Ethics 1040-Class 4 Sept 20, 2010
Seven step procedure:
1). Understand all the moral standards
2). Recognize all moral impacts. Benefits, harms, rights recognized and/or denied
3). Define complete moral problem
4). Determine the economic outcomes (Pareto optimality, in a position where we
cannot make anyone else better off without making someone worse off) .
5). Consider the legal requirements
6). Evaluate the ethical duties (moral principals, how stakeholders are affected)
7). Propose convincing moral solution
-When doing the 7 steps, there are 2 different paths. Path 1 is from moral problem
to moral solution. Path 2 is facts+issues leading to a certain issue (moral problem,
take away land from natives). When evaluating on the ethical issue, we define the
impacts of the issue on all stakeholders (harms, benefits and rights) involved.
Identify relevant stakeholders (the problem itself will tell us who the stakeholders
are). Subjective moral standards means that the standards are relevant to beliefs of
-Externality: A third party is affected by a mutual decision made by a party (group)
vesting in an interest. These can be positive and negative.
-Parato improvement (an action done in an economy that harms no one and
helps at least one person.
- Carroll’s pyramid: Designed to express understanding of corporate social
Bottom portion of triangle is economic. It is required for corporations to be
successful. Economic success can also be when the company hires employees. This is
good for the government for tax collection.
The middle of the triangle is legal. Downloads from Google can be done by anyone.
Hence there are copyright issues. In order for Google to advertise these medias, the
artists or authors be compensate otherwise this would become a legal issue.
The next section of the triangle is ethics. This is also expected by the organization.
The top of the triangle is corporate philanthropy, contributions by the organization to the community.
-Declaration secures the rights of all men. Everyone collectively as citizens are at
Business needs to be fully aware on laws that are passed.
-Lobbying: Business people meet with government representatives to discuss
certain regulations. It is beneficial to the society at large given certain situations.
-Regulation: Set of laws that apply to a certain industry.
-Sherman law: Passed in the United States to restrict a business from using money
to control the actions of another business and improper business actions. e.g.,
Rockefeller paid a railway company additional money to transport their goods but
not competitors products. He broke a competition law (bribery and connection).
Moral hazard: Business can dump their risk onto the government.
Ethics 1040 –Week 5 October 4, 2011
1). Understand moral standards
2). Address moral impacts (benefits harms rights recognized).
3). Define complete moral problem
4). Economic outcomes
5). Legal requirements
Citigroup case (2008):
Hosmer believes that we all live in one utopian society that any mistake in society is
because of the individuals involved (No problem stays a problem for long because
there is always a solution to all problems, not true as below there is a contradiction
between the environment sustainability and economic sustainability):
Has a trillion dollars of bad assets in its books. 3 years ago the American
government had to rescue Citigroup (all execs at Citigroup had to take a cut in wages, the government aid for Citigroup came from tax payers). Regardless of Citigroup’s
troubles, one of the execs, Hall from Phillbourough, still demanded his 100 million
Bank Balance Sheet:
Assets Liability Liability
Loans (4%), investment Deposits (3%), letters of credit
Expenses: (Interest paid less than Revenues: Interest earned, commission (
interest earned from loans)
Financial crisis (plays central part for maintaining economic sustainability). E.g.,
PIIGS debt is because of banks.
-The only way to regain economic sustainability (U.S, japan, PIIGS) the economy is to
promote economic growth (globalization, world trade and production must occur
for one of these nations to recover. In Japan for several reasons (crisis, economic
system), the debt to GDP ratio over 200%.
-Coal is increasingly being burned which brings up the issue of global warming.
From an ethical standpoint economy (burning coal is imperative to fix the economy,
pay debts) and environment (climate change, global scientists say it is imperative to
burn less coal). There is no solution to this problem due to the contradiction in the
types of sustainability (social, economic, environmental).
-Peak oil is the significant rise in oil prices since producers are extracting less and
less oil. The cost of producing oil also starts increasing (for example, the price of
extracting oil is $1/barrel in Saudi Arabia, but if that supply because more limited,
we would have to switch to other countries like Russia where the oil extraction is
$13/barrel). Everything for economic production uses oil. Living in our world even
food would be come expensive to product. For the expanding population in Egypt,
the decrease in food production (increase in prices) would affect the citizens
-Moral hazard occurs when a business can offset a risk to someone else. To save my
company, I decided to burn down my company to collect insurance money.
-Golden parachute: If you are CEO and the company wants to replace you, than you
receive a huge bonus. This may be good for the CEO but not the shareholders. Even
if a company is killed because of a terrible quarter, the CEO or executive is highly
Ethics 1040 –Week 5 October 6, 2011
-There are 2 approaches to the 7 steps, Hosmer (utilitarian approach, nothing much
bad ever happens and there is a solution). E.g., nasty M. Hall does not want to accept a cut in his 100 million bonus (the problem with Hosmers analysis is that it fully
blames the actions of Citigroup where the trouble was all banks in the U.S during the
recession). Sometimes there are severe conflicts with sustainability (social,
economic, and environment).
-In the real world, there is not a moral solution to all problems as Hosmer states. We
must agree to
-Moral problem, native hunting and fishing rights have been taken away in order for
a company to create a power plant. Economic way to solve this possible is
compensating the natives for the land. If the Natives are still upset with this solution,
they can move onto appealing the problem in court (legal). These native Indians are
patriotic about land and animals since these are part of their cultural values. Hydro
Quebec (wants to profit from the land, even if this is negative for the environment)
the land in a different way than the natives(partake in natures bounty of the land,
fish, hunt-they are not harming the landscape). The conclusion for the 7 step does
not necessarily have to be right, we may say that a power plant does not have to be
built is valid as long as the moral problem is formulated very specifically and all
events basic from this moral problem is fully relevant to this moral problem.
-Standard: A method we use to exercise a judgment.
-If the market is running smoothly, each individual is able to make decisions.
1). Inadequate information: We do not have enough information on how to regulate
GMO (how we are affected by these foods).
2). Incomplete participation: People need to organize themselves into interest group
which could lobby the government to amend or change a law.
3). Inarticulate presentation: Not all groups are going to have their group interest
4). Inconsistent articulation (the law may not represent peoples interest).
5). Indefinite wording (meet constitutional standards, constitutional challenges)
-Occam’s razor: The simplest solution to all problems.
-Moral hazard: Issue where an economic agent can impose risk on another party. A
bank can impose risks on the government, Citigroup has so many toxic assets that
the government cannot let it fail.
-Social sustainability: If a Tsunami comes, you don't want to fish if your job
involves fishing, you will run.
The first chart should be used in the 2 assignment. This is a stakeholder analysis
for moral impacts. Interest Benefits Harms Rights denied
External Benefits harms Harms Rights
You could also create another chart with the same external interested stakeholders:
Interest Economic Legal Ethical Philanthropic
External Economic Legal Ethical Philanthropic
Chinese government recognizes that companies are there to create a low cost
production process. Hence Chinese companies (subjective analysis would be to
make the most profits for owners of companies) would expose workers to a low
wages, and general health hazards. In order to produce these goods at a low cost for
companies, Chinese companies would use convenient materials that are very cheap,
regardless of the negative health impacts consumers would face. With Mattel, the
Chinese manufacturers applying the lead paint to toys were exposed to health
hazards, Mattel apologized to these employees as well even though it was not in
Mattel’s ideals to negatively impact the health workers in production. They want to
ensure that producing in China in the future, workers would not be exposed to
potential health hazards in the corporations pursuit to make all toys lead-free.
Materials for packaging for Mattel Barbie Doll comes from Indonasia for exploiting
rainforests. Greenpeace was completely against this agreement and imposed
environmental sanctions against Mattel. Not only has Mattel created a health hazard
for society, they have also harmed the environment with production of plastics. Grid Analysis
HIGH Collaboration Involve
Greenpeace and Mattel
Defending against lawsuits Monitor the activities of
If the case your given has to do with the breakdown in sustainability, it changes the
nature of your ethical analysis.
Publically owned vs. privately owned.
Shareholders->board of directors-> Executive managers employedes
i). Financial reporting
ii). External Audiit
iii). Fiduciary Responsibility
iv). Limited liability
v). Principal Agent Problems Problems
CEO is also chairman
i). Interlocking Directorates
ii). Executive pay (Golden Parachute, CEO Agencies)
October 19, 2011 Class
CSR Links: Mission statement codes of ethics code policies and procedures.
i). Enlightened self interest
ii). Triple bottom line (TBL)
iii). Internal vs. External CSR
iv). Corporate branding vs. utility
v). Proactivity and sustainability
Dangerous products: Alcohol, tobacco, pesticides (export of externalities).
Irresponsible industries: Finance oil food
-Moral hazard: Agent or the corporation can dump the risk on someone else. If the
venture succeeds the entrepreneur is happy. But if he fails he can dump the risk on
others. This is the reason companies are willing to take a lot of risk (privatize the
gains, socialize the losses)
-Capital flight: Descries a process that has occurred in globalization where surplus
and savings does not help small companies. Instead it goes to the United States. In
1982, the Dow Jones was around 1000. The fact that the Dow Jones has increased 11
folds today is due to all money from the world is coming into America.
Whistle blowing: When an employee raises a point of the company doing illegal or
wrong things. External whistle blowing going to the newspaper or TV. Internal
whistle blowing is going to your boss or heads in the company. Employees may be at
risk for whistle blowing (black balled).
Ethics 1040 –Week 7 October 27, 2011
-Originates in moral philosophy:
-Business-Science/technology (business revenue/innovation): Innovation as a
driver helps turn scientific discoveries into economic endeavors (mainly profit
maximization). -Imperatives of growth (treadmill effect-limits to growth): Capitalist economy has to
continuously keep growing (profits can only be generated when investment is done).
Limits to growth is related to how resources in todays economy are starting to
deplete which induces a negative economic impact). One way we can stay on this
treadmill is through constant innovation (microchip technology-reducing the size of
computers, Moore’s law).
-Revenue growth + expense management (R+D, Tainter, Minsky): A good example of
this would be the introduction to computer technologies. Large advances were
being made based on productivity. This resulted in profitability. When competitors
in markets start to increase, this produces efficiency but profits for producers start
declining (exception are monopolies and oligopolies). Limits to growth would be the
depletion of resources that make it difficult to grow and urge to constantly innovate
using inputs not consisting of these resources that are depleting.
-Sustainability: Build a computer in China, kids and workers are exposed to toxic
wastes (sustainability of innovation). Production becomes a social hazard.
-Low cost inputs/necessities (globalization): Food, water and money: We are used
to a globalized world where we can ship a large chunk of goods from one end of the
world to the other very quickly. The negative impact of this result causes increased
amounts of fuel usage which becomes an environmental concern. Average
temperatures around the work have increased every since globalization has started
to kick in.
-Fractional reserve banking: Fractional deposits are accumulated to create
money(loans, handle deposits, collect interest)
-Moral hazard (TBTF-to big to fail, TBTB-to big to bail)
Balance Sheet: Relates to how banks make money, the multiplier as investment
from public grows:
Insolvency: When the bank has more bad loans on its books than capital
investments. Loans must be paid back otherwise the bank becomes insolvent(must
-Deposits (There is CDIC, deposit insurance, for investors. In case there is a run on
the bank, depositors would be guaranteed IOU receipts and governments would back the banks up). Lending money is the way the bank makes money and how
money generation helps the economy spiral upward (upturn). Banks have an
incentive to become less conservative, handing out risky loans, since the
government backs the system up. This becomes a moral hazard when you, the
economic agent, have the ability to offset the risk to others (this is fundamental
concept in for banks).
-TBTF (to big to fail) is when the whole economy becomes so dependent on the bank
that economic kiosk would result with the banks failure (Lehman bros). The
government is going to bail out a bank in the end. In the event that the government
fails as seen in with the European debt crisis, the issue would become TBTB(to big
Interest earned, commission
Potential Capacity Rate LM (Liquid Money)
IS: Investment savings.
-Hayek supports that there should be no continuous government intervention. The
markets should be left alone(laissez faire).
Ethics 1040 –Week 8 November 1, 2011
1). Say’s Law: Supply creates its own demand. The wealth that an individual creates
from their work(valuable goods) creates demand in the economy(rational agents in
the economy decide how much the good is demanded), generating demand in the
end helps the economy. You must produce before you can consume. Says law has
become more challenged since supply must constantly be innovated(elevated) to
meet consumers demands today.
2). Information manuals (rational agents)
3). Risk vs. uncertainty 4). Short term and long term
5). Sound markets (self -correcting). Reliable institutions. No government institution.
6). Price=Value, investment=savings
-Unregulated free market: Leave entrepreneurs alone, no government intervention.
-Free market people have an idea that we should not have anything to impede the
knowledge that is coming into the marketplace (business and science play a large