The Wharton School University of Pennsylvania. Legal Studies LGST 210: Corporate Responsibility and Ethics

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1 The Wharton School University of Pennsylvania Legal Studies LGST 210: Corporate Responsibility and Ethics Instructor Martin E. Sandbu Office: 650 JMHH Ph: (215) Class meeting times and location: See the attached list of class dates. Office hours: Wednesdays am; use WebCafe to book a slot. All things considered, how should companies and business people behave? That is the question we ask in this course. The position of a business manager constantly requires decisions that affect the lives and circumstances of other people, both within and outside of the company itself. On the basis of which principles should these decisions be made? We witness some actions nearly all would agree are wrongful. What should a manager do when ensuring the success of the company requires actions that violate conventional moral prescriptions on what we may do to others? The subject of business ethics is the study of the ethical challenges businesses and business people must confront. In this course, we shall ask questions like the following: Is business ethics a tautology is the ethical responsibility of companies precisely to pursue profits, so that what is good business is also ethical? If not, what exactly are the moral rules that companies and managers must abide by, and what are the limits on the legitimate pursuit of gain? Is it not also a moral responsibility to create profits for the owners, and how does this requirement interact with ethical rules on how to behave towards others? Is it possible to find answers to ethical questions, or do they come down to each person s subjective value judgments? Are there good and bad arguments for actions, and how can we distinguish one from the other? The purpose of the course is to develop an intellectual framework within which these questions, and concrete moral problems, can be addressed. Through a combination of philosophical texts and case studies, we will train ourselves to think about ethical challenges, so as to be equipped with a way of thinking about them the day we have to confront them. So this course is as practical as it is theoretical, and you should try from the start to apply the intellectual tools to real situations you may hear or read about. Requirements For each class meeting, a set of readings is assigned. You are expected to read them before class and be prepared to discuss the contents. The syllabus gives study questions for each set of readings. These are designed to help you see what is important in the readings, so use them actively. I will call on you to give your answers to the questions when we discuss the readings in class, and I will expect fully formulated answers. You will do well to prepare your thoughts in writing.

2 For your convenience, you should procure Thomas Donaldson and Patricia Werhane (eds.), Ethical Issues in Business: A Philosophical Approach, 8 th ed., Prentice Hall 2007, where you will find all the readings marked DWC. This is a new edition. Some of you may have bought the 7 th edition (which is gray, as opposed to the 8 th edition which is white) from former students in this class. The pagination has changed, so I have included page references to the 7 th edition in square brackets. I have also assigned many chapters from Bernard Williams, Morality: An Introduction to Ethics, which is a highly readable philosophical introduction to moral reasoning in general, not applied to business specifically. We will also read large parts of two classic texts in moral philosophy John Stuart Mill s Utilitarianism, and Immanuel Kant s Groundwork for the Metaphysics of Morals. These four books are all available from the Penn Bookstore. The remaining readings will be compiled in the course packet, which you can procure from Wharton Reprographics. I may post some additional materials and lecture notes on the WebCafe, so you should all make sure you have a Wharton account to be able to access it. Non-Wharton students may apply for an account on You will be assessed on your ability to reason carefully about ethics in business life. There will be three graded written home assignments, all of which will ask you to write an essay developing your analysis of a concrete ethical problem. (The due dates of the three essays are given in the attached list of class dates; check them now so that you can plan ahead when to set aside time for them.) The first essay will count for 15% of your final course grade; the second essay for 30%; and the third essay for 35%. Many students find essay assignments challenging, since few of your other classes emphasise this form of work. I will provide handouts and advice on essay writing, and we may do a separate optional workshop for essay writing. I recommend that you look at the services offered by the Penn Writing Center, see The remaining 20% of the grade has a class participation component, but will almost exclusively depend on a team presentation at the end of the semester. When we concentrate on practical applications in the last three weeks, you will be divided into groups and asked to present your group s analysis of a concrete business ethics question, lead the discussion in the class meeting, and answer objections and questions from your classmates. Normally all team members will get the same grade. I may (but only in rare cases) adjust your individual grade down a notch to take into account lack of contribution to the team or low quality or quantity of general class participation over the course of the semester. The course is to a large extent a discussion course, in which you will be expected to engage in the ethical arguments that will come up in class. You also owe it to your classmates to be an active audience to their presentations, and I will take participation in the last few weeks of the semester into account when setting this part of the grade. Typically, if students class participation/team presentation grades are not the same as that of their teammates, it is because they did not participate in the discussion of other teams presentations. Note that the goal is not to say as much as possible or talk in every class, but to occasionally contribute thoughtful points that move the discussion forward. The grade point calculation follows the standard Wharton undergraduate point scale, as given on

3 This means an A counts 4 points, a B counts 3 points, a C counts 2 points, a D counts 1 point, and an F or non-submission counts 0 points. A + or is calculated as a 0.3 point addition/deduction to the main grade (e.g. a B+ is worth 3.3). Your course grade will be the weighted average of the four grades you earn during the semester, using the weights given above, and rounding up to the nearest letter equivalent. Thus a weighted average of 3.15 is a B+, while 3.14 is a B. The one exception is that I will give an A for the course for a weighted average of 3.8 or more. This means you will get an A for the course if you get two A and two A on the different assignments. If you get an A on the last two essays, you can get an A for the course with even lower grades on the less important assignments. A crucial part of this course is your intellectual interaction with your classmates and with me. You therefore owe it to yourself and to your classmates to contribute to a healthy class environment in which tentative opinions can be voiced and disagreements can be expressed, with the aim of persuading each other with reasoned argument. This means everyone should feel comfortable participating, and I take intellectual openness and polite discourse for granted. In addition, you should refrain from any obstructive behaviour during class. Arriving after the class has started, leaving mobile phones switched on, eating in class, or walking in and out of class without a good reason, are behaviours unfair to your classmates and not acceptable. Such behaviours will be reflected in an adjustment down of your individual grade for class participation/team presentation. If you have to miss a class, or if you cannot do the readings, you should let me know in advance. I will hold weekly office hours at the times indicated above. You should use WebCafe to book a slot during those hours. I will give extended office hours in the weeks when the essays are due, and by appointment if you cannot make the regular time. You may also always contact me with questions via on the address above. Welcome to this course I look forward to a term of stimulating discussions.

4 Class 1: Introduction No readings; discussion in class Short film screening in class Class 2: What is moral reasoning? Bowen McCoy, Parable of the Sadhu, DWC [ ] Frederick B. Bird and James A. Waters, The Moral Muteness of Managers, California Management Review 32(1), DWC [ ] Bernard Williams, Morality: An Introduction to Ethics, chapter 1 Identify the main arguments Bowen McCoy considers in analysing how he should have behaved towards the Sadhu. What are the general principles behind each concrete argument? What do Bird and Waters mean by moral muteness and why do they say managers are morally mute? What, according to Williams are the minimal necessary components of any normative view that we could call an ethical view? Class 3: First extreme view of corporate responsibility: Shareholder primacy Sustainable development: CSR: Some progress, but a long way to go, The Economist, 21 st August, 2005 The union of concerned executives, The Economist, 22 nd January, 2005 Milton Friedman, The Social Responsibility of Business Is to Increase Its Profits, DWC 34 39[33 38] State the shareholder primacy view (Friedman s view) in one or two sentences. Should corporate managers only attempt to maximise profits, and only engage in social activities when these can be expected to increase profits? Or are there things corporations ought to do (or refrain from doing) even if this reduces profits? If so, what are they, and why must they do these things? May the managers simply pick what they prefer? What do you think about the specific types of ethical actions mentioned in the Sustainable development article? Are they things companies ought to pursue? Class 4: Second extreme view of corporate responsibility: Stakeholder Theory Case study: Merck & Co., DWC [ ] R. Edward Freeman, Managing for Stakeholders, DWC 39 53[copy in coursepack] State the stakeholder theory (Freeman s view) in one or two sentences. When deciding whether to spend money on developing Ivermectin as a drug against river blindness in humans, did Merck have a moral obligation to act in one way or the other, and if so, which way? Which of the two views shareholder primacy or stakeholder theory do you most agree with?

5 What is the best argument for the view you least agree with, and how do you respond to it? Class 5: Aristotelian ethics: Virtues and roles Case study: The Analyst s Dilemma, HBS Case Bernard Williams, Good, Chapter 5 in Morality: An Introduction to Ethics Aristotle, excerpts from Nichomachean Ethics, 1106a5-1108a31 (book II, sections 5 7), on Robert C. Solomon, Corporate Roles, Personal Virtues: An Aristotelean Approach to Business Ethics, DWC 66 78[71 83] What are the moral norms entailed by the social roles the Analyst occupies? What should she do in response to those norms? Williams claims that there are certain things such that if we understand what they are, we will also understand the evaluative standards that should be applied to that thing. Is this true for social roles? In what sense is Aristotle s notion of virtue the same as excellence? How do we know what the virtues are? How is the role of community in Aristotelian ethics relevant for business? Class 6: Conventionalism and cultural relativism Albert Carr, Is Business Bluffing Ethical? DWC [ ] Mary C. Gentile, The Case of the Unequal Opportunity, DWC [ ; this text is not included in the 8 th edition of DWC, so photocopies will be handed out in class in advance] Why does Carr think lying in business is morally acceptable? Distinguish between functionalist arguments and non-functionalist arguments. Is Carr right? What should the manager do in The Case of the Unequal Opportunity? Why? Class 7: The limits of role ethics Bernard Williams, Goodness and Roles, Chapter 6 in Morality: An Introduction to Ethics James Rachels, The Challenge of Cultural Relativism, DWC [ ] Bernard Williams, Interlude: Relativism, Chapter 6 in Morality: An Introduction to Ethics Do the social roles we occupy entail moral norms that we ought to follow? Why? Can we deny the moral claims of our social roles? Since different societies have different conventions about how one ought to behave different moralities how should we behave in other societies than our own? Class 8: Utilitarianism

6 John Stuart Mill, Utilitarianism, pp. 1 9 (to depend on quantity alone ), (from I have dwelt on this point to the end of the chapter), James Rachels, The Utilitarian Approach, in The Elements of Moral Philosophy, chapter 7, Case study: Guidant Corporation State the utilitarian doctrine in one sentence. How are we to understand the best consequences in utilitarianism? What is the difference between consequentialism and utilitarianism? From a utilitarian point of view, how would you analyse the choice Guidant was facing when it discovered the unknown risks in the ICD? From your point of view, what should Guidant have done? Class 9: Utilitarianism, profit-maximisation, and the invisible hand? Profit and the public good, The Economist, 22 nd January 2005 (on WebCafe) Adam Smith: Benefits of the Profit Motive, DWC [ ] Waheed Hussain, Corporations and Consequentialism, Sections 4 7 State the utilitarian argument for why companies should merely focus on profitmaximisation. How is this argument different from Milton Friedman s argument (Class 3)? What is the difference between the Pareto criterion and the utilitarian criterion? Why does Hussain disagree with the social welfare argument for profitmaximisation? Class 10: Critiques of utilitarianism Judith Jarvis Thomson, The Trolley Problem, The Yale Law Journal 94 (1985), section I, pp Bernard Williams, A Critique of Utilitarianism, section 3, Negative responsibility: and two examples, pp of J.J.C. Smart and B. Williams, Utilitarianism: for and against Case study: Plasma International, DWC [ ] James Rachels, The Debate over Utilitarianism, in The Elements of Moral Philosophy, chapter 8, On utilitarian grounds, should we sacrifice an individual for the greater collective good? Is there a moral difference between doing something and allowing it to happen? Why? Is Plasma s business morally problematic in any way? If so, how? Class 11: Rights Review your notes on Guidant, The Unequal Opportunity, the No Sweat documentary, and the Trolley problem The United Nations Declaration of Human Rights, DWC [ ]

7 Joel Feinberg, The Nature and Value of Rights What, according to Feinberg, is a right? What is the relationship between rights and duties? What is the difference between legal and moral rights? Why, according to Feinberg, are (moral) rights important? Which rights, if any, do people have? Are there any universal rights (i.e. rights that every human being has)? Class 12: Rule-utilitarianism J. J. C. Smart, Extreme and Restricted Utilitarianism, Philosophical Quarterly, 1956, According to utilitarianism, do people have moral rights? Is rule-utilitarianism (or rule-consequentialism more generally) a tenable view? Class 13: Kant s categorical imperative Immanuel Kant, Grounding for the Metaphysics of Morals, excerpts, pp. 7 17, (from Everything in nature works according to laws to unimportant and forced upon us. ) James Rachels, The Categorical Imperative (section 9.2) and Another Look at Kant s Basic Idea (section 9.5) in The Elements of Moral Philosophy, pp , Make sure you can accurately state the first formulation of Kant s categorical imperative How and why does the categorical imperative provide a test for the morality of an action? How does the categorical imperative differ from rule-utilitarianism? Why does Kant think it is wrong to make a false promise? Class 14: Kant continued autonomy and treating humanity as an end in itself Immanuel Kant, Grounding for the Metaphysics of Morals, excerpts, pp (from We have thus at least shown to which I accordingly count under heteronomy. ) James Rachels, The Idea of Human Dignity (section 10.1) in The Elements of Moral Philosophy, pp Norman E. Bowie, A Kantian Approach to Business Ethics, DWC 56 66[61 71] Make sure you can accurately state the third formulation of Kant s categorical imperative What does it mean to treat something as an end in itself? In which sense does treating others as ends in themselves require respecting their autonomy? What are the implications for business ethics? Class 15: Advertising

8 Roger Crisp: Persuasive Advertising, Autonomy, and the Creation of Desire, DWC [ ] Alan E. Singer et al., Ethical Myopia: The Case of Framing by Framing, [DWC ; photocopy will be provided to those with the 8 th edition of DWC] Case study: A question of standards, The Economist 11 th February 2006 According to Crisp, which kinds of advertising (if any) are immoral? Why? Do you agree? Give some examples of actual advertisements and explain why they are either morally acceptable or unacceptable. What, if anything, was wrong about BAT s behaviour? Class 16: Compensation Case study: The Oil Rig, DWC [192 3] ExxonMobil Corporation, Executive Compensation Tables and Stock Performance Chart, Proxy Statement 2006, pp The Economist survey on executive compensation, excerpts [on WebCafe] Speech by Edgard Woolard screened in class (also available here: Study question: Suppose this oil rig was owned and operated by ExxonMobil Corporation, and that the local workers earn about $1,000/month, the expatriate workers about $10,000/month. Is there any injustice on the oil rig or in ExxonMobil more generally? What changes would justice require, if any? Can executive compensation schemes be unethical? When and why? Are managers morally free to choose how to compensate various constituencies (different individual or groups of employees etc.), or are moral constraints on just compensation? What are these constraints? Class 17: Theories of distributive justice Robert Nozick, The Entitlement Theory, DWC [ ] John Rawls, Distributive Justice, DWC [ ] What is the difference between historical theories of justice and current timeslice principles of justice? What is Nozick s own theory and how does he argue for it? What is Rawls s objection to utilitarianism? What is the social contract approach to justice? What is Rawls s principle of distributive justice (the difference principle )?

9 Class 18: Corruption (relativism revisited) Case study: Changmai Corporation, Goodpaster et al., Policies and Persons, pp Case study: James Gathii, Gift Giving and the African Elder, DWC 462 [photocopy will be made available to those who only have the 7 th edition of DWC] Thomas Donaldson and Thomas W. Dunfee, A Social Contracts Approach to Business Ethics, CDW [ ] James Rachels, Some Advantages of the Social Contract Theory of Morals (section 11.3) and Difficulties for the Theory (section 11.5) in The Elements of Moral Philosophy, pp and Can it be morally permissible, or even required, to bribe even if it is illegal? When and why? Can it be immoral to bribe even if it is legal? When and why? What is the social contract approach to morality? In which ways does Donaldson and Dunfee s theory follow Rawls, and how does it differ? Class 19: Outsourcing and sweatshops Mark Baker et al.: Global Profits, Global Headaches, DWC [photocopy will be made available for those with the 7 th edition of DWC] Ian Maitland: The Great Non-Debate over International Sweatshops, DWC [photocopy will be made available for those with the 7 th edition of DWC] May a company ethically shut down a factory in the United States and fire its workers, in order to outsource production to a foreign country? Is it morally acceptable to produce in sweatshops? Is there a moral difference between outsourcing to sweatshop factories owned by the company itself, versus contracting out the manufacturing to locally owned factories? Class 20: Final review Class 21: Student presentation Class 22: Student presentation Class 23: Student presentation Class 24: Student presentation Class 25: Student presentation Class 26: Student presentation

10 The Wharton School University of Pennsylvania Legal Studies LGST 210: Corporate Responsibility and Ethics Instructor: Martin E. Sandbu Spring 2008 Schedule of class meetings and assignment due dates for the Spring Semester 2008 Class canceled: January 16 th, 2008 Holiday (no class): January 21 st (Martin Luther King Day) CLASS 1: January 23 rd CLASS 2: January 28 th CLASS 3: January 30 th CLASS 4: February 4 th CLASS 5: February 6 th CLASS 6: February 11 th CLASS 7: February 13 th CLASS 8: February 18 th CLASS 9: February 20 th CLASS 10: February 25 th First essay due in class on Monday, February 25 th CLASS 11: February 27 th CLASS 12: March 3 rd CLASS 13: March 5 th Spring Break: March 8 th 16 th, 2008 (Sat - Sun) CLASS 14: March 17 th CLASS 15: March 19 th CLASS 16: March 24 th CLASS 17: March 26 th CLASS 18: March 31 st Second essay due in class on Monday, March 31 st CLASS 19: April 2 nd CLASS 20: April 7 th CLASS 21: April 9 th CLASS 22: April 14 th CLASS 23: April 16 th CLASS 24: April 21 st CLASS 25: April 23 rd CLASS 26: April 28 th Third essay due in class on Monday, April 28 th Office hours: Mondays am or by appointment; extended hours in week before essays due.