The second is with regards to the primary responsibility of business. The third is with regards to the primary responsibility of government. Illegal immigration, therefore, is… [END OF PREVIEW]

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