Show Me the Money: Is a Minimum Wage Ethical? By Peggy Connolly, Ruth Ann Althaus, and Robert Boyd Skipper

Minimum wage has been controversial since it was first proposed to Congress in 1935, as part of the Fair Labor Standards Act (FLSA) that was ultimately passed in 1938. Precipitated by the

Great Depression, the FLSA banned child labor, set the minimum wage at 25 cents per hour, and

limited the work week to 44 hours. The federal minimum wage did prevent worker

impoverishment for many years, but inflation has eroded its effect over the past four decades.

Debate over minimum wage is never ending. Almost eighty years after passage of the FLSA, politicians, economists, and social justice advocates still argue about whether the U.S. should

continue to have a federal minimum wage. Who does it help and who does it hurt? If kept, what

is the correct level? Should it apply to all workers? Does raising the current level increase

unemployment, drive businesses away, or hurt the very poor it is aimed at helping? Or, will a

higher minimum wage raise the standard of living and increase buying power for low wage earners?

In 1963, Martin Luther King fought to get the wage raised to $2 per hour so that every worker

could escape poverty. That wage would translate to $15 today when adjusted for inflation;

however, today's (4 September 2014) federal minimum hourly wage is set at $7.25 per hour,

yielding an annual income of $15,800. With economic ups and downs, and with each change of

administration, the question of raising the minimum wage comes up. Indeed, the question of whether the U.S. should have a minimum wage at all resurfaces. Many states, and even some

cities, have established minimum wages higher than the federal level.

Some economists and politicians argue that raising the minimum wage does a disservice to

those it tries to help. They claim that businesses will resist a higher minimum wage by laying off

workers, moving their businesses offshore, or just closing down. Some sympathetic to the plight of the poor claim that society should deal with poverty in a different way, such as through

private charities. Most opponents of a minimum wage claim that workers are free to seek better

paying jobs or to work harder to become more valuable to their employers. They argue that the

market should decide the value of any sort of work to employers, just as it determines the value

of those employers' goods and services. They claim that employers simply will not hire workers who are not worth the prevailing minimum wage, thus denying these potential workers an

opportunity to start a work career. These critics point to teenagers as a perfect example of

potential workers whom employers may feel are simply not worth the set wage.

Economists, politicians and others who favor raising the minimum wage consider failure to do so

an exploitation of the poor and a moral wrong. They assert that in a perfect market economy, employers might pay higher wages to get and retain good employees. Since the market is not

perfect, employees must be protected by minimum wage to prevent employers from paying

artificially low wages that unjustly exploit the poor. Advocates of a decent living minimum wage

offer evidence that raising the minimum wage adds more consumers to the economy and does

not substantively increase unemployment. Minimum wage advocates point to companies like

Costco that demonstrate that paying employees well results in loyal, productive employees. The Intercollegiate Ethics Bowlsm cases are published by The American Association for Practical

and Professional Ethics and may be used only with permission. For further information contact:

APPE, Tel: (812) 855-6450; E-mail: appe@indiana.edu

Posted May 2015

KELLOGG: Is the Two-Tier System Ethically Problematic

Wednesday, Feb. 12, 2014

Image Source: Flickr

The 226 workers at Kellogg’s Memphis plant have been “locked-out” from their

jobs producing Frosted Flakes and Froot Loops for over 3 months. Company

management and the union representing the workers — the Bakery, Confectionery,

Tobacco Workers and Grain Millers International Union — reached a stalemate in

negotiations in October, resulting in the lockout. The primary issue is Kellogg’s

demand of dramatically increasing the amount of temporary workers, who would

earn $6 less and be entitled to much fewer benefits: effectively creating a two-tier

system at the plant. Under the current agreement, Kellogg has the right to use

temporary workers for up to 30% of the workforce, but the union claims Kellogg is

now pushing for 100%. The workers, who have had their health insurance

suspended by Kellogg, fear that their jobs will either be replaced entirely by

temporary workers, or they will be forced to take lower wages. Kellogg, in the midst

of a 4-year cost reduction effort labeled, “Project K,” claims that the change is

necessary to remain competitive and that current employees will be unaffected by

the change. Are two-tier systems ethically problematic?

Kirk: Kellogg has ignored lessons learned by the airline industry that dividing

employees into two classes of citizens won’t work for very long. American

Airlines, with a host of others, started a plan in 1983 that instituted a two-tier

system separating current employees from future hires into different pay scales. By

1987, the company had to significantly overhaul the program. Two-tier systems

create tension between the employees, resentment of management, higher turnover,

and further complicate union relations. In the long run, these programs are not

sustainable. They undermine the concept of shared sacrifice, shared reward, and

make development of a strong corporate culture exponentially more difficult.

Patrick: I don’t think tiered systems are inherently unethical, although it is largely

a matter of fairness. In the case of American Airlines, and most likely the Kellogg

lockout, new hires will be doing the same job as existing employees but will get

paid significantly less. “Treat similar cases similarly” goes a long way here.

Anything else will create an imbalance and undermine the company in the long run.

On the flip side, Google famously uses a tiered system, assigning different color

“badges” for full-time employees, contractors, and interns. Yes, they create

divisions between the groups, but they also strengthen the group identity of the

subgroups and incentivize employees to “climb the ladder.” It’s Darwinian, but fair.

- See more at: http://www.scu.edu/r/ethics-

center/ethicsblog/business-ethics-news/18885/KELLOGG:-Is-

the-Two-Tier-System-Ethically-

Problematic#sthash.OjjUfRY2.dpuf

GOOGLE: Are App Developers On the Hook?

Thursday, Jan. 23, 2014

Monday, Google removed two Chrome browser extensions (think “apps added to

your web browser”) from its store after they were found to be installing unwanted

software and redirecting users to affiliate links. The two extensions, “Tweet this

Page” and “Send to Feedly,” began as legitimate services, created by individual

developers and offered free of charge. In both cases, the original developer sold the

extension to a company who then took advantage of existing subscribers to

disseminate ads. Send to Feedly’s founder, Amit Agarwal, sold his extension used

by 30,000 to an unidentified party. “It was a 4-figure offer for something that had

taken an hour to create and I agreed to the deal, says Amit. He has since published

a blog post apologizing to existing users, and stated that taking the deal was a bad

decision. While many corporations publish apps and extensions, a great deal of

these services are made by nonbusiness entities and are offered free of charge. Do

independent developers have the same obligations to their users as corporations? Is

Amit Agarwal correct in calling his decision a bad one?

Kirk: Anytime you have 30,000 people using a product, you have an obligation to

not sell out to someone who might corrupt it or change it in ways that exploit users.

Agarwal and others like him clearly want to cash out, and rightfully so. But the

glaring problem here is that Agarwal did not identify whom he was dealing with. In

this case, it seems like the buyers refused to identify themselves, or at least made it

very hard to do so. This alone is enough to say Agarwal should've passed on the

deal.

Patrick: First, kudos to Amit for acknowledging his role in the situation. To start,

I get where Amit was coming from: “I’m just a guy that made an extension… I

don’t have customers.” But the way I see it, when Amit entered the market to sell

the extension those existing users became “paying customers;” that is, he was then

using them as leverage to get a deal. With that, I think certain obligations emerge; at

the least, Amit should’ve announced the change in ownership to existing users.

- See more at: http://www.scu.edu/r/ethics-center/ethicsblog/business-ethics-

news/18656/GOOGLE:-Are-App-Developers-On-the-

Hook?#sthash.RyD2u7tR.dpuf

HOLDING THE CEO'S FEET TO THE FIRE: Should Chief Execs Be Penalized

for Failing to Appoint Women to Senior Positions?

Friday, Nov. 8, 2013

“Chief executives should be challenged for explanations and even have their pay

cut if they fail to appoint women to senior positions,” said the Business Council of

Australia in a letter this week to its members. The BCA, the representative body of

the chief executives of Australia’s 100 largest companies, is urging its members to

adopt a “checklist of reforms” aimed at addressing the underrepresentation of

women in senior positions, and to consider docking CEO pay if they do not

implement the reforms. In Australia, women have been outpacing men in earning

college degrees since 1985 and make up 46% of the workforce, but hold only 16%

of board positions and 3.5% of chief executive roles. The BCA aims to double the

number of women in senior positions in the next 10 years, and claims this isn’t just

an equality issue, but also an economic issue: “We risk not getting the best talent

for the job.” Even if we take for granted that equal opportunity for women in senior

positions is a laudable goal, is tying executive compensation to the promotion of

women ethically problematic? (Here in Silicon Valley, the Silicon Valley Business

Journal reports that only 4% of executive positions and 9% of board positions in

Silicon Valley are held by women.)

Kirk: Unfortunately, progress in cracking the glass ceiling, in Australia or in

Silicon Valley, has been glacial without an effective "stick" to prod it along - be it

regulation or board-imposed pay cuts. The Australian business council needs the

cooperation of corporate boards - but of course there are so few women on those

boards the issue may be ignored. Reluctantly, I have to conclude that only

government regulation and requirements, in some form, can bring about the needed

change. In the interim, certainly corporate boards should set specific goals for their

CEOs - and for themselves. The CEOs pay should be cut if he or she does not make

progress; the boards themselves should admit they are failing if they don't make

progress.

Patrick: People respond to incentives. Whether they are social, ethical, or in this

case, economic, incentives bring about change. We’d like to think that this is a

problem that figures itself out over time, but it’s clear that there are biases in play

that prevent this from happening. Tying executive pay to fair hiring practices will

ensure that this problem is addressed, despite making it an issue of compliance

instead of conscience. Hopefully measures like this are only needed for a period of

time, like a ladder you throw away after you have climbed up it.

TWITTER IPO: Where are the Women?

Friday, Oct. 11, 2013

After the release of its IPO filing, Twitter has come under heavy scrutiny for the

lack of women amongst its board, investors, and executive team — save for Vijaya

Gadde, General Counsel, who was appointed 5 weeks ago. High tech has long been

criticized for having a gender imbalance, with only 5.7% of employed women in the

US working in the computer industry; but in the wake of Sheryl Sandberg’s top

seller, “Lean In,” the issue is front and center in the public consciousness. Critics

of Twitter claim that the lack of gender diversity is among the many symptoms of

Silicon Valley’s chauvinistic and male-dominated culture. Those close with

Twitter’s CEO, Dick Costolo, report that finding a woman board member has been

a priority, but has been a difficult process. Is Twitter in the wrong for going to IPO

without a diverse leadership team? If so, should the public hold them accountable?

Kirk: The scarcity of women is a clear sign of the power of corporate cultures,

and no doubt, Silicon Valley’s culture is one characterized by male dominance. No

entrepreneur or venture capitalist would say that they hold a bias toward women,

but it’s inevitable that unconscious biases develop in cases like this. Startups are

hesitant to promote women because they don’t fit the traditional mold of Silicon

Valley leadership, leading to even fewer women in these positions. It’s a vicious

cycle. The only way this is going to get solved is by a dedicated effort by Silicon

Valley firms to address this culture issue, and a steady stream of public pressure to

keep them honest.

Patrick: To start, if Twitter went out 5 weeks ago to get a female in a leadership

position (which they did), that’d be just as bad as not having any women at all. Yes,

firms need to make an effort to get women in positions of power, but that doesn’t

mean that hiring women should be a PR move or something done out of political

correctness. It takes a sustained effort to make a sincere attempt at inclusiveness,

better yet, remove arbitrary exclusion. This situation does not have a quick fix.

Twitter made their bed a long time ago, now it’s time to lie in it.

- See more at: http://www.scu.edu/r/ethics-

center/ethicsblog/business-ethics-news/17664/TWITTER-IPO:-

Where-are-the-Women?#sthash.LSDrCEo2.dpuf

DISNEY: Should Retailers Cut and Run from Bangladesh?

Thursday, May. 2, 2013

Western apparel companies have been under tremendous public scrutiny after the

fallout of last week’s factory fire in Bangladesh that killed 400 workers. Retailers

are torn between staying and improving conditions, and leaving Bangladesh

entirely. Bangladesh is the second largest apparel exporter with $18 billion, 3.6

million garment workers, and some of the lowest wages in the world. Wal-Mart,

GAP, and Children’s Place met in private recently to discuss improving worker

conditions, while Benetton has repeatedly had to revise its explanation of relations

to the factory. After a factory fire 6 months ago, Disney announced a one-year

phase-out of all manufacturing in Bangladesh ending in March 2014. While

retailers determine if they will follow Disney’s example, labor groups are urging

them to stay and improve conditions as opposed to cutting their losses and running.

Do these retailers have an obligation to improve working conditions in Bangladesh

once they have used subcontractors there? Is it better to walk away and source

clothes in another low-cost location? Is the problem instead that U.S. companies

expect their clothes to be made at unrealistically low prices?

Kirk: There is plenty of blame to go around. The worldwide search for cheap

production does contribute to unsafe conditions. If the U.S. companies want low-

cost production, they have to resist doing business with the very lowest cost

suppliers who are most likely to be cutting corners. They have to find suppliers who

produce quality clothes in quality factories. Most are only screening for the first. I

hope they stay in Bangladesh; they will have the same problem in another country

in five years if they don’t change their selection process.

Patrick: Once Disney leaves another retailer will take its place to exploit the cost

structure; and as Kirk mentions, the problem will migrate to the next low-cost

region free of the public outrage associated with Bangladesh working conditions.

To stop the cycle, monitoring groups such as the Business Social Compliance

Initiative, which certified two factories in the building of the fire in Bangladesh,

need to step up their standards. Higher standards will necessitate better margins for

the factories providing the funds for building compliance, fire safety training, and

adequate wages. It’s on retailers to only do business with certified factories, and up

to consumers to hold them to it.

INTERNSHIP SWAPPING: Is It Unethical to Trade Internships?

Thursday, May. 30, 2013

Small business owners and corporate executives have long faced the problem of

whether to hire their children for summer internships and entry-level positions. On

one hand, executives know the importance of gaining “real-world” experience at

an early age, but on the other, hiring direct family raises many concerns of

favoritism and conflict of interest. In response, a recent trend has emerged:

“internship swapping.” The quid pro quo arrangement works something like this;

“I’ll hire your daughter for the summer at my law firm, if you give my son an

internship at your accounting agency.” Taken at face value, it appears to be an

elegant solution as neither firm has a familial connection to the new hire. Still,

some argue that this is just another way of protecting the special opportunities for

the well-connected. Should top executives be engaging in internship swapping?

Patrick: Internship swapping is unethical as it involves manipulating company

resources for personal gain. The company misses out on hiring the best available

candidate, or worse, the position is created solely for the sake of “the swap” adding

to bloat and inefficiency at the company. Hiring based on reputation and personal

endorsements will always have a place in business, but internship swapping crosses

the line.

Kirk: Every company with a limited number of internships should develop a way

of allocating those spots without favoritism. There is little difference between a top

executive telling the head of internships to "hire my son" and "hire my friend's son."

Either grants special treatment to the sons and daughters of the wealthy and well-

connected. This is but a fig leaf to disguise the exercise of privilege.

- See more at: http://www.scu.edu/r/ethics-center/ethicsblog/business-ethics-

news/16403/INTERNSHIP-SWAPPING:-Is-It-Unethical-to-Trade-

Internships?#sthash.SLkYkCCD.dpuf

JPMORGAN: Should Management be Held Accountable for the Actions of

Individual Employees?

Thursday, Mar. 21, 2013

Friday, the Permanent Subcommittee on Investigations held hearings on

JPMorgan's $6.2 billion trading debacle from earlier this year. According to the

307-page Senate report released Thursday, traders in JPMorgan's chief investment

office hid underperforming derivatives; routinely exceeded bank mandated risk

limits; and manipulated the valuation of unprofitable investments to minimize

losses. In addition, the report found that JPMorgan used intimidation and deception

to mislead regulators. Executives, including the person who managed the London

operation, passed the buck down to lower level employees, claiming that attempts to

reduce risky investments were undermined by individual traders undervaluing

existing positions to minimize losses. Regulators at the Office of the Controller of

the Currency were also criticized for not identifying the losses sooner, as well as for

not being aware of JPMorgan's $156 billion high-risk derivatives portfolio. How

should blame be allocated for the mishap? Do senior executives get a free pass for

actions of subordinates hidden from them? Or does the buck stop at the top? Should

the boss always bear the ultimate blame?

Kirk: We can't let senior executives off the hook when things go awry in their

operations. It just leads to convoluted games of deniability. Besides, senior

executives should know about anything important in their operations. One of their

key responsibilities is to create effective and transparent information systems to

ensure things cannot be hidden. Heads should always roll at the top.

Patrick: I'd have to agree: JPMorgan's management has failed to maintain a

company culture that values accountability, and executives should bear the blame.

While management should be held accountable, let's not forget that the "London

Whale" incident also represents a failure on the part of regulators. Banks are

certainly not justified in bullying regulators, but regulators don't get a free pass just

because they face resistance.

- See more at: http://www.scu.edu/r/ethics-

center/ethicsblog/business-ethics-news/15776/JPMORGAN:-

Should-Management-be-Held-Accountable-for-the-Actions-of-

Individual-Employees?#sthash.YKGcZECb.dpuf

AUTOZONE: Employee Theft, Coercion, and False Confessions

Tuesday, Mar. 11, 2014

Take the suspect to an isolated place. Make sure the conversation isn’t being

recorded. Engage in small talk to build rapport. Commence interrogation. These

steps, outlined in a manual used by loss prevention specialists to question

employees expected of theft, are a common practice in the retail space. Employee

theft costs American retailers $16 billion a year, and it’s difficult to stop. Rarely is

there any physical evidence, only an imbalance in the books or missing

merchandise. To address this, retailers are increasingly turning to internal

investigations headed by specialists trained in police interrogation techniques.

These interrogations include insisting that the company knows the suspect is guilty,

pointing to “bulging files or videocassettes,” and an array of psychological tricks

to get the confession. But these techniques are often too effective, resulting in a

false confession from the employee. The interrogations are often held while the

employee is “on the clock,” meaning leaving could result in losing their job, and

the retailers don’t allow them to be videotaped. A slew of recent lawsuits brought

against AutoZone have shined light on this problem, even revealing that one of the

loss prevention specialist received confessions in 98% of his cases. Given the

growing evidence of this problem, should retailers abandon the use of police

interrogation techniques in their investigations?

Kirk: We’ve always known there was a danger of false confessions when

employees, criminals, or preschoolers are browbeaten by an overzealous questioner.

Criminal investigators have addressed this by videotaping every interview with

clear consequences for misconduct. Corporate investigations still operate in the dark

with few protections for suspected employees. It’s time to bring the process to light

and build in employee protections. Beware the investigator who finds fraud in 98%

of his cases.

Patrick: I understand the reluctance of retailers to acknowledge this problem.

Employee theft results in significant losses, and having no other recourse, it’s easy

to see why they defer to strong-arming their employees. But these interrogations

aren’t addressing the problem, and the resulting lawsuits aren’t doing the retailers

any favors. The losses in productivity from employee dissatisfaction and resentment

are enough for these practices to be sidelined. Not to mention, happy employees

don’t steal.

- See more at: http://www.scu.edu/r/ethics-

center/ethicsblog/business-ethics-news/19122/AUTOZONE:-

Employee-Theft,-Coercion,-and-False-

Confessions#sthash.SDJMVYIp.dpuf

CYBER ATTACKS: Should Companies Admit They've Been Hacked?

Sunday, Feb. 24, 2013

Cyber attacks on American companies have become increasingly more common,

but not all companies respond to security breaches the same way. Companies such

as Facebook, Twitter and Apple, have voluntarily gone public with their security

troubles. Alternatively, a number of companies have continued to deny cyber

attacks, despite reports stating otherwise; including, Exxon Mobil, Coca-Cola,

Baker Hughes, and others. The U.S. government has encouraged transparency on

cyber attacks as part of a wider effort to protect American intellectual property.

Advocates of disclosing breaches claim it will set a precedent for other companies

to get more active in fighting cyber attacks. The majority of company lawyers

advise not to disclose, pointing to potential shareholder lawsuits, embarrassment

and fear of inciting future attacks. Health and insurance companies must disclose

breaches of patient information, and publicly traded companies must when an

incident effects earnings. What policy should companies adopt when dealing with a

cyber security breach?

Kirk: The common good demands a united effort by public and private

institutions to fight cyber attacks. Companies owe it to the public to admit they've

been hacked and to use their experience toward improving efforts against hacking.

Anything short of full participation will guarantee that cyber attacks will continue

to be a problem, and companies will be picked off one by one as they stand silent.

Due to the sheer number of incidents the stigma of being hacked has decreased

dramatically, opening the door for more companies to come forward. It's time for

companies to think of the common good over protecting their own tail.

Patrick: The focus here should be on the legal system, not the victims of cyber

attacks. Hacked companies are being further victimized by being pressured to

release security breaches, while being inadequately protected from the liability that

comes with it. This is not to say that companies should not be held accountable for a

reasonable amount of preventative security, but the U.S. government is sending

companies mixed messages. If the Federal Government really wants collaboration

from hacked companies they should consider offering anonymous participation in

their current initiatives, as well as insulate companies from unwarranted shareholder

lawsuits.

- See more at: http://www.scu.edu/r/ethics-

center/ethicsblog/business-ethics-news/15517/CYBER-

ATTACKS:-Should-Companies-Admit-They've-Been-

Hacked#sthash.uonH3V0K.dpuf

AMAZON: Should Labor Practices of Multinationals be Judged by the Standards of

their Home Country or the Country of its Operation?

Friday, Mar. 8, 2013

Last Thursday, a group of representatives from ver.di, one of Germany's largest

labor unions, marched on one of Amazon's eight German distribution centers.

Armed with 37,000 petition signatures, the group demanded a meeting with Amazon

executives to negotiate a union wage contract for its German workforce. Amazon,

which employs 8,000 people in Germany, has refused to communicate with union

officials, emphasizing that it already pays above the union rate. The union has

protested the "Big Brother" atmosphere where "everything is measured, everything

is calculated, everything is geared toward efficiency." The union is also protesting

the treatment of the 10,000 temporary workers that Amazon buses in from Spain

and Romania to meet Christmas demand, citing German legislation, introduced in

2005 that lowered labor regulations, as a main contributor to the problem. Amazon

is quickly becoming despised for personifying the qualities of American-style

management that Germans despise: "People want to be treated with respect,"

argues the union leader. Should Amazon operate by more generous worker policies

than it does in the US?

Kirk: Amazon and other multinationals must operate with sensitivity to local

standards and expectations. They cannot just operate by their home country

practices. In this case, however, the union seems unhappy with recent German

legislation as with Amazon. Nonetheless, Amazon needs to resist the temptation to

"race to the bottom," and should refrain from enacting more aggressive policies

towards workers and the union. But in this case, refusing to negotiate with the union

may be the only way to retain enough flexibility to operate profitably in Germany.

Patrick: While I agree that Amazon and other multinationals must operate under

local standards, demanding that they adhere to local expectations has too many

problems associated with it. The union is by no means an objective measure of

cultural expectations as they have both political and economic interests; which leads

to the question: Where can Amazon turn to decipher the expectations it should

meet? The labor laws and regulations of the country. Legal code offers a clear set of

rules for multinationals allowing them to know what they are getting into before

they invest, as well as ensure that their current operations are compliant.

- See more at: http://www.scu.edu/r/ethics-

center/ethicsblog/business-ethics-news/15658/AMAZON:-

Should-Labor-Practices-of-Multinationals-be-Judged-by-the-

Standards-of-their-Home-Country-or-the-Country-of-its-

Operation?#sthash.2FBeZD32.dpuf

Caught in the Middle: Where Does Your Loyalty Lie? Cindy recently graduated from Santa Clara University and was working in a sales position in a

growing tech company. She worked very closely with her team and had a good rapport with them. She was the only woman on the team, but she still felt at ease with her colleagues. Part of

her job involved traveling across the country and going to meetings and events outside of work

with her team and other sales people from different organizations.

During certain non-customer, internal events, she noticed that some of her married co-workers

were bringing women other than their wives. Although she was uncomfortable with the situation,

she wanted to keep her distance so as not to become too directly involved with her co-workers and their personal decisions. She had knowledge of what was going on but didn't think it was

her place to intervene.

One day, at an office party, the wife of one of her co-workers approached her. She wanted to

know exactly what was going on during these trips. Cindy was frustrated to be put in this

situation by her co-workers and she didn't know what to say. Should she put herself in the middle of a coworker's marriage and tell the truth about the situation? Is there another option?

She didn't want to damage the team and be looked at as an outsider. She knew that she was

not involved at all in these behaviors, but she still felt very uneasy about the situation.

How should Cindy react in this situation? Is it Cindy's place to step in and say anything, or

should she stay out of the situation all together? With so many different loyalties, between her co-worker, her own values, her co-worker's wife, and her job, what is most important in this

situation?

Posted June 2013

Posted by Noah Rickling, Hackworth Business Ethics Fellow ‘13

Comments achandrakar said on Sep 12, 2014 Cindy's own personal values and a commitment of loyalty to them is certainly the most

important aspect in this situation. She would neither like to take a middleman's approach unless

she is a family friend to one of them, nor would she be allowed to remain ignorant and dumb-

folded for longer. Hence to the wives she must talk about all the great contributions to the team

their spouses have made and how inspired she feels about their professional commitments. For

the co-workers she must work with human resources to organize frequent offsite events where employees are supposed to come with their families, introduce them to colleagues and talk

about how they balance work responsibilities with personal responsibilities and leisure. Also think

about every time such events are organized, an official invitation is sent to family/spouses.

That's the charter of employee engagement at workplaces.

Patrick said on Sep 15, 2014 I find your analysis helpful for attempting to alleviate the problem in the future, but what do you recommend Cindy say when she is face to face with the wife who confronted her?

Rage said on Dec 9, 2014 Cindy shouldn't be the one to tell the wives of her co-workers that their husbands are cheating

pieces of hogwash. She isn't a family friend and that would just cause drama. Cindy should be

worried about the reputation of the company and to resolve this situation she needs to talk to

HR about what her co-workers are doing with these side-girls of theirs so that somebody higher up can get these co-workers to stop their nonsense. This gets Cindy out of the mess and fulfills

her obligation to the company to protect its reputation.

fdfhhh said on Dec 9, 2014

I think you should stop pretending that you know what you're talking about.Just kidding you

make a great point

JulieAnn, Eric said on Dec 9, 2014 There are two possible outcomes... one being her role to the company, if she would tell, would probably damage her partnership in such a successful growing tech business. The other being if

she were not to tell, she might be going against her values and loyalty to not only the co-

workers wife, but to herself also. Cindy, not only has two options but also has another option

available. The third option is to deny she has any knowledge about the situation to the wife, and

go anonymously report it to them such as a letter or even an E-mail if you create a new account. We have decided that she think through her options and hopefully decided that the best option is

the third one, where she keeps her values but also respects the loyalty to the wife, and her

partnership in the company will not be ruined.

Priyesh Shah said on Feb 19, 2015 Cindy shouldn't directly reveal her co-workers actions and interfere in their personal life but to

save her values she can give a friendly advice to the co-workers' wife to have a watch on her husband.

Lesley James said on Jun 16, 2015 What regulations, rules or guideline are actually relevant to the dilemma?

Cody Williams said on Jun 16, 2015 Difficult to say. It depends from which angle you would like to research this topic

Lesley James said on Jun 16, 2015 It is just for my own interest. As I am currently in the same situation and really don't know what

to do.

When Extra Attention Crosses the Line Annie has been recently hired full time at a major tech company where she interned for two

summers during her college career. Annie loves her job and has established many strong relationships with her co-workers over the time she has worked there. The company encourages

the interns and new hires to interact with VPs and upper management in order to create an open

and friendly atmosphere.

During her time as an intern, Annie began to notice that one of the VPs paid her extra attention.

When he was around he would always make an extra effort to stop by Annie's cubicle and chat:

something he did not do with any of the other interns. He reached out to her over social networking sites and even invited her to a gathering at his house. Some of her co-workers

began to make offhand comments to Annie about the extra attention.

Now that she was in a full time position, Annie began to dread that she would soon have to work

with this VP directly. While he has not done or said anything explicitly inappropriate, the extra

attention—and the fact that her co-workers noticed it—made her very uncomfortable and undermined her concentration on work. When she was hired, she was told that she should

always speak to her manager if she was uncomfortable or had issues with the work

environment. While at the same time, she is afraid to come across like a tattletale since the VP

hasn't explicitly done anything wrong.

What course of action should Annie take? Posted June 2013

Posted by Amanda Nelson, Hackworth Business Ethics Fellow ‘13

Cooking the Books: Stretching the Principles of Revenue Recognition

John is CFO at a venture-backed tech startup with revenues of $20 million and approximately 80

employees. He's worked at the company for several years, and now reports to Ralph, the

company's newly hired CEO. The company had been doing really well, but recently big customers have been placing fewer

orders and Ralph is feeling pressure to show growth. This pressure is amplified because the

company is venture-backed, and the investors expect results. While the company did well in the

first round of funding, if they don't perform now, they may have trouble with gaining sufficient

funding in the second round, which could mean the end of the company. All of this was on John's mind when Ralph came to him about recording a major order that was

still under negotiation. The deal had not gone through, although both parties expected to

complete the deal in the next week. With the current quarter ending in the next few days,

including this order would give a significant boost to the company's financial reports.

Nonetheless, under the generally accepted accounting principles (GAAP), it is clear that this order does not qualify as revenue.

Even so, Ralph was adamant about John booking the order, which could make all the difference

in the company's ability to stay afloat. John knew that doing so would constitute fraud;

particularly because the Sarbanes Oxley Act requires the CEO and CFO to sign off on all

quarterly reports. At the same time, John knew that this order could make all the difference.

What should John do? Posted June 2013

Posted by Alexis Babb, Hackworth Business Ethics Fellow ‘13

Quality Management: Signing Off on a Substandard Product Lauren's first job after graduation from Santa Clara University was working as a quality engineer

with a highly respected technology company. She had to monitor the manufacturing process and make sure that all products met customer specifications. Just three months into her position, the

company booked a very large deal with a strategic customer, helping establish the company's

dominance in the industry.

Specifically, Lauren's company was designing a device that would be integrated into another

company's product. The customer contracted out this work because they were experiencing

rapid growth and cannot meet demand otherwise. They picked Lauren's company because of its good reputation and fast turnaround time. Lauren's role was to test the new device and make

sure it met technical and environmental specifications, particularly functionality under extreme

conditions, such as high humidity.

The test results showed that the products did not meet the quality standards agreed upon, but

only by a very small margin. Her general manager instructed her to push it through anyway, stating that the risk of failure was not great enough to delay mass production. Moreover, the

likelihood of the product ever being placed in such extreme situations was so small that the

manager did not feel jeopardizing the contract was worth it.

Lauren spoke to her immediate boss, who worked under her general manager, and he also

advocated pushing the product through to production. She was faced with the choice of ignoring company protocols or going against management. Sweeping the problem under the rug would

require Lauren to sign off on a report that she knew to be fraudulent. She also knew that if she

went to upper management her working relationships with her immediate bosses would be

strained, maybe even preventing her success in the company. Not to mention, the company

would have to delay production and possibly lose the contract.

What should Lauren Do? Posted by Noah Rickling, Hackworth Business Ethics Fellow ‘13

Comments achandrakar said on Sep 12, 2014 If the risk of failure is considered as not great enough to delay mass production and her

supervisor's are willing to in include this exception, then Lauren can sign off the report, however

few important steps before doing that: 1. Document the critical analysis of the potential issue and the corresponding argument of low risk/less frequency. 2. Work with the general manager

to add a note of exception in the contract or an alternate means of informing the customers

about this corner case and the product?s capability of handling such exceptions. Also Project

Management has an interesting concept of Change Control Board to cater to such tweaks and

tits. In this method a small committee of involved stakeholders (say Quality manager, development manager and production manager) take charge of due diligence, cause and effect

analysis, releasing a go or no go decision and recording the exceptions for future reference. I

think it is equally applicable to manufacturing and production.

Patrick said on Sep 15, 2014 I appreciated your thoughts on documenting the decision making process. As far as the

probability of failure, what benchmark should Lauren use to draw the line between acceptable and unacceptable risk?

JAMAL TAHA said on Feb 20, 2015 Since signing the report lead to fraudulent activity it is clear that it is ethical issue, so Lauren

should inform her immediate supervisor in writing and keep a copy of that communication for

herself and pass a copy to her general manager.

Jamal Taha said on Feb 20, 2015 I forgot to say that Lauren should not sign the report.

Sandra Pryor said on Feb 27, 2015 Lauren should follower the company protocols. Because of the company good reputation Lauren

should not sign off on fraudulent information. Send an email to her immediate boss and general

manager concerning the products did not meet the quality standards agreed upon, but only by a very small margin. She should think long term and the good of the company reputation.

serge g gnago said on Apr 6, 2015 Lauren as quality control manager has a great responsibility to make sure that the company

products meet the highest standard. She has to do the right thing and strictly follow the

company protocol, the company reputation is at stake. Even she is at odd with her boss, she has

the responsibility to uphold the highest ethical standard at all time and in every situation.

Anthony said on May 31, 2015 She should not do it, because once you start a trend of doing on ethically things your boss may

want you to do more

Brice Zakra said on Jun 2, 2015 Lauren, to protect herself, should sent out emails to her boss explaining clearly the danger of

signing off the product just in case something goes wrong and she get found guilty in the mix.

Robert Smith said on Jun 3, 2015 There's a bigger issue for Lauren. If she signs a fraudulent report, she will likely be legally liable

if the flaw turns out to create a hazardous condition that harms the end user. And if the fraud is

detected, her company will quickly fire her and blame her for the fraud. She'll end up taking the

blame by herself.

Protected Class: Externalities of Age Discrimination Safeguards Lindsey worked as a top manager at a struggling technology company in Silicon Valley. As part

of a company wide initiative, she had the task of downsizing her department by a considerable margin. Among the most troubling decisions involved eliminating a position within her

department's most productive teams: eight people for seven jobs. As she considered each team

members'; contributions and merits, there were two employees whose performance reviews

were far behind the rest of the team.

Dianne was a 38-year-old woman, an employee at the company for 12 years, and an average

performer. She worked hard and did a decent job overall, but failed to thrive at the company. She worked for a mediocre manager and Lindsey thought Diane's performance would improve if

she worked for a more competent manager. Lindsey felt that Diane had more potential than

Ron, but up until now it had not been realized.

Ron was a 42-year-old male with tenure and experience in the firm similar to Diane. Like Diane,

he was an average performer but was not a rising star in the organization. He did not show as much potential as Dianne. However, because Ron was over 40, he was considered a member of

a "protected class," giving him special protections against discrimination based on age. If

Lindsey fired him, he could, and most certainly would, sue the company with a claim that he was

being let go because of age discrimination.

Lindsey felt that Dianne was the slightly better candidate, given her potential to grow into a top contributor. On the other hand, eliminating Ron's position would expose the company to a

lawsuit and the expenses associated with it, perhaps outweighing any benefit the company

would gain by choosing Diane over Ron.

What should Lindsey do?

Posted by Noah Rickling, Hackworth Business Ethics Fellow ‘13

Cultural Barriers: When Equality Compromises Efficiency Ralph was a sales representative of a small but fast-growing mobile and social advertising

platform. Working directly with the co-founder, Mike, Ralph was responsible for door-to-door sales, pitching the company's platform that helped clients gain a virtual following of customers.

The business owners in the area often spoke English as a second language, making clear

communication between the two parties a key concern for Ralph.

On one sales call, Ralph approached a small hair salon and secured a contract along with a $100

signup fee. However, the situation soon turned sour, as the hairdresser was furious after

learning that she would have to operate the online platform herself, as opposed to the full service deal she thought she had signed.

Mike, Ralph's boss, now found himself stuck in tough situation. Ralph claimed that he was

blatantly clear what the contract was offering, though mentioned communication was strained

due to the language barrier. Under the company's philosophy of putting the customer first, Mike

refunded the $100 signup fee and voided the contract. This was not the first time Mike had to refund a contract under these conditions, causing Mike to

revisit both the contract and Ralph's sales pitch to ensure that the language was a clear as

possible. After this incident, it was clear that adjustments have not made an impact, and the

company continued to lose money on negated contracts and time wasted not pursuing interested

customers. Mike began to consider redrawing their target areas away from those where English is not the predominantly spoken language, but is concerned that would be an injustice to those

potential customers.

Should Mike make the decision to work only with English-speaking customers? Is that an ethical

solution? Are there any alternatives?

Posted by Saayeli Mukherji, Hackworth Fellow ‘13

Quality or Quantity: When Incentives Don’t Match Your Values Frank, a recent Santa Clara University graduate, recently landed a sales job for a Silicon Valley

tech company. He is part of a team that qualifies sales opportunities. After talking to potential customers, Frank decides whether or not they are quality leads. If they are, he refers them to an

account executive (AE) to close the deal, saving the company precious time in money in

avoiding low probability contracts. If not, he will not pass them on and the sales opportunity is

not pursued. Account executives expect prescreening of potential leads in order to maximize

their time. Each referral Frank passes to the AE is added to a tally that counts toward his target

monthly total, and there is a monetary bonus for all sales staff members who reach their monthly quota.

This creates some controversy among Frank's team members, who are faced with conflicting

incentives; pass on low quality leads to hit your quota, or focus on quality and risk missing the

monthly target. The pressure to "hit your number" comes from both the monetary incentive and

management, who benefit when their sales team hits their quotas. To further complicate matters, since each sales representative self-reports how many leads they passed along, they

can inflate their numbers in order to reach the monthly target goal: a common occurrence

among Frank's coworkers.

As Frank tries to adjust to his new job, he is finding it difficult to balance his own moral compass

with the pressure of hitting his monthly number. How would you handle the dilemma between hitting the quota and submitting quality work you

stand behind? What factors would weigh into your decision? What solutions would best solve this

dilemma?

posted June 2013

Posted by Noah Rickling, Hackworth Business Ethics Fellow ‘13

Comments Sarah A. said on Mar 1, 2015 Improve the pre-screen questions asked for the possible referral, which in turn can save time

and then he could move down the potential list faster. This could improve his time on calls,

shorten the pre-screening process, and increase his overall total of screened calls per day.

Financial Reporting: Do Small Errors Need to be Reported? Ben is a recent Santa Clara University graduate who has just started his first job in the finance

department of a publicly traded Silicon Valley company. One of his main responsibilities is to create and distribute extensive Microsoft Excel reports that analyze costs and revenues for

different divisions. Ben sends completed reports to his direct supervisor and the CFO. The CFO

then uses the information to create the company's financial reports, in addition to the strategy

and forecasting formulation.

While Ben considers himself to be detailed-oriented, the complicated nature of and the sheer

volume of data sometimes overwhelm him, which is exacerbated by their strict deadlines. While Ben works hard to prepare the reports as accurately as possible, he often finds errors after he

has submitted his final report. When the errors are critical, he revises the reports and resends

them. However, some of the errors are minor, in Ben's estimation, and he doubts that the CFO

will use or look at these figures. Ben is ambitious and wants to be promoted, but worries that if

he frequently sends out revised reports he will appear unreliable and unqualified. At the same time, the potential consequences from inaccurate financial reports put the company, the CFO

and CEO, and Ben himself at risk.

What actions should Ben take when he catches a mistake? Is he obligated to report every error,

particularly since he works for a publicly traded company? Is there such a thing as a small error

in this context? Posted June 2013

Posted by Amanda Nelson, Hackworth Business Ethics Fellow ‘13

Comments vishal said on Nov 6, 2014 pls tell me the answer or suggestion ..

Sidney Estes said on Dec 9, 2014 In my opinion Ben should send out a revised version of the report as soon as he sees a mistake. Although this may hinder his promotion it will assure his boss that he is diligent and even though

he is not perfect every time he is willing to find his mistakes and correct them. Also if Ben makes

a mistake on something that he judges to be insignificant but in reality is of very important then

it may end up costing his company, the CFO and his job. Also if Ben feels rushed then maybe he

should address this issue with the CFO, He needs to let him know that to file an accurate report. Although it may make him be viewed as incompetent by his peers and maybe his boss it will

show that he would rather do a thorough job when he could get away with doing a less than

adequate job.

THE DHAKA FACTORY FIRE: WHO IS RESPONSIBLE? Tuesday, Jan. 22, 2013

Case by Saayeli Mukherji and Noah Rickling, both Seniors at Santa Clara

University and Fellows in Business Ethics at the Markkula Center for Applied

Ethics at SCU

BACKGROUND: The largest Bangladesh factory fire in recent times killed 112

people this last November. This horrible incident raises once again the dilemma of

who bears responsibility in such a tragedy. As we examine this case, we have

singled out specific players who might bear significant responsibility for this

particular event. The Bangladeshi government has the dual responsibility of taking

care of its citizens as well as maintaining its economy by supporting the $20 billion

a year garment industry that serves as 80% of its total export earnings. The workers,

mostly women, earn as little as $37 per month and depend on the government for

their safety; however, corruption runs rampant in Bangladeshi politics and the

country is currently ranked 142nd out of a 176 countries according to the

Transparency International Corruption Perception Index. In this case, there are also

implications of arson to further political interests of specific parties. Additionally,

the owner of the factory constructed five more illegal floors beyond the original

structure, and the factory location was in an area that large vehicles, specifically fire

trucks, could not easily enter. Major international retailers have often been

criticized for not taking responsibility for their subcontractors; companies whose

products were produced at this particular factory include major retailers such as

Walmart and Sears.

THE QUESTION: Do you think that it is the government’s responsibility to enforce

safety regulations and bring these factories up to date, or should more be done by

multinational corporations that use these factories in order to ensure the safety of

their supply chain employees?

OUR RESPONSE: We assign the majority of responsibility in this case to the

government, which has failed to protect its citizens and factory workers on multiple

occasions. This most recent factory fire, although more deadly than any in recent

memory, is unfortunately not a rarity in Dhaka. The Bangladeshi government fails

to properly enforce safety standards they set because of the fear of the impact that

those regulations would have on the garment exports. Although there has been an

initial outcry against major companies, such as Sears and Walmart, who have

subcontracted labor to different Bangladeshi factories, we believe that they are less

culpable than the Bangladeshi government because of their degrees of separation

from the actual event. Although we recognize the financial constraints and the

associated corruption faced by the Bangladeshi government, we believe that only a

local authority could create significant change in how safety is valued. The bottom

line is that if the government regulations were properly enforced, factory fires,

which are all too common in Bangladesh, would reduce in number resulting in safer

working conditions for factory employees. Bringing these factories up to code

would, however, create another cost for factory owners. This cost could either cut

into the owner’s profits, cut the wages of factory workers, or be paid for by an

increase is production costs paid for by subcontractors, which would be passed on

to the multinational corporations that use these facilities to create goods. Ultimately,

there is a tradeoff here between profit and safety. It has been estimated that a

quarter of the factories in Dhaka are not up to current safety codes. If the

government enforces these regulations, there will be less business generated

because costs would increase, but the factory employees would be able to work in a

safe environment and disasters like this fire would become much less likely.

YOUR RESPONSE: Who do you think bears responsibility for this tragedy? What

other ethical frameworks (social, political, etc…) can help unpack this complicated

scenario? How would you use these other frameworks to decide who is responsible?

We look forward to hearing what you have to say and to entering into a

conversation with you.

- See more at: http://www.scu.edu/ethics-

center/ethicsblog/globaldialog.cfm?b=180&c=15006#sthash.B57

GuPe2.dpuf

A Job Search Dilemma

Monday, May. 23, 2011

Eric, a second-semester senior, is looking for a job. Anxious about finding work in

the worst economy in decades, he sends out scores of resumes for a wide variety of

positions. The first call he gets is for a position that doesn't really interest him, but

he figures he should be open to every opportunity. He schedules an interview,

which he aces. In fact, the recruiter offers Eric the job on the spot. He would like

Eric to start as soon as possible.

Should Eric accept the offer? If he does, can he continue to pursue other jobs

actively?

- See more at: http://www.scu.edu/ethics-

center/ethicsblog/thebigq.cfm?b=385&c=10141#sthash.tBGMFh

T2.dpuf

The Case of the Reference Request

By Jim Balassone

A former employee who was fired due to poor quality work, absences, and lateness related to

her drinking problem, informs you that she has applied for a position at another company and has already given your name as a reference. She desperately needs a job (she is a single parent

with three children), and she asks you to give her a good recommendation and not mention her

drinking, which she assures you is now under control.

She also asks you to say that she voluntarily left the company to address a family medical crisis,

and that the company was pleased with her work. You like this person and believe she is a good worker when she is not drinking. You doubt that she really has overcome her drinking problem,

however, and you would not recommend your own company hire her back.

What do you say to this woman?

What do you say to an employer who calls you for a reference?

What if the prospective employer was a friend?

Suppose the problem was a theft? Suppose she had asked you to be a reference prior to supplying your name to her prospective

employer?

What values are at stake? Do some of the values conflict with one another?

Jim Balassone is executive-in-residence at the Markkula Center for Applied Ethics.

March 2011

Easy on the Wallet or Easy on the Earth:

A Case About Ethics in Sourcing By Meghan Skarzynski

Fashionforward! is an online auction site where those who have more style than money can bid

on designer apparel. The site registers members for $30, who are then allowed to bid on exceptional deals. In an effort to stand out from the crowded field of online bargain sites,

Fashionforward! reached out to the local community in search of help marketing their company

to college students.

Part of this effort included hiring a student intern, Carly LeBlanc. At that point, Fashionforward!

had no formal marketing strategy for targeting consumers. As someone who grew up in the

digital age, LeBlanc knew she had to kick start the company on the Internet. Her marketing knowledge centered on the benefits of viral technologies, especially Facebook and Twitter.

LeBlanc immediately revamped the Fashionforward! Facebook page to make it more user-

friendly--adding quizzes, polls, discussion boards, and photo albums--as well as setting Twitter

blasts to go off repeatedly throughout the day. During her three-month internship, LeBlanc

quadrupled the Fashionforward! Facebook fan base. Her project helped catapult the company into prominence. In the three months of her internship, Fashionforward! increased the number

of items offered on the site threefold.

The CEO noticed LeBlanc's success in social networking and asked her to launch a guerrilla

marketing campaign on her own campus to create buzz for Fashionforward! among her peers.

The CEO challenged her to register 100 new clients within the week. A member of a sorority since her freshman year, LeBlanc decided to use her Greek connections.

She appeared at four campus sororities that week. Promising a free Fashionforward! T-shirt with

the sorority's name for every membership purchased, LeBlanc registered 300 new members in

one night.

Reporting to work the next day, LeBlanc was excited to share with the team the quick

acceptance Fashionforward! had received on campus. She believed she had developed an easy and effective marketing strategy that could be replicated at schools all over the country. LeBlanc

planned to order different T-shirt designs for different sororities, highlighting the

Fashionforward! logo in bold lettering.

That's when she faced a difficult ethical decision: She could order the shirts from a low-cost

company in China or she could order them from a fair-trade company in San Francisco, which provided safe conditions and higher wages for the workers who made the clothing. The fair trade

shirts were $28.65,making the grand total for her project $8,595. In contrast, the Chinese T-

shirts were $5.50 each, and the company's Web site promised fast and free delivery for a grand

total of $1,100.

LeBlanc remembered from her Venture Capital Finance class that startup companies need to focus on making the most money during the first two years. She also knew that the T-shirts

from China would be cheaper so that she could create a more elaborate design with more

graphics and color. She realized her school was a "testing campus" for Fashionforward! and that

if her marketing module worked, her internship work would spread to other college campuses.

She thought of how easy it would be for a factory in China to produce large quantities of shirts

to give away for free as a promotion that she could promote on the Facebook page she had worked so hard on. She also wondered if the higher cost of the T-shirts would affect the grade

the CEO gave her for the internship.

On the other hand, her International Management class had exposed her to the harsh reality of

working conditions in China: low wages, rigorous work schedule, poor safety regulations, and

the complete lack of worker's compensation and benefits. When LeBlanc had sailed on the Human Rights and Social Justice Voyage with University of Virginia's Semester at Sea, she saw

first-hand a Bulgarian clothing factory's destitute environment. She wasn't sure how the public

would react if they knew Passionita had taken advantage of outsourcing cheaper t-shirts rather

than supporting a U.S. company during the global recession.

Then LeBlanc weighed her other option of ordering t-shirts from a San Francisco T-shirt company she had already used once when she worked with a community service student organization.

While the shirts were more expensive, they were fair-trade, organic, and eco-friendly, all

attributes she thought would appeal to students. LeBlanc reasoned students would be more

likely to wear a shirt that was fashionable and better quality than one that was made cheaply.

LeBlanc didn't want to disappoint her boss. She knew she was working on a deadline and didn't have time to research the prices of T-shirts at other companies. Even though she could have

created a bidding war with local T-shirt companies for the business, she preferred to buy from a

company that she could trust. At the same time, the $7,495 she would save if she bought from

the Chinese manufacturer was too good not to consider. She knew if she made her boss happy,

she'd be promoted and enjoy more independence with her future projects. LeBlanc wants Fashionforward! to increase its popularity and become a topnotch company

among college trendsetters. What should she do and why?

Should she quit her internship and drop the class?

Should she ask for an extension on her assignment?

Should she order the T-shirts from a fair trade company?

Should she assume the Chinese company doesn't treat its workers fairly? Meghan Skarzynski, a senior at Santa Clara University, is a Hackworth Fellow at the Markkula

Center for Applied Ethics.

December 2010

Instagram and the Ethics of Privacy Monday, Feb. 4, 2013

Background

Founded in 2010, Instagram considers itself to be “a fun and quirky way to share

your life with friends through a series of pictures.” By downloading the free

Instagram mobile application (or app), users snap a photo with their mobile phone,

then choose a filter to transform the image, and can share it on various sites such as

Facebook and Twitter. The company views itself as more than just a photo-storage

tool but a way “to experience moments in your friends' lives through pictures as

they happen. We imagine a world more connected through photos.”

In April 2012, the 13-employee company was acquired by social networking giant

Facebook for approximately $1 billion. In less than three years, Instagram has

become one of the fastest growing social media platforms as seen by its estimated

12 million daily users.1

Dilemma

In December 2012, several months after being acquired by Facebook, Instagram

announced new changes to its privacy policy and terms of use. According to the

updated terms, "a business or other entity may pay Instagram to display users'

photos and other details in connection with paid or sponsored content or

promotions, without any compensation to you," and there was no apparent option to

opt out.2 The backlash was immediate. Photographers and celebrities were

particularly upset, given that their photos were a part of their own businesses and

brand images.

Instagram was quick to respond that its intention was simply to improve

advertising. Co-founder Kevin Systrom posted, “Our intention in updating the terms

was to communicate that we’d like to experiment with innovative advertising that

feels appropriate on Instagram. Instead it was interpreted by many that we were

going to sell your photos to others without any compensation. This is not true and it

is our mistake that this language is confusing. To be clear: it is not our intention to

sell your photos.”3

Instagram's privacy policies and terms of use were once again updated in January

2013. The current terms state, “You hereby grant to Instagram a non-exclusive,

fully paid and royalty-free, transferable, sub-licensable, worldwide license to use

the Content that you post.”4 Instagram also reserves the right to share users

information (including analytics information, log files, cookies, and location data,

as well as the content users post) with companies affiliated with Instagram (mainly

Facebook), third-party service providers, third-party advertisers, and “other

parties.”5

While the initial backlash against Instagram has been quelled, there is still

uneasiness among users regarding privacy issues. Instagram has to walk a fine line

to keep its users happy and still turn a profit. On one hand, Instagram offers a free

service to users, which up until this point has been free of advertisements, unlike

other social media platforms like Facebook. In order to remain a viable company,

Instagram has to bring in revenue somehow, and advertising seems the obvious

choice.

Our Response

We believe that it is not unreasonable for Instagram to try to make money using

member photos for several reasons. Firstly, it would be foolish for Instagram to

walk away from such a lucrative revenue opportunity. On January 17, 2013, it

announced the following powerful statistics6 :

90 million Monthly Active Users

40 million Photos Per Day

8,500 Likes Per Second

1,000 Comments Per Second

With staggering numbers such as these, how could a zero-revenue company not

optimize these opportunities? And let us not forget that Facebook purchased the

company for $1 billion in cash and equity in April 2012. Facebook owes it to its

shareholders to try to monetize Instagram considering how much it spent on this

company in addition to Facebook’s subpar performance since going public last

year.

Secondly, users pay absolutely nothing for using Instagram's services; there is no

price per photo uploaded, monthly/annual subscription required, or pricing scheme

of any sort. Individuals and celebrities are not the only ones who derive personal

benefit from Instagram, but businesses, too. Many small businesses like to use

Instagram as a marketing tool because it is free and effective. For instance, some

will upload pictures of new product arrivals to lure new and/or existing customers

to come in and purchase. Not to mention, businesses like to have Instagram

accounts because the service allows them to build their brand and customer loyalty

through daily/weekly posts, thus, giving them the venue to engage and interact with

customers in ways they could not do previously.

Question

How much, if any, of our information should Instagram be able to share with third-

parties and advertisers? OR Why are Instagram users making such a fuss about the

revised privacy policy if they are gaining so much personal satisfaction and/or

business from a service that is free?

- See more at: http://www.scu.edu/ethics-

center/ethicsblog/globaldialog.cfm?b=180&c=15267#sthash.EwP

CH8ZA.dpuf

The Case of the Million-Dollar Decision By Michael L. Hackworth and Thomas Shanks, S.J.

In "The Buck Stops Here," a presentation for the Markkula Center for Applied Ethics Roundtable

for Executives, Michael Hackworth talked about how he models ethical leadership in his role as CEO of chip manufacturer Cirrus Logic. "Employees take their cue from the CEO," he said. "In

every situation, they ask, 'What does the boss want?' They give him what he wants when they

talk about the business, when they talk about the law, and when they talk-or don't talk-about

ethics. In general, people line up behind what the CEO wants."

The Ethics Roundtable for Executives brings business leaders together to discuss the moral dilemmas they confront in the workplace. Using this case study, created with Center Executive

Director Thomas Shanks, S.J., Hackworth encouraged members of the Roundtable to imagine

how they might confront this challenge: Their company is planning to expand into a country

where bribe-taking is considered a normal part of doing business.

Pegasus International Inc. is a leading manufacturer of integrated circuits (chips) and related software for such specialty markets as communications and mass storage, as well as PC-based

audio, video, and multimedia. With a focus on innovation, Pegasus is committed to "technology

leadership in the new millennium." Its long-standing strategy has been to anticipate changes in

existing and emerging growth markets and to have hardware and software solutions ready

before the market needs them. The company has also made significant strides in wireless communications.

The systems and products of Pegasus' wireless business have been selling well in its already

existing markets in the United States, Japan, and Europe. But, like any company, Pegasus is

eager to grow the business. At a strategy session with the Wireless Division, Pegasus CEO Tom

Oswald and division managers decide to explore the potential of expanding their business to China.

Initial research indicates that China is likely to develop into a huge market for wireless because

its people do not currently have this capability and the government has made spending on

wireless a priority. Wireless is really the only choice for China because of the high cost of burying

the communications cables necessary in wired systems; further, in underdeveloped countries,

copper wires are often stolen and sold on the black market. Subsequent research does raise one concern for Pegasus wireless managers. They tell Oswald,

"We have this problem. China allocates frequencies and makes franchise decisions city by city,

district by district. A 'payoff' is usually required to get licenses."

The CEO says, "A lot of companies are doing business with China right now. How do they get

around the problem?" His managers have done their homework: "We believe most other companies contract with

agents to represent them in the country and to get the licenses. What these contractors do is

their own business, but apparently it works pretty well because the CEOs of all those companies

are able to sign the disclosure statement required by law saying that they know of no instance

where they bribed for their business." "I wonder if paying someone else to do the crime is the same as our doing the crime," Oswald

says. "I'm just not very comfortable with the whole question of payoffs. So, let me ask you, if

we don't expand into China, how much business will we lose, potentially?"

His Wireless Division manager responds, "It will be huge not to do business in all the countries

expecting payoffs. China alone represents easily $100 million of business per year. It's not life and death, but it is a sizable incremental opportunity for us, not to mention potential Japanese

partners who will make significant capital investments. All we have to do is add our already-

existing technology. When you consider all that, we have a lot to gain. What will we really lose if

our local contractors are forced to make payoffs every now and then?"

Oswald wants his company to succeed, he wants to maximize shareholder value, he wants to

keep his job, and he wants to model ethical leadership. He has made an effort to build a corporate culture characterized not only by aggressive R&D and growth but also by integrity,

honesty, teamwork, and respect for the individual (See Pegasus Values below). As a result, the

company enjoys an excellent reputation among its customers and suppliers, employee morale is

high, and ethics is a priority at the company.

What should he decide in this case? Why?

Reporting Inflated Numbers By Jessica Silliman

Barbara King graduated from Santa Clara University at the perfect time. It was the peak of the

dot-com boom and businesses were competing for recent graduates. Barbara had no problem

getting her first job in the high-tech industry as a corporate communications specialist. Many of her friends struggled when entering the corporate world, but Barbara didn't have any

problems. The workplace had a casual atmosphere, she enjoyed a salary far above that of her

friends, she received perks regularly and she enjoyed Mai-Tai Fridays at the office every week.

She was at the job for less than two months when the company released the quarterly numbers.

As the internal communications representative, Barbara was responsible for reporting the numbers to all the employees within the company. Because the company was not publicly

traded, only those within the organization were privy to the information.

"I was aware something wasn't quite right with the numbers," said Barbara. "But I was so young

and naove-I never thought they could be wrong." She knew the company was doing well, but

Barbara had been tracking the high-tech industry and was conscious of the usual financial

targets. She also knew that the industry was getting out of control and each company was willing to do anything to get ahead. After asking her coworkers, she realized that they all knew

the numbers were intentionally inflated every quarter. Barbara took the hints from her

coworkers and passed the numbers on without question.

"We were a young company and we needed our stock price to rise so that we could stay

competitive in the booming industry," said Barbara. "Everyone questioned the numbers, but, because of the hip work culture that everyone enjoyed and the potential for riches, there was an

underlying pressure to be loyal."

The inflated numbers became another part of the culture. Barbara observed coworkers laughing

when they picked up the paper and read the headlines about their company's booming quarter.

"Everyone was just enjoying the ride and didn't want it to end," said Barbara. "Venture capitalists were practically throwing money at our company and we were spending it faster than

we thought possible."

"I was new at the company, was making great money and had great benefits-why would I

jeopardize all of that?" said Barbara.

Discussion Questions:

How would you describe the fundamental ethical dilemma that Barbara faces? Who benefits by Barbara passing on the incorrect information? Who is harmed by

her doing so?

Do you think Barbara handled this situation correctly? Would you handle it

differently?

Jessica Silliman was a 2006-07 Hackworth Fellow at The Markkula Center for Applied Ethics. June 2007

Bad Business Ethics or Acceptable

Promotional Perks? By Jessica Silliman Gail Ellen had taken her first job offer out of Santa Clara University. As a communication major,

she hoped to go into broadcast media and eventually become an on-air personality. But she

knew she had to work her way up. So she took a job with a local Bay Area radio station in the

publicity department. Gail immediately fell in love with the station's young, hip vibe.

Soon after beginning at the radio station, Gail began to feel uncomfortable about some of the practices within the promotions department. When station officials requested products from local

companies to be given away on-air, they would overestimate the amount necessary. The

employees would then take the extra products.

This happened several times with tanning packages. A local tanning salon would often donate

coupons for free one-month trials. The station didn't have a set ratio for coupon dollar amount

per minute of advertising, so the promotions department would negotiate individually with each customer. It was also impossible for the individual companies to keep track of the on-air

advertising time, so they never knew if their negotiated airtime was actually in effect. These

negotiations resulted in a completely arbitrary system that always erred on the side of the

station. Instead of giving all the tanning packages away on the air, the disc jockeys would often

keep a few for personal use, or distribute them to other station employees. Because everyone at the station enjoyed receiving the perks, nobody complained. "I enjoyed the

industry," said Gail. "I'm just glad I wasn't on the other side of the street." Gail realized that the

supporting companies donating give-aways had no idea of the radio station's practices. This

frustrated her, but she, too, didn't feel it was worth speaking up about. "I was getting a horrible

salary, so I figured I could enjoy the perks," she said. "Plus, they were on such a small scale, that it didn't seem significant."

"This was just how the business operated, so I didn't say anything," said Gail. "It was just part

of the culture."

Discussion Questions:

Define Gail's ethical dilemma.

Is the radio station's policy with product give-aways ethically acceptable? Why or why not?

Do you agree or disagree with how Gail handled the situation and how she justified

her actions?

Can small, relatively inconsequential perks be harmful?

Jessica Silliman was a 2006-07 Hackworth Fellow at The Markkula Center for Applied Ethics. June 2007

A Right or Wrong Way to Sell?

By Jessica Silliman Five years after graduating from Santa Clara University, Ilene Kennedy got a job in contract

sales, selling high-end office furniture to large companies throughout Northern California. Ilene

was a manufacturer's rep who represented ten lines of furniture to dealers who then sold the furniture to the end user-law firms and financial companies in remodel or expansion processes.

Ilene had learned about the strict chain-of-custody within the contract furniture industry from a

close friend in the business. This chain was a custom in the business which permitted only

certain individuals to sell to and represent those immediately above or below them in the

"ladder." In the system, designers and architects who were remodeling law firms and company

offices specified furniture to buy from the dealers who would, in turn, buy the furniture from the manufacturer. As a manufacturer's representative, Ilene would only be selling to dealers,

architects and designers. She would not be selling to end users.

But when this chain-of-custody system was explained to Ilene by her new boss, he told her that,

in reality, it often didn't work that way. He had hired Ilene to sell directly to the law firms and

companies-thereby cutting out the dealers, architects and designers. By eliminating the dealers, architects and designers in the process, Ilene's firm could make a bigger profit margin. In many

large deals, Ilene was bidding against dealers, architects and designers she often worked closely

with-dealers she was supposed to be using at the time. The entire process made Ilene feel very

uncomfortable-she felt like she was cheating the system. It was apparent that her company was

using a less accepted strategy. After a couple months, she brought the concern to her boss, the owner of the company, who

was completely unsupportive.

Her boss told her that she was, "too idealistic and not a true salesperson." They were in the

business to make money, not to make friends. He said she could leave if she didn't feel

comfortable with the arrangement.

"I just realized I was hired for a position that was completely unethical," said Ilene. Frustrated, Ilene did her best to balance both her role as a manufacturer's representative and

her forced role in the bidding wars. On several occasions she bowed out of potential deals with

end-users when she was faced with bidding against her own dealer client. In these instances the

dealers knew that Ilene was going after the profit. She wasn't proud of the strategy and,

knowing well that she may have to work with the dealers in the future, she decided to take herself out of the awkward situations.

But Ilene couldn't handle the balance. "I told my boss that I was uncomfortable selling to the

end-users for ethical reasons," said Ilene. For the next six months, Ilene only sold to dealers and

designers-as the chain-of-custody intended it.

"The option was less lucrative for me and for the company, but at least I was doing what I thought was right and fair," said Ilene.

After those six months, Ilene quit the job and began a sales job in another industry where she's

found ground-breaking success.

Discussion Questions:

Do you think the sales strategy of Ilene's boss is unethical or just an aggressive

tactic? What would your advice be to Ilene on how to deal with this discomfort she felt with

selling directly to end users?

How could this practice of breaking the chain-of-custody impact the industry?

Does Ilene have the obligation to push for broader changes within the system,

rather than only changing her own job responsibilities to align with her personal ethics? Is it ethically forbidden to go out of the sales chain?

Jessica Silliman was a 2006-07 Hackworth Fellow at The Markkula Center for Applied Ethics.

June 2007

Aggressive Sales Quotas or Unfair Business Practice? By Jessica Silliman "In the advertising industry, money is the bottom line-regardless," said Peter Allen, a customer

service representative for a large-scale online directory. It was 1999 and the online business was booming. Everyone in the city wanted to get in on the Internet revolution, but many didn't really

understand what that even involved.

Peter was new to the industry. He was given his territory, the city of San Francisco, and told to

sell as much advertising as possible-at any cost-both to the company's existing clients and to

new customers. For his first few months on the job, Peter focused on getting to know the existing customers and evaluating their current advertising packages with the company. Peter

was surprised to find that many of his customers were small business owners-auto-body shops

and family-owned restaurants that already had large advertising packages way beyond their

needs. His boss, the director of customer service, had already set Peter's quota at a level that

presumed that many more sales were possible. Yet, in Peter's judgment, the market was

saturated. "These small shops thought that the Internet was the next best thing," said Peter. "They didn't

even understand what the Internet actually was."

Peter couldn't fathom how these small businesses got persuaded into spending so much money

on advertising. "The businesses you would least think to look up online were the businesses with

the most expensive advertising packages," said Peter. Peter was getting daily phone calls from the home office, pressuring him to meet his numbers

and sell the most in his territory. Peter complained to the sales manager, who said that Peter

had to be honest. "It was my obligation to set things straight," said Peter.

With the support of his manager, Peter told the top executives of the company that the sales

team in San Francisco needed to have some leeway in meeting the quota. Unlike other sales territories, San Francisco, as the hub of the high-tech world, was cluttered with competition and,

with companies cropping up everywhere in Silicon Valley, Peter and his team didn't have the

luxury to selectively pursue businesses. Instead, they had to go after any and every business

possible because other online directories were quickly entering the San Francisco market. The

executives feared that changing the quota for San Francisco would lead to other territories vying

for lower quotas as well. But Peter's case proved strong enough: The executives decided to "look the other way" for the San Francisco territory.

Peter went to each business and gave them an honest evaluation of their advertising needs-

often recommending they downgrade their packages with the company.

"We moved them into more appropriate packages and became number one in customer

retention," said Peter. "We lost money in the short term, but in the long term we made money through referrals and retention."

Discussion Questions:

Describe, specifically, the ethical dilemma that Peter faced.

What are virtues Peter needed to act as he did? What do you think motivated him?

What were the risks Peter faced in making this decision? What factors do you think assist people in making moral decisions in the face of a

great deal of pressure?

Jessica Silliman was a 2006-07 Hackworth Fellow at The Markkula Center for Applied Ethics.

June 2007

Public Relations: Is the Customer Always Right? By Jessica Silliman Paula Eng was a junior partner at a Bay Area public relations firm when she was asked to assist

in publicizing an event for one of the firm's top clients. The client, a large-scale software company, was sponsoring a talent competition where local men and women would compete for

the chance to win a fourteen-day cruise for two. The company hoped the event would be a huge

success so that the media attention would give wide mention to its name.

After nearly five months of preparation, Paula thought she had it all planned to perfection. She

had secured celebrity judges, contacted all the local news organizations and could already envision the press release she would write and the broadcast coverage it would gain after the

competition. It was going to be great publicity for the software company.

When the talent competition was finished, Paula was behind stage tallying the votes to

determine the winner when the head of the software company, Mr. Johnson, frantically

approached her. It was a close competition and two contestants-one "average Joe" and one up-

and-coming actor-were the final two left. When the votes were tallied the actor won, but Mr. Johnson wasn't pleased-he wanted the "average Joe" to win because he thought that it would

make for a better news story and, hence, more publicity for his company. Mr. Johnson asked

Paula to take "creative liberties" in determining the winner. The fine print in the rules said the

final decision was ultimately up to the company and not the judging panel and he made it clear

who the winner should be. "I had spent four and a half months preparing for this event and the decision was reduced to 1 Ø

minutes," said Paula.

Paula's manager was the one in charge of deciding whether to honor Mr. Johnson's request or to

go with the judges' choice. Her manager chose to side with Mr. Johnson and announce the

"average Joe" as the winner, but did verbally express disapproval of the process and disappointment of being put in such an uncomfortable and compromising position. But they did

settle on somewhat of a compromise-while the "average Joe" was named the winner, both

received the cruise package prize to recognize both of their talents. Though Paula strongly

disagreed with the decision, she didn't have much control as a junior partner. She was never

asked her opinion and she never offered it.

"If I were in charge, things would be different," she said. "We weren' t doing the right thing by rewarding the person who didn't actually win. But we settled on a compromise that was as good

as it could have been and that tried to appease all people involved."

The press release mentioned that the "average Joe" was the single winner; news of the other

"unofficial" winner was not mentioned, however he was named as the first runner-up. The actor

wasn't featured as prominently and he didn 't get some of the local media coverage that the "average Joe" received, however he did receive media coverage in his hometown.

"It felt a little rigged," said Paula. Even the judges seemed surprised with the outcome, but none

raised serious complaints.

Discussion Questions:

Do you think Mr. Johnson's request to favor the "average Joe" is unethical? Why or why not?

Publicists represent the client's interests, but is the customer always right? Where

should the line be drawn?

Should Paula have spoken up at the time of the decision to alter the results of the

contest? Could Paula have avoided the situation in the planning process of the event? How or

how not?

Jessica Silliman was a 2006-07 Hackworth Fellow at The Markkula Center for Applied Ethics.

June 2007

The Effects of Ethics Policies: A Positive Story By Jessica Silliman Mike Bradley was well established in his career in human resources when he went to work for a

mid-size, IT company located in the Bay Area. At the time, Arthur Andersen had just gone out of

business for illegal accounting practices and ethics scandals were all over the news. But against

the grain, Mike's new company had taken the commitment to ethics to a new level. The

company made a conscious effort to dedicate itself to be an employer that actively supported ethical business practices. They wanted employees to be comfortable speaking up about ethical

issues, so they partnered with an external ethics company which fielded anonymous phone calls

about ethics concerns. In addition, each employee was required to navigate an online values

course that provided ethical dilemmas for employees to solve. Mike felt comfortable knowing his

company took ethics seriously.

After two years with the company, Mike encountered a situation that questioned his morals. He had been assigned to create an online tool designed to explain the inner workings of the

company to each employee. He had committed to having it done in two weeks, but he

encountered a problem: some of the content necessary for the online tool was under copyright.

Mike knew that he didn't have time to request use of the material. He also knew that, if he used

it illegally, it was likely nobody would notice. "Deep down I knew it wasn't right to use the content," said Mike.

Flagging this as a concern for the company would delay the project, but Mike was committed to

the ethical stance of the company, so he went to the management team. He told them that,

although he knew he wanted the project done, he would be forced to violate the company's

stance to accomplish the project on time. Mike offered two options to the management: they could purchase the content or eliminate it

from the online tool. E ither way, the project would be delayed.

Mike was quickly praised by the management for bringing the issue to their attention. Managers

told him that he did the right thing.

Discussion Questions:

Assuming that unauthorized use of copyrighted material may be illegal, do you also think it's unethical? Why or why not?

Do you think Mike would have made the same decision if his company had not had

an extensive internal ethics policy?

Name at least three things that you think indicate whether a company is committed

to ethics or not. Jessica Silliman was a 2006-07 Hackworth Fellow at The Markkula Center for Applied Ethics.

June 2007

Mr. Smith Goes to Washington In desperate need of a tax break for his company, a CEO contemplates a questionable campaign

contribution.

By Leon Panetta Response By Paul Locatelli, S.J.

John Smith, CEO of Dynamic Inc., is faced with a terrible political dilemma.

His corporation desperately needs a federal tax break that would allow him to write off a significant debt burden, which is undermining cash flow and access to new capital. Without the

targeted tax break, the business is likely to go under.

Congressman Bill Bridge, chair of the House Ways and Means Committee, is powerful enough to

include the needed tax break in a large tax bill going through his committee. Bridge, however, is

an infamous right wing conservative, who represents the political opposite of everything Smith believes in as a lifelong liberal Democrat.

Fortunately, Bridge is not familiar with Smith's political beliefs. The Washington lobbyist for

Smith's corporation has met with Bridge, and they agreed that Bridge would include the needed

tax break on the condition that Smith donate $100,000 to the Bridge campaign fund.

Such a political contribution is beyond anything Smith has ever done and would certainly attract

press attention in the next Bridge campaign fund report. Nevertheless, no other member of either party can deliver on the tax break except Bridge.

Tom Tully, the Democratic congressman representing Smith, has heard of the Bridge deal.

Because both parties are locked in a struggle for control of the House, Tully tells Smith that such

a large contribution could jeopardize Democratic hopes in November to beat Bridge, and he

threatens to publicly reveal the agreed-upon political buy-off. Instead, Tully, a junior member of the Agriculture Committee, proposes that if Smith will just wait until he and the Democrats

control the House, he will personally deliver Smith's tax break in the next Congress.

If Smith raises the money for Bridge, he saves his corporation but risks his reputation and

beliefs, and becomes a target for legal and political investigations. If he refuses, the chances are

good his business will fail, with the loss of 600 jobs. Welcome to Washington, Mr. Smith!

Leon Panetta, former White House chief of staff, presented this case for the Ethics Roundtable

for Executives.

Response

Responding to the case was Paul Locatelli, S.J., president of Santa Clara University, who made

his remarks in the context of the Center's "Framework for Ethical Decision Making" (available on the Web at www.scu.edu/ethics/ practicing/decision/framework.html).

Even before we get to the ethics of this case, the transaction Smith is contemplating is illegal.

Whenever there is a quid pro quo link between a campaign contribution and a specific political

action that is financially beneficial to the contributor, the solicitation and the donation constitute

criminal behavior. Whether Smith has to hold his nose on account of Bridge's reactionary politics is irrelevant.

Essentially, he is being blackmailed for a contribution. His gift would appear on Bridge's

campaign finance disclosure statement and would be easily linked to the tax break, proving an

embarrassment to Smith, as well as deserved grounds for indictment and conviction.

But the law in this case is the "floor" for decision making; ethics is the "ceiling." What are the ethical issues at stake here? Determining the stakeholders in the case is critical to this analysis.

Of course, Smith himself is one stakeholder, but his own interests do not absolve him from

responsibility‹both fiscal and ethical‹for the poor management decisions that have gotten his

company into its current difficulties. He cannot ethically save his own skin through bribery.

Certainly, shareholders also have a stake in the decision, and Smith is right to consider them. But it may already be too late to serve shareholder interests, as both the previous poor

management and the revelation of a campaign contribution to Bridge could adversely impact

stock prices.

Smith also has responsibility to his employees, who will undoubtedly be hurt if his business goes

under. In this case, however, responsibility to the workers is outweighed by a greater obligation

to the public. We might think of this in terms of the common good of the entire community, not

merely the rights of individuals or groups of individuals.

Members of the public in their role as taxpayers are left out of Smith's consideration though ultimately they will have to pay the bill for the tax break he is seeking. What moral obligation do

taxpayers have to bail out his company? Unless it produces some goods or services that are

necessary to the national interest, the company has no particular claim on public monies. At

least if there is to be a bail-out à la Chrysler, such an action should be publicly debated, not

slipped secretively into a large tax bill. In addition, Smith has an obligation to the public to obey the laws of the land. Would he be

willing to have anyone faced with his dilemma take the action he is contemplating? Probably not.

That would lead to chaos and the unraveling of the rule of law (or the lack of what we delicately

call "transparency" when these deals happen in the developing world).

This deal clearly flunks the "sniff test": It would be hard for Smith to explain to his mother or

someone else he respected. Shame is not the best motivation for ethical behavior, but it is at least a blinking red light at an intersection we know we shouldn't cross.

Fall 1999

The Case of Bad News The new CEO of a corporation learns that he has inherited problems with

growth and profitability. A four-day workweek and, eventually, layoffs

prove necessary. Who is the CEO obligated to inform and when?

By Gil Amelio

Responding to a Business Downturn George Anderson was just a few months beyond his 40th birthday on the

day he became CEO of Astratech Communications International (ACI).

What an upper! He was still basking in the glow of his good fortune,

eager to try out his skills as the CEO. He hoped to get the chairmanship

one day when the company's founder, Mike Marcus, decided to step down. Life was good.

ACI was a leading supplier of fiber optic transceiver components for the

telecommunications industry. It sold to companies like Alcatel, Northern

Telecom, and Ericsson, who put ACI's components into the lightwave

equipment they manufactured. The company was based in Irvine, Calif.,

a great place to live, work, and raise a family. ACI's annual sales were around $500 million with 2,500 employees in

locations in Mexico and Scotland, in addition to its Southern California

headquarters. All of ACI's hourly employees in the United States and

abroad were represented by the IBEW, a union with a history of good

working relationships with management. The Mexican operation was launched to take advantage of lower labor costs and close proximity to

headquarters. The Scotland plant gave the company relief from onerous

European tariffs. Both offshore facilities enjoyed excellent employee

relations.

After settling into his new position, George busied himself identifying the major issues facing the company. Coming in, he had realized that ACI's

growth and profitability were problems, but he wasn't sure if the source

was the management team, product development, marketing and sales,

or something else.

After several months, George was clear that it wasn't the people. Sure,

there were a few problem areas, and some employees seemed a bit too comfortable. But the main issue was a lack of focus and a general

weakness in the business systems required in this fast-paced industry.

There was no clear vision of what ACI wanted to be and no acceptable

plan on how to get there. What was it that someone said? "If you don't

know where you are going, all roads will lead you there." To address this weakness, George implemented a task force made up of

middle managers from all the various disciplines, as well as the executive

team. He chaired the task force because he believed strongly that CEOs

shouldn't delegate strategy.

When it came to business systems, the problem seemed to be a lack of adequate cost accounting. The company didn't know its individual

product costs to any reasonable degree of accuracy. To address this

challenge, George brought in a new chief financial officer.

But just as George was beginning to feel optimistic about where ACI was

going, he got a phone call from sales to tell him that Alcatel was canceling its backlog. Apparently, Alcatel's customers were slowing their

acquisition of new equipment, and Alcatel seized that opportunity to shift

all of its business to a French competitor of ACI's that had a reputation

for higher product quality.

George's first call was to the chairman. To his surprise, Mike handled it

well, voicing his empathy and support. But clearly, George was expected

to take action quickly. He decided that one way of avoiding a layoff was

to implement a four-day workweek. That spread the pain evenly among all employees. George called his executive team together to tell them the

bad news and to get the necessary action underway. Next, he went to

discuss the issue with union leadership. The regional head of the union-

also the local steward-was in George's office before lunch with a stern

look on his face. "Look, George, you're the new kid on the block, so we don't think this setback was your doing. No one likes to lose part of their

paycheck, but your plan treats management the same as the blue-collar

workers, so you've got our support. We want to give you a chance to act.

If we don't like what you're doing, we'll be back."

The four-day workweek was implemented. Without being told, the entire

management staff knew that they got four day's pay, but they were expected to be there five. After about six weeks, the lower costs began

to kick in, and ACI was again holding its head above water...barely.

Gil Amelio

Then, George's worst fears began to unfold. The lack of demand from

Alcatel was now spreading to his other customers and, although they

didn't cancel their backlogs, they significantly reduced them. The

customers' forecasts reflected the same story. Like it or not, George could no longer avoid a layoff. His best calculation

was that 900 people would have to go. The remainder would go back on

a five-day week. But a lot more details had to be worked out. What

projects should be cut? What parts of the organization should be hit the

hardest? Who should be protected? Discussion Questions 1. When George moved to the four-day workweek

scheme, should he have expected his managers to work five days for

four days' pay? 2. Should George tell anyone except his immediate staff

about the impending layoff before the details have been worked out?

What about the board of directors? The union? The employees? The Mike Wallace Factor and the Common Good

George decided to be open about the impending layoff with all the

important constituencies even though the implementation details were

not worked out. That evening as he left his office for the day, George

was surprised to see that a television crew had set up their camera near

the main entrance and were talking to employees as they left. As soon as the reporter spotted him, the crew raced over and thrust a

microphone in his face. "We understand that there are going to be layoffs

at this plant. What is your comment? We hear that the plants in Mexico

and Scotland are not going to be hit as hard as the Irvine plant. Aren't

you just using this layoff as a way to export jobs to lower-wage countries? Don't you owe it to the American workers to let them keep

their jobs so long as there are foreign workers to be laid off?"

George made a few comments that set the matter in perspective.

Although still skeptical, the press grudgingly conceded the argument...for

the moment. When he got to the parking lot, he found that his car had been slashed.

The paint job was ruined. As he drove home, he thought, These

problems are not my doing. If the managers and workers had paid more

attention to quality, they might not have been hit so hard by order

cancellations. The layoff was going to happen the next Tuesday, and he

scheduled an all-hands meeting for the remaining employees. Did he ever have things to say to them!

The next six months were the roughest of George's career. But things

started to click, the industry was coming back, and the organization had

fixed the quality problems. Best of all, the new product, which used

technology that was a generation ahead of the competition, was moving along at lightning speed. They would have it to market by his first

anniversary. As George reflected on the past year, he realized he had

learned a lot.

Two years later, ACI was the most profitable company in its sector. It felt

like a rebirth, for George as well as for the company. Discussion Questions 1. Was George's decision to be open about the

impending layoff the ethical thing to do? Are there situations in which it

is best to try to keep a lid on such information? 2. The particular jobs cut

at ACI were chosen on the basis of the long-range interests of the

business and not on the nationality of the work force. As the reporter's

questions implied, shouldn't American businesses favor American employees over foreign employees? What do you think George said to

the TV reporters?

Gil Amelio, partner in the Parkside Group and former CEO of Apple

Computer Inc., presented this case at a meeting of the Ethics Roundtable

for Executives. Spring 1999

The Case of Nutritional Foods By Kirk O. Hanson

What do we do when products go wrong? That question was explored by

the Ethics Center's Ethics Roundtable for Executives at a September

meeting featuring Greg Steltenpohl, chair of Odwalla Inc., and Kirk O.

Hanson, director of Stanford University's Sloan Program at the Graduate School of Business. To facilitate discussion of the issue, Hanson created

the following fictitious case. It does not represent a real event, but it

does provide a framework for looking at questions of product

responsibility. The case is presented in four parts to mimic how such a

scenario might evolve in real time. At each break in the case, stop and ask yourself what you would do given the information you have.

First Warnings

Fred James, chief executive of Nutritional Foods Inc., a $50 million

manufacturer of healthful foods, listened with concern as John Healy, his

vice president for production, described reports that had come in during

the past hour. The reports came from two county health departments, one in Seattle

and the other in Southern California. In each case, the health

department official reported a possible link between acute food poisoning

of a child and an unpasteurized apple product produced by Nutritional

Foods and distributed throughout the Western United States. The health departments had not yet ruled out all other possible causes. Additional

information was not yet available, and Healy did not have batch numbers

for the products in question.

Nutritional Foods was rapidly becoming the best-known brand of natural

or nonpasteurized foods in the Western United States. It made its products in two facilities, one in California's Central Valley and the other

in a coastal city of Central California. Fresh fruit and vegetable products

were shipped from growing regions throughout the West to these two

facilities for processing and canning or bottling. The handling of

nonpasteurized products was critical as contamination could occur in

picking, transporting, or processing the fresh product. Distribution was also critical to the freshness and safety of the company's

products. Daily distribution from the company's processing facilities in

company-owned refrigerated trucks ensured freshness.

Unpasteurized products had been popular in the health-food market for

many years, but Nutritional Foods was the most successful of several companies seeking to appeal to the mainstream market as well as to the

niche consumer. The company's success had led to its rapid growth and

the construction of its new processing facility in the Central Valley.

"OK, John," said James, "what's our response? Do two 'maybes' mean we

should do something immediately? We have had an occasional report, perhaps one every couple of months, during the past two years. None of

those turned out to be traceable to our product. Do two reports

represent anything other than a statistical quirk? Should we be doing

anything but waiting for the final reports from the health departments in

a couple of days?" Concern Deepens

Healy dispatched company managers to the two counties where initial

reports indicated there might be acute food poisonings related to one of

the company's unpasteurized products. He was startled a short time later

to receive a third and fourth report similar to the first two.

Although also not conclusive, the new reports made Healy wonder if something was terribly wrong. Healy immediately dispatched company

managers to the two new counties, urging all four to get the batch

numbers of the products in question. He also asked for an immediate

meeting with James.

"Now what should we do?" asked Healy. "Should we warn the retailers, asking them to stop selling the product? Should we also warn the public?

Such a move could devastate the company's reputation and its stock

price at a critical moment. Don't we have an obligation to think long and

hard before we take that step? How much certainty must we have and

how serious does a problem have to be for us to proceed?" Time to Act?

Healy was deeply troubled when he heard from his managers that health officials in the four counties they visited were virtually certain Nutritional

Foods' product was indeed involved in the food poisonings. All the batch

numbers, however, were not available. The two cases where company

managers could get batch numbers were from a single day's production.

Healy was further troubled that three additional reports of possible food poisonings had come in by the end of the workday, though two were

relayed by newspaper reporters. Each was checking claims by consumers

that one of Nutritional Foods' products had made them sick. One of the

reports involved a different company's products.

Healy also heard late in the afternoon from one of his children who had

read in an Internet nutritional chat room that Nutritional Foods had a poisoning problem. Had the time come, Healy wondered, for more

dramatic action? If so, what action should he take?

Crisis

At 7 p.m., Nutritional Foods announced publicly and through its retail

network that it was pulling all batches of the unpasteurized product

associated with all but one of the alleged poisoning incidents. Once the news hit the wire services, 50 more calls cascaded into company

headquarters late that night and early the next morning. Most were from

consumers alleging they, too, had been poisoned by the company's

products. Five more were reports from health professionals who stated

they were treating possible poisonings. At 9 a.m. the next morning, James convened a meeting of his Crisis

Action Committee, an ad hoc group of managers that had been formed a

few months earlier for just such a crisis. "Let me put several questions

before the group," said James. "Are we doing enough by conducting a

recall for the specific product in question, publicly asking consumers to

return all unused products to their local retailer, and asking retailers to stop selling and return all of their supply to us? The press has done a

pretty good job getting the word out. It's on the front page of perhaps 80

percent of the daily newspapers in our distribution area this morning.

"Should we do more to notify customers? Should we consider pulling all

our products? The calls this morning allege adverse reactions from many different products.

"And what should be our strategy toward those who have been made

sick by our product? If we show concern, isn't there a risk we will look

like we are admitting liability? Finally, what should we do about the

sickest of those affected? Two children are reported this morning to be in critical condition."

If you were Fred James, what action would you take?

Winter 1998

The Case of the Performance Appraisal Frank became chief financial officer and a member of the Executive Committee of a medium-

sized and moderately successful family-owned contracting business six months ago. The first

nonfamily member to hold such a position and to be included in the Executive Committee, he

took the job despite a lunch-time remark by the company's CEO that some members of the

family were concerned about Frank's "fit with the company culture." But the CEO (who is married to the daughter of the founder of the company) said he was willing to "take a chance"

on Frank.

Soon after Frank started, the company decided for the first time to "right-size" (a euphemism for

downsize) to respond to rapid changes in its business. Frank, who had been through this before

when he was a senior manager in his previous company, agreed this was good for the long-term health of the 20-year-old company. He decided not to worry that family members seemed more

concerned about their own short-term financial interests.

Besides, the CEO was relying on Frank to help him determine how to downsize in an ethical

manner; the CEO said he trusted Frank more on this than he did the head of his personnel

department, who had "been around a little too long."

On Frank's recommendation, the company decided to make its lay-off decisions based on the annual performance appraisal scores of the employees. Each department manager would submit

a list of employees ranked by the average score of their last three appraisals.

If the employee had been with the company less than three years, if the score for two

employees was identical, or if there was some extraordinary circumstance, the manager would

note it and make a decision about where to rank the person. At some point, Frank and the Executive Committee would draw a line, and those below the line would be laid off.

As Frank was reviewing the evaluations, he was puzzled to find three departments in which the

employee at the bottom of the list had "N/A" where the evaluation score should have been

written. When he asked the managers to explain, they told him these employees had been with

the company almost since the beginning. When performance appraisals had been instituted six years earlier, the CEO agreed to the longtime employees' request that they keep receiving

informal evaluations "as they always had."

The managers told Frank they'd questioned this decision, and the CEO had told them it wasn't

their problem.

When Frank raised this issue with the CEO, he responded, "Oh, I know. I haven't really

evaluated them in a long time, but it's time for them to retire anyway. They just aren't performing the way they used to. The company's been very good to them. They've got plenty of

retirement stored away, not to mention the severance you've convinced me to offer. They're

making pretty good money, so cutting them should let us lower the line a little and save jobs for

some of the younger people--you know, young kids with families just starting out. And don't

worry about a lawsuit. No way they'd do that." "Do they know they're not performing well?" Frank asked.

"I don't know," the CEO responded. "They should. Everybody else in the company does."

As they walked to the door, the CEO put his arm around Frank's shoulder. "By the way," he said,

"you should know that you've won over the Executive Committee. They think you are a terrific fit

with this company. I'm glad you talked with me today about these three employees. You got it right: This is a company that cares for its employees--as long as it can and as long as they're

producing. Always has, always will."

Frank left the CEO's office with the vague feeling that he had some moral choices to make.

Does he have an ethical dilemma? What's the right thing to do? If he disagrees with the CEO,

how does he protect his own career and the interests of his own family? What do you think? This case was written by Thomas Shanks, S.J., Executive Director of the Markkula Center for

Applied Ethics.

Summer 1997