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 10am 12noon; 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. The class is likely fortunate enough to be assigned a writing coach, who will be available to help you with the writing and work with you on your outlines or draft essays. I will provide more information about this early in the semester. In any case, it is an entirely optional service for you that you should only consider using if you have done very little writing in the past and feel uncomfortable. 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 exceptional cases) adjust your individual grade up or down a notch to take into account particularly high or low quality or quantity of general class participation over the course of the semester (especially if low class participation on behalf of one team member drags down the rest of the team). 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. Note that the goal is not to say as much as possible, but to occasionally contribute 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, while +/ 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 the 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: 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 [on WebCafe] The union of concerned executives, The Economist, 22 nd January, 2005 [on WebCafe] 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 a corporation 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? Or is it up to the managers to choose what they prefer? What do you think about the specific types of ethical actions mentioned in the Sustainable development article? Class 3: 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? What is the best argument for the view you least agree with, and how do you respond to it? Class 4: What is moral reasoning? 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, chapters 1, 2 and excerpts from chapter 4, pp and (from Indeed, subjectivism itself to something wrong with it ) James Rachels, Subjectivism in Ethics, Chapter 3 in The Elements of Moral Philosophy, pp

5 Williams asks us to imagine an amoralist not because there are such people, but in order to understand what moral reasoning is. What is amoralism or an amoral position? What is the difference between amoral and immoral? What does Williams say are the minimal elements of moral thinking? What, according to Bird and Waters, is the moral muteness of managers? What causes it? What can be done about it? What is subjectivism? What are the problems with subjectivism? Class 5: Aristotelian ethics: Virtues and roles Case study: The Analyst s Dilemma, HBS Case 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? In what sense is Aristotle s notion of virtue the same as excellence? How do we know what the virtues are? What does Aristotle mean when he says that virtue is a mean? How is the role of community in Aristotelian ethics relevant for business? Class 6: The limits of role ethics Albert Carr, Is Business Bluffing Ethical? DWC [ ] Bernard Williams, Good and Goodness and Roles, in Morality: An Introduction to Ethics, chapters 5 and 6 Why does Carr think lying in business is morally acceptable? Why may we call Carr s argument conventionalist? Is knowing what a thing is or does suffice to say what it means to be an excellent thing of that sort? Can we look at what a manager/owner/employee is or does and say what it would mean to be a good or excellent manager/owner/employee? 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? Class 7: Utilitarianism 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,

6 Short film screening in class: No Sweat by the BBC 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? Is it wrong to outsource to factories that have sweatshop working conditions? What would a utilitarian say? Class 8: Does utilitarianism require profit-maximisation? Profit and the public good, The Economist, 22 nd January 2005 (on WebCafe) Waheed Hussain, Corporations and Consequentialism, excerpts (to be distributed) Adam Smith: Benefits of the Profit Motive, DWC [ ] Amartya Sen, Does Business Ethics Make Economic Sense? DWC [ ] Robert H. Frank, Can Socially Responsible Firms Survive in a Competitive Environment? DWC [ ] Case study: Plasma International, DWC [ ] According to Smith, what does the profit motive lead to, and what is the importance of this for ethics? Give the utilitarian argument that companies should merely focus on profit-maximisation. What is the difference between the Pareto criterion and the utilitarian criterion? When does Sen think self-interest is not sufficient for efficiency, and why? What does Frank mean when he argues that social responsibility (in the sense of caring about more than one s own interests/profits) can solve commitment problems? Class 9: Critiques of utilitarianism Case study: Guidant Corporation 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 James Rachels, The Debate over Utilitarianism, in The Elements of Moral Philosophy, chapter 8, 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? On utilitarian grounds, should we sacrifice an individual for the greater collective good? Is Plasma s business morally problematic in any way? If so, how?

7 Class 10: Rights Review case studies from the last three classes (Guidant and Plasma International). Also review your notes on the No Sweat documentary and the Trolley problem 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? According to utilitarianism, do people have moral rights? Class 11: Relativism The United Nations Declaration of Human Rights, DWC [ ] James Rachels, The Challenge of Cultural Relativism, DWC [ ] Case study: Levi Strauss & Co. and China, Al Gini, Case studies in Business Ethics, pp (part A only) Which rights, if any, do people have? Are there any universal rights (i.e. rights that every human being has)? What is cultural relativism? What is the difference between it and subjectivism (see class 3)? What are the problems with cultural relativism? What should Levi Strauss & Co. have done? Class 12: 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? Why does Kant think it is wrong to make a false promise?

8 Class 13: 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 14: Advertising Roger Crisp: Persuasive Advertising, Autonomy, and the Creation of Desire, 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 15: Deception Reread Carr, Is business bluffing ethical? Alan Strudler, Deception Unraveled, The Journal of Philosophy CII(9), September 2005, pp Malcom Gladwell, Open Secrets: Enron, intelligence, and the perils of too much information, The New Yorker, 8 th January, 2007 [on WebCafe] According to Strudler, when is it morally acceptable to deceive others in business transaction? When is it not? How does Strudler s view compare with Carr s? Who do you agree with most and what is your own view? Did Enron s management immorally deceive anyone? Class 16: Justice 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] Study question:

9 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? Class 17: Justice, continued 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 )? Class 18: Corruption (relativism revisited) Case study: Changmai Corporation, Goodpaster et al., Policies and Persons, pp 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: Summary session and review Class 20: Student presentation Class 21: Student presentation Class 22: Student presentation Class 23: Student presentation Class 24: Student presentation

10 The Wharton School University of Pennsylvania Legal Studies LGST 210: Corporate Responsibility and Ethics Instructor: Martin E. Sandbu Fall 2007 Schedule of class meetings and assignment due dates for the Fall Semester 2007 CLASS 1: September 5 th CLASS 2: September 10 th NO CLASS: September 12 th CLASS 3: September 17 th CLASS 4: September 19 th CLASS 5: September 24 th CLASS 6: September 26 th CLASS 7: October 1 st CLASS 8: October 3 rd CLASS 9: October 8 th CLASS 10: October 10 th First essay due in class on Wednesday, October 10 th Fall break: October 13 th October 16 th (Sat Tue) NO CLASS: October 15 th (Fall break) NO CLASS: October 17 th CLASS 11: October 22 nd CLASS 12: October 24 th CLASS 13: October 29 th CLASS 14: October 31 st CLASS 15: November 5 th CLASS 16: November 7 th Second essay due in class on Monday, November 7th CLASS 17: November 12 th CLASS 18: November 14 th CLASS 19: November 19 th CLASS 20: November 21 st Thanksgiving break: November 22 nd November 25 th, 2007 (Thu Sun) CLASS 21: November 26 th CLASS 22: November 28 th CLASS 23: December 3 rd CLASS 24: December 5 th Third essay due in Department of Legal Studies at 12noon on Friday, December 7 th Office hours: Wednesdays or by appointment; extended hours in week before essays due.