CHAPTER 1. Ethics and the Law. OVERVIEW. A brief overview of several theories of ethics and systems of justice. Business ethics defined and discussed in relation to economic performance.
Ethics and the Law
Utilitarianism- a major teleological system of beliefs that operates under the proposition that the ideal is to maximize the total benefit for everyone involved.
FACTS. The Bristol Hotel in New York City was leased to Salmon for twenty years, 1902-1922. Salmon and Meinhard entered into a joint venture agreement, with Meinhard as the financial backer. Meinhard agreed to pay for half the moneys needed to operate the property, in exchange for 40% of the the net profits for the first five years and 50% for the years thereafter. In 1922, Elbridge Gerry became the owner of the property and entered into a 20 year lease agreement with Salmon for the hotel and the surrounding property. Meinhard demanded to be included in the lease but was turned down. Meinhard sued.
ISSUE:Did Salmon, as Mienhard’s joint venturer, have a relationship of trust (or fiduciary duty) to Meinhard that obligated him to give Meinhard the opportunity to be included in a new lease covering property that was originally leased by Salmon on behalf of the joint venture? HELD: A fiduciary is held to ethical standards “stricter than the morals of the marketplace”. The court awarded one-half the lease to Meinhard.
Issues of social responsibility arise in the areas of product safety, the environment, sweatshops and underpaid foreign workers, advertising campaigns, antitrust violations, client conflicts of interest, managed earnings, and Internet companies.
Socially responsible businesses place a heavy emphasis on the safety of their products. Huge costs have been associated with failure to meet the public’s perception of what is safe.
Closely akin to product safety is environmental safety. Disregard for safety has resulted in some spectacular environmental disasters that have severely hurt the surrounding communities.
Shell and Brent Spar and Nigeria
In March 1997, Shell released a new operating charter reflecting a commitment to the environment, health, safety, and human rights.
ROLE OF THE LAW
The law -civil as well as criminal- plays an important part in promoting ethical conduct. Ethical behavior often requires a higher standard than that prescribed by the law; an action that is unethical may nonetheless be legal.
FACTS. Arizona Oncology Services, Inc. (AOS) employed a radiology technician knowing she had a history of drug abuse. After finding out she was high on cocaine while on the job, she was dismissed for the day. She left the premises and ran into the plaintiff’s vehicle, seriously injuring him. ISSUE. Does AOS had a duty to act reasonably to protect third parties from foreseeable risk of harm? HELD. Plaintiff’s case dismissed, foreseeability alone does not create a legal duty to Plaintiff.
FACTS. John Park, CEO of Acme Markets, Inc., was informed of violations (rat infestation) by his company from the FDA in 1971. Park was told by his employees that the vice-president was taking care of the matter. In 1972, the FDA found evidence of the same violations. ISSUE: Can the CEO of a company be held vicariously and strictly criminally liable under the Federal Food, Drug and Cosmetic Act for the introduction of misbranded and adulterated articles into state commerce? HELD: Yes. CEO held vicariously and strictly criminally liable for acts of corporation because CEO had authority to maintain physical integrity of product.
The Federal Corporate Sentencing Guidelines provide a rating system, including aggravating and mitigating factors, to determine the appropriate sentence for companies convicted of federal crimes.