Business Law Text and Cases 13th Edition by Kenneth W. Clarkson - Solution Manual

Business Law Text and Cases 13th Edition by Kenneth W. Clarkson – Solution Manual

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

 

 

 

Chapter 5

 

Business Ethics

 

 

 

Answer to Critical Analysis

Question in the Feature

 

Insight into the Global Environment—Legal Critical Thinking—Insight into the Legal Environment (Page 109)

Because managers are potentially responsible for all actions of their foreign subsidiaries whether or not they knew of the illegal conduct, what actions should Orthofix’s upper management have taken before this corruption scandal came to light? All anti-corruption prevention training materials and compliance policies should have been translated into Spanish and presented to all Promeca employees.  Additionally, after the unusual expenses at Promeca were discovered, Orthofix’s upper management should have immediately engaged into a thorough investigation rather than waiting.

 

 

Answers to Questions

at the Ends of the Cases

 

Case 5.1—Questions (Page 98)

What If the Facts Were Different?

Suppose that Shaffer had invoiced Johnson for only $1,500. Would the outcome have been different? Even if the court had been convinced that Johnson had agreed to spend only $1,000 on the third repair of his truck, the difference between the agreed-on price and the actual invoice price probably would not have seemed large enough to justify Johnson not paying the invoice. Consequently, had all of the other facts remained the same, the court probably would have arrived at a different conclusion.

 

The Ethical Dimension

Would it have been ethical for Shaffer’s mechanic to lie to support his employer’s case?  Discuss.  No, it would not have been ethical for the Shaffer mechanic to lie on his employer’s behalf. Of course it would have been fraud. This would have been unethical and illegal. And there might have been a question from the legal perspective as to whether his employer directed the misconduct.

 

 

Case 5.2—Question (Page 100)

The Ethical Dimension

Does an organization have an ethical obligation to secure a safe and harassment-free workplace for its employees?  Why or why not?  Discuss.  Yes, employers have a both legal ethical obligations to maintain a workplace free of harassment.  As is seen in this case, when an employer discovers harassment through a complaint, the employer has an obligation to take action.  The employer must take significant action likely to result in a change in the workplace.  In addition, it can be argued that an employer must take action to ensure that there is no harassment occurring – not just wait for a complaint, but actively survey employees and monitor the workplace for harassing behavior.  The textbook discussion of acting in good faith and being concerned with doing the right thing dictate that a company be proactive to avoid this harmful behavior.

 

 

Case 5.3—Legal Reasoning Questions (Page 107)

1A.      Using duty-based ethical principles, what facts or circumstances in this case would lead Moseley to disclose Herzog’s behavior?  Using the duty-based principles, Moseley would have been led to report the behavior because it was not fair.  Fairness would be an example of a fundamental right or a religious teaching.  In addition, the categorical imperative would lead Moseley to feel that if no one reported this sort of behavior, then only relatives of the rich who own the companies would get promoted or hired.  If everyone reported the behavior, then the behavior would stop and the hiring and promotion processes would become fairer.

 

2A.      Using outcome-based ethical principles, what issues would Moseley have to analyze in making the decision to report Herzog’s behavior?  What would be the risks to Moseley?  The benefits?   The things which Moseley would have to consider would be culture of the company.  He would have to evaluate whether the policies at issue (nepotism, posting of positions) are taken seriously by the company or if they are ignored by company culture regularly.  Moseley would have to analyze the chances of the company taking action compared to the risk of retribution.  The risks to Moseley are that the company would not investigate or would find no wrongdoing and that he would suffer adverse employment actions.  He also would risk potential ostracism by colleagues for being a whistleblower.  The potential benefits would be that Herzog may have to stop the behavior or may be forced to leave the company leaving a better environment.

 

3A.      Under the Business Pragmatism™ steps, what alternatives might Moseley have had in this situation?  In the second step of the Business Process Pragmatism^TM process, Moseley should list his alternatives.  One alternative is to ignore the behavior.  Another is to report the behavior on the ethics survey.  A third alternative would be to meet with someone in the Human Resources department (if there is one), share the information without using names, and try to get some feedback or advice on how to proceed given the corporate policies and culture.  A fourth alternative would be to do an anonymous report.

 

4A.      Regardless of who wins this case in trial, in performing Step 5 (Evaluation) of the Business Process Pregmatism™ procedure, what changes should the company take with regard to the complaint process?  Because this case did make it to trial, there is evidence that something was not right in the processes.  One potential change for the company is to better document reasons for lack of hiring or promotion.  If they company has good, objective reasons, then any claim for retaliation later is harder to make.  A second change relates to the reporting of the information.  It appears from the facts in the case that the reporter’s supervisor knew who shared the information and this resulted in negative performance appraisals and lack of promotion.  The ethics survey process may be restructured so that the employee’s names are removed from the survey to protect from any real or perceived retribution.

 

 

Answers to Questions in the Reviewing Feature

at the End of the Chapter

 

1A.                  Principle of rights

If one of the fundamental rights is the right to be treated fairly and to be able to invest one’s money with full understanding of the risks, then it would be unethical for Smithson to sell these viaticals without full disclosure that some may be subject to cancellation.

 

2A.                  Categorical imperative

The categorical imperative asks the decision maker to assess the results of the action as if everyone in a similar situation made the same decision.  If all insurance companies participated in the viatical industry and did not disclose the risk of cancellation, then investors would become leery of investing in the products and the market would disappear.  The people for whom the sale of these policies is necessary to sustain a respectable life as it ends would not be able to get the cash to help them die with dignity.  This would make the world a worse place and therefore the actions are not ethical.

 

3A.                  Utilitarianism

Utilitarianism asks the decision maker to perform a cost/benefit analysis of the alternatives.  Smithson should evaluate the risks or chances of an investor buying a void policy compared to the benefits gained from purchasing legitimate policies.  The cost/benefit analysis also should include whether he sells individual policies to individual investors or whether he sells a share of a bundle of policies.  If he does the former, the risks to the individual investor are greater than if the latter.  If the latter, the benefit of the legitimate policies may offset any loss from cancelled policies.

 

4A.                  Decision process

First, Smithson must recognize that there is a problem.  He should identify the stakeholders as the investors, the sellers, his employees and the insurance companies that are at risk of being defrauded.  He should be familiar with laws related to insurance.  Second, he should list his alternatives and determine the goals for the decision.   This is where Smithson really must analyze the mission and goals of his company and brainstorm different actions.  In step three, Smithson selects his proposed decision with consultation and buy-in from the main stakeholders.  Fourth, Smithson should formalize and articulate the reasons for the decision based on his analysis in prior steps.  Finally, Smithson will need to later evaluate whether the selected course of action met his goals.

 

 

Answer to Debate This Question in the Reviewing Feature

at the End of the Chapter

 

Executives in large corporations are ultimately rewarded if their companies do well, particularly as evidenced by rising stock prices.  Consequently, should we let those who run corporations decide which level of negative side effects of their goods or services are “acceptable”? The first problem with this attitude is that executives and managers (and even directors) may be looking at only short-run profits.  They therefore might ignore the long-run profitability to their company.  If a drug that works well against a potential pandemic causes severe side effects in some people, in the short run, this same drug may save many lives and reduce human suffering.  Thus profits could be great initially, with a consequent rise in the stock price.  In the longer run, though, when the news gets around that some of those who took the drug suffered severe side effects, future sales of the drug might fall, thus reducing profits and causing the stock to price to drop.

 

One now has to ask the question about who is in the best situation to decide the optimum level of side effects of any drug or good or service sold.  (It’s impossible to create drugs with zero negative side effects.)  Any government regulator will want to make sure that there are few, if any, people who suffer from negative side effects.  After all, the government regulator will look bad if the press reports about those who reacted badly to a drug.  Therefore, there is a bias within any government regulatory apparatus against any good or service that has bad side effects.  More limits on drugs, though, that help millions just because few suffer side effects will cost those who don’t obtain the drug—perhaps with their lives.

 

 

Answers to Issue Spotters in the ExamPrep Feature

at the End of the Chapter

 

1A.      News, Inc., is always looking for ways to increase the number of its viewers.  Recently, it was the first network to interview surviving witnesses on location after a tragic school shooting.  Are there ethical concerns about putting traumatized children on the news immediately after an event like this?  Why or why not?    In determining whether it is ethical to interview these children soon after a tragic event, it is important to analyze the competing interests and reasons behind the interviews.  The interviews may generate more viewers, which may lead to higher ratings and more advertising revenue for the company and its shareholders.  Alternatively, the value of the interview to the public or to any investigation may be minimal.  The children may not have accurate information and may be further traumatized by the interview process.

 

2A.      Johnny Sport is a world-famous athlete.  He is careful to avoid using any performance enhancing drugs that are banned by his sport’s oversight organization.  Is it ethical for Johnny to take a performance-enhancing drug that has not been banned?  Why or why not?  Maybe.  Individuals and businesses often face ethical dilemmas when the letter of the law seems clear but alternatives exist that may violate what is known as the spirit of the law or the purpose for the law.  In this case, the restrictions exist to stop athletes from performing better than they would naturally because of a foreign substance.  The list of banned substances may not be able to keep up with the advances in technology and science in developing performance enhancing drugs. Some might argue that it is ethical for him to take anything that is not formally banned and that all competitors have the same ability to access and take those substances and therefore any advantage is eliminated.  Because there seems to be no unfair advantage, the purpose of the restriction is not frustrated.  There is an implicit assumption, however, that all performers have the connections and the resources to obtain the non-banned substance.  Because this assumption is not necessarily true, it is more likely an ethical violation to take the non-banned performance enhancing drugs, even if it is not technically against the rules.

 

 

 

Answers to Business Scenarios and Business Case Problems

at the End of the Chapter

 

5–1A.              Business ethics

                        (Chapter 5—Page 95)

Of course, it was unethical to sell goods that their maker knew were defective and could cause harm. This is the most reasonable and likely conclusion under any set of standards, even if it were possible to eventually obtain a negative result with respect to a defect from testing that repeatedly yielded a positive result. Under the six basic guidelines outlined in the text for making ethical business decisions, this is certainly true. The first consideration under those guidelines is whether a contemplated action is legal. It may have been legal to avoid reporting the initial test results to the Food and Drug Administration, but liability can attach through tort and contract law principles to the sale of goods that the seller knows or should know are defective. Thus, the baker’s action in this problem does not pass muster under the first consideration. The second question is whether an action is consistent with company policies and procedures. The facts do not indicate what those policies and procedures are for this bakery, but if the steps taken in the problem are consistent with those directives, they also betray a lack of ethics—a company-mandated procedure to test defective goods until they seem to be adequate and a policy to then sell those goods could only be founded on a lack of concern for the buyers and indirectly the company’s other stakeholders. The third guideline asks whether an action could survive publicity. The action in this problem likely could not, because customers would stop buying the products, lawsuits would be filed to recover for the injuries, and a responsible government agency would issue new regulations, if none apply, and begin to investigate. Each of these consequences would undercut business and profits, which are arguably to the reasons for making the goods in the first place. Selling defective goods does not satisfy a promised commitment to their buyers, nor does it fulfill the seller’s duty to provide a clean working environment for employees, both of which fall under the fifth guideline. Finally, the sixth consideration is how a hero would regard the action. Unless a villain is the seller’s hero, the action is unlikely to be regarded well.

 

5–2A.              Ethical conduct

                        (Chapter 5—Page 97)

Minimizing taxes can increase profits. Some people argue that a corporation’s only goal should be profit maximization, which will be reflected in a higher market value.  From an economist’s perspective, when all firms strictly adhere to the goal of profit maximization, resources tend to flow to where they are most highly valued by society.  Ultimately, profit maximization, in theory, leads to the most efficient allocation of scarce resources.

But a business’s focus on profits in the short run can lead to unethical conduct in the long run. In the short run, a company may increase its profits by taking full advantage of tax laws, even though it knows that the public may perceive this conduct as less than ethical.  In the long run, because of bad publicity—exemplified by the executive’s statements in this problem—as well as government audits or investigations, and public or private lawsuits, such perception may compound and cause profits to suffer.

Those who run corporations can and should act ethically. Some business leaders and others believe further that corporations should be accountable to society for their actions. One view of corporate social responsibility stresses that corporations have a duty not just to shareholders, but also to other groups affected by corporate decisions. Under this approach, a corporation would consider the impact of its decision on the firm’s employees, customers, creditors, suppliers, and the community in which the corporation operates. Another theory of social responsibility argues that corporations should behave as good citizens by promoting goals that society deems worthwhile and taking positive steps toward solving social problems—employment discrimination, human rights, environmental concerns, and similar issues. Under either of these views, in this problem, the corporation would consider the government and the poor in determining and executing fiscal and tax policies.

Aside from the public’s perception and a corporation’s social responsibility, an overemphasis on short-term profit maximization is the most common reason that ethical problems occur in business. Thus, the conduct of the corporation in this problem—taking full advantage of the letter of the tax laws and touting that choice publicly—may lead to unintended unethical consequences.

 

5–3A.              Spotlight on Pfizer—Corporate social responsibility

It could be argued that the defendants have an ethical responsibility to society to voluntarily take steps to reduce the availability of their products to meth makers. This might have become a more certain obligation once the defendants were aware that their products were used in the manufacture of meth. Retailers might have been asked to place the products behind the counter or lock them in display cases and limit sales or require consumers to sign for purchases. Retailers might have been educated about the suspicious behavior of buyers with illegal intent. (These measures were imposed as federal regulations in 2005.) The defendants might have developed alternative medications that did not contain ephedrine or pseudoephedrine.

It could also be argued that the defendants have an ethical responsibility to their shareholders and other stakeholders in their companies to fight regulatory efforts to limit the availability of their products so they could continue making profits. The central purpose of their businesses is to make money, not to affect social change. And the effects on society of the meth epidemic are not the natural and foreseeable consequences of the sales of the defendants’ products.

In the actual case, the court compared the counties’ claims to other plaintiffs’ attempts to recover from gun manufacturers the costs associated with the criminal use of guns. In terms of legal liability, the circumstances connecting the sales of the medications to the provision of government services were too weak for the counties to recoup their costs from the defendants on a theory of implied contract. Also, the sales of the medications were legal, the operations of the STLs were not, the latter were not likely consequences of the former, and thus, in terms of proximate cause for tort liability, the costs to the counties were not reasonably foreseeable. The suit was dismissed.

 

5–4A.              Ethical leadership

                        (Chapter 5—Pages 96–98)

Ethical leadership is important to create and maintain an ethical workplace. Management can set standards, and apply those standards to themselves and their firm’s employees to encourage an ethical business environment. One of the most important factors in creating and maintaining an ethical workplace is the attitude of management. Management’s behavior sets the ethical tone of a firm. Employees take their cue from management. If the manager’s do not follow ethical norms, employees will be likely to follow that example.

The circumstances set out in this problem show how a manager’s sexist attitudes and actions can affect a workplace. Even if Krasner was not a victim of a violation of a law or a company policy, his complaints reveal that his perspective of his workplace environment was clearly affected by his supervisor’s attitudes and actions. Assuming Krasner’s complaints were supported by fact, they also indicate that Kiser behaved unethically.

In the actual case on which this problem is based, HSH investigated but did not find a violation of its ethics policies. Krasner filed a suit in a federal district court against the firm, alleging gender-based discrimination, but the court did not find any such discrimination—a female employee in Krasner’s position would have experienced the same consequences.

 

5–5A.              Business Case Problem with Sample Answer—Online privacy

Facebook created a program that makes decisions for users.  Using duty-based ethics, many believe that privacy is an extremely important right that should fiercely protected.  As such, any program that has a default of giving out information is unethical.  Facebook should create the program as an opt-in program.  In addition, under the Kantian categorical imperative, if every company created opt-out programs that disclosed potentially personal information, the concept of privacy may be reduced to a theoretical concept only.  With this reduction or elimination of privacy, one could argue the world is not a better place.  From a utilitarian or outcome-based approach, the benefits of an opt-out program might be in ease of creation and starting the program as well as ease of recruiting partner programs.  The negative implications are the elimination of choice on the part of users to disclose information about themselves.  An opt-in program maintains that user control but may be harder to start as it requires more marketing to users up front in order to convince them to opt-in.

 

5–6A.              Business ethics on a global scale

                        (Chapter 5—Page 107)

The Foreign Corrupt Practices Act relates to the payments of foreign officials to make discretionary decisions in favor of the payer.  In this circumstance, Kozeny was paying members of a royal family who also held positions of authority in the government to use their influence in order to have decisions made to benefit Kozeny.  The payment was structured so that it would happen on an ongoing basis once the decisions were made, but that would still count as bribery of a foreign official under the FCPA.  As a general ethical principle, Kozeny is eliminating fair competition with this scheme.  That could be considered a violation of fundamental rights under a duty-based analysis.

 

5–7A.              Business ethics

                        (Chapter 5—Page 95)

Business ethics might have been violated in these circumstances by Mark Ramun, John Ramun, and the employees and managers of Genesis.

The “tense relationship” between John and Mark at Allied may have been caused or exacerbated by either or both of them. And instead of confronting whatever it was that made their relationship “tense,” they may have exacted revenge—John by forcing Mark out of the firm, or Mark by leaving it, after ten years. Of course, this is speculation.

What is not speculation, however, is that Mark took 15,000 pages of Allied’s documents on DVDs and CDs (trade secrets) when he left the firm. This act was likely a violation of the law (theft or misappropriation) and clearly a violation of business ethics. Later, Mark joined Allied’s competitor, Genesis Equipment & Manufacturing, Inc. Genesis soon developed a piece of equipment that incorporated elements of Allied equipment. This points to a second violation of the law and ethics (use of stolen property) by both Mark and Genesis. Mark appears to have been competing against his family in the marketplace and trying to sell his products through another company. Assuming that Genesis profited from its sale of the equipment, this would have caused losses to Allied and unjustly enriched Genesis. If Mark was paid a bonus or given a promotion, he too would have gained undeservedly.

In the actual case on which this problem is based, Allied filed a suit in a federal district court against Genesis and Mark for misappropriation of trade secrets. A jury awarded Allied more than $3 million in damages, but the court issued a judgment as a matter of law in favor of the defendants. On appeal, the U.S. Court of Appeals for the Sixth Circuit reversed. “It is neither speculative nor conjectural that Genesis unjustly benefitted from its use of Allied’s trade secrets.”

 

5-8A.               A Question of Ethics—Consumer rights

(a)       In this case, the court found that the company did not violate any laws and that the disclosures were adequate.  From an ethical perspective, the question becomes whether the word “may” on the website gave adequate notice to the potential user or borrower that a charge would occur.  It is settled legally that it up to a contract signer to read all the components of a contract.  In the online environment, it is hard to ever prove that a web page was not edited or changed from one day to the next.  A consumer may read the terms and conditions just before a round of edits and then agree and seem bound by changes that did not exist at the time they read them.   From a fairness perspective, that would be unethical.  At the same time, presumably the reader could print off a copy of the agreement and keep it filed.  Underlying societal questions exist as to whether it is fair to assume that a purchaser in an online environment would print off that form contract language in the same way that a signer of a contract keeps a copy of the written contract.

(b)       The law often is considered the minimum ethical standard that society will allow.  If a company follows the law, there will be no formal, societally-imposed consequences.  There are many instances, and this is one, where following the law strictly may not be the most ethical action.  If the purpose of the Truth-in-Lending Act is to ensure that consumers have full information before making a decision, there may be more ethical ways (warnings, bigger text announcing continuation of terms, more specific language than “may” in the terms) that a company can help consumers be fully informed.

 

5–9A.              Legal Reasoning Group Activity—Global business ethics

(a)       In Pfizer’s case, it would appear that the potential for short-run profit maximization, by quickly testing and marketing Trovan, took precedence over any consideration of ethics. This action alone arguably violates ethical standards, particularly in light of its results.

(b)       The principal pro-Pfizer argument might be that the firm did not violate the law. Whether the test was legal is the question at the heart of the problem. In the actual case on which this problem is based, the trial court dismissed the suit, but the U.S. Court of Appeals for the Second Circuit reversed the dismissal, on the ground that the lower court should have looked more extensively at international law, and remanded the case. Meanwhile, Nigeria and one of its states filed criminal charges and civil claims against Pfizer, seeking over $9 billion in damages and restitution—but not as compensation for the children.

(c)       As a corporation, Pfizer might have applied the five-step procedure set out in the text to review the ethical conflicts in a test of Trovan. The first step is to specify the facts, the problem, and the ethical principles at issue. The second step is to discuss potential actions and their effects. The third step is to come to a consensus as to what to do. This consensus should withstand moral scrutiny (the fourth step) and fulfill corporate, community, and individual values (the fifth step). It seems unlikely that a proposed Trovan test on the facts described in the problem would have survived the fourth step, under either a duty-based or an outcome-based ethical standard.

Pfizer’s executives or employees who authorized the Trovan test might have evaluated their decision according to the six guidelines noted in the text. Is the action legal? Is it in line with the company’s rules? If so, is it in accord with the “spirit” of the law, those policies, and one’s conscience? Could it withstand the glare of publicity and satisfy promises made to others? It seems probable that the test would have violated Pfizer’s rules and that, as conducted, it could not have withstood publicity, promises to others, or any individual’s conscience.