Part one.

1. Explain what insider trading involves and to identify what, in your view, the greatest ethical problem with it is.
Insider trading is the buying or selling of shares or other financial securities (by the business ‘insiders’) based on
sensitive non-public information that is likely to affect the share prices. It is one common example of an abuse of
official position where one’s official position can be illegally used for private gain. Insider trading typically
involves misappropriating sensitive information.

The ethical problems related to insider trading are unfairness, misappropriation of property, harm to investors
and public confidence in the share market. Insider trading is wrong because it undermines the fiduciary
relationship that is central to business management. Profiting from insider information does not benefit the
company and it may seriously damage its interests.

2. Identify the key features of capitalism described in the unit materials?

Capitalism is an economic system in which most production and distribution is in private hands and operates
under a ‘profit’ or ‘market’ system. There are four key features of capitalism: the existence of companies, the
profit motive, competition, and private property.

1) The Company refers to a business organisation that exists separately from the people who created it but still
has many of the same rights and entitlements that a person has. Regarding their operations, companies also
enjoy limited liability which is the restriction of a company owner’s financial risk to the extent of the amount
of money invested in the company. This is an important feature of capitalism since it has allowed the
accumulation of large financial resources, making possible the rapid growth in size of the modern company.

2) Profit motive assumes that human beings are basically motived by their own economic interests.

3) Companies need to compete with other companies in attracting customers and acquiring sales volume.
Greater competition will encourage price deflation, improvements in product quality, as well as greater
managerial competence and innovation.

4) Private property refers to the ownership of possessions, both tangible and intangible, by individuals or
groups of individuals rather than the government. Capitalism requires private ownership of the major means
of production and distribution, which include factories, warehouses, offices, machines, computer systems,
agricultural land and so on.

3. Explain what John Kenneth Galbraith was talking about when he wrote of a ‘dependence effect’.

Dependence effect is the theory that producers shape consumer choice, which means the wants are not
originated from the consumers themselves but are created by the producers. Galbraith criticised that producers
create both the goods and the demand for those goods by using subtle advertising techniques and sophisticated
sales strategies through various marketing campaigns. Ambiguity, the concealment of relevant facts,
exaggeration and psychological appeals are among the morally dubious techniques that advertisers use.
Galbraith argued that advertising encourages a preoccupation with material goods and leads us to favour private
consumption at the expense of public goods.

4. Explain Aristotle’s doctrine of the mean, and to provide two different examples to illustrate the concept.

According to Aristotle’s virtue ethics, we should develop the qualities or virtues that would make us into
excellent or virtuous people, as well as use our rational minds to determine what is good. Aristotle’s doctrine of
the mean is that virtue is a mean (midpoint) between the vices of deficiency (underdeveloped virtue) and excess
(overdeveloped virtue). **[Aristotle regarded each virtue as being a midpoint between a deficiency and an
excess]**

For example, a person who is willing to save someone in danger even though it would put himself/herself in
danger as well is called courage, which is a virtue. A person does not dare to help a colleague being bullied in the
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 workplace, is called cowardice which is a lack of courage and it is a vice of deficiency. A driver who is speeding in
busy traffic is called recklessness – which is excessively courageous that could put people in danger – that is vice
of excess. Donating money and stationaries to poor countries so that their children can attend school is called
generosity which is a virtue. Not willing to share a pack of chips with friends is called parsimony or meanness
which is a vice of deficiency. Throwing away fresh food is called wastefulness which is a vice of excess.

5. Use an example to explain what a conflict of interest is and why conflicts of interest are ethically problematic.
Conflict of interest is a situation where an employee’s personal interests are substantial enough to interfere their
job duties that are harmful to their employer’s interests. For example, a real-estate agent sold a house to his
mother for $100,000 less than the asking price, without disclosing the conflict of interest to the vendor and his
company. Also, conflicts of interest may exist when employees have financial investments in suppliers,
customers or distributors with whom their organisations do business. For example, a marketing manager owns
share of a printing company which is also a supplier of her employer’s cause the conflicts of interest and it may
damage the employer’s interests.

In conducting their contractual duties, employees should not subordinate the welfare of the organisation to their
own gain. However, when the employee’s private interests are significant enough, the conflicts of interest could
unconsciously distort the decisions of even very honest people. Moreover, disclosing the conflict does not end
the conflict of interest, because even when informed that the advice may be biased, people fail to discount it as
much as they should.

6. Identify and explain one of the reasonable criticisms or questions that may be raised in relation to virtue ethics
or utilitarianism. (Note: if this question was in the exam, it would focus on only one of these theories).

According to Aristotle’s virtue ethics, we should develop the qualities or virtues that would make us into
excellent or virtuous people, as well as use our rational minds to determine what is good. The morality of an
action is determined by the virtuousness of the actor rather than the consequences or principles of duty or
justice.

One criticism of the virtue ethics is the difficulty of identifying virtues. One person may identify as a virtue,
another may see as a vice. Also, it is difficult to know exactly where to draw the line regarding when virtue is at
the mid-way point rather than it being a vice of deficiency or excess. For example, many people consider Donald
Trump is boastful while some believe he is just being proud. It is difficult to judge whether it is courage or
recklessness if someone is speeding so that he can take a seriously injured person to the hospital. Some would
consider it is courage because he is trying to save a person’s life regardless of his own safety, while others would
consider he is reckless because he is likely to cause an accident which will injure or even kill people.

Utilitarianism is an ethical theory that argues that an action is moral only when the greatest good for the
greatest number is achieved. There are six points about utilitarianism should be addressed before evaluating
utilitarianism.
1) Both happiness and pain must be considered, and the one with fewer units of pain should be chosen.
2) Actions affect people to different degrees. So, the action that brings about the greatest net amount of
happiness should be chosen.
3) Almost anything might be morally right in some circumstance.
4) Utilitarians wish to maximise happiness in both short-term and long-term.
5) The future consequences of actions are uncertain.
6) Our own pleasure and pain are equally weighted with the pleasures and pains of others.

One problem often identified with utilitarianism is that it fails to take into consideration the distribution of
utility. It suggests that the interests of minority groups or innocent individuals may be overlooked or outweighed
in order to achieve a greater level of utility overall. Utilitarianism may even require that some people’s happiness
to be sacrificed in order to achieve the greatest overall amount of happiness. For example, if policy X brings two
units of happiness to each of five people and policy Y brings nine units of happiness to one person, one unit each

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 to two others and none to the remaining two, then Y is to be preferred (11 units of happiness versus 10), even
though it distributes that happiness very unequally.

7. Briefly describe the most important ways a corporation can ‘institutionalise’ ethics.
‘Institutionalise’ ethics is to embed ethical standards and values into the corporate culture and operation. To
institutionalise ethics within corporations, top management should articulate the firm’s values and goals, adopt
an ethical code applicable to all members of the company, set up a high-ranking ethics committee to oversee
and enforce the code, as well as incorporate ethics training into all employee-development programs. Attention
to corporate culture is also crucial to the successful institutionalisation of ethics inside an organisation.

8. Use an example to help explain what is meant when it’s claimed that many environmental problems are caused
by businesses ‘externalising’ certain costs.

Externalities are the unintended negative (or in some cases positive) consequences that an economic transaction
between two parties can have on some third parties. And many environmental problems are caused by
businesses’ externalising’ certain costs.

For example, the price of the paper does not reflect the true cost of producing it. The number of trees and other
vegetation cut down for making paper is enormous. Although new trees will be planted, they cannot replace the
value of those removed older trees, and they need years to grow. Also, the chemicals used in paper production
process, including dyes, inks, bleach, and sizing, can also be harmful to the environment when they are released
into water supplies and nearby land after use. So paper is under-priced and overproduced. These business
activities caused serious environmental problems which in turn are harmful to the earth’s liveability for all
species. Public sectors and individuals must pay more money and effort to clean up and restore these natural
resources and the environment.

Part two.

1. Albert Z. Carr argues that the ethics of business are those of the poker game. Be prepared to explain what he
means by this and whether he is right.

Carr suggested that most bluffing in business might be regarded simply as a game strategy, much like bluffing in
poker, which does not reflect on the morality of the bluffer. The ethics of business are game ethics, different
from the ethics of religion, and business actions should be evaluated only by its own standards. Thus, according
to Carr, several things that we normally think of as wrong are permissible in a business context. For example, as
Carr mentioned, the use of misleading advertising, the selling of products in ways that needlessly facilitate crime,
the creation of invoices that will assist in a customer’s efforts to evade taxes overseas, and the strategy of
delaying the hearings of lawsuits in order to tire out the plaintiffs and win cheap settlements. Moreover, Carr
also suggested that engaging in industrial espionage should be considered within ‘the rules of the game’.

Carr’s view is a kind of ethical relativism and cannot be justified. Indeed, any specialised activity or practice, such
as business, will have its own distinctive rules and procedures. But business is not really a game, and the morality
of those rules and procedures should still be evaluated. Because business activities affect people, such as
consumers, and moral standards concern the behaviour that can affect human well-being. Moreover, people like
consumers and product users have not consciously and freely chosen to play the ‘game’. Game is not business,
nor is it morality. It is fundamentally wrong to compare game rules with business practise and standards.

Ethical theories should be used to justify the morality of business activities. Such as:
1) Virtue theories. Bluffing itself contains a certain degree of dishonesty and deception, so it cannot be
categorised as a virtue and caring for others.
2) Egoism. As bluffing is a form of dishonesty and deception, it is not beneficial for achieving the moral agent’s
best long-term interests, such as reputation and thus business opportunities in the future.
3) Utilitarianism. It is hard to justify the bluffing is to achieve the greatest good for the greatest number.

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 4) Kantian. Again, bluffing is a form of lie and it appears to be using others to achieve the actor’s own aims,
which are against the Kantian theory of ethics.

Furthermore, businesses that permit, encourage or tolerate deception will be less efficient and successful than
the ones that have a strong ethical corporate culture. Corporate culture is the set of beliefs, customs, value
systems and behavioural norms and ways of doing business that are unique to each corporation. The first step to
build a strong ethical corporate culture is to embed ethical culture, the organisational capacity that encourages
ethical behaviours of the employees, into the corporate culture. Ethical leaders are crucial to build a strong
ethical corporate culture as they set the ‘tone from the top’ by proactively influencing the employees’ ethical
behaviour. Reputation, consistency, credibility and authenticity are key elements if ethical leaders are to be
effective. As these qualities spread and reinforce the ethical corporate culture, it becomes a strong competitive
advantage of the organisation. For those businesses that encourage bluffing and deception, on the other hand,
they will surely diminish their reputation which in turn cost their business.

2. Explain what corporate culture is and be prepared to discuss how an ethical corporate culture can be
supported.

Corporate culture is the set of standards, ideas or moral codes – explicit and implicit, formal and informal – that
create a unique atmosphere or environment in an organisation. An ethical corporate culture can be supported
by the elements in three different levels: artefacts, espoused beliefs and values, as well as underlying
assumptions. Each level can influence the others. The idea that corporate culture can be managed and used as a
way of preventing unethical behaviour is a common theme in business ethics.

**[Corporate culture can be described as the beliefs, customs, value systems and behavioural norms and ways of
doing business that is unique to each corporation. It has visible and invisible elements, and consists of three
different levels: (1) artefacts; (2) espoused beliefs and values; and (3) underlying assumptions. The idea that
corporate culture can be managed and used as a way of preventing unethical behaviour is a common theme in
business ethics.]**

Artefacts are at the surface level and are the visible parts of the culture, which include language, technology,
clothing, the manner of address, myths and stories, published lists of values, organisational charts, structural
processes, observable rituals and ceremonies, and so on. These are the phenomena that a person would see,
hear or feel when present in an organisation as a visitor, employee or customer.

Espoused beliefs and values are at the next level. These are the beliefs and values embodied in strategies, goals
and philosophies that help employees reduce uncertainty, deal with certain situations or guide their behaviour.

Underlying assumptions, which is at the deeper level, are the taken-for-granted beliefs and values that are non-
confrontable and non-debatable, and that shape what we pay attention to, what things mean, our emotional
reactions and what actions to take in a given situation.

One of the important things that leaders do is to create and manage culture. Strong cultures are characterised
by the cultural values of the group being widely shared and deeply held. Importantly, the cultural values fit the
needs of the organisation’s context and help it to adapt to a changing environment.

Ethical culture is the organisational capacity and organisational conditions that encourage ethical behaviours
among a company’s employees. Five dimensions of ethical culture have been found to influence ethical and
unethical behaviour:
(1) ethical role modelling behaviour by managers and supervisors, which is aligned with the organisation’s
espoused cultural values;
(2) capability to behave ethically, such as time, resources, information and authority;
(3) the commitment of managers and employees to behave ethically, according to the organisation’s ethical
standards;
(4) openness by managers and employees to discuss ethical issues; and
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 (5) reinforcement of ethical behaviour, by using rewards and punishment.

The first step to build a strong ethical corporate culture is to embed ethical culture into the corporate culture.
Top management should articulate the firm’s values and goals, adopt an ethical code applicable to all members
of the company, set up a high-ranking ethics committee to oversee and enforce the code, as well as incorporate
ethics training into all employee-development programs. Ethical leaders are crucial to build a strong ethical
corporate culture as they set the ‘tone from the top’ by proactively influencing the employees’ ethical
behaviour. Reputation, consistency, credibility and authenticity are key elements if ethical leaders are to be
effective. As these qualities spread and reinforce the ethical corporate culture, it becomes a strong competitive
advantage of the organisation.

3. As discussed on pp. 328-329 of the textbook, Lawrence Summers presented certain arguments concerning the
most appropriate locations for heavily polluting industries. Be prepared to show that you’ve thought in a
suitably well informed, serious and critical way about those arguments.

4. Be prepared to critically discuss whether a multinational company setting up in a developing country should
adopt the practices, guidelines and health and safety standards of its home country.

Health and safety: employers’ legal and moral obligations not to expose their workers to needless risks or to
negligently or recklessly endanger their lives or health.

5. Milton Friedman said that the social responsibility of business is to increase profit. Be prepared to explain
what he was suggesting about corporate social responsibility, and whether we should accept his view.

Friedman’s narrow view of corporate social responsibility is that business’s only social responsibility is to make
money within the rules of the game, and that’s what makes the free economy system work. Friedman believed
that by allowing the market to operate with minimal restrictions necessary to prevent fraud and force, society
would maximise its overall economic well-being. That is, if businesses are permitted to seek self-interest, their
activities will inevitably yield better profit and the greatest good for society as a whole. Also, Friedman argued
that private enterprise should not undertake public responsibilities that properly belong to the government,
such as controlling pollution or fighting inflation, because that leads to more expense and thus less profit.

However, if corporations are capable to make rational and moral decisions, then they can be held morally
accountable for their actions, whether blameworthy or praiseworthy. Moreover, corporations must take
responsibility for the unintended side effects of their business transactions (externalities) and weight the full
social costs of their activities. Many pollution and environmental problems are actually caused by business
activities, yet they did not pay the full cost. For example, the price of the paper does not reflect the true cost of
producing it. The number of trees and other vegetation cut down for making paper is enormous. Although new
trees might be planted, they cannot replace the value of those removed older trees, and they need years to
grow. Also, the chemicals used in paper production process, including dyes, inks, bleach, and sizing, can also be
harmful to the environment when they are released into water supplies and nearby land after use. This caused
serious environmental problems which in turn are harmful to the earth’s liveability for all species. Public sectors
and individuals must pay more money and effort to clean up and restore these natural resources and the
environment. Therefore, business should take on social responsibilities, instead of passing the buck to the
others.

Nevertheless, the adoption of realistic and workable codes of ethics in the business world can actually enhance
business efficiency. This is particularly true when there is an imbalance of knowledge between the buyer and the
seller.

6. Be prepared to discuss what whistleblowing is, when it is justified and whether there should be safeguards to
protect whistleblowers.
A Whistleblower is an employee who publicly exposes his/her employer’s business activities that are harmful,
immoral or contrary to the public interest or to the legitimate goals and purposes of the organisation. For

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 example, Whistleblowers believe that protecting the public interest can be more important than loyalty to the
organisation.

Whistleblowing is morally justified if and only if:

1) It is done from a(n appropriate) moral motive;
2) The whistleblower, if possible, has exhausted all internal channels before going public;
3) The whistleblower has compelling evidence (that wrongful actions have been ordered or have occurred);
4) The whistleblower has carefully analysed the dangers. For example, how serious, immediate and specific of
the moral violation?
5) The whistleblowing has some chance of success.

There should be safeguards – such as laws, policies and procedures – to protect whistleblowers as an effective
way to reinforce the code of ethics. It is also because whistleblowing can come at a significant personal cost even
when the whistleblower has been proved right. For example, they are often torn between loyalty to their
employer and their own moral values. Also, whistleblowers typically find that re-employment is often difficult
within their chosen profession after they have become known as ‘disloyal’. In some extreme cases, the
whistleblowers’ lives are at risk.

Another effective solution, which is also beneficial for businesses, is to develop their own internal whistleblowing
policy as an essential way to allow staff to report ethical breaches without risk of repercussion.