The notion of corporate moral responsibility has expanded significantly

Business Ethics


The notion of corporate moral responsibility has expanded significantly


Case (20


The notion of corporate moral responsibility has expanded significantly in the past few decades, according to Manuel Velasquez, chair of the Santa Clara University Management Department. The Charles Dirksen Professor in Ethics provided a theoretical look at the topic in a presentation for the June 13, 2006, meeting of the Business and Organizational Ethics Partnership. Katie Tillman Buck, associate director of corporate affairs and ethics at Affymetrix, followed Velasquez with a description of how her company, a leading supplier of genetic diagnostic research equipment, approaches corporate moral responsibility. Moral responsibility can be interpreted two ways, Velasquez said: in terms of obligation or duty; or in terms of culpability. “The notion of moral responsibility that we have, both in the law and in our everyday lives, is fairly straight forward,” Velasquez explained. “A person or an agent or a party is morally

responsible for an injury if 1) they caused it, 2) they knew what they were doing, and 3) they could have prevented it.” This concept applies to corporations as well. Traditionally, a company was morally responsible for injuries it inflicted provided the same three factors held. However, the idea of moral responsibility has been expanding over the years. “During the second half of the 20th century, a company was held responsible for injuries users of its products inflicted on themselves,” he said. “The company is held morally responsible provided they knew about it in some way, or should have known about it, and it could have prevented it.” This interpretation expanded even further with the idea of strict liability. “A company is now held responsible also for injuries users inflicted on themselves, even when the company could not have prevented it,” Velasquez said. Over the last couple of years, a company’s scope of moral responsibility has even extended upstream (to suppliers) as well as downstream (to endusers). “During the last 20 years or so, there are a number of companies that have been held morally responsiblenot  legallybut in the eyes of the

public have been held morally responsible for injuries that their suppliers have inflicted on some third party,” he noted. Companies in the apparel industry, toy manufacturing, electronics assembly, and others have been perceived as accessories to the mistreatment of workers by their suppliers, even if they have not been directly involved. Many now try to prevent that by doing onsite inspections. Downstream responsibility has also expanded in the last two decades or so. “Companies have been held morally responsible for injuries which they did not inflict on somebody else, injuries in which their product was not defective, but injuries in which one of their customers used one of their products to inflict an injury on a third party,” he said. Gun manufacturers and bar owners are two notable examples. “It’s odd when you think about it, because this differs pretty substantially from that first notion of moral responsibility with which we began, where a party is morally responsible for an injury they inflict on another person knowingly and being able to prevent it. This is a very stretched notion of moral responsibility that’s being used today,” he said. This brings up two theoretical questions: 1) To what extent is a company morally responsible for the way in which its customers use its products? 2) How can a company minimize its exposure to this kind of moral responsibility? The second question is commonly dealt with before the fact by monitoring who buys the products (for example, checking the background of potential gun buyers) or after the fact by using publicists and lawyers. But as one attendee of the BOEP meeting noted, many companies do not want to answer the firstquestion because they are afraid of the answer. By asking the question, they become responsible for monitoring their product’s use. Such reluctance has not been the case with the Santa Clara, Calif., company Affymetrix. “There’s this awareness in the general community as well as the genetics community that genetic information is powerful,” Buck acknowledged. The Affymetrix technology, for example, can put 6.5 million discrete pieces of genetic information on a single chip. “It can be used for a lot of great

things, and it can probably be used for a few bad things.” According to Buck, Affimetrix understands that exploring the ethics of how its chips are used is ultimately in the company’s best interests. “Our interests looking into these issues of moral responsibility, looking at these ethical issues, really melds very well with what our business goals are,” Buck explained. “We’re at the stage where

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not being thorough, getting embroiled in something that just feels bad to people, would be bad for us and would be bad for the technology’s ability to address all those markets we want to be in.” The company has taken a proactive approach to these concerns, setting up an Ethics Advisory Committee to address moral and ethical issues. The committee consists of seven external participants who have varied backgrounds, including law, anthropology, genetics, bioethics, and sociology. They offer independent, noncorporate views on the issues. “They’re very different. We actually picked them not with the idea that they wouldn’t get along, but with the idea that they wouldn’t agree. Our goal at these meetings is to really get everything out on the table,” she said. The

committee meets four times a year. “We always have two or three executives in the room, as well as a selection of people from throughout the organization,” Buck said. Her goal over the past five years has been to embed the idea in the corporate culture that

ethics are important and that this committee is available to people throughout the organization. Discussions vary at the meetings. “A lot of what we talk about at the Ethics Advisory Committee is completely hypothetical. It’s becoming less hypothetical over time. It’s becoming more and more realistic now,” she said. “But we’re really trying to get ahead of the ball.” One issue the committee has looked at has been newborn screeningthe practice of automatically testing newborns for existing diseases and conditions before they leave the hospital. Even though Affymetrix products are not currently used in newborn screening, they could be, so the committee has addressed issues such as informed consent, genetic privacy, storage of samples, the need for federal regulations, etc. Putting ethics into practice The committee has discussed less hypothetical situations as well. For example, the company received a proposal from an Israeli company that intended to use an Affymetrix chip to test for disorders common to that population, including TaySachs disease. It included several other disorders, as well, both treatable and untreatable, in addition to lateonset diseases, with no indication of when the testing would be done. The proposal also indicated that the company intended to market a Palestinian chip, and even a Swedish chip. The red flags this project raised (possible geopolitical implications and questionable genetics, among others) concerned Affymetrix. Additionally, Affymetrix determined that the company was more of a marketing firm than a genetic testing company, so they declined to be involved with the project. “That wasn’t really the first thing we wanted to do coming out of the gate, so we passed on that,” Buck said. The constant emergence of new markets for genetic technology means new questions every day. “This is a new industry. This is new research people are doing,” Buck noted. Taking part not only in internal discussions about moral responsibility, but national discussions as well, “being informed on what’s going on and weighing in on the things that are particular to the kinds of data that we’re generating” is a way of helping shape the moral climate of the industry as well.

Answer the following question.

Q1. Discuss the Ethics of Product Usage.

Q2. How the Moral responsibility can be interpreted. Explain.

Case (20 Marks)

Most people want to be ethical — and consider themselves to be. But incidents ranging from stolen library books to rogue trading illustrate that many people do not act as ethically as they want to, or as they think they do. “With all the evidence to support rational, good choices in the workplace or the marketplace, why don’t we all behave that way?” said Ann Skeet, director of leadership ethics at the Markkula Center for Applied Ethics at Santa Clara University. Skeet gave an introduction to a May 11 forum called, “The Behavioral Movement: What Business Professionals Should Know About Human Nature,” sponsored by the Business Ethics Partnership of the Markkula Center. Two speakers addressed what we know about why people behave unethically – and how the

conditions that contribute to this behavior may be particularly acute in highpressure

environments like Silicon Valley. “The culture of Silicon Valley is different than in most other places,” said Hersh Shefrin, the Mario L. Belotti Professor of Finance at Santa Clara University’s Leavey School of Business and a pioneer in the field of behavioral finance. “This is a risktaking culture and a culture where goals are set very high.” This can make Silicon Valley workers especially vulnerable to the pressures that can lead to unethical decisions. For example, the increasing use of global teams, which can require phone calls early in the morning and late at night as well as regular hours in the office, may contribute to fatigue – a risk factor for poor decisionmaking. Still, Shefrin said, “we’re not as unique as we think we are – just more so.” Workers in Silicon Valley are subject to the same psychological issues as workers anywhere else. For example, all workers have blind spots, said Ann E. Tenbrunsel, professor in the College of Business

Administration at the University of Notre Dame and the Rex and Alice A. Martin Research Director of the Institute for Ethical Business Worldwide. She addressed the psychology of ethical decision making, or “why people behave unethically despite the best intentions.” There have been significant efforts to improve ethics: at the regulatory level; at the organizational level, with millions spent on training; and at the educational level, with ethics being infused into the curriculum at many universities, Tenbrunsel said. Still, the headlines announcing bad behavior keep coming. “We haven’t taken the psychology of the decision maker into account,” Tenbrunsel said. She listed four ethical blind spots that contribute to poor decision making — ethical illusions, ethical fading,

dangerous reward systems and motivated blindness — and elaborated on the first two. Ethical illusions are based on “illusions of our own ethicality,” Tenbrunsel said. She cited studies showing that library books on ethics – presumably checked out by people who think about ethics – are stolen more often than non ethics books. And when people are asked to rate how honest they are, a majority of people rate themselves above average, which is statistically not possible. “We really seem to engage in hyperinflation about things related to morality and ethicality,” Tenbrunsel said. “If everyone thinks their companies are ethical, we don’t do a good job of really trying to find the problems.” It helps to think of three stages of the decision making process, Tenbrunsel said: prediction, action and recollection. Before making a decision, people generally predict that they will act in accordance with their values. When it comes to taking action, that is not always what happens. But after the fact, “we remember that we did better than we did,” Tenbrunsel said. Why don’t people behave as they predict they will? One reason, said Tenbrunsel, is that prediction involves high level ideals, whereas the action phase is more about the details and what is feasible at that particular moment. Forces such as hunger, fatigue and fear come into play, for example, and may overwhelm idealistic plans. “The body and mind’s goal is to mitigate it,” Tenbrunsel said.

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Ethical fading, the second blind spot Tenbrunsel discussed, happens when a person making a decision doesn’t view the decision as one that involves ethics. People use financial criteria to make financial decisions and legal criteria to make legal decisions, for example. So if a decision can be categorized as something other than an ethical one, it makes it easy to not consider ethics. Language plays a role in this area, as well: For example, a decision about “runoff” may be viewed differently than one about “pollution.” Shefrin continued the conversation by examining rogue trading, an example of how “finance and psychology and ethics all interconnect.” Because trading involves taking risks, it is useful to understand the psychology behind risktaking. For example, most people will choose a sure gain over a smaller chance to win a larger amount. But they will choose the risk of a large loss over a sure loss. “Three of the most important emotions associated with what happens when you face a risk are fear, hope and aspiration,” Shefrin said. “People who are excessively fearful tend not to take risks that are worth taking in an actuarial sense, and people who are excessively hopeful tend to shoot for the stars when it’s not appropriate. In a situation like the rogue trading cases, traders find themselves in a situation where the pressures to succeed are so great that they take imprudent risks.” In addition to the psychology of the individuals involved, the strength of corporate processes and the way corporate culture encourages or discourages risktaking play a role. “Strong corporate cultures that include an ethical dimension can help deal with the vulnerabilities,” Shefrin said. “The tone always starts at the top.”

The notion of corporate moral responsibility has expanded significantly

Answer the following question.

Q1. Why imprudent risks are to be taken for great success. Explain

Q2. Debate the three stages of the decisionmaking


Case (20 Marks)

Annapolis, Sept. 9: Nudists not only get more complete sun tans but seem to have lower blood pressure than people who wear clothes, according to the Central Maryland Chapter of the American Heart Association. Mr. Morris Lieberman, a spokesman for the

Association, said tests performed on members of the Pine Tree Associates Nudist Camp in Crowns Ville, Maryland, over the past two years showed that Nudists had fewer cases of high blood pressure than the national average. He said that while the average nationally is 17 percent, the 1977 sampling found seven percent of the 163 Nudists tested had high blood pressure. In 1976, he said, only two percent of 150 Nudists tested had high blood pressure. One member of the Association suggested that “the only reason

we’ve come up with is because the members are less inhabited. They have a tendency to lower blood pressure because of a lack of inner pressures and a feeling of total freedom.”

Answer the following question.

Q1. Do you agree with the above case? What are your viewpoints for the same on the ethical issues?

Q2. Help to find out the facts of the above case and comment on the unethical issues

Case (20 Marks)

What’s on the minds of the people serving on boards or hoping to be? What can be learned about corporate governance trends by knowing the answer? What do the issues business executives are wrestling with add to the picture? Santa Clara University’s Markkula Center for Applied Ethics provides quarterly programming for Silicon Valley business executives through its Business Ethics Partnership. Stanford University’s Rock Center for Corporate Governance provides annual programming for board directors

and others aiming to explore corporate governance hot topics. The Silicon Valley Director’s Exchange, affiliated with the Rock Center, provides monthly programming on similar topics. I serve on the board of SVDx, staff the Markkula Center’s Business Ethics

Program and attended the recent Rock Center Director’s College at Stanford. Listening is perhaps an underrated activity, but opportunities to do so at these programs in the first six months of 2015 reveal these trends worth watching for the remainder of the

year and into 2016. They also helped to illustrate the shifts in corporate governance trends over the past decade. The pendulum is swinging back from concern solely with shareholders to a broader set of stakeholders, from the vantage point of the corporate

boardroom, based on comments across a variety of topical discussions and panels. Board directors and governance scholars readily accept a board’s role in protecting the interest of shareholders but can also now draw links to shareholder interests from the interests of other constituents, such as employees or the environment, when considering the impact of climate change. The introduction of KKR’s Green Portfolio, in partnership with the Environmental Defense Fund in 2007, is one example of direct ways environmental impact is being accounted for in business, but it is not the only way. Board directors are fully engaged on the impact to a company’s long term value not only of measures taken to ensure the company’s sustainability, but the planet’s as well. Thoughtful exchanges in discussions about public relations, mergers and acquisitions, and climate risk and opportunity as a disruptor suggest that directors accept that corporations need to account for broader interests because these interests do have an impact on shareholder value. Additionally, demographic trends, like the increase of millennial in the workforce, introduce a need to consider what those workers are seeking in their relationship with employers. Diversity of perspective has long been supported in research and practice as a goal boards should pursue when assembling participants. Corporations are experiencing greater vulnerability to activist shareholders if an investor’s point of view is not represented on the board in the current environment. The rise of LBOs and the reality that many activists are larger corporations than the ones they target highlight a balancing act being played out in boardrooms: acknowledge

more stakeholders as their interests affect share price over time but be sure current shareholders feel first among equals. At a minimum, add active investors to the matrix of skills to consider when seating an effective corporate board.

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Answer the following question.

Q1. Give an overview of the case.

Q2. “Active investors are required to the matrix of skills to consider when seating an effective corporate board.” Discuss.


The notion of corporate moral responsibility has expanded significantly


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