Professional and Business Ethics: Prof. Peter Hadreas Spring, 2014

1
Professional and Business Ethics

Prof. Peter Hadreas

Spring, 2014

Course Website:
http://www.sjsu.edu/people/peter.hadreas/courses/P
rofandBusEthics/

2
Specific Workplace Ethical
Troublespots

Human Resources Issues
People Issues

Trevio and Nelson textbook, pp. 113-148.

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Discrimination Issues

Trevio and Nelson textbook, pp. 114-122

4
Three Conditions of Workplace Prejudicial
Discrimination

1. A decision is made about an employee not
by merit, but about employees membership
in a group.

2. The decision assumes employees group
is morally inferior and thereby deserving of
unequal treatment.

3. The decision causes the employee harm.

5
Benchmarks of Anti-Discrimination Legislation

1. 1964 -- Civil Rights Act of 1964. Title VII (about
Employment) applies to all employers, whether public
or private with 15 employees or more:
It shall be unlawful employment practice for an
employer (1) to fail or refuse to hire or to discharge any
individual or otherwise discriminate against any
individual . . . because of an individuals race, color,
religion, sex or national origin; . . .

2. 1967 -- Age Discrimination in Employment Act.
Extends to people 40 years old and older.

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Benchmarks of Anti-Discrimination Legislation

3. 1972 -- The Equal Employment Opportunity Act. It founds
Equal Employment Opportunity Commission (EEOC) which has
capacity enforce various statutes and decisions and to prosecute
complaints of job discrimination.

4. 1993 -- The Family and Medical Leave Act or FMLA, passed
by US Congress. Employers with 50 employees or more must
provide up to 12 weeks of unpaid, job protected leave a year to
employees who have worked for at least one year to care for: 1) a
newborn; 2) newly adopted or foster child; 3) a child, spouse or
parent with a serious health condition; or, 4) for the serious
health condition of the employee.

5. 1994 -- Americans with Disabilities Act. (Proposed in 1990)
textbook, p. 118.

7
Seven Protected Categories of Federal Anti-
Discrimination Law

1. Race
2. Color
3. Religion (creed)
4. Sex (gender)
5. National origin (ethnicity)
6. Age
7. Disability

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QUESTION

In 1996, a majority of California voters passed
Proposition 209. It changed the language of Art. I
31 of the California State Constitution to read:

Sec. 31. (a) The state shall not discriminate against, or grant
preferential treatment to, an individual or group on the basis of
race, sex, color, ethnicity, or national origin in the operation of
public employment, public education or public contracting.

Does that mean that preferential treatment,
Affirmative Action, according to race, sex, color,
ethnicity or national origin is illegal in California?

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Sexual Harassment--Definition

I- Qui pro Quo Harassment
1. Unwelcome sexual advances or requests for sexual favors
when submission to such conduct, implicitly or explicitly, is made
a condition of employment.

2. 1. Unwelcome sexual advances or requests for sexual favors
when submission to such conduct, implicitly or explicitly, is made
a basis for employment decisions affecting an individual.

II -- Hostile Work Environment Harassment
Repeated sexual advances or sexual innuendos (this may involve,
for example, raunchy jokes or lewd name calling) which interfere
with an individuals work performance by creating a hostile,
intimidating and/or offensive work atmosphere.
textbook, pp. 118-119.

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Basic Legal Distinction Between Types of
Wrongdoing: Crimes vs. Torts
CRIMES

1. A public wrong against
Society.
2. 'Plaintiff' (prosecutor) is
the state (offended person is
usually a witness).
3. Mostly statutory law.
4. Prosecutor's burden of
proof: guilty beyond a
reasonable doubt.
5. Consent rarely a defense.
6. No damages are necessary
7. Basis for criminal guilt: an
intentional act and
sometimes gross negligence
or recklessness.
TORTS

1. A private wrong against
individuals or businesses.
2. Plaintiff is an individual or
business.
3. Mostly common law.
4. Plaintiff's burden of proof:
preponderance of
evidence.
5. Consent usually a defense.
6. Damages must be shown.
7. Basis for tort liability: an
intentional act, negligence
(determined by
reasonable person standard).

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THE REASONABLE PERSON STANDARD

The reasonable person standard involves the legal
fiction of the reasonable person. The reasonable
person is not the average person. The
reasonable person possesses the general
knowledge of the community at issue but necessarily
acts reasonably.

The reasonable person takes into account:
the likelihood his/her act will cause harm to others.
the extent of the harm.
the possibility of taking alternative actions of lesser
risk and harm.

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Applying the Reasonable Person
Standard in Sexual Harassment Cases:

The Reasonable Woman Standard?

13
Ellison vs. Brady (1991, Ninth Circuit Court Appeals
Case)
Kerry Ellison worked as a revenue agent for the
Internal Revenue Service in San Mateo, California.
During her initial training in 1984 she met Sterling
Gray, another trainee, who was also assigned to the
San Mateo office. The two co-workers never became
friends, and they did not work closely together. . . .
In June of 1986 when no one else was in the office,
Gray asked Ellison to lunch. She accepted. Gray
had to pick up his son's forgotten lunch, so they
stopped by Gray's house. He gave Ellison a tour of
his house.

14
Case)

Ellison alleges that after the June lunch Gray
started to pester her with unnecessary questions
and hang around her desk. On October 9, 1986,
Gray asked Ellison out for a drink after work. She
declined, but she suggested that they have lunch
the following week. She did not want to have lunch
alone with him, and she tried to stay away from the
office during lunch time.
15
Case)

October 22, 1986 Gray handed Ellison a note he
wrote on a telephone message slip which read:

I cried over you last night and I'm totally drained
today. I have never been in such constant term oil
(sic). Thank you for talking with me. I could not
stand to feel your hatred for another day.

When Ellison realized that Gray wrote the note, she
became shocked and frightened and left the room.

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Case)

Ellison asked a male co-worker to talk to Gray, to tell
him that she was not interested in him and to leave her
alone. . . . on the following Monday, she started four
weeks of training in St. Louis, Missouri. Gray mailed her
a card and a typed, single-spaced, three-page letter. She
describes this letter as "twenty times, a hundred times
weirder" than the prior note.

17
Case)

Gray wrote, in part:

I know that you are worth knowing with or without
sex.... Don't you think it odd that two people who have
never even talked together, alone, are striking off such
intense sparks ... I will [write] another letter in the near
future.

Explaining her reaction, Ellison stated: "I just thought he
was crazy. I thought he was nuts. I didn't know what he
would do next. I was frightened."

18
Case) included in decision of Robert R. Beezer and
Alex Kozinski, Circuit Judges:

We adopt the standard of a reasonable woman
because a sex-blind reasonable person standard
tends to be male-biased and tends to systematically
ignore the experiences of women. . . . We reverse
the district court's decision that Ellison did not
allege a prima facie case of sexual harassment due
to a hostile working environment. . . .
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Sexual Harassment--
Whos Liable?

An employer --or its agents or supervisory
employees -- is liable when it knew or should have
known of the conduct unless the employer can
show it took immediate and appropriate corrective
actions.

Under current law, its difficult for an employer to
claim lack of knowledge of offensive conduct, since
if the employer had some knowledge of offensive
incidents, the employer was obligated to investigate
the reports.
20

Conflict of Interest Issues


21
Conflict of Interest Defined

A conflict of interest occurs when your judgment
or objectivity is compromised. The appearance of
conflict of interest when a third party could think
your judgment has been compromised is
generally considered just as damaging as an actual
conflict.

Trevio and Nelson textbook, p. 123.
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Conflict of Interest

QUESTION

Why do you think that potential, that is,
merely the appearance of conflict of interest
is illegal and unethical, along with actual
conflict of interest?

See Trevio and Nelson textbook,Why Is It an Ethical Problem? p. 126.
23

Overt Bribes or Kickbacks
Subtle Bribes
Influence
Privileged Information

Trade Secrets
Insider Trading


24
Overt Bribes or Kickbacks
and Subtle Bribes Defined
Overt Bribe: remuneration or valuable goods offered to
person(s) for favorable consideration in a future
transaction. The remuneration or goods are outside of
the work contract.

Overt Kickback: the payment of an additional
percentage of cost, outside of the work contract, to
person(s) that are able to influence or control the
source of income.

Subtle 'Bribes': Gifts, outside the work contract, which
create a sense of preferentiality, indebtedness or
favoritism towards a client or vendor.
Trevio and Nelson textbook, pp. 123-4.
25

Influence
Personal conflict of interest

Your relationship with someone in itself can
constitute a conflict of interest. For example, if
youre in charge of purchasing corporate
advertising and your cousin or neighbor or college
friend owns an advertising agency, it will be
considered a conflict if you make the decision to
hire than firm. That doesnt preclude the firm from
the bidding, but it does preclude you from making
the decision.

Trevio and Nelson textbook, p. 124.

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InfluenceExamples

Personal Conflict of Interest through
Influence: Jeffrey Skilling, president of
ENRON, hired his girlfriend (later wife)
for a salary of $600,000 per year.
Skilling is currently serving a 24 yrs. 4
mos. prison sentence.

Company-wide Conflict of Interest
through Influence:
The accounting firm, Arthur Andersen,
compromised audits of ENRON to
maintain their consultant contracts
with ENRON. Arthur Andersen
voluntarily surrendered its licenses to
practice as C. P. A.s in 2002.
Jeffrey Skilling and
wife, Rebecca,
Carter in 2006.
27

Trade Secrets

Unlike copyrights (owned for life of author + 50
years), patents (owned 17 years) and trademarks
(owned 10 years but renewable), trade secrets last
as long as they can be kept secret. The formula for
Coca-Cola, for example, is a legendary trade secret.
The formula is not patented. It is owned by being
kept secret. Any formula, pattern, device or
compilation of information which gives a company
an advantage over its competitors can count as a
trade secret. Employees who disclose such trade
secrets violate the confidentiality owed to their
employers.
28

Insider Trading -- Defined

The buying or selling of stocks or other securities
by business insiders on the basis of information
that has not yet been made public and is likely to
affect the price of the stock.

Shaw, William H. and Barry, Vincent, Moral Issues in Business, 11
th
Ed. (Belmont,
CA: Wadsworth, 2010), p. 542.
29

Insider Trading Whos an Insider?

Corporate executives, directors, officers and other
key employees are insiders.

Employees a company temporarily employs such as
accountants, lawyers, and contractors.

th
Ed. (Belmont,
30

Insider Trading Whos an Insider?

Non-insiders can still be prosecuted for insider
trading if theyre outsiders whove obtained their
information from an insider who breaches a legal
duty to the corporations shareholders for personal
gain or to show favor to friends.

th
Ed. (Belmont,
31

Insider Trading Whos an
Insider?
How Martha Stewart Became an
Insider Trader

The CEO of ImClone Drugs, Dr. Sam
Waksal, found out, before it was made
public, that the Food and Drug
Administration was not going to approve
their new cancer drug. Waksal knew when
the news was released ImClones stock
would plummet. So Waksal quickly and
quietly sold his stock in ImClone and told
his father and daughter to do so as well.
Shaw, William H. and Barry, Vincent, Moral Issues in
Business, 11
th
Ed. (Belmont, CA: Wadsworth, 2010), p.
543.
32

Insider Trading Whos an
Insider?
How Martha Stewart Became
an Insider Trader

Dr. Waksal also told Martha Stewart
who sold her ImClone stock one
day before the FDA announced its
decision. Since Waksal was an
insider, breaching his duty to
shareholders for personal gain,
and Martha Stewart acted on
information she obtained from him,
she became an insider trader.
33

Insider Trading Whats Wrong With It?

Conflict of of interest problem:
Insiders or company associates financial gain
is made at the expense of the companys
shareholders.

Free trade problem:
Insider information undermines the possibility
that outsider investors have an equal opportunity to
research and prudently select investments.

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Specific Workplace Issues:
(Textbook, Chapter 4)

Main Areas (Continued):
> Use of Corporate Resources (pp. 131-136)
> Blowing the Whistle (pp. 138-144)

35
Use of Corporate Resources

Use of Corporate Reputation
Corporate Financial Resources
Providing Honest Information

Trevio and Nelson textbook, pp. 131- 136.
36
Use of Corporate Reputation
1. Company letterheads should only be used for company
business.

2. Posting sensitive information about your boss or coworker
on social networking sites can be interpreted as youre
speaking as as employee of your company. As a result
discrimination and privacy issues arise.

3. Dealing with reporters. This is tricky business and shouldnt be
attempted by a novice. What off the record means: For the most
part this means the reporter wont quote you directly or attribute any
remarks to you. But, you cant tell a reporter that your remarks are off
the record after the fact. But the very best way to make sure that your
remarks are off the record is not give the information to the reporter.

37
Use of Corporate Financial Resources
Simile II [a software company] provides an ethics game
entitled: Where Do You Draw the Line. One of the
scenarios:

Which of the following is justifiable:
1. Taking $10 worth of pencils from your company and
distributing them to poor children.
2. Making $10 worth of long-distance calls at work.
3. Taking $10 from the petty cash drawer.
N o n e o f t h e m . T h e b o t t o m l i n e i s t h a t c o r p o r a t e
e q u i p m e n t a n d s e r v i c e s s h o u l d b e u s e d o n l y f o r
c o m p a n y p u r p o s e s .
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Proving Honest Information
Issue often arises as managers feel it necessary to put a
positive spin on financial reports.

Understand that putting a positive spin on financial data
can have serious consequences since senior management
may make crucial decision based on flawed data.

Further, in the case of the manager wishing to delay
expenses until after he or she leaves the area, s/he not
only harms the person who is taking his place. Its
grossly unfair to ask supplier to wait almost 60 extra days
before getting paid.
39
When All Else Fails:
Blowing the Whistle
40
How to Blow the Whistle

1. Approach Your Immediate Manager First.
(Generally do should bring up the issue a few
times if left unheeded at first. In a second
attempt, speel out your concerns in a
memo.)
2. Discuss the Issue with Your Family.
(Can affect your family as well as yourself.
Keep a diary of the activities related to the
issue).
textbook, pp. 140- 144.
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3. Take it to the next level.
(Even though theres been no satisfaction
from your supervisor, generally a good idea
to ask her/him if s/hell go with you to the
next level of management.)
4. Contact Your Companys Ethics Officer or
Ombudsman. (Also find out your states
protections for whistle-blowers. See
Sarbanes Oxley legislation -- applies to
publicly traded corporations. See MBE, p. 143)
42

5. Consider Going Outside Your Chain of
Command. (Does issue apply to Human
Resources? Internal auditors? Legal
department?
6. Go Outside of the Company.
(Contact regulators? Press? Understand
effect on whistle-blowers of False Claims
Act; understand same by Dodd-Frank Wall
Street Reform and Consumer Protection
Act, (MBE, pp. 142-3)
43

7. Leave the Company.

(Whistle-blowing is so stressful that in one
study, one-third of whistle-blowers
surveyed would advise other people not to
blow the whistle at all. MBE, p. 144.) But,
what sort of situations might make leaving
the company not conscionable?
An alternative: find another job and then blow
the whistle.
44
Ethics
as
Organizational Culture

Corresponds to chapter five
of Nelson and Trevio textbook.
45
1. slide # 26, photo of Jeffrey Skilling and his wife, Rebecca Carter:
www.usatoday.com/money/ industries/energy/2006...
2. slides # 31 and 32, photo of Martha Stewart:
http://roccosrevolution.com/2011/01/31/martha-stewart-wasnt-put-on-this-earth-to-dance-
and-sing/

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