September 13 , 2012
CLASS 3: BUSINESS ETHICS
Please go to the Comm101 library page* and watch the following video.
Watch: Stakeholder Theory: http://www.youtube.com/watch?
v=bIRUaLcvPe8 by Professor R. Edward Freeman. An Extended version:
http://www.youtube.com/watch?v=Ih5IBe1cnQw of Freeman's Stakeholder
• Consider: Is Freeman or Friedman right about the social responsibility
• Stakeholder theory is a theory of organizational management and business ethics that
addresses morals and values in managing an organization.
• To succeed and be sustainable over time, executives must keep the interests of
customers, suppliers, employees, communities and shareholders aligned, going in the
• Stakeholder theory – create value for customers, suppliers, employees, community,
• Suppliers don’t make them better, goods not innovative, workers not productive, no
sustainability, not good citizen in community, no corporate sustainability, don’t follow
regulations – business in decline
o Together can create something they cannot create alone • Milton Friedman suggested that the social responsibility of business is to maximize
• In a way, Friedman's theory does promote social responsibility to society. The increase
of profits in a company benefits the economy which benefits the citizens of that
• "There is one and only one social responsibility of business-to use its resources and
engage in activities designed to increase its profits so long as it stays within the rules
of the game, which is to say, engages in open and free competition without
deception or fraud." -Milton Friedman
Complete: the following blog post before class 3:
Find an article in the news, or a case that you know about personally that r
elates to business ethics.
Create a blog post to describe the case and what the main ethical issue is
(use hyperlinks & media if available).
Capital One, one of the nation’s biggest banks, will reimburse $150 million to more than two million
customers for selling them credit card products they could not use or did not want, as the nation’s
new consumer watchdog leveled its first enforcement action against the financial industry.
The Consumer Financial Protection Bureau on Wednesday hit Capital One with findings that a vendor
working for the bank had pressured and deceived card holders into buying products presented as a
way to protect them from identity theft and hardships like unemployment or disability.
The regulatory actions, totaling $210 million including fines to authorities, take aim at one of the
financial industry’s growing profit centers and increasingly controversial practices. Several other banks,
including Bank of America, JPMorgan Chase and HSBC, were sued in June by the Hawaii attorney
general, accused of improperly selling similar socalled addon products, which consumer advocates
typically regard as costly and ineffective.
“We know these deceptive marketing tactics for credit card addon products are not unique to a single
institution,” said Richard Cordray, the director of the consumer bureau. “We expect announcements about
other institutions as our ongoing work continues to unfold.”
Capital One — known for its catchy television ads that ask, “What’s in your wallet?” — did not admit to
or deny any of the findings. While it said the wrongdoing had occurred at outside call centers that “did not
always adhere to company sales scripts,” the bank’s president for credit cards, Ryan M. Schneider,
acknowledged that the company was “accountable for the actions that vendors take on our behalf.”
“We apologize to those customers who were impacted and we are committed to making it right,” Mr.
Under the deal with regulators, Capital One must temporarily halt the marketing of certain addon
products and submit to an independent audit. The bank said it thought the refunds, which victims are to
begin receiving later this year, would average less than $100 a person.
In a related action, the Office of the Comptroller of the Currency required the bank to reimburse
customers “harmed by unfair billing practices” that unfolded over a 10year span, from 2002 to June
of last year. The bank, regulators say, billed customers even though it had failed to provide full use
of the product. “Unfair and deceptive practices will not be tolerated,” Thomas J. Curry, the comptroller, said on
The regulatory scrutiny comes on the heels of several Wall Street blowups and federal investigations that
have stoked the anger of consumers and investors. Last month, Barclays agreed to pay authorities $450
million to settle accusations that it had manipulated a benchmark interest rate, part of a wideranging
inquiry. JPMorgan Chase is dealing with the fallout from a multibilliondollar trading debacle.
The Capital One action was the consumer bureau’s first effort at flexing its enforcement muscle. A
centerpiece of the DoddFrank regulatory overhaul law passed in response to the 2008 financial crisis, the
twoyearold bureau is charged with rooting out abuses in areas including mortgages and payday loans.
The action Wednesday suggests that the enforcement arm is emerging as a cornerstone of the agency,
which early on faced skepticism over whether it would aggressively police the nation’s biggest banks. Mr.
Cordray, who previously ran the bureau’s enforcement division, said that his agency’s investigations
would now happen “more steadily.”
What is more, the enforcement action will most likely embolden consumers to file classaction lawsuits,
according to Stacie E. McGinn, a lawyer at Simpson Thacher & Bartlett in New York. “This practice is
hardly limited to Capital One,” said Richard Golomb, a lawyer in Philadelphia who has brought class
action lawsuits against lenders for payment protection insurance.
That product, which promises to forgive or trim the debts of card holders in the event that they lose
their jobs, become disabled or die, became particularly attractive to anxious consumers in the
depths of the recession. While costs vary by card issuer, companies typically charge up to 80 cents for
every $100 of debt that is insured, lawyers for consumers said.
In addition to deceptively pushing those plans, regulators say, Capital One offered credit monitoring, a
feature that came with identitytheft protection and “credit education” for customers with a spotty
In a 30page order, the consumer bureau outlined how call centers for the bank marketed and sold the
products to ineligible unemployed consumers and forced the products without the consumer’s
consent. In other cases, according to the bureau, the bank employed “high pressure tactics,” including
misleading customers into thinking the product was free, mandatory and would bolster credit
The bank has run afoul of regulators before. In January, Attorney General Darrell V. McGraw Jr. of West
Virginia, reached a $13.5 million agreement with Capital One to settle accusations surrounding its
payment protection programs.
The attorney general of Mississippi, Jim Hood, also sued Capital One in June for reportedly “slamming