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McGraw-Hill ©2006 by The McGraw-Hill Companies, Inc. All righsreser!e".

AN INTRODUCTION TOBUSINESS ETHICS

CHAPTER SIX: EMPLOYEE

RESPONSIBILITIES


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McGraw-Hill ©2006 by The McGraw-Hill Companies, Inc. All righs

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This chapter seeks to

• Examine the nature and range of employeeresponsibilities

• Explain the agency view of employee responsibilities• Examine the role of business professionals as

gatekeepers• Examine managerial responsibilities• Explain and examine the concept of conflicts of interests• Analyze the responsibilities of trust and loyalty in the

workplace•

Analyze responsibilities for honesty in business• Examine the ethical responsibilities concerningwhistleblowing and insider trading


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Discussion Case: Professional an!ana"erial Responsi#ilit$ at Enron

an Arthur Anersen• Created in July 19!" Enron evolved from a

gas and energy supplier to an energy#trading

company• Energy#trading markets have a reputation for

volatility

• Enron executives" especially Andrew $astow"pioneered in the development of specialpurpose entities %hedging risk&


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an Arthur Anersen• Accounting regulations allowed '(Es"

however

– Enron)s '(Es had little use other than to shiftdebt and risk off balance sheets

– Enron seemed to have to reasons for forming'(Es other for image management

– *he entire financial stability of Enron wassupported only by its ability to shift debt onto'(Es


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an Arthur Anersen• Accounting regulations allowed '(Es"

however

– *he person managing these '(Es wasEnron)s C$+

– Enron was supported through all of this

by its accounting firm, Arthur Andersenwho provided allegedly unbiased andaccurate financial reports


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an Arthur Anersen• Enron began collapsing in early -..1

• 'herron /atkins warned the CE+ and

other Enron executives about seriousaccounting improprieties

• Enron)s senior executives were selling

Enron stock at a furious rate• Arthur Andersen realized its mistake

and acted to cover up its actions


7/36McGraw-Hill ©2006 by The McGraw-Hill Companies, Inc. All righs

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an Arthur Anersen• +ctober 10" -..1 Enron announced a

01 million 2uarterly loss

• 3ovember " -..1 Enron acknowledgedthat widespread accounting errors infour previous years had overinflated

its) stock by 0.. million• 4ecember -" -..1 Enron filed forbankruptcy



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%hat o I o&e other people'

• 5t depends6

• /orkers are employees and theemployment relationship establishes avariety of responsibilities thatemployees owe to their employers6

• 7anagers" while employees" are agents

of the corporation and have specificresponsibilities to the stockholders8and to others6



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E(plo$ees as A"ents

• Agent#principal concept – An agent is a person who act on behalf of

another person

– 3ot all agents are employees – Common law in the 6'6 historically has

treated all employees as agents ofemployers" establishing a fiduciary

responsibility – Agency relationships variety in the latitude

of decision making



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E(plo$ees as A"ents

• 7anagerial employees have greaterdiscretion and responsibility than otheremployees

• 7anagerial employees are free from closeoversight

• *he law holds that employee#agents owelegal duties of loyalty" trust" obedience and

confidentiality to the employer#principal• *hese duties override employee personal

interests



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E(plo$ees as A"ents

• 5s this narrow view ethicallydefensible:

• /hy would anyone believe this view:



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E(plo$ees as A"ents

• $irst" managerial employees inparticular play a particular role withinthe economic system

• 'econd" managerial employees inparticular must protect the propertyrights of owners and prevent economic

harms they might suffer from otheremployees



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E(plo$ees as A"ents

• 3onmanagerial employees have aresponsibility to obey only whenemployer demands are reasonable" ;ob#related and do not violate legal orethical duties

•

/e have to consider whatnonmanagerial employees



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E(plo$ees as A"ents

• *he narrow view of employeeresponsibilities is more plausiblewhen the employees hold positionsof managerial authority

• 5n general" managerial employees

have an ethical responsibility to actin the best interests of theiremployers > to a limited degree



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E(plo$ees as A"ents

• *here are cases in which ethicalresponsibilities take second place to role#specific responsibilities" e6g6 physicians

and lawyers• ?ut does the role of a manager" like the

role of a physician and a lawyer" serve

social ends important enough that peoplein those roles can sometimes be exemptfrom ethical responsibilities:



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E(plo$ees as A"ents

• January 190" the Challenger spaceshuttle explosion

•7orton *hiokol and 3A'A



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Professional Ethics ) *atekeepin"

• +ur responsibilities are a function ofthe relationships that we have withothers

• (rofessionals have very specializedknowledge or expertise that serves thepublic good@ certification by some

public agency is usually involved



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• /ithin the business and economiccontext" some professions haveevolved to serve important functions,

attorneys" auditors" accountants andfinancial analysts

• 7any of these professionals are paid

by the business that they areresponsible for watching over


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©2006 by The McGraw-Hill Companies, Inc. All righsreser!e".


• eal conflicts of interest exist betweenprofessional duties and aprofessional)s self#interest

• ?ut knowing what one)s duties are andfulfilling those duties are two separateissues


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/hat does the word


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• Acting on principle sometimes canre2uire real courage > or discipline > orwill#power

• +ur habits are developed over time andinfluenced by our surroundings

• 5f we recognize that it can be difficult

for individuals to fulfill theirgatekeeping function" then society hasa responsibility to make changes


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!ana"erial Responsi#ilit$ )Con+icts of Interest

eturn to Enron8

# /ho are the owners of Enron:

# Bow many different


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eturn to Enron8

# 5f the varied interests of variousstakeholders are the interests that a

business manager ought to serve" how doesthe manager prioritize these interests" andwhat interests might inappropriately conflictwith these:

# /hat are the costs stakeholders endured asa result of managerial decisions:


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• A ickback is an illegal payment thatoccurs when a portion of somepayment is paid back to the payer as an

incentive to make the original payment6• 'oft money occurs when financial

advisors receive payments from a

brokerage firm to pay for research andanalysts services that should be usedto benefit the clients of those advisors6


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Trust an ,o$alt$ in the %orkplace

Doyalty" in business" is understood as awillingness to make personal sacrificesin the interest of the firm6

# *o what degree do employees have aresponsibility to make personalsacrifices for the firm:

# onald 4uska argues employees haveno responsibility


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Claims for loyalty by the firm can oftenbe little more than a disguised way toexploit employees) willingness to make

sacrifices for the firm

Bowever" until and unless the firm is

willing to sacrifice for employees"those employees have little reason todemonstrate loyalty to the firm


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5s the case different for managerial employees:

# 'herron /atkins

# Andrew $astow

5f loyalty means willing to sacrifice one)s owninterests by going above and beyond

ordinary responsibility" then we ought to besuspicious of calls for employee loyalty6


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Honest$- %histle#lo&in" ) Insier Train"

• Bonesty, Are there situations in whichdishonesty is common andacceptable:


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*here are three reasons to explain theethical responsibility to be honest, – 4ishonesty undermines the ability of

people to communicate – Bonesty and trust create essential

preconditions for all cooperative socialactivities

– A dishonest person must have more thanone identity" which undermines hisintegrity


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A bluff can only work as a bluff if theperson being bluffed believes that it istrue %is being deceived&6

/hile a dishonest act can have beneficialsocial conse2uences" routinedishonesty erodes the trust that seemsessential to social cooperation6


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A whistleblower is an employee or other insiderwho informs the public or a governmentagency of an illegal" harmful" or unethical

activity done by their business or institution6# /histleblowing puts the employee at risk

# /histleblowing pits responsibilities to thirdparties at odds with employeesresponsibilities to their employer


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ichard 4eeorge argues three conditionsmust be met before whistleblowing isethically permissible,

# *here must be a real threat of harm thatneeds to be addressed

# *he whistleblower should first seek toprevent the harm through channels

# *he whistleblower" if possible" shouldexhaust all internal procedures forpreventing the harm


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5nsider *rading generally refers to thepractice of buying or sellingsecurities on the basis of nonpublicinformation that one has obtained asan


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*hree arguments are cited in ethicalcriticism of insider trading,

# (roperty rights# $iduciary duties

# nfairness claims

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