Business Ethics

BUSINESS ETHICS
DAMIAN GRACE & STEPHEN COHEN

FOURTH
EDITION
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For constant love and support over all the years,

to Bernadette, Madeleine and Julia my heartfelt thanks.
DG
To Noah, Jared and Anthea, whose insights,
instincts, and criticisms have been invaluable.
And to Melissa Greenwood for her unswerving support.
SC
Contents
List of Cases
Acknowledgments
Introduction
1 Ethical Reasoning in Business

What is ethics?
Defining ethics
Elements in moral thinkingbroad strokes
Descriptive and prescriptive ethics
Ethical reasoning
Top-down and bottom-up approaches
Ethical defeat
Reflective equilibrium
Consequentialism
Nonconsequentialism
Virtue ethics
Relativism
Thinking about What should I do?
Avoidance of moral negligence
Avoidance of moral recklessness
Avoidance of moral blindness
Cultivation and exhibition of moral competence
Business
Moral pluralism
Good ethics is good business
A note on self-interest
Professional ethics
Care
Confidentiality
Responsibility and accountability
Professional judgment
Case studies and moral theory
Why case studies?
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CONTENTS
2 Dirty Hands
Public office and business: altogether outside ethics?
Different perspectives: public and private morality
Public and private morality, and dirty hands
Necessity
Good ethics is good businessagain
3 Stakeholders
The problem with the notion of stakeholder
The usefulness of the concept of stakeholder
Occupational health and safety
Random testing of employees
Corporate surveillance
Consumer protection and product safety
4 Ethics in the Marketplace: Generosity, Competition and Fairness

Corporate gifts and benevolence
Fair dealing and care
Two tales of Western Mining
5 Marketing and Advertising Ethics

Formal regulation in Australia
The new regime
The story of advertising
The moral problem in advertising
Advertising placements and endorsements
Endorsements
Bait advertising, and the bait-and-switch
Morals and marketing
6 Equal Opportunity, Discrimination and Affirmative Action

Employment discrimination
Comments about discrimination in general
Workplace discrimination
Pregnancy discrimination
Glass ceilings, glass walls
Sexual harassment
Disability
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CONTENTS
7 The Ethics of Accounting: The Case of a Profession in Business

Overview of the accounting profession
Professional codes of practice
Conflicts of interest
Harms that arise from conflicts of interest
Conflicts of interest in academic medicine
Merrill Lynch
Constitutive and regulative rules
Litigation and auditing
8 The Environment
The humanistic argument
The naturalistic argument
Growth
Intergenerational issues
The precautionary principle
Waste or fertiliser
Voluntary action
The CERES Principles
Australian standards and principles
9 Whistleblowing
Internal and external
The Australian situation
10 Codes of Ethics and Institutional Ethics

Codes of ethics and codes of conduct
Accountability and responsibility
Back to codes
Professional and business codes
Content of codes of ethics
General statement of values and guiding principles
Competence and professional standards
Personal and professional behaviour
Social responsibility and the environment
Interpretation, enforcement and sanctions
Two brief stories of industry codes
The Banking Industry Code of Practice
Institutionalising ethics
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CONTENTS
11 International Business Ethics
265
Competition or trust?
Ethics and cultural difference
Is corruption acceptable in foreign cultures?
Cultural relativism
The global social responsibilities of business
Business and human rights
Affordability
A double standard?
Supportive institutions
The Global Sullivan Principles
The Principles
The UN Global Compact
The principles of the Caux Round Table
Transparency International
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Appendix 1: Ethical Decision-making Models

Appendix 2: Australian Association of National Advertisers (AANA)
Advertiser Code of Ethics
Appendix 3: The Caux Round Table Principles for Responsible Business
Notes
Bibliography
Index
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307
309
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353
CHAPTER OUTLINE
7h
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What is ethics?
Ethical defeat
Consequentialism
Nonconsequentialism
Virtue ethics
7h
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Relativism
Business
Moral pluralism
Professional ethics
Review questions
Business ethics covers the whole spectrum of interactions between firms, individuals, industries, society and the state. In other words, business ethics is as complex as
business itself. It is not an optional accessory to business life or a mere enthusiasm of
philosophers and moralists; business ethics is about how we conduct our business
affairs, from the basest fraud to the highest levels of excellence. It is about individuals and the institutions with which they deal. And it is about the expectations and
requirementsincluding the social and economic requirementsof society.
Such a scope suggests that individuals might have a limited role in ethical
matters. After all, if they have a limited range of business responsibilities, then they
will not be in a position to make much of an ethical impact. An important way
of looking at the responsibilities of individuals is to examine their roles. Company
directors, for instance, have fiduciary responsibilities to act in the best interests of
shareholders. Does that entitle them to ignore ethically suspect practices that benefit
shareholders? Sometimes peoples role in business is itself the problem. Should their
occupational role diminish their moral responsibility for actions done in the name
of their company or employer? If so, where do individual conscience, character and
choice come in?
The same kinds of questions might be asked not only of individuals, but also of
firms and industries that operate under socially determined legal and economic
constraints. What are the ethical responsibilities of non-natural personslegal
BUSINESS ETHICS
entities that have no character or conscience in the usual sense and are persons
only in law? How is ethics to be made part of the fabric of institutions? Should ethical
standards be imposed in a market economy?
What is ethics?
If ethics were only a matter of rules, customs and contracts, then such questions would
be relatively straightforward. We already have abundant procedures, instruments,
conventions and regulations ranging from law to etiquette. But to say that ethics
does not duplicate these is not to measure its importance or scope by them. Ethical
issues are often grey; ethical reasoning is not as concrete (or sometimes as precise)
as legal reasoning; people can differ on the subject of ethics as they may not on the
laws of physics or the facts of geography. Although these are facts about ethics, they
are not reasons for believing that ethics is conceptually soft or trivial. Ethics is not
poor reasoning, vague law, indeterminate custom or an ideological form of social
control, but one of the most important sources of motivation and guidance in human
conduct. It occupies an important field of knowledge in its own right.
Aristotle gave a view of the matter in a famous passage of his Nicomachean
Ethics,
Our account of this science (ethics) will be adequate if it achieves such clarity as
the subject-matter allows; for the same degree of precision is not to be expected
in all discussions Therefore in discussing subjects, and arguing from evidence,
conditioned in this way, we must be satisfied with a broad outline of the truth; that
is, in arguing about what is for the most part so from premises which are for the most
part true we must be content to draw conclusions that are similarly qualified it is
a mark of the trained mind never to expect more precision in the treatment of any
subject than the nature of the subject permits; for demanding logical demonstrations
from a teacher of rhetoric is clearly about as reasonable as accepting mere plausibility
from a mathematician.1
Ethical reasoning, according to Aristotle, is not a matter of applying the appropriate

algorithm to a situation and mechanically calculating the correct moral result, the
correct moral prescription. Ethical reasoning is more subtle, less precise, often more
difficult. Not all ethical thinkers have agreed with Aristotle. Some have tried to put
a much more precise formulation on moral duties. Nevertheless, given the kinds of
debates about ethical problems in Australia, it is clear that lack of precision is not
the problem, or at least not the major problem, in solving them.
In order to gain a clearer grasp of what ethics is and is not, consider the film
The Godfather. At the beginning of the film we are disgusted by the violence and
absence of humanity in the Mafia. As the story progresses, however, we come to see
CHAPTER 1 E THICAL RE ASONING IN BUSINESS
the internal rules of the Family at work and realise that, although they are contrary
to the rules of normal society, they make their own kind of sense. At the end of the
film, the anti-hero, Michael, is attending the baptism of his son in a church while his
henchmen systematically kill his rivals for leadership of the Family. This is how life
is in the Mafia. This is what we understand to be necessary to make sense in terms
of that kind of culture. The Mafia has its own ethos, its own rules and mores. This
is a dark parallel to the ethical values of the wider society, and it is this parallel,
rather than the ruthlessness and violence per se, that causes The Godfather to
be shocking.
The film raises all kinds of ethical questions that apply equally to society and
business. Is just any system of binding rules, norms and duties a system of ethics?
Is it possible to say that one system is better than another? Does not moral luck
determine the circumstances of peoples birth and development and therefore the
attitudes they bring to life? The importance of these questions is readily apparent.
If people born in Australia in the late nineteenth century believed wholeheartedly
in the White Australia Policy, how can they be blamed? If a person grew up as a
white child in South Africa during the Vorster regime, why is it blameworthy to have
white supremacist attitudes? And who is to say that one system of social beliefs and
customs, even if racist, is worse than another? These are real questions, requiring
thought and careful consideration.
If cultural relativism is the case, then business must adapt to the norms and
practices of the cultures in which it operates. What is unethical in Australia might
be good manners in one of our trading partners. What would be poor working conditions here might be superior working conditions overseas. Sharp practice2 might
well be the norm elsewhere. Surely it is mistaken to try to universalise our standards
of right and wrong in our dealings with other countries. Or is it?
Defining ethics
What is ethics? What does it mean to have an ethical point of view or an ethical
opinion or to behave ethically? A definition will not solve the problems raised but
will go some way towards clarifying what is at stake.
The term ethics owes its origins to ancient Greece, where the word ethikos
referred to the authority of custom and tradition. When Cicero sought a similar word
in Latin he chose mos, from which we derive the terms moral, mores and morale.
So it seems that ethical relativists have at least a good historical basis for their
views: ethics and mores originally referred to the customs, habits of life or traditions
of a people. We shall consider ethical relativism in our discussion of ethical reasoning, but a relativist could say that we have as much right to condemn the customs
of the Mafia or apartheid as we do any foreign system of behaviourthat is, none.
BUSINESS ETHICS
Or rather, we can condemn them in terms of our moral system, but we should not
and cannot insist that others who do not share our values listen to our complaints.
Plainly this will not do. A definition of ethics that dignified any and all customs
would not answer to a common-sense understanding of the term. The Mafia and
apartheid are objectionable, and not just because most people think so. Here is
some further definition. The nineteenth-century German philosopher Georg Wilhelm
Friedrich Hegel distinguished between ethics as the customary norms and ways of
behaving in a society, and morality as a reflection on those norms and the deliberate
generation and adoption of principles that may well modify them. On this distinction,
the ethos or ethics of a particular culture might require reverence for older people
or assign special responsibilities to the oldest son. An example of moral thinking
would be the growth in recognition of human rights, and the greater sensitivity to
suffering in animals. Another example can be seen in the deliberate study of professional and business ethics. In this sense then morality is the missing part of ethics
that as modern people, rather than villagers regulated by custom and tradition, we
often take for granted. In fact, so familiar to us is reflective, conceptual thinking
about ethical issues that customs and traditions are often ignored or dismissed as
irrelevant. Both custom and reflection are part of ethics. Together they show why
just any set of norms cannot be an ethics; why among thieves and racists there can
be no honour.
By and large there is no reason to make a distinction in meaning between
ethical and moral. There is certainly no difference in meaning that could be
attributed to their etymological roots. Sometimes some moral philosophers or
ethicists distinguish them from each other, but not all philosophers do; and those
who do distinguish them from each other do not all distinguish them in the same
way. Some have distinguished moral and ethical in the manner of Hegel, but
others have distinguished them in a variety of different ways. It is recommended
here that the words be considered as synonymous except in some peculiar usages.
We will see later, in discussing codes of ethics, that there is an issue about whether
or not the use of ethics in code of ethics is a specialised use, or whether it is
even there synonymous with morality. We will suggest that, in that context, ethics
is a specialised use and should not be confused with morality. That is the only
exception to our use of these words as synonymous.
What is ethics? What kind of thing is a moral reason? What is being considered
when one considers the moral dimension of a problem? What makes this different
from the non-moral aspects of a situation? Is there anything peculiar about moral
reasons? These questions themselves have been debated among moral philosophers.
Without entering into the debate or prejudicing a position, it is possible to say
something about what ethics is. We can offer a minimalist description that offers
only the bare bones of what must be involved in something being a moral concern.
It is then arguable whether perhaps something more must also be involved in a

consideration being an ethical one. Keep in mind that for now we are not talking
about what is involved in the correct moral opinion, but rather about what it is for an
opinion to be a moral opinion at all, be it correct, incorrect or whatever.
7h Considering something ethically requires that one go outside, or beyond, ones
7h
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self-interest alone in reaching a decision. Moral opinions, then, are not opinions
based only on the promotion of ones self-interest. Moral opinions are impartial.
An ethical judgment is one that can be universalised. It is one that is perceived
to apply to everyone in similar circumstances, and not only to oneself.
Ethical opinions must be able to be defended with reasons. This requirement
distinguishes ethical opinions from biases and mere preferences, for which one
might have no reason at all: I dont have a reason for liking vanilla ice cream
more than chocolate raisin; I just do. I prefer its taste.
Ethical opinions are not subject to a vote, in the way that political opinions and
decisions are. A moral opinion is not just whatever a majority decides it is. An
opinion or a position on something does not become moral in virtue of popular
support for it. In this respect, moral opinions are non-negotiable.
Moral opinions are centrally action-guiding. They are not only of theoretical
or academic interest. They are centrally concerned with behaviour. They are
concerned with evaluating behaviour and with prescribing ways in which people
should behave. To at least some extent, this requires that one thinks about the
consequences of ones actions.
Here are some examples of what some philosophers have said that ethics
amounts to:
morality is, at the very least, the effort to guide ones conduct by reasonthat is to
do what there are the best reasons for doingwhile giving equal weight to the best
interests of each individual who will be affected by ones conduct.3
morality amounts to guidelines that set the boundaries of acceptable behavior
concerned with harming others, paying the proper regard for others well-being, and
treating persons with respect.4
morality is concerned with rules, principles, or ways of thinking that guide actions
it refers to values, rules, standards, or principles that should guide our decisions
about what we ought to do.5
The notion of living according to ethical standards is tied up with the notion of defending the way one is living, of giving a reason for it, of justifying it Ethics requires
us to go beyond I and you to the universal law, the universalisable judgment, the
standpoint of the impartial spectator or ideal observer, or whatever we choose to call
BUSINESS ETHICS
it In accepting that ethical judgments must be made from a universal point of view,
I am accepting that my own interests cannot, simply because they are my interests,
count more than the interests of anyone else.6
Where do ethical principles come from? Are they matters of religion, societys
inculcated beliefs, universal rational truths? Are they principles that are formed as a
result of a bargain that individuals reach in order to live together, each having their
own welfare as their top priority, but realising that in order to successfully advance
their individual self-interests, they must operate according to mutually acceptable
principles? These very important questions will not be dealt with here. They are by
no means easy, and there is no universal agreement about what their answers are.
However, although we should be aware of them, it is possible to proceed without
answering them.
Elements in moral thinkingbroad strokes

In appreciating a problem as a moral problem, and in coming to deal with it, appropriate concern involves consideration of rules (for example, the Golden Rule, be fair
or tell the truth) and also consideration of achieving outcomes, or consequences of
your action or decision (for example, utilitarianism, producing the most good, avoidance of offending someone). Most ethical dilemmas and serious ethical concerns
involve clashes between these different types of considerations. And then theres
morefor instance, the ethical requirements that come into play as an employee or
professional or in a role of any kind (for example, requirements of independence,
FIGURE 1.1 The moral pie
Rules
Outcomes, consequences
More, for example:

s PROFESSIONALCODE
s LAW
s LOYALTYTOEMPLOYER
s CONFIDENTIALITY
s REQUIREMENTSOFONES
role in an organisation
attendance to the interest of the client, to the interest of the profession, loyalty to the
firm, and so on). These considerations, as well, can conflict with regard for ethical
rules and ethical outcomes.
In facing and dealing with an ethical issue, we recognise different types of moral
considerations at work. Here are a few:
7h In this case, what does truth-telling (a rule) require?
7h And what about the promise (a rule) I made to them yesterday?
7h What course of action could I take here that would most benefit these people
(an outcome)?
7h Would that be fair (a rule)?
7h In this situation, what is required by my remaining independent in the advice that
I give (a professional requirement)?

There can be differentand sometimes conflictinganswers to these questions.
For example, in this case, if I am open and truthful in telling these people about our
plans for the development, I cant benefit them as much as I can if I hide the truth from
them, at least for a while. There is no mechanical or formulaic recipe for coming to
a resolution in many cases. That does not mean, however, that in cases of conflicting
ethical considerations, just anything at all will be ethically OK, or that anything will
be ethically as acceptable as anything else. What is required here is good judgment.
We will have more to say about this later, in the context of the various moral factors
involved, and a satisfactory justification for the decision that is made.
Descriptive and prescriptive ethics

There are many ways of studying ethics, but a vital first distinction is between
prescriptive theories and descriptive theories of ethics. Descriptive ethics is, as
the name suggests, the study of ethics in particular groups and societies. It is an
empirical investigation that might be conducted by a sociologist or anthropologist
or social psychologist of what happens when people follow or deviate from social
norms. It could also be an account (a description) of what particular ethical beliefs
a person or group holds. It makes no judgment of the rightness or wrongness of the
events studied, but merely describes them.
Prescriptive ethics is about judging an act to be right or wrong. It recommends
or forbids certain types of conduct. It would, for example, prohibit robbery, fraud
and injustice, while requiring honesty, truthfulness and fairness. The way we are
using the term prescription here means simply anything with should or ought
involved in it: for example, You should lead a good life. Sometimes when people
hear or see the word prescription, they associate it only with the prescription of
something very specific: for example, You should answer the test questions with a
number 2 lead pencil, or You should take one pill with breakfast and another with
BUSINESS ETHICS
dinner. Someone might say, We have a very prescriptive workplace, meaning that
in their particular work environment, they are told exactly what to do, leaving little
room for manoeuvrelittle room for them to think for themselves. We might better
associate this at times with a phrase such as over-prescriptive. When we talk about
prescriptions, or prescriptive ethics, we do not mean this at all.
Prescriptive and descriptive ethics can become confused when people believe
that the way things are done is, for that reason alone, the way they should be done.
If fraud and dishonesty were commonplace, it would be an ethical error to recommend them on that basis. We are all familiar with the confusion of descriptive and
prescriptive ethics found in the old excuse, Everybodys doing it. Now this excuse
might be genuine as a factor in our psychology, but it will not make a wrong act
right. That is, the example of most people might count as an excusing reason for
an individual doing the wrong thing, but it does not make the act right. Take the
example of corporal punishment in schools. This was a widespread practice until
relatively recently, but this fact about it did not make it right. It might, however,
excuse the teachers who applied corporal punishment, perhaps unthinkingly or in
the belief that it was beneficial in the long term to school pupils.
A variation on this confusion of descriptive and prescriptive ethics is the commonly heard view that if something is legal, its ethical. That is, if there is no legal
prohibition on an act, then I can do as I choose. This view will be revisited below.
Ethical reasoning
There are three central points with which we are concerned in this book
7h that there are moral concerns
7h that you should address them
7h what it means to address moral concerns.
Very few people would deny that there are moral concerns in their lives. In this
respect, then, it takes little or no convincing that there are moral concerns. There
might be significant debate over whether a particular concern is, in fact, a moral one,
and there is debate over how to respond to some moral issues; there is also debate
over what is the morally correct thing to do. But, by and large, there is no debate over
whether or not there are moral concerns at all. This being the case, we will not spend
much time arguing that there are moral concerns. Rather, we will be presenting
some moral concerns to you, indicating what there is about them that make them
moral, and then dealing with them in a systematic way. In presenting moral issues we
have a few key matters in mind, not all of which can be dealt with in each instance.
Sometimes we call attention to something that is clearly a moral impropriety, and
then proceed to discuss what exactly is wrong and how it might be rectified or, more
importantly, how it might have been avoided. We are equally concerned, however,
to call attention to some matters that are problematic and which, for that reason,
should generate thought and argument in the context in which those matters occur.
Serious, genuine analysis is called for, and people in business or in the professions
should not avoid devoting some time to it.
As an individual or as an organisation or as an individual occupying a position (a
role) in an organisation, you should address moral issues. Why? There are a number
of answers to this question, and the question itself can be addressed at a number
of levels, ranging from a theoretical interest in moral philosophy to a purely pragmatic and self-interested concern. At the most theoretical level, the question Why
should I be moral? is one to which philosophers have offered an array of answers
since the time of Plato, more than 2000 years ago. Some theories have urged that
rational behaviour and rational thinking themselves require people to be moral.
Other theories have referred to morality as empirically compelling, and others have
made reference to a feeling people have about what they regard as moral. Many
arguments suggest that we should be moral, because that is what we want to be, if
we could find the moral thing to do in any particular situation. Suppose, however,
that at the theoretical level such answers left you cold. What more could be said?
When we discuss codes of ethics specifically, we will urge that, given the amount of
public awareness and accountability required these days, coupled with the possibility (or threat) of governmental regulation over many aspects of business conduct,
the climate in business is such that it is in peoples interest to pay attention to moral,
not simply legal, requirements. There is a good deal of truth to the practical dictum
good ethics is good business. Perhaps purely self-interested motives for adopting
a moral point of view are not nobleor not as noble as compassion or a sense of
fairness or other motives that are not themselves based on ones own welfare and
concern for advancing ones own interests ahead of those of others. Still, there can
be no denying that requirements of public accountability are greater today than
they have ever been before, and that public awareness of, interest in, and demands
concerning the conduct of businesses and the professions are very great, perhaps
enlightened. Clients, customers, shareholders or society at large will not tolerate
professional or business conduct that is perceived to be unethical.
There is an important analogue to the question Why be moral? as it arises in this
context. Political philosophers and philosophers of law often discuss the question
of whether or not people should obey the law. This question, Why should I obey
the (legal) law? is, in those discussions, most significantly directed to looking for
a moral reason to obey the law. However, at another level, an appropriate answer
to the question is a resounding, Yes, I should obey the law, because if I dont, Im
going to get into trouble with the law. This is an answer that cannot be ignored when
considering why we should be moral in business as well.
10
BUSINESS ETHICS

If we recognise that there are moral concerns, and we appreciate that we should
address them, then what is it to address them? What is the nature of moral reasoning?
Consider a couple of possibilities.
FIGURE 1.2 Top-down and bottom-up reasoning
Moral principles [inflexible]
Top-down
Moral encounters (ground-level) [flexible]
Moral principles [flexible]
Bottom-up
Moral encounters (ground-level) [inflexible]
The first is a top-down approach, according to which the first principles of moral
reasoning are general or universal moral principles that can be applied to specific
situations. This conception of moral reasoning envisages the reasoner approaching a moral situation armed with general principles; for example, tell the truth,
advance peoples welfare, keep your promises, honour fiduciary relationships
and a number of others, all of which rest on some kind of general foundations. Moral
reasoning, then, consists of applying the appropriate principles to the situation and
overlaying those principles onto particular situations as those situations arise. For
example, when faced with a moral choice, a committed utilitarian might engage
in tallying up and comparing the amounts of welfare that would be produced by
the various alternatives. The act likely to produce the most utility would be the one
that the utilitarian principle would direct be performed. The principlein this case
the utilitarian principledrives the reasoning, and its application to the particular
situation determines the correct, ethical result. According to the top-down approach,
the task for moral reasoning is to bring particular moral judgments or intuitions
about particular situations into harmony with overarching general principles.
According to a bottom-up approach, on the other hand, the first principles of
moral reasoning are the moral judgments we make personallyperhaps moral
intuitions or reactions we have to particular situations. It is these ground-level
judgmentsperhaps intuitions or feelingsthemselves, rather than overarching
principles, that are the first principles of moral reasoning. This conception of moral
reasoning sees moral encounters as situations in which the reasoner is struck by
the nature of the situations themselves, and need look no further to appreciate the
moral dimension that is present and arrive at a moral decision. If one were interested
in doing so it might be possible to enunciate general principles that are coherent
with the intuitions that emerge from the particular situations to which we react.
The starting point and the foundation of moral principles in this approach, however,
rests with the evaluation of the particular situations.
Ethical defeat
At times, we question the sincerity of people claiming to be ethical. Perhaps we
should be equally suspicious of people who claim to be amoral or indifferent to
ethics. The predatory businessman, David Tweed, dismisses questions about the
ethics of his targeting the old and vulnerable in what are frankly disgraceful offers
to buy their shares. He has been reported as saying to one of his victims, I didnt do
morals at school.7
People are reluctant to admit complete ethical defeatthat is, to grant that their
acts have no positive ethical justification at all, that their acts are completely immoral,
bereft of any positive moral elements. This is an important feature of human nature.
It shows that, by and large, people do not dismiss ethics as an unimportant concern.
Sometimes they get it wrongsometimes their acts are immoralbut seldom do
the agents themselves dismiss morality altogether. This is important. People do not
simply admit to being caught with the smoking gun, with nothing to say for themselves. We are not oblivious ofor impervious tomoral argument about what
we do. In this respect, we do not need to be convinced to enter the moral arena for
the purpose of evaluating potential courses of action. They are already there, even
though their moral perceptions may not be correct. This point was vividly illustrated
many years ago in a newspaper report about drug trafficking in New York City: a
heroin dealer pointed out to the reporter that he only sold good dope and that he
never sold to kids.8 Even at this level, the dealer is hearkening to the moral defensibility of some aspect of what he is doing. He is not oblivious to the importance of such
a concern, even though, in his case, it was particularly misplaced. Consider another
case. In 2008 in the Austrian town of Amstetten, the appalling story came to light of a
woman, Elizabeth Fritzl, and her three children imprisoned in a cellar by Elizabeths
father, Josef, for 24 years. Fritzl had kidnapped and imprisoned his daughter when
she was 18 and raped her repeatedly over the following two and a half decades.
Of the seven children he had fathered upon her, threeKerstin, 19, Stefan, 18, and
Felix, 5had spent their entire lives in the cellar. Three others had been adopted by
Josef Fritzl, and one had died. What could prompt such vile conduct is a matter of
speculation for psychiatrists,9 but even after admitting his crimes, Josef Fritzl sought
to affirm something of his humanity. When Kerstin became severely ill with a form
of epilepsy related to incest, he admitted her to hospital as his granddaughter whom
he found ill on his doorstep. Eventually, Elizabeth Fritzl was able to persuade her
father to let her visit the hospital and the full story was revealed.10 Fritzl insists that
this proves hes no monster. I could have killed them all, he said. Then there would
11
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have been no trace. No-one would have found me out. If it werent for me, Kerstin
wouldnt be alive today. It was me who made sure she was taken to hospital.11
The moral of these stories is simply that the answer to a question such as Who
cares about ethics anyway? is nearly everyone. And, if this is the case, then it is
unnecessary to spend much time trying to convince people that they should be
interested in the moral aspects of what they do. However, there is, of course, much
work to do in determining exactly what those aspects are and what course of action
one should take, or what courses of action are permissible. But this is an entirely
different problem from the question of why we should be concerned about ethics
in the first place. The point is that, on a practical level, we really need not address
this question at all.
It is not infrequent that invitationsor pleasto business and the professions to
engage in moral reasoning carry with them the suggestion that the reasoners might
choose whatever moral principles they want, recognising that they might well be
attracted to different and disparate principles. Such invitations allow the possibility
of moral pluralism: the presence of a number of different, perhaps incompatible,
moral principles. The point of such invitations is to get business people and professionals to recognise that there is a moral dimension to the problems they face, and to
urge that this dimension not be ignored but dealt with systematically by the various
practitioners. The invitation is for people to engage in reflective moral consideration,
and to confront the notion of principled action, which requires consideration of
principles (to which the whole idea of principled action refers).
In routine matters routine ethics can work quite well. In critical situations that are
other than routine, however, managers have to fall back on character rather than rules.
In this sense, character and the virtues that inform it serve as repositories of moral
knowledge and wisdom. It is thesenot overarching principlesthat lead to individual moral judgments. This might be seen as a feature of the bottom-up approach.
In a similar vein, Jonsen and Toulmin have argued that agreement on ethical
issues is more likely to come from the consideration of concrete cases than from a
dispute about principles.12 People might agree about particular matters for different
reasons; that people of good faith might differ in their principles need not preclude
a workable ethics being shared among them. Argument from cases is more likely to
secure this than a battle fought to secure commitment to a philosophical position or
overarching principle.
A third approach regards neither particular judgments nor general principles as first
principles. Both are important, and the interplay between them is what drives moral
reasoning.
FIGURE 1.3 Reaching a reflective equilibrium

Moral principles [flexible]
Moral encounters (ground-level) [flexible]
In 1970 John Rawls introduced the phrase reflective equilibrium.13 As he used it, the
phrase refers to beliefs about justice. However, the notion has been discussed as
having an important role to play in understanding the nature of moral reasoning and
moral theorising in general. As such, it refers to the state of a persons beliefs when
their moral principles and moral judgments are in harmony. Notice that reflective
equilibrium refers to a result, or end state. A reflective equilibrium is something to be
achieved. Top-down and bottom-up approaches both clearly refer to processes,
aimed at arriving at a result. It would make sense to say that they, too, would be
aiming at a result where principles and judgments are in equilibrium. As it is used,
however, the phrase reflective equilibrium is also a view about how to establish this
resulta processnot just the result itself. Roger Ebertz has written,
I find it helpful to speak also of the reflective process to refer to the activities which
lead one to reflective equilibrium. These include carefully considering individual
beliefs, comparing them with one another, considering the beliefs of others, drawing
out consequences of beliefs, and so forth.14
According to this view, neither particular judgments nor general principles are
pre-eminent. Further, it allows us to skirt the question of whether there are any
immutable moral facts or whether there are any objectively true moral propositions. Moral reasoning is a matter of bringing into harmony, or consistency, various
particular judgments with each other and with the principles that we hold. In this
respect, moral reasoning is seen to be centrally neither top-down nor bottom-up.
Rather, it works in both directions, with the goal of reaching an equilibrium between
the principles to which one subscribes and the particular judgments that one makes.
Moral reasoning is also concerned to achieve consistency among ones particular
judgments (relative to each other), and among the various principles to which one
subscribes (relative to each other).
Reaching a reflective equilibrium is essentially a dialectical process, which
involves a give and take of principles and intuitions. Neither the principles nor the
intuitions are immutable; reaching a reflective equilibrium involves massaging
both. It is important to us to have a consistent set of beliefs. Notice, for instance, that
when we argue with others, our strongest arguments are in terms of allegations that
the other party is failing to be consistent.
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FIGURE 1.4 Elements in reflective equilibrium

(a) Reflective equilibrium between principles and judgments
Principles
P1, P2, P3,
Judgments
J 1 , J 2 , J3 , J4 ,
(b) Reflective equilibrium among principles

P1
P2
Principles
P4
P3
(c) Reflective equilibrium among judgments

J1
J2
Judgments
J3
J4
Suppose that, for whatever reason, I am attracted to some moral principle. For
example, I think that I should try to maximise utility. Suppose also that I think that
in a particular situation I should keep my promise to drive a friend to the airport,
even though it appears that I could produce more utility by doing something else.
Here, there is an apparent conflict between a principle to which I am attracted and a
particular judgment that I feel is correct. I might argue that keeping the promise will
maximise utility, or I might argue that my commitment to the utilitarian principle is
modified by some other (theoretical) commitments, the result of which is that I am
not being inconsistent in believing that I should keep my promise on this occasion.
It will be important to me not to be a hypocrite about the situation, however. It will
be important to me that my ground-level judgment not conflict with my purported
theoretical commitment. It will be important to me to resolve the apparent conflict.
In considering my position on both the practical and theoretical levels, I allow
that there can be interplay between them, and that my beliefs, commitments or
intuitions about something at either level are subject to review in the light of my
beliefs, commitments or intuitions about something at the other level, as well as in
the light of my beliefs about something at the same level. That is, it is important to
me to strike a reflective equilibrium between the principles to which I subscribe
and the judgments that I make. And it is important to me that my judgments are
consistent with each other, and that I can consistently maintain a commitment to the
various principles to which I subscribe. If I offer apparently inconsistent judgments

on some occasions, it is important to me to either correct this inconsistency (and so
alter my judgment or some aspect of my theoretical commitment) or distinguish
the situations so that the apparent inconsistency is revealed to be only apparent,
not actual. For example, on one occasion, I thought it was permissible for me to
break my promise, whereas on another I thought that it was not. When pressed
(either by myself or by someone else), I might perceive that on one of the occasions
the promise was to a workmate, and on the other occasion it was to a business
acquaintance and that it would have disastrous consequences for my business if I
kept the promise. In view of this, I might try to articulate the principles according to
which these individual judgments are not inconsistent with each other, and neither
of them is inconsistent with the principles to which I subscribe. The process of
moral reasoning allows for modification and revision of the principles to which one
subscribes, as well as of the particular judgments that one makes.
Consequentialism
Consequentialism refers to a moral outlook that evaluates actions or behaviour
according to the consequences of that behaviour. According to this outlook, an act
being morally right or wrong is due to it producing some specified type of consequencefor example, happiness, welfare, pleasure or knowledge. Moral appraisal
of a mode of conduct, then, is a matter of judging how well that conduct produces
the relevant consequences. The most well-known form of consequentialism is utilitarianism. The effective founder of utilitarianism was Jeremy Bentham (17481832),
an English thinker and social reformer. His guiding moral principle was that the
ethically right thing to do is that act which produces a greater sum of utilities than
any other act could. In Benthams case, that meant producing in ones acts a greater
amount of pleasure than pain, because he believed that pleasure and pain were the
two driving forces of human action. Of course, a puzzle immediately arises here: if
humans are driven by pleasure and pain, then why do they need a moral theory to
tell them to act to maximise pleasure and minimise pain? After all, other animals
are not in need of such guidance. A simple answer to this question is that, as a
moral requirement, utilitarianism prescribes that people look not merely to their
own pleasure. They should be concerned to maximise pleasure wherever that can
be achieved. As a moral prescription, utilitarianism requires agents to be concerned
not merely with the consequences which impact upon them, but also with a wider
view of pleasure and pain effected more generally.
It is because humans do not act merely from instinct (and that humans can
choose to act one way rather than another) that moral theory has a place at all. Later
utilitarians, notably his protg, John Stuart Mill (180673), refined Benthams theory,
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and many twentieth-century followers have since modified it. As to the requirement
that individuals look outside themselves, Mill commented,
the happiness which forms the utilitarian standard of what is right in conduct is not the
agents own happiness but that of all concerned. As between his own happiness and
that of others, utilitarianism requires him to be as strictly impartial as a disinterested
and benevolent spectator.15
Benthams simple notions of pleasure and pain have come to be replaced with
other measures of utility, such as intrinsic goodness, satisfactions, preferences,
desires and second-order desires. Whatever meaning we might ascribe to utility,
the basic idea is to maximise benefits and to minimise costs.
In Benthams vision the greatest happiness of the greatest number was a moral
and a democratic principle. The happiness of one person ought not to count for more
than the happiness of another. This view accords very well with political liberalism
and a free market economy: we choose our lawmakers, our consumables and our
pleasures freely. No one is better than another politically in the market, or morally.
There are no intrinsic moral norms except the maximisation of pleasure and the
minimisation of pain.
There are difficulties with this formula to solve human ethical problems. It
seems to put all kinds of pleasure-seeking and pain-avoidance on the same footing.
Bentham was a radical and did not mind challenging conventional ideas about
morality and politics, but his view would have destroyed notions of altruism and
self-sacrifice, virtues such as courage, and elementary principles of morality such
as telling the truth for its own sake. It would also have put minority and individual
rights at risk, allowed the ends of any act to justify the means in an unqualified
way and, as John Stuart Mill pointed out, it gave no recognition to human dignity
or any spiritual quality in humanity. Mill believed that utilitarianism could accord
these important human characteristics their proper due, while still defining utility
in terms of pleasure. Mill argued that not all pleasures are on the same footing,
that some kinds of pleasuresthose requiring intellectare qualitatively better
than others.
It is already clear that there is a great deal of utilitarian thinking in the ways in
which business justifies itself ethically. Philosophical discussion, as noted earlier, is
present in world affairs. This is not at all surprising. Human goods are always at stake
in any moral practice. A theory that did not take account of them would be grossly
deficient. Our actions have consequences and it is part of being morally responsible
to include some appraisal of them in our assessment of conduct. If we could not
do so we would be at least partially blind to the morality of our acts. Business and
any other practical activity must pay attention to results, to remain viable and to
remain ethical.
Modern utilitarianism no longer deals in the somewhat crude measures of

pleasure and pain or of intrinsic and extrinsic goods. It is more likely to argue that
preferences are to be accommodated as fully as possible. This avoids making value
judgments about the interests of others as though there were an independent platform for morally appraising the world. If a business met the preferences of most of
those likely to be affected by its actionsthe stakeholderswithout disproportionately thwarting the preferences of others, then it should have a right to call its actions
ethical. After all, every day decisions have to be made in business that are not to the
advantage of all. To take care of the interests and preferences of most stakeholders
would clearly be the mark of an ethical enterprise for utilitarians.
So much of utilitarian theory seems common sense that it can be difficult to
see how rival accounts of morality have a place, but deontological ethics is also a
familiar moral outlook.
Nonconsequentialism
Consequentialism identifies the moral worth of conduct in terms of how well
that conduct produces some effect. In this respect, consequentialist reasons are
forward-looking. They look to the future (the expected consequences that would
result from the various actions open to an individual to perform) in order to determine what a person ought to do. In contrast to this, a nonconsequentialist moral
outlook is either backward-looking or present-looking. Nonconsequentialism is
often called deontology, from the Greek etymological root deon, meaning duty.
Nonconsequentialdeontologicalreasons look to the past or to the present.
According to a deontological outlook, an acts being morally right or wrong is due
to something other than its consequences. Perhaps, for example, the rightness of an
action depends on that action being a matter of keeping a promise that one made
(backward-looking). Perhaps the rightness depends on the fact that the other party
is a personal friend of yours (present-looking). Deontological ethics requires people
to do the right thing simply because it is the right thing to doregardless of the
consequences. What makes a thing right is something other than its consequences;
for the deontologist, consequences can never be an adequate ethical justification for
an act. The most famous deontologist was the great German philosopher Immanuel
Kant (17241804). Arguments for a deontological outlook (albeit a non-Kantian one)
have been advanced strongly by defenders of individual rights and liberties.16 Kants
view was that morality is a matter of doing ones duty, regardless of consequences,
and that duty itself is determined not by reference to consequences, but by reference
to consistency and the requirements of rationality.17 Consistency is certainly one of
the things expected from moral behaviour. If we do not lie to our friends and family,
are we being inconsistent and hence immoral if we lie to strangers? Is lying the
17
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operative notion here (Kant thought it was), in which case it is clearly a case of
being inconsistent, or should some moral weight be given to the fact that on one
occasion it is a friend who is the target, and on another occasion it is a stranger? If
we do not cheat our neighbours, then are we being inconsistent if we cheat people
from other cities, states or nations? Kant claimed a very tight connection between
morality and rationality and, in particular, logical consistency. He believed there
could be a science of morals just as there is a science of the physical world.
How is this possible? And if it is possible, how is it that people disagree about
morality in ways they do not disagree about physics or geology? Kant believed he
had developed an argument that answered these questions. He believed that a
science of morals is possible because humanity has the use of freedom and reason.
We can and should choose our own moralitythe subjective part of moralitybut
we have available an independent objective standard against which to measure our
subjective choices: the moral law. When we do any act, we act with an intention,
and our intention includes a maxim, a general principle. For example, if I intend
to give to charity there is in my intention an implicit maxim that one ought to give to
charity. That maxim may be tested against a standard of morality which Kant called
the categorical imperative, and which he formulated in a number of ways, the first
of which is Act only according to that maxim by which you can at the same time will
that it should become a universal law.18 This test is a thought experiment that involves
generalising an action: What would it be like if everyone behaved like this? Would it
be possible? Would it be desirable? For example, say it was my intention to lie for a
good cause. Could I universalise the maxim that it was justified to lie in a good cause?
Kant would say no, because my lying involves people believing that I am telling the
truth; generalising my intention to lie would undermine the very institution of telling
the truth. In other words, the inconsistency involved is destructive of the moral
institution on which lying depends. Suppose I am considering not helping someone
who is in need. Could I will that the maxim of not helping become a universal
law? Kant says I could not: I can imagine a world in which no one helped anyone
else. There is no logical inconsistency involved. But I cannot see it as desirable;
I could not will it. For one thing, I cannot but believe that occasionally I will need
help myself. And, of course, I will want help on those occasions. A universal law
of people not helping each other would be inconsistent with this. Kant produced a
second formulation of the categorical imperative, which perhaps is more familiar
and certainly very important: act so that you treat humanity, whether in your own
person or in that of another, always as an end and never as a means only.19 This
is sometimes expressed as respect for persons. This is a meaningful requirement
for business relationships, as well as for individual interpersonal relationships. In
business, it means that management and owners should not see employees simply
as human resources on the analogy of natural resources: they are first and foremost
people deserving of respect. The same would hold for customers, suppliers, creditors
and others involved in some way with the conduct of business. This should not be
seen as pious theory without the experience of real life to bring it back to earth. Kant
does not say that we should not use the abilities of others to make profits. He says
that in our dealings with others we must never treat them merely as means to our
ends. People should not be treated as objects or as mere instruments to be used to
achieve our goals. In all dealings with people, they must be treated as persons, and
accorded respect for their dignity as such.
Kants theory of duty is not about following an imposed list of duties (such as
might be found in the armed services), but about being autonomous and rational
agents who make choices for which they are responsible. Nor is it about achieving
certain satisfactory consequences. Kants theory effectively provides an intellectual
justification for the golden rule (treat others as you would wish to be treated). His
argument demands universality, consistency and reversibility. Treat all other people
justly without discrimination, just as you would have them treat you. The moral law
treats all people equally.
Considering only these two formulations of the categorical imperative,20 it is
clear that Kant has offered an important counter-consideration to consequentialist
theories of morality. Moreover, it fits in well with current views about rights and
unfair discrimination, such as sexism and racism. The notions of respect for persons
and the autonomy of moral agents have played prominent roles in moral reasoning
and moral theorising, and can illuminate an understanding of business conduct
without forcing a particular ethical theory on anyone. A requirement of maintaining
respect for persons can be expressed in a number of moral theories, albeit with
varying degrees of success.
Both consequentialist and deontological ethical theories are relevant to business.
It is necessary for business to make a profit in order to survive, but not at any cost.
And it is necessary for business to take into account interests and consequences other
than profit. There are necessary restrictions on what can be tradedcigarettes, alcohol, drugs and weapons, for exampleand there are necessary occupational health
and safety laws governing working conditions. We still call our markets free despite
these and other restrictions, such as anti-discrimination legislation, the prohibition
of child labour, and taxation. Utilitarian considerations are tempered by respect
for persons and their rights. It should be remembered that Adam Smith believed
that the pursuit of individual gain could occur only in an environment regulated
by ethics and social controls.21 It is arguable that business requires deontological
as well as utilitarian principles if it is to operate as more than a ruthless struggle for
wealth. There is a more positive way of putting this: business must respect rights and
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assume its appropriate duties if it is to meet the expectations of society and enjoy
the confidence of its stakeholders. Making a profit is not the only criterion by which
business is judged.
What duties does business have? It is easy to spell out a list of specific duties
such as not deceiving, being frank and fair with shareholders, treating colleagues
and employees justlywhich will save people thinking this question through, but
perhaps that is not the most desirable way in which to raise ethical awareness. Even
a succinct hierarchy of duties, such as that proposed by William Frankena, will be
better than a list of specific duties at revealing why it is important to reason ethically
in business. Frankenas hierarchy of duties is this: do no evil, prevent evil, remove
evil and do good.22 These duties, of course, are general in nature; they apply to
everyone. So how are they to be connected, if at all, with the conduct of business?
Within business, which of these four general duties apply, and when?
In one way it is easy to answer these questions and in another way it is very
difficult. It is easy to see that certain professions, as part of their practice, are obliged
to do things that others are not. If a medical practitioner sees someone knocked
down on the road, then she or he should render the kind of assistance that passers-by
cannot give and therefore cannot be obliged to give. If a social worker is as sure as
possible that a child is at risk in a family, then he or she might report the matter or
take personal action; but if inexperienced or self-righteous people took it into their
heads to act on their own views about what is good for children, they might do a
great deal of harm. There is in this case not only no duty to intervene, but also a duty
not to. In this type of situation it is significantly true that it is none of their business.
In our kind of society, no one demands that an individual should be a certain kind
of professional. But if anyone takes on a particular area of practice expertise, then
extra social obligations may follow. This is the easy answer, at least in the sense
that there are social expectations to be met. Exactly what sort is required of any
particular profession or professional, and whether anything is similarly required of
business per se, will have to remain as questions here.
The difficulty in applying this kind of reasoning to business is that the roles of
business people are not as obviously directed at social goods in the manner of the
professions. And yet this view seems to suggest that the creation of wealth, employment and a taxation base for the provision of social benefits such as education,
health, defence and welfare is not a legitimate social role. This is not the case at all;
the problem is that the boundaries of business are not as clearly defined as those of
the professions. And, according to classical economic theory, it is by paying attention to the success of its own enterprises that a business furthers the common good.
To abandon good business practice in order to satisfy the kinds of obligations that
are attached to medicine or social work would, it seems, be self-defeating.
Virtue ethics
Since the 1970s, there has been a revival of virtue ethics, a conception of ethics
that dates back to Aristotle. Virtue ethics stresses the kind of moral abilities that put
us in a position to act morally, whether after weighty deliberation or quick reaction.
This view of ethics focuses on the character of the person performing the action and
rejects the idea of dealing with moral problems by applying the correct theory, at least
in any mechanical or algorithmic way.23 Rather, it focuses on a persons response to
a moral problem as that of a moral person; that is, one with the requisite character.
Moral behaviour is seen in this way, rather than as a conscious and conscientious
application of moral theory to practical situations. One of the difficulties of the
applied theory view of ethics is time. Say there is no time to consider an ethically
important question. Is all ethical responsibility removed from people who do not
have time to make calculations of a utilitarian kind? Clearly this is not so. This was
recognised by John Stuart Mill, who defended utilitarianism from the charge that
its calculations were too complex to allow ready responses to moral problems by
referring to the many responses, which are, or can become, second nature to us.24
He might have been talking of virtue ethics.
In discussing moral reasoning, reference was made to a top-down approach.
Perhaps this can be seen as an analogue of the applied theory view. The applied
theory view is essentially outside-in. The theory is imposed from withoutfor
example, objective rules, duties, rights and constraints of utilityand applied as
appropriate. A virtue-ethics view sees the process more as inside-out. Moral behaviour should be the result of, and flow from, a persons character. This is not to say that
moral behaviour is only automatic or spontaneous. It can indeed involve difficult and
perplexing thinking and deliberation. But, on a virtue-ethics view, a persons character and the kind of person they are is integral to the way that person will perceive
ethical situations and the way they will think about ethical matters. Cultivation of an
ethical person, then, is very largely a matter of developing the right character.
It is commonlyand importantlysaid that in order for a corporate plan, a
mission statement or a code of ethics to work effectively, it must be owned by all the
members of the organisation; it must emanate from within, rather than be imposed
from without. And it must be part of the organisations soul, or character, rather than
something of an appendage. It is fair to say that the virtue-ethics concept of ethics
sees the relation of ethical behaviour to an individual in general in this way: ethics
is not just a matter of what people do; it is a matter of what people are.
As such, there are a couple of different ways in which we can conceive of virtue
ethics. One is a straightforward way, in which virtue is of value because it is effective
at leading to actions that are morally correct in terms of the consequentialist or
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deontological theory that one accepts. The other way places value in the virtues
themselves in terms other than those of being instrumental in doing what is morally
correct on consequentialist or deontological grounds. The first sees virtues as
valuable in terms of their being aids towards doing that which, on other grounds, is
morally desirable. The second sees virtues as valuable at least partly in terms of their
determining what is morally desirable.
It is important to see that, on the first conception of virtue ethics, it is only in a
limited sense that it is an alternative or in opposition to consequentialism and
deontology. Consequentialism and deontology are both views about what makes
right acts right. For the most part, virtue ethics is a view not about what makes right
acts right, but about how to go about achieving whatever it is that gives something
moral worth, whether it be the production of consequences of some kind or a
deontological feature of the situation. A virtue-ethics approach focuses on the qualities of the agent (or the organisation) as the target for development because it is the
qualities, or character, of the agent or the organisation itself that will result in the
morally correct behaviour, whether consequential or deontological. Or, simply put,
virtues are virtues for some reason, and depending on a persons moral outlook that
reason will be consequential or deontological (or a mixture of them).
The second conception of virtue ethics, which is perhaps more interesting but
also more problematic in terms both of theory and of practical application, can be
expressed as virtue is as virtue does, and virtue does as virtue is. According to this
concept of what determines the rightness or wrongness of an action, a particular act
will be the right act precisely because it is the act that a virtuous person will perform.
It is that which makes it the right act. It is not (simply) that a virtuous person will
perform right acts, which are right on independent (consequential or deontological)
grounds; it is rather that what a virtuous person does determines the rightness of that
behaviour. The fact that it is what a virtuous person would do is what makes it right.
Consider the suggestion this way: Mary is a virtuous person; honesty and
benevolence are two of her virtues. Her character is such that she acts honestly
and benevolently. Suppose that, on a particular occasion, if she tells the truth some
harm will result to the public, and if she is to provide for public welfare, she will
have to lie. On this occasion, it is impossible for her to both tell the truth and provide
for the public welfare. The situation is such that not only can she not both provide
for the public benefit and tell the truth, but it is also the case that either truth telling
or provision for the public benefit will have to be sacrificed on this occasion. What
should she do? On this account of virtue ethics, the question is whether, given the
situation, Mary could lie and still be an honest person; or whether she could avoid
providing for the public benefit and still be a benevolent person. It will depend on
the particular situation; and, very importantly, it will depend on the perception of the
situation by Mary herself. Given that her character really is honest and benevolent,
it is she who will determine (not simply discover) what is the morally correct thing
to do. The question will be whether, in this situation, she can lie and still be honest;
or whether she can fail to provide for the public welfare and still be benevolent. This
will be a matter not only of how she perceives the situation, but also how she would
perceive herself. At least partly, it will be a matter of whether she could fail to provide
for the public welfare and still perceive herself as benevolent. It would be incorrect
to describe the situation as one in which either honesty or benevolence must be
sacrificed. It is, rather, a situation in which the issue is what honesty and benevolence
require. After all, for instance, to tell the truth in a situation where catastrophic
effects would result would not exemplify honesty; it would be fanaticism. Such a
case is an exception which proves the rule (that is what this phrase means).25 It is
not honesty that gives way; rather, lying in this situation is consistent with being an
honest personit is an exception. In this situation, the person is no less honest for
failing to tell the truth.
Many problems are resolved using characteristic modes of behaviour, not as
conditioned responses but as a kind of shorthand or use of rules of thumb. We see
this in everyday tasks all the time. It is true also of morality. Often it is the case that
even when we do deliberate over a moral difficulty we still make our decision not
according to a moral algorithm, but according to our character. Further, our character goes a long way towards determining even how we perceive the problem.
Some of these points about virtue ethics may be illustrated through the story of
the Roman general Regulus. Captured by the Carthaginians, he was sent back to
Rome under oath to exchange himself for certain noble prisoners of war held there.
If he did not succeed, he was to return to Carthage and face death. Once in Rome,
Regulus persuaded the Senate that it would not be in the interests of Rome to return
these brave young warriors to their commands in exchange for the life of an ageing
general. So, in the face of his love for family and country, Regulus kept his oath and
returned to Carthage to face death by torture. For him, keeping his word was an
integral part of the character that made him the person he was. If he had broken his
oath because of the commonplace, but for him narrow, conception of self-interest,
he could not have lived with his shame.26 He would have sacrificed an integral part
of his character: he would have lost his integrity.
Virtue ethics stresses the kind of moral abilities that put us in a position to act
morally, whether after weighty deliberation or as a quick reaction. Both kinds of
conduct are regarded as meritoriousor not. Both kinds of conduct are behaviour
for which we are responsible. Consequentialism and nonconsequentialism are both
centrally concerned with the question What should I do? Different views in each
of these camps propose different answers and different principles for deciding
the answer to this question in any particular situation. A utilitarian, for instance,
would propose utilitarianism as the general principle for deciding what to do; and
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the questions would be What specific action in this specific circumstance does
utilitarianism require? What action will maximise utility? Virtue ethics (explained
above as the second conception of virtue ethics) is not centrally concerned with
What should I do?, but rather with the question What kind of person should I be?
It is centrally concerned with what virtues there are; and what a virtuous human
being is like (what virtues that person will possess). Suppose, among other things,
I should be courageous. Questions, then, for applied ethics will be around what
is involved in being courageous (as something we might try to emulate and, one
hopes, develop in oneself), what can lead to ones developing the virtue of courage
as part of who they are, and what actions might a courageous person perform. Then
we try to apply this to particular circumstances.
Relativism
As with our discussion of virtue ethics, where it was important to see that for the
most part virtue ethics is addressing a question different from that addressed by
consequentialism and deontology as moral outlooks, so it is important to appreciate the location of relativism on the moral map. Moral relativism does not stand
opposed to any of those moral outlooks. It, too, is suggested (by those who advocate
it) as an answer to a different question. As well, relativism is concerned with a matter
different from that with which virtue ethics is concerned.
Moral relativism is a view according to which moral values are relative to a
particular environment. Particular moral values are not universal and they are not
absolute; for example, When in Rome, do as the Romans do, because in Rome and
according to Romans, who are the correct moral judges for behaviour in Rome, that
is the morally correct thing to do. Moral truths are relative. Perhaps this means that
moral values differ from culture to culture, from society to society, from one time to
another or, in the extreme, from one person to another. And perhaps it means that
any individual ought to behave in the manner seen to be moral within the environment in which they are operating (when doing business in Rome, then , and when
doing business in Japan, then ). Or, when operating as a private individual, there
are certain requirements, and those requirements are different from those that are
present when a person operates as an official, an employer or an employee.
It is important to see that moral relativism does not stand as an alternative to
utilitarianism and deontology. Moral relativism is, rather, a view about the domain
over which any moral position (for example, utilitarianism) ranges. In this country,
theres a moral duty to tell the truth. This claim does not invoke a position other than
deontology; it identifies the domain relative to which a particular duty is present.
Relativism stands in opposition to absolutism, a view according to which there is
only one universally correct moral position.
Relativism need not stand as a barrier to conversation between various perspectives and environments. A commitment to moral relativism should not prevent a
person from being converted from one (relativistic) perspective to another (relativistic) perspective, and adopting it. We can allow the possibility of moral pluralism
(more than one moral view, all of which are equally correct), while still insisting
that there can be fruitful moral discussion, argument and conversion from one moral
view to another.
There is a considerable philosophical literature on moral relativism that we
cannot go into here.27 Nevertheless, it is important to clear up some of the confusions
that arise because people quite rightly believe in tolerating cultural difference and
imagine that this toleration commits them to a position of indifference on ethical
principles. These confusions are descriptive and normative. The descriptive component is this: there is no reason to assume on the basis of present experience that,
say, a universal ethics could not exist. For example, before the British settled in
Australia, it was assumed in England that all swans were white. Further experience
showed this to be false. The normative fallacy is this: ethics is a prescriptive matter,
and to assume on the practice of many cultures that what is practised should be
practised is a fallacious move from what is the case to what ought to be the case. The
practical effect of this conceptual point may be illustrated by way of womens rights.
The fact that women were not given equal career opportunities with men was used
to deny them those opportunities; what was the case was used to argue that there
should be no change.
However, it does not follow that, because there are a variety of moral rules, there
are no fundamental principles. From two different perspectives, Marcus Singer
and John Finnis have argued that universal principles and goods can generate a
variety of rules.28 Thus a moral pluralism in the cultural sense could be grounded
on commonly shared universal principles. The general argument is that although
specific rules might differ from culture to culture, they are nevertheless grounded
in the same overarching principles. We cannot take up the philosophical argument
here, but it is important to signal that the argument is two-sided, and that simplistic
notions of moral relativism derived from cultural difference should not be used as
an evasion of ethical reasoning, which requires justification and the other features
noted earlier.
Relativism in business is most often discussed in terms of foreign trade or the
conduct of operations in foreign states. Usually the argument comes to this: in
country X you cannot do business by our rules. You have to realise that they have
different expectations, and that the only way to deal satisfactorily with them is to
play by their rules. What this kind of justification often amounts to is not respect
for a host culture, but excuses for inducements, secret commissions and bribes.
If a person respects the religious and cultural conventions of a country that does
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not permit the consumption of alcohol, then excuses are not necessary. Genuine
respect is almost self-explanatory.29 But the payment of inducements is anything
but self-explanatory; it requires excuses. What if everyone agrees that bribes are
necessary to do deals? This was very much the case in the early European settlement
of Australia when convicts were unlikely even to unload much-needed food unless
they were persuaded with a measure of rum. In the Soviet Union, vodka was a similar
kind of currency. Yet in neither case were bribes of alcohol recognised as legitimate.
On the contrary, they were signs of a corrupt system generally.
A business is obliged to operate in a manner acceptable to the host country, both
legally and morally. To claim the mantle of cultural difference to justify secret commissions is akin to racism. All kinds of demands are made on Australian businesses
in order to secure unjustified benefits. When AWB offered secret commissions
bribesto Saddam Husseins regime in Iraq in order to sell Australian wheat there,
who could think that this could be made acceptable by reference to cultural or moral
relativism? When questionable pressures are placed on firms operating overseas,
they must deal with them in the same way that they would handle similar pressures
at home. Part, but only part, of what they should ask themselves is whether the
person (or firm) putting on the pressure believes that there is no moral impropriety
in what they are doing. Other central questions they should ask themselves are these:
Would the government and public of the host country countenance this kind of
pressure? Would our shareholders welcome disclosure of our conduct and approve
of us acceding to this pressure? Would we welcome disclosure to the Australian
government and public of secret commissions or other favours?
In other words, if you would not be ashamed to declare your actions to the world,
you have probably not done anything that stands in need of an excuse. Cultural and
moral relativity do not come into it. In fact, the normal hospitality and gift-giving that
is part of business needs no excuses or appeals to relativism. When the gifts become
more substantialsuch as trips to Fiji, or computers, or carsthen it is wise for a
company to draft policies and procedures that are made known to clients and staff
so that there is no room for misunderstanding. Again, this is common sense and
does not necessitate reference to, or a special position for, relativism. Relativism is
not synonymous with ignore your own moral values. If anything, it is a requirement
to recognise the legitimacy of moral views other than the one relative to you. It is not
obviously a directive for you to become a moral chameleon.
Testimony to this is the United States Foreign Corrupt Practices Act of 1977.
This law makes it illegal for any American citizen or resident to bribe or induce
any foreign official or candidate for office to act corruptly to further the business
interests of that person. This Act was passed into law relatively quickly over the
objections of business leaders, who asserted that payments were often extorted by
foreign officials rather than offered as bribes, and that the government should not
intervene to prevent managers obtaining the best returns for their shareholders.30
In the light of such objections, it is not surprising that Congress passed the Foreign
Corrupt Practices Act into law so promptly.

More often than not (and some would argue that this is the entire domain31), ethical
considerations function as a constraint on what one may do. They function as a
constraint on pursuing ones own interest. For example, suppose that I am thinking
about performing some particular act, because it will benefit me. I then recognise
that doing this act would not be fair to the recipient of the act. Ethical considerations
say not to do it. The reason any thoughts about ethics arose at all was, basically, in
response to my asking myself whether or not it would be okay to pursue my interest
in this situation. Ethical considerations constrain what I might otherwise do in the
name of advancing my interest. Moral philosophers often contrast ethical reasons
with prudential reasons. Prudence means looking after your own interests well.
For most of us, the reason we think we should visit the dentist regularly has nothing
to do with ethics, but rather is a matter of looking after our own individual wellbeing. We are being prudent. There is a should here (a prescription), but it is not a
moral should; it is, rather, a prudential should. The claim that moral considerations
function as a constraint on the pursuit of self-interest, then, is a claim that moral
considerations can conflict with prudential ones. It is a claim that in thinking about
ethics, regard for interests other than ones own should come into the mix. How
and when this is soand whether there must be a conflict between thesewill be
a discussion point throughout this book (see, for example, the discussion of good
ethics is good business).
In talking about ethical considerations as a constraint, and then in talking about
our trying to apply consideration of rules, outcomes and more to our deliberations
about ethical decisions and ethical actions, this points to the central question of
what ethical thinking is all about, viz. it is geared to answering the question What
should I do? It is a species of what is called practical reasoning; that is, reasoning
for the purpose of action, reasoning for the purpose of doing something. With the
discussion of ethical characteristics, or traits, notice that the focus is not on What
should I do?, but rather on What kind of person should I be? In this way of seeing
the ethical landscape, the practical question becomes What could I do to develop
these characteristics in myself?
These are important distinctions in philosophical discussions and analyses of the
whole area of ethical inquiry. But they are also important in thinking about ethics
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within any organisation. People encounter ethical issues, and they have to decide
what to do. An organisation itself can offer important assistance in peoples making
ethically justifiable decisions, not only by providing instruments (for example,
ethical decision-making models) and rules, but also by establishing a culture that
encourages ethical behaviour. Its culture can very much affect not only what it as an
organisation does, but also what its employees do. That is, the kind of organisation
that it is goes a long way towards determining what kind of actions it and its
employees perform. This is an important connection between looking at ethics as
a matter of What should I do? and looking at ethics as a matter of What kind of
person (or organisation) should I be? We will return to this distinction later.
The concern in talking about business ethics in not only to talk about business,
but also to talk about moral reasoning within business. Particularly, with regard to
moral reasoning and behaviour within business, it is worth spending some time
talking about the point of it all. Systematic, organisational attention can be directed
at improving ethical performance and moral judgment. Within business, there are,
roughly speaking, four targets. Attention can be focused on each of (roughly) four
requisite areas involved in reaching justifiable ethical decisions.
Avoidance of moral negligence

Moral negligence amounts to a failure to consider something that one should
consider. Maybe this is because of lack of awareness. For the purposes here, you
dont need to know anything about the legal situation, but lets consider this on the
model of legal negligence: Suppose you are doing some construction work, and
you manage to create a pothole in the footpath. You do not notice the damage you
cause, and so do not do anything to warn pedestrians of its existence. A passer-by
stumbles in the pothole and injures themself. They could sue you for negligence.
You should have been aware of the danger, but you were not; and you should have
warned pedestrians of it, but you didnt. As a result, they were injured. You were
negligent in not warning them.
Avoidance of moral recklessness

This amounts to a failure to give adequate consideration to something: dealing with
it in too hasty a fashion, not paying enough attention, or not particularly caring to
get it right. Thinking again of the pothole, imagine that you recognised that you had
created this danger, and you thought you could manage it by just posting a general,
cover-all-contingencies, sign that said something like, Beware of possible dangers
and inconveniences caused by our construction. Again, you can imagine that a
passer-by stumbled in the pothole and injured themself. They could sue. Legally,
this would still be negligence, but we can appreciate a difference in the two cases.
In this case, you did, in fact, realise the danger, but your way of dealing with it was
not adequate; it was too cavalier.
As a step towards addressing these dangers of moral negligence and moral
recklessness, a number of organisations have used or developed their own ethical
decision-making models.32 An ethical decision-making model is a set of systematically organised trigger questions, Have you thought about this? Have you thought
about that? Have you considered these values? These instruments are for the
purpose of assisting the decision-maker in navigating through something that they
have perceived to be an ethical issue.
Most ethical decision-making models take into account the different perspectives
that anyone in an organisation must be aware of in dealing with ethical issues. Aside
from appreciating the conflicts between concern for ethical rules and concern for
ethical outcomes, they typically also recognise that the ethical requirements of the
particular organisationand the ethical requirements of being in an organisation
per semight not be identical with peoples own individual ethical outlooks. There
are, in fact, nearly certain to be conflicts in this context. In any such case, one should
certainly be aware of the conflicts that are present; and must make up their mind
accordingly. In facing an ethical issue as an individual, sometimes it will be appreciated that the requirements from within the organisation should take precedence
over ones own individual view; and sometimes it will be the other way around.
In any case, among the points called to attention by an ethical decision-making
model should be the possibility of this tension. And, the ethical decision-making
model should make it clear that whatever decision is ultimately reached, it will be
the reasoner as an individual who reaches that decision. It will be the individuals
responsibility. It will be their judgment that is at issue. Perhaps the decision will
be to defer to the ethical perspective of the organisation; perhaps it will be to
buck the organisations perspective in favour of that of the individual. Whatever
ethical conclusion is reached, it is important to appreciate that it is the reasoner
as an individual who must make it, and that it is the reasoner as an individual who
must bear the responsibility for it. This is an important point in recognising the
complexities involved in conflicts between public and private morality.33
Avoidance of moral blindness

This amounts to a failure to see that there is an issue at all. A person might be looking
in exactly the right place, but simply does not see that there is a moral feature or
issue at all. By way of analogy, consider the pothole once again. Suppose that when
you created this, you did, in fact, notice that it was there. But, say, you just figured
that its each persons own lookout to determine whether or not they get tripped up
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and possibly injured by it. Here, you were neither negligent nor recklessyou did
not fail to realise that it was there as a danger, and you did not fail to take care of
it adequately. Rather, you were aware of it; you just didnt see it as of any concern
for you. (Again, as far as the law goes, this is negligence. But, for our discussion,
it is helpful to see it as blindness.) As a remedy for this failure, ethical decisionmaking models do not go very far. They can possibly do something; but they cannot
go very farfor two reasons: (1) A person will only ever think of using an ethical
decision-making model if they perceive there to be an ethical issue to reason about.
If one is blind to the ethical dimension of a problem, then one would not consult
an ethical decision-making model at all, and so would get no benefit from it. (2) A
person might stare at an ethical consideration all day long, and simply not get it.
They are not negligent or reckless, in that they did, in fact, focus on the relevant
consideration (it did not escape their attention), but when they did think about it,
they were absolutely blind in their comprehension or appreciation.34
Cultivation and exhibition of moral competence

This is difficult. Partly, this is the cure for moral blindness. Partly, it is not a cure for
anything. It is the requirement for engaging in moral recognition, reasoning and
decision-making well. It involves developing adequate preparation, sensitivity, awareness, knowledge and conceptual apparatus to deal with ethical issues. It is precisely
in this area where exercise of judgment is concerned. This is dealing in areas where
situations are not black and white, and where judgments are better or worse not
because they are correct or incorrect, but because their justifications paint more
attractive pictures or tell more attractive stories. They are better or worse because
they reveal a more understanding and sympathetic appreciation for the situations
that they are judging; not because they are truer or more correct. Judgments in these
situations, and the explanations that one offers, will show an understanding of the
situation and its ethical elements, and will involve facility with appropriate moral
principles and values. The involvement of principles will not be merely as a recitation of those values and values statements, but will also reveal an understanding of
them and a facility in their application. These are the characteristics that are integral
to moral competence. Encouraging, cultivating and maintaining them throughout an
organisation are at the core of the creation and maintenance of an organisational
culture that promotes and supports ethical excellence.
The categories moral negligence, moral recklessness and moral blindness
are not technical, and they are not particularly precise. Still they can be helpful for
recognising and appreciating moral failures, or at least failures to deal with ethical
situations or issues satisfactorily. Recognising inadequacies is most usually a critical
step for rectifying them.
Business
Business could be called the worlds oldest profession. Since the beginning of
organised society the buying and selling of goods and services have been important
means of encouraging the production and distribution of social necessities. Because
of the importance of individual initiative and competition in these processes, those
who confer mythical powers on the market may overlook the social purpose of
business. As with the mythical heroes of legend, great honour has been bestowed on
entrepreneurs and their deeds, and the vocabulary of battle and chase has dramatised
the mundane affairs of exchange. Of course, if business were like war, no society
would or could tolerate it. Business exists not because it suits certain individuals, but
because it serves society, and meets collective and individual needs.
This is not, of course, how business is usually presented. The traditional view is that
the true market system is essentially free. Adam Smiths view that individual preferences combine to produce order from self-interest is no doubt comforting to rampant
individualists, but implicit in all legitimate business transactions is a social licence.35
Free markets are a matter of choice, and from time to time societiesor, more
usually, governmentshave chosen to dispense with them and work through
command mechanisms. Although command economies might not have been very
successful, they retain a strong attraction for many people. Therefore, business in
market economies needs to be mindful that it enjoys its position because society
believes that the benefits of the system outweigh the costs. This is even more true
of modern societies because of the dominant role in them of corporations and the
privileges, such as tax concessions and limited liability, which they enjoy.
Imagine that you are the distributor of a leading brand of desktop computers. You
are expecting a big fall in price on your new top-line model in the next quarter, but
you have a lot of old stock on hand. As news of the lower price on the more powerful model has not become public, you can continue selling its predecessor without
discounting the price. If word were to get out, people would defer their purchases until
the more powerful and competitively priced model came on the market, so you warn
your staff to be very careful with such sensitive commercial information. One of your
staff comes to see you to question this policy. He argues that it is taking advantage of
people to deny them access to information that will allow them to make a proper purchasing decision. What about your moral duty to the community? he asks. Your sales
manager replies that there is a difference between concealing and not revealing. I am
not at the moment revealing to you the theory of relativity, but I am hardly concealing
it from you, she tells him. There is no ethical issue here. Which of them is right?
Take another case. You are selling a house you have come to dislike. When a
buyer comes to inspect it you say nothing about its defects. The buyer makes no
inquiries and seems perfectly happy to buy it as it is. Your sister cannot believe that
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the buyer has not found out about the problems of the house and asks how you can
sell a house you know to be defective. If you did that in your shop you wouldnt have
any customers and the Trade Practices Commission would be after you, she says. If
its wrong to sell faulty merchandise, why isnt it wrong to sell a faulty house? Your
brother has a different view. Caveat emptor, he says. Let the buyer beware. No one
can expect the vendor to do the buyers job as well. While you have not disclosed
the defects of the house, you have not concealed them. It is the buyers responsibility
to make the appropriate investigations before the purchase. Who is more correct
here: your sister or your brother?
One response to these questions is that silence per se is not concealment.
Concealment lies in seeking your profit by keeping from others information in which
they have an interest.36 Unfortunately, such a definition of concealment does not
help us resolve the issues in these cases. At an auction buyers conceal the very thing
that it is in the interest of other parties to know, namely the figure they are prepared
to pay. Similarly, sellers at auction conceal the amount they are prepared to accept.
Concealment is a more complex matter than simply calculating who profits from it.
While we have become used to the notion that certain acts are intrinsically
wrong, the attempt to catalogue these for easy reference is shown in these cases to
be flawed. It is not concealment per se which is wrong, but preventing others from
making an informed contract. Quite simply, it is dealing with others on terms that
are deliberately set up to disadvantage them. The vice of dishonesty is the thing to
discern here, not the relatively simple matter of concealment, which in the case of a
surprise party may be a necessary means to the realisation of a good. These cases
stop one or two steps before fraud, and so are particularly interesting. Falling short
of open fraud makes them morally debatable, thus revealing that something more
than a simple moral algorithm is required to resolve them.
There would seem to be a prima facie case for some social responsibility on
the part of business, and it might be assumed that debate would focus on the
extent of that responsibility. But this is not how some writers see it. And it is in this
disagreement that fundamental problems of business ethics arise. The standard
non-interventionist position was once held by Peter Drucker.37 He put the case with
classic simplicity: society sets the ground rules for business, and business has no
other duty than to follow those rules in pursuing its interests. It is not for business to
usurp the democratic processes of public policy-making by taking decisions on the
spurious grounds of social responsibility. Business ethics is a matter of observing the
law of the land and acting fairly. It is not a matter of individual managers or boards
assuming responsibilities foisted on them by people who believe that business
should pick up the tab for schemes of social improvement.
Milton Friedman argued for an even stronger directive: not only does business
not have a duty to have an eye towards social responsibility; business has a positive
duty not to have an eye in that direction.38 Friedman argued that the notion of social
responsibility in business is objectionable. Managers and directors owe a fiduciary
duty to shareholders, not to society or putative stakeholders. We elect legislators to
make policy in democracies: for non-elected officials to do so violates the democratic mandate, and allows the injection of private decisions, values and priorities
into public life. A legislator has to consider the reactions of many parts of society,
and seldom has the luxury of indulging personal whims, preferences or values. By
contrast, people of conscience (those who would include social responsibility as
part of their job descriptions) have no constituency to answer to: they are defending their personal integrity, which, ironically, is responsible not to society but to
themselves as individuals. This may be individually satisfying but it is not, according
to Friedman, socially justifiable. It is not mandated, and it is not democratic. There
are two things here then: the first is the questionable fairness of placing the burden
of social responsibility on individuals; the second is the wisdom of placing it on
groups or organisations whose continuing benefits are important to society. In any
case, the notion of social responsibility is hardly trouble-free. In a liberal society, the
question immediately arises, Responsible to whom? While many accept that they
belong to a society, this loose sense of belonging is at the very least questionable.
Liberal societies are nowadays more legal communities than moral ones, and this
makes public accountability in matters of ethics rather tricky.
The work of philosopher Jonathan Dancy suggests an interesting way in which the
question of business accountability might be conceived. He distinguishes between
values and moral reasons that apply to everyone generally, and those that apply
specifically to certain persons or to persons in certain situations. He illustrates the
distinction in the following way. Imagine that you install a phone in your home that
will give different rings for different members of the family. In addition to the usual
phone number and ringing tone for the common family number, members each
have their own number that gives a distinctive ring when their numbers are dialled.
All the rings are audible to all the family, but unless the general number is dialled,
only the person whose distinctive tone rings feels called to answer it. Others may
answer it, just as they might answer an absent colleagues phone in the office, but
there is not the same obligation or the same call to do so as when a persons own
number rings. If someone is able to take a call and a message for another member
of the family, well and good, but if that person is busy or resting, they might prefer
to let the caller ring back. People do not feel called in quite the same way as if their
own ring or the general ring were sounded.39
This is how it is in ethics. The fact that there are personal calls directed to us does
not mean that ethics is subjective. On the contrary, for much of the time others can
hear our number ringing and may wonder why we do not answer it. Should we, in
business, answer the call when it is the general number that is ringing? Should we,
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in business, pick up a call for someone else when they are not answering? In the
following chapters we identify some of the distinctive moral calls to which business
should respond. We can be sure that, if business ignores these calls directed
specifically to it, then others will decide to answer them to stop the phone ringing.
And they might well be hostile to business for having to do so. It would at the very
least be prudential, then, for business to heed well the call of ethics.
Moral pluralism
Recently, a number of writers on ethics and ethical theory have seriously discussed
and advocated moral pluralism.40 There are different types of moral pluralism, and
different writers have suggested different approaches. The general idea, however, is
that there is no single moral theory or principle that should be accepted as preferable
to others. Rather, there are different, diverse and even mutually inconsistent ethical
positions that should be recognised, and there is not necessarily any single moral
principle or set of principles that everyone should accept, either because they are
true or because they are preferable in some other respect. Earlier, in Figure 1.1 and
explanation of different types of moral considerations and different legitimate moral
perspectives, we were indicating that pluralism of some kind or other is, in fact, the
moral stance that most people adopt. Although similar in a number of respects,
moral pluralism is not the same thing as moral relativism, which, as we have been
discussing, claims that moral correctness is relative to time, place and people. Moral
pluralism is not making a claim about relativities.
Good ethics is good business

Shortly after the publication of the first edition of this text, an article by Geoffrey Barker
appeared in the Australian Financial Review Magazine that was partly a review of the
book and partly an article on business ethics generally.41 Barker understood the first
edition to be largely neglecting the possibility that self-interested motives could, in
fact, produce ethical behaviour, and that often good ethics can simply be a matter
of good business sense.42 In this respect, Barker was accusing us of unnecessarily
taking the moral high ground in the analysis of any moral problem, while neglecting
that good business sense can often coincide with ethical requirements and that, in
many cases, even where the motives would be considerably different, the outcome
is the samenamely, ethical business practice. Barker was urging that, in this
context, we should not be so critical of self-interested motives. Barkers concern is
an important one. There can be no denying that many apparent ethical problems
can be viewed as problems of good business management, sans ethics. But this is
not the case with all ethical problems.
We should consider this a bit further.43 The phrase good ethics is good business
has received much discussion. Some have suggested that there is nothing peculiar
about the issue of ethics in business, arguing that good business decisions as business
decisions will, as a matter of course, be ethical, and will certainly not be unethical.44
That is, some have suggested that there is nothing additional to infuse into good
business decisions in order to make them ethicalthat a concern to do the ethically
right thing need not be a constraint upon business decisions. In this respect, they
have suggested, good ethics is good for the bottom line. There is nothing special
about good ethics: ethically sound decisions will be sound business decisions; the
two coincide.45 We can call this the Hobbesian view: the basis and sole concern of
ethics is self-interest.46
At the other extreme, some have suggested that if all we are talking about is
good business management, then we are not talking about ethics at all.47 This group
would suggest that it is not possible for good ethics to be good business. Rather,
ethical behaviour functions as a limit or a constraint on, or a correction to, what
business may do as business. Ethics and business naturally stand in opposition to
each other. Further, decisions made for the sake of sound business management
are not, properly speaking, ethical, even when they happen to coincide with ethical
requirements. Ethical decisions are, properly speaking, ethical only when they are
made in the context of their being in conflict with advantageous business decisions.
It is this awareness that, in fact, makes the decision an ethical one. Perhaps we
can call this the Kantian view: to be an ethical decision, it must be made in the
awareness of its conflict with self-interest.48
It is worth considering further the scope of arguments that good ethics is good
business. Much of the discussion of this topic has seen the question too much in
terms of polarisation: either good ethics is directly and immediately good business or
else good ethics is not good business. Among other things, this view is too simplistic.
Ethical behaviour can be related in a number of ways to furthering self-interest.
Possible relationships between ethical behaviour and the bottom line are actually
more varied than simply the two extremes of being immediately connected or not
being connected at all.
At least for a while, we will ignore the suggestion that ethical decisions can
occur only in matters of personal conflict, and that ethical decisions must reflect a
decision to forgo enhancing the bottom line (Kants position). Consider these five
possible connections between ethical behaviour and the promotion of a businesss
self-interest.
1. Straightforward or simple coincidence

In some cases, doing the ethical thing (or avoiding the unethical thing) is actually
the best course of action with respect to self-interest. There is a straightforward
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coincidence between ethical behaviour and the enhancement of ones interest; the
two go hand in hand. For example, the stockholders will read about your activity
in the newspaper, and your companys share prices will rise or fall accordingly.
People do not want to do business with perceived immoral operators. Or, as Paul
Simons has suggested, ethical decision-making will coincide with decisions that
are straightforwardly good business decisionsdecisions that are straightforwardly
good in enhancing the bottom line.49 Sometimes the enhancement is not immediate
or short-term, but rather produces long-term benefits that are, all things considered,
the best for the business. Here, one need not have an eye on ethical requirements
for any reason other than their direct relationship to good business sense. It is not
difficult to think of examples here. For instance, think about the business value of
ones reputation for qualities like honesty, integrity and conscientiousness. Here,
then, are cases of a straightforward coincidence, a clear and direct connection
between good ethics and good business.
2. Self-preservation via socially created, institutional coincidence

Sometimes, doing the ethical thing will be the best thing to do for the sake of selfinterest, but not because the ethical thing straightforwardly coincides with the best
business decision. Rathergiven the communitys or societys interest in avoiding
certain kinds of business conduct (or, more exceptionally, in fostering certain kinds
of conduct)if the business itself does not regulate its behaviour accordingly, then
either the business itself or a particular mode of business activity will be made the
subject of external regulation or will fall foul of already existing external regulation.
Perhaps the simplest and grossest illustration of such conduct derives from a consideration of laws that do not apply exclusively to a particular area of business conduct.
Usually it is in businesss self-interest not to engage in fraudor at least society has
tried to enact legislation so that it will be against businesss self-interest to behave
in this way. The risks to self-interest and the penalties for so behaving are enough to
outweigh the potential benefits of fraud. Therefore, it makes straightforwardly good
business sense not to be unethical in this regard. A business person does not need
to have an eye specifically on ethics here; it is enough to have an eye on what is
likely to be good (or bad) for business. Business also recognises that, with respect
to some of societys concerns about regulation and ethical behaviour, business itself
is presented with two alternatives: either regulate its own conduct in a certain area
(that is, make sure that it reaches some standard of ethical acceptability) or else
have that conduct regulated from without. And usually, from the perspective of
self-interest, business finds it more appealing to behave ethically or to impose ethical
requirements on itself than to have such requirements imposed from without. It is
better for businesss bottom line this way. Notice that the coincidence here is not a
straightforward one. Rather, society has engineered this coincidence. Aside from
specific laws, think, for instance, of the position of the Independent Commission
Against Corruption (ICAC),50 requirements that businesses have codes of ethics and
the like, and, in the United States, the existence of the Federal Sentencing Guidelines,
which take into account the ethical environment in which a breach was committed.
Perhaps it is the case that society in general, although not business in particular,
does have its eye on ethical behaviour per se, and it is because of this that good
business sense in this area will produce ethical conduct. Nevertheless, from the
perspective of the business person, situations like this require focus only on selfinterest to appreciate that behaving ethically will be beneficial.
3. A little effort
In some situations, it can be in a businesss self-interest to do the ethical thing, but
only if it does more than simply do the ethical thing. For example, if the business
publicises having done something with moral merit, it can get some bottom-line
mileage out of its action. Chrysler Motors set up a car buyers bill of rights, articulating the guaranteed quality of its products and the guaranteed performance of the
company in certain areas. It also set up a formal consumer protection tribunal to
insure that performance was up to scratch; if it was not, the tribunal was empowered
to impose sanctions on the company.51 (This was ethically commendable performance.) By itself, establishing such a tribunal might or might not (and probably would
not) have enhanced the companys bottom line. However, Chrysler used this ethical
performance as the basis of an advertising campaign explaining why people should
do business with them. And this was good for business. It was not the ethical behaviour by itself that accomplished this. It was, rather, the extra effort made by the
company in publicising that behaviour. Here, too, it is not difficult to come up with
more examples: Saturn motor cars in the USA, with their hassle-free showrooms and
non-negotiable car prices, are committed to this as their marketing strategy (not to
mention the fact that they publicise their environmentally- and employee-friendly
factory). The Body Shop, and its promotion of its practice of not selling products that
have been tested on animals, is a particularly well-known example.52
4. Lateral thinking or augmentation

Doing the ethical thing can be augmented (or protected) so that it serves the
businesss self-interest. However, without this augmentation, it is not clear that this
would be so; indeed, it would appear not to be so. For example, a building company
that had established a reputation for quoting accurately and completing its jobs on
time found that its competitors were understating both time and costsand winning
contracts away from this company. The competitors quotes were initially lower than
this company could honestly offer. But then, within legally acceptable parameters, the
construction times and costs of the competitors would increase once the jobs were
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under way. This, of course, had been anticipated by those competitors. To protect its
virtues of honesty and integrity (to protect its ethical behaviour) in this atmosphere,
the company decided to offer a bond along with its quotes. The company said to its
clients, If we fail to deliver in terms of time and costs, the bond is forfeit. All we ask
is that you ask our competitors to do the same.53 The result was that the company
successfully protected its moral behaviour and, with the augmentation of that ethical
behaviour, turned its virtues into a benefit for the companys bottom line. This differs
from position 3 in that something extra is required here in order to prevent the
ethical behaviour from actually being detrimental to self-interest. Here it is a matter
of engineering protection for the ethical behaviour (creating a situation in which
the ethical behaviour will, in fact, be good for business), not merely publicising its
existence. In position 3, it is the ethical behaviour itself that can be promoted in
such a way that it serves self-interest. In this case, however, it is not only a matter of
promotion; it is also a matter of augmentation or protection.
5. Good for the practice

Ethical behaviour might be opposed to self-interest in the short term, while nevertheless enhancing the practice of business. The result is that, eventually, generically, it
serves self-interest. Ethical behaviour can help to define or redefine what the practice
of business (or a particular business) is aboutperhaps by redefining the playing
field. This can inform the argument that business should be more professional, for
instance. This point is of vital importance in discussing the ethical constraints on,
and goals of, business,54 but it should not be confused with an aspect of position
1 above: that ethical behaviour does not produce an enhanced bottom line in the
short term, but does enhance the bottom line in the long term (as in, for instance,
short-term and long-term investments). The point here is rather more complex, and
contentious: it involves a change in the practice as well as in perceptions of what the
practice is about. Simply, changing the character of the practice from one thing to
another (for example, changing it to a profession) creates an environment in which
business can enjoy the benefits of that new status.
One argument for the creation of the profession of business is that if the practice
of business is re-defined, then ethical behaviour must be regarded as benefiting selfinterest (at least in certain areas). Ethical behaviour and self-interest will coincide,
although not in the simple way suggested in position 1.
Perhaps part of what becomes redefined here is the very notion of self-interest,
as well as the type of person or business practice that we are. Somewhere in this
process, options for unethical behaviour can simply disappear. They do not occur to
the practitioners of the practice; they are not consistent with what the practice is (or
has become). Consider the following analogy. Angela is honest (perhaps to a fault).
When put in a position in which some people might lie, she will not even consider
whether she wants to lie (or whether it could be in her interest to lie). Rather, given
the type of person she is, lying is not one of the options available to her. Telling
the truth (or not) is not seen, or appreciated, by Angela as negotiable. In the same
way, becoming a different type of practicewith its attendant outlook and potential
benefitscan produce a different ethical environment, a difference in character
and greater benefits in terms of self-interest. Just as some people are more ethical,
it can be argued that some types of practice are inherently more ethical. This point
is contentious, and we note it merely for your consideration. Much of what we try to
illustrate throughout the book is based on professionalising business conduct.
6. Not good at all

This is the polar opposite of position 1: in this type of case, there is no coincidence
whatsoever between good business and good ethics. In such cases, doing the ethical
thing is contrary to self-interest, no matter what. Some people have denied that this is
a genuine possibility (certainly Hobbes did). It is certainly a view that would not be
at all popular among those who advocate that good ethics is good businessand
more particularly, among those who advocate that the reason why businesses would
be ethical is because that is good for business. Consider the following simple thought
experiments, however:
a. The Ford Pinto case. Let us assume that no one would ever have discovered this
cars tendency to explode on impact. On this assumption, would it be ethically permissible to allow its production to continue? No is the answer. On the same assumption,
would it have been a sound business decisionin the sense of enhancing the bottom
lineto allow production to continue? Yes, of course.
b. An Ok Tedi story. Assume that in the early days, when the water contamination
from BHPs Papua New Guinean mine at Ok Tedi was discovered by, and affected, just
a few isolated people, it was possible to resolve the entire matter by annihilating a
few familiesno one else would ever know. Considering only the benefits for business,
this would have been the course of action to take. A crass costbenefit analysis would
point in this direction. Would it be ethical to do this? No.
examples
c. Nestls baby formula. When Nestl sold its baby milk powder to Third World countries,
it had the opportunity to get rid of its surplus and to make some profit. While exploiting
such an opportunity could be good for business, there are other reasons why a company
should not behave in this way. Although these reasons might not coincide with selfinterest, business should nevertheless pay attention to them. This is exactly the point.
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The point in all these cases is that sometimes there need not be coincidence
between ethical behaviour and the advancement of self-interest. The further point
is that, even so, the right thing for business to do in each case is to take the ethical
course of action, forgoing self-interest. Why?because ethics requires it. That is the
nature of ethics.
You might be thinking, in each of these cases, that as a matter of fact someone
would find out, and so the business would suffer. (Maybe this could be called the
Aquinas position: even though you should do the ethical thing for ethical reasons,
there will nevertheless be a coincidence with self-interest.)55 But that is a different
thought experiment. The thought experiment here involves supposing that people
do not find outand supposing they do not, then what? It is not ethically permissible
in these cases to cover up or disregard the dangers. The ethically required action is
simply not good for business.
It might seem as though these points border on the obvious. It is clear, however,
that this kind of thinking has escaped many who believe that good ethics will
always naturally coincide with good businessin one way or anotherand that
the task set in discussions of business ethics is to find the coincidence or ways to
make them coincide. Further, this kind of thinking appears either to have escaped
or to have been regarded as unacceptable by those who demand that the only
convincing reason for behaving ethically is that it is good for business. These are
two very separate concerns. As for the firstthat ethics and good business must
coincidewe have nothing more to say. As for the secondthat the only acceptable
or convincing reason for behaving ethically is that ethical behaviour also enhances
self-interestwe will expand on this further.
If we were identifying the criteria for an ethical opinion (not necessarily a correct
ethical opinion), as well as nominating features such as universality, justifiability
and possibly overridingness, we would probably make reference to impartiality
and the necessity of taking a broader perspective than self-interest.56 For reasons
such as this, moral philosophers most commonly think that ethical egoism (not to
be confused with psychological egoism) 57 is an incoherent position; as an ethical
position, it is a non-starter, precisely because it identifies ones self-interest as the
reference point for the moral world and the gauge of what is morally right and
morally wrong. When it comes to thinking about individualsand simply getting
along in the worldit is generally accepted that doing the morally right thing will
sometimes differ from acting in ones own interest. While serious questions are often
asked about why one should adopt a moral perspective, rarely would we question
the proposition that a moral perspective has a broader basis than self-interest alone.
Given this, why should there be so much concern to say that the situation in business
is differentthat good ethics must enhance the bottom line (that is, that ethical
behaviour must advance self-interest)? It would seem that those who have pushed
this line so hard have ignored the situation for individualsperhaps in their hurry to
offer an easy, prudentially acceptable and palatable reason for business to be ethical.
For individuals, sometimes doing the morally right thing works in ones interest,
but not always. The situation for business is no different. Perhaps an insistence on
the coincidence of ethics and self-interest is an attempt or demand to make the
difficult ethical questions easier to comprehend and resolve than, in fact, they are.
The important and difficult question Why should I be moral? is no more easily
answered for business than it is for individuals.
The search for the ethicalprudential coincidence in business could, in fact, lead
to a different conclusion. One might take the view that morality is none of businesss
business. Perhaps we can call this the Friedman view, after Milton Friedmans bold
claims in the late 1960s and 1970s about the inappropriateness of allowing ethical
concerns into the business arena.58 From this perspective, business is seen as appropriately out of the moral realm altogether; it is a non-moral or an amoral operator in
much of what it does and in much of what it should be thinking about and concerning itself with. Notice, however, that this is a significantly different proposition from
the one that suggests that the activities of business are within the moral realm and
that the carrying out of those activities should, or can be made to, coincide with the
businesss self-interest. The Friedman view is an important view to take account of,
but it is completely different fromand largely irrelevant tothe discussion here,
where it is recognised that business can engage in moral or immoral behaviour,
and it is urged that reasons should be moral. The plot has been lost when this point
has been coupled with the expectation or demand that the only important reasons
should be those that point to the coincidence of morality and self-interest.
It is perhaps worth comparing the situation regarding business and ethics to the
relationship between law and ethics. Here, too, we can usefully look at the individuals relationship with the law in order to draw a parallel with business. In matters
of individuals behaviour, we do not think that law covers the entire area of ethical
concernsand we do not think that it is appropriate for it to do so. Some things are
morally wrong, even though they are not illegal (for example, common cases of lying
or promise-breaking or breaches of trust). The fact that these modes of behaviour
are not ones in which the law reinforces moral requirements by no means implies
that, therefore, there is no reason to behave ethically in such situations. Indeed, this
distinction lies at the very heartland of ethical theorising and discussion. Again, for
someone who suggests that business ethics is completely covered by law (or else that
there is no reason for behaving ethically), we should seriously ask why the situation
for business should be regarded as different from that for individuals. The answer, we
think, is that they should not be regarded differently from each other at all.
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There is a serious danger present in good ethics is good business talk and in
conceptualising the situation so that this is, in fact, an appropriate way to speak about
business and ethics, and about reasons for business to behave ethically. Consider
what the point is in making the claim that good ethics is good business. The point is
to offer an answer to the question Why be ethical? The answer is Because its good
for business. This sounds straightforward enough, but there is a very worrisome
implication of thinking of things in this way; namely, that if some bit of ethical
behaviour were not good for business, then it would be permissible (in whatever
important sense that the listener is supposed to be taking account of) to engage in
that bit of behaviour. The idea that ethical considerations might counterbalance or
act as a constraint on other considerations is simply dismissed. Ethics is considered
to be on the same side of the scale as anything (else) that is good for business. There
is no counterbalance at all.
The difficulty in seeing the business situation as one in which good ethics is
good business is that this way of speaking invites one to place ethical behaviour on
a scalea scale measuring what is good for the business. The idea, then, is to see
where the heaviest weight lies. And this is precisely the danger. The implication is
that if the heavier weight lay on the scale in opposition to ethical behaviour, then it
is that non-ethical behaviour which should win, and so be permissible (in whatever
relevant sense), despite the fact of its being unethical. This way of conceptualising
the situation places ethical behaviour as just one of the many considerations to be
taken into account, the focus of all of which is directed solely towards how good
they would be for business. Good ethics is good business implies that the reason
for behaving ethically is that such behaviour is good for business, and that if it were
good (or better) for business for one to behave unethically, then unethical behaviour
would be permissible, perhaps even obligatory. The claim that good ethics is good
business implies that ethical behaviour is of instrumental value only. If that were so,
then on any particular occasion when ethical behaviour was not perceived to be
instrumental towards the achievement of whatever is of value, there would be no
rationale for behaving ethically.
A note on self-interest
It is not uncommon for people to refer all conduct, including apparently altruistic acts,
to self-interest. In business, this unexamined assumption has widespread popularity
and has almost attained the status of a dogma. For the characters in films like Wall
Street and Bonfire of the Vanities, drive and ambition are indistinguishable from greed
and selfishness. Self-interest has become a shorthand term for both vicious and
laudable motives in business, but this does nothing but confuse important issues.
First, self-interest is not identical to selfishness. Selfishness is an undue regard for

ones own interests at the expense of regard for the reasonable interests of others. Selfinterest may be expressed in observing the dress code at work, in eating a balanced
diet, or simply in personal hygiene. None of these instances could be called selfish.
Selfishness is an excessive preoccupation with ones own interests, possessions and
enthusiasms, even to the exclusion of a proper regard for self-interest. Some business
people are so selfishly ambitious that they destroy the very thing they value. It was
not, for example, in Alan Bonds interest for Bond Corp to collapse. Sometimes
selfishness and self-interest coincide, but they are not conceptually identical. On
the whole, it is not in a persons interests to behave selfishly or to be perceived
as selfish, but some selfish people are heedless of their own best interests. They
might, say, lead a wealthier lifestyle, but this is not a good commensurable with other
goods, such as friendship, respect, trust and admiration. The absence of these goods
cannot be compensated for by money: they are incommensurable. Selfishness is an
inability to count anothers good as a reason for acting. It is a socially disabling vice.
Self-interest is not disabling in this way. It can be excessive, but it also enables us to
live our day-to-day lives in a reasonable way. It is not to be devalued. It is, after all,
the pursuit of ones own good, and as long as that good does not exclude the good
of others, self-interest not only helps us survive but to prosper and to spread that
prosperity to others.59
Of course, if self-interest did explain all conduct, this would be something we
could never know. This is because it is a view that cannot be falsified: there is no
possible set of circumstances that could refute it, so we could never know that it
underlies everything we do. In the light of this, claims that people are egoistic in all
their acts look very weak and we must seek a richer moral vocabulary with which to
describe our ethical experiences.
Professional ethics
A person in a business can certainly behave professionallythey can be upright,
behave with integrity, exhibit a great deal of competence, and a number of other
things. But that is different from being a professional, in the sense of belonging to
a profession. Among the features used to distinguish a profession from a business,
these seem central:
7h a specialised body of knowledge
7h a credentialing body
7h attention to the public interest (perhaps, the public interest is paramount)
7h a focus on the clients interest
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7h the exercise of judgment

7h the presence of a code of ethics (including a requirement not to bring the
profession into disrepute)

7h regard for the public trust.
We want to focus for a moment on a few of these.
Consider the following two situations and the text that follows them:
Part A: Suppose you regard yourself as an important person, and you would like to
drive a car that is appropriate to your station. Suppose that you stop into a Ford dealer,
explain to him that youre important, and ask for his advice about what car you should
be driving, explaining to him that you want the best. The dealer recommends the LTD
with appropriate accessories. So, you buy this car. Not long afterward, while you are
driving around, you happen to notice a really swell and elegant-looking Lexus, the
GS460, which you believe is clearly a classier looking car than the LTD that you are now
drivingit is certainly more expensive. You actually believe that the difference in class
is obvious. So, you feel disappointed. Maybe you even feel somewhat angry about your
choice. But (and this is the important part), you are not angry at the Ford dealer. You do
not think that you have a claim against him because of poor advice. You realise that his
position is to survey the entire Ford landscape, and to offer you the best that is there,
to satisfy your needs. (Maybe you would feel that you had a claim, had he put you in a
Falcon, instead of an LTD; but not if he put you in an LTD instead of telling you that you
should be visiting the Lexus or the Mercedes dealers down the street.)
examples
Part B: Suppose you went to your doctor about a health difficulty. After examining you
and diagnosing your situation, the doctor prescribed a certain medication, and you
began taking that. Not long afterward, you happened to learn that there is a better
drug available for treating your condition, but that the doctor did not prescribe that one,
because he has a commission deal with a particular drug company to prescribe their
products. In this case you would be not only disappointed in your situation, but also
angry at the doctor, and you would believe that you have a claim against him.
There is a very important difference between being a member of a profession

and working in a business. The professionalbut not the business personhas
a duty to survey the entire landscape, having the clients interest as the focus. The
business personhere, the Ford dealerhas a duty to survey the landscape, but
with (appropriate) constraints that are not present for the professional. He is, after
all, a Ford dealer: that is the landscape that he needs to take into account. The
difference is the ethical requirement relating to regard for the clients interest; and,
for some professions, it is also a matter of the ethical requirement of independence.
The professionalbut not the business personalso has a duty to focus, as well,
on regard for the broader public interest. Regard for the clients interest and regard
for the public interest are at the heart of a professionals consideration of values at
play in dealing with ethical issues that may arise. And, the presence of these makes
for a considerable difference between professions and businesses. These, of course,
are not everything, but they are very significant in distinguishing professions from
businesses. It is near universal (maybe completely universal) that the code of ethics
for every professional body includes these three focuses:
7h the clients interest
7h the public interest
7h the professions interest: the duty not to engage in conduct that could bring the
profession into disrepute.

Among other things, it is clear that these three values themselves can come into
conflict with each other. Some professions have tried to indicate something of a
hierarchy for these values, usually, for instance, placing the public interest above
the clients interest (in law, for instance, a lawyers duty to the court overrides the
lawyers duty to the client). Even here, however, there is usually no formulaic means
of resolving conflicts. This is a matter of judgment; and to represent it in any other
way is usually a distortion.
The public trust is also an important feature of professions. The analogue in the
world of business is reputation. For the public sector and for professions, this is a
matter of public trust. Reputationor sometimes brandis an intangible asset. If
reputation is important, which it surely is, then considering only its vulnerability and
its dollar value, it is certainly worth protecting and enhancing. It is worth spending
time and resources on exactly this. It is fair to translate these facts about reputation
into similar comments about the value and vulnerability of the public trust.
Professions are directed to good endsto the benefit of clientsand ethics is
integral to them. Professional ethics is not a special type of ethics but the application
of ethical judgment in professional practice. This application can be difficult in
business settings as conflicting demands can arise. For example, a lawyer working
for a corporation remains a lawyer with obligations to the legal profession and the
courts at the same time as working under instruction from corporate managers.
Engineers are expected to abide by their professional codes, but their liberty to do
so can be limited by their employer. Doctors commonly work in medical centres run
on business lines rather than on the old doctorpatient relationship. In areas where
professional practitioners are employed, there is potential for a conflict.
Being a member of a profession does not exempt one from common morality. The
requirements of professions add to rather than replace ordinary ethical obligations.
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Although there is debate about what constitutes a profession, one mark of a profession is commitment to some distinguishing values, typically expressed in a code and
related documents. Professional practice requires of practitioners:
7h adherence to the rules of their profession formally set down by the professional
body; and compliance with the directions of any regulatory authority established
by the profession or the government
7h the exercise of professional skills and expertise on behalf of clients primarily for
their benefit
7h adherence to the principles of ethical conduct that govern professional practice;
that is, to the minimal principles of professional ethics (table 1.1).
TABLE 1.1 The minimal principles of professional ethics
Beneficence
Doing good
Non-maleficence
Not doing harm
Confidentiality
Respecting the privacy of clients
Avoiding conflicts of interest
Keeping private interests separate from those of clients
Respectability
Behaving in ways that do not bring the profession into

public disrepute
Competence
Keeping up with the latest developments in the profession,

and carrying out work at an appropriately high level
Let us look a little further at the professional values that are built on these
principles.
Care
Typically, professional codes and standards have a strongly deontological tone. They
prescribe principles and they proscribe some kinds of conduct. This tone can seem
impartial and exceptionless, and to leave no room for caring. The point about care
is that we care for someone or care about something. We are not detached observers
when we care. We become involved with the concerns of people when we care
about them.
A famous study of the moral reasoning of women by Carol Gilligan found that
they tended not to reason according to the impartial model of ethics and they did
not seem as concerned with rules and principles as previous studies had found in
mens moral reasoning.60 They were more concerned with the impact of their moral
decisions on relationships, rather than on whether they conformed with a set of
rules. They put care above the traditional considerations of moral reasoning. Gilligan
does not suggest that her findings apply uniformly to women or that women never
consider morality in its traditional forms. Clearly they do, but Gilligan identified care
as a missing element in traditional accounts of morality.
Gilligans study calls our attention to an understated aspect of the traditional
ethics we have been discussing. While it would be inappropriate to confuse professional and personal care, it is clear that care belongs to both spheres. A caring
professional is likely to be more understanding of, and attentive to, clients interests,
and to be a better practitioner.
Confidentiality
Confidentiality is a traditional value for the professions and one of the most important in professional ethics. One reason for this is that confidentiality assures the trust
of clients. In order for a practitioner to provide a service, the client must disclose
personal information. Confidentiality facilitates this disclosure. No matter what its
significance to the practitioner, it should be regarded as private. In effect, the practitioner makes the client an implicit promise to keep information disclosed in their
relationship confidential. To break this promise is to act in bad faith and can even
be legally actionable as a breach of fiduciary duty.
In our society, privacy is a legally protected but not unqualified right. The right to
privacy provides another reason for confidentiality, but privacy and confidentiality
are not identical. Privacy is a right of non-interference independently of any agreement made with a practitioner. Confidentiality pertains to the contractual terms upon
which information is given and becomes available to others. A separate confidentiality
agreement does not usually have to be made between practitioner and a client,
because the obligation of confidentiality is built into the professional relationship.
Confidentiality is often treated almost as an absolute principle, and is binding,
no matter what the consequences. Journalists often see their sources in this light,
being willing to go to jail rather than breach confidences. While this can be a
rule for individuals, it makes no sense for it to be a requirement of a profession.
Professions serve their clients and the ends of their clients. Confidentiality is the
restriction of information in the interests of serving a client professionally, but it is
not an unqualified commitment not to disclose information acquired in the course
of professional consultations. The principle is elastic enough to allow, for example,
consultation with colleagues about a case, or to meet the requirements of the law.
Nor are all departures from confidentiality breaches. There are many exemptions.
Not all breaches of confidentiality are equally serious: simple disclosure of information might not be as serious as its use for personal gain. For all its importance in
professional ethics, confidentiality is not an absolute and exceptionless principle
and, as with other principles, its proper exercise requires judgment.
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It is important to maintain confidentiality in order to sustain client trust and the

confidence of the public generally. All personal information about clients obtained,
even inadvertently, in the course of offering professional services is subject to confidentiality. Confidentiality is not the same as secrecy. Secrecy prevents exchange
of information except with express consent. It is intended to place holders of information under a strict obligation not to communicate it to any third party. Confidential
information may be shared with relevant colleagues for the benefit of the client, but
not with others unless (1) required by law, (2) written consent is obtained from the
client, and (3) in exceptional circumstances, the public safety and welfare require
disclosure. Confidentiality means that client records are to be maintained properly
and securely.
Responsibility and accountability

Accountability imposes costs and constraints on practitioners. Accountability is, in
this respect, like insurance: it provides protection for a profession and its members
if something goes wrong. It is also a habit of mind that is a useful counterweight to
professional autonomy. A practitioner who can account for her or his conduct is in a
stronger position if a complaint is made, and a properly accountable profession will
sustain public confidence in its services.
Responsibility should not be confused with accountability. Accountability, on a
tick and flick model can require no more than signing off on a project. Formally,
one can be accountable without being responsible for a decision. To be responsible is to engage in deliberative decision-making and the exercise of judgment and
discretion. This is more than a formal or procedural or rule-bound requirement:
responsibility involves initiative, empowerment and trust. Responsibility should be
thought of as a liberating notion; it is about being responsible: Yes, I did it; and
about taking responsibility: Im going to do something about this. Accountability is
about restraint: it is a limit on responsibility, but the two work together. Accountability
cannot do the job of responsibility. Fully accountable people might end up producing nothing. Nor can responsibility displace accountability without becoming
unduly risky.
Professional judgment
The point of professional principles and standards is to enable good judgment. One
should be able to give an account of such judgment, so the question Could I explain
this to my peers? should be part of ones thinking. That is a sensible approach to
accountability. If you cannot account for your behaviour, it is likely to be unjustified.
On the other hand, professional judgment needs to be responsible, not only in the
sense of making justified decisions, but also in being willing to engage with an
issueto be proactive in dealing with it.
One of the most widespread ways of thinking about moral obligation is through
the notion of role. Is it my role to take responsibility for this decision or this person
or this situation? And what happens when I have a number of roles that conflict?
What should I do, for example, if professional demands require my services at a
time when my child is in a school play? Although we might have several roles, we
remain one person. Our values will ultimately guide our conduct, not a role that
we unquestioningly assume. So, individuals will and should, on occasion, defy a
code of conduct in the name of integrity and professional judgment; and they will
have to answer if they go along with professional and organisational directives
that violate their personal values. The attitude that takes loyalty to a profession or
employer as the final word has been given a felicitous name: malicious compliance.
This term was coined by Roger Boisjoly, famous for warning that the launch of
the fated space shuttle, Challenger, posed an unacceptable risk (Boisjoly 1993). If
professional judgment is to mean anything it has to be truly independent, but it also
has to be properly accountable.

What is the best way to present materials so that they will help people to think
logically about practical matters? At one extreme, this question is answered, Go
heavy on the theory. The point here is that to reason well about practical moral
matters, one must be well acquainted with moral theory. We might think of moral
behaviour as principled behaviour. If this is so, then in order to reason about moral
matters, one must be well schooled in moral principles: what they are and their
various rationales. One must develop ones own moral position. This extreme view
would continue, Once youve come to terms with moral theory, which itself can
take years, youve done all the preparation that is necessary for getting out into the
world and dealing with practical moral problems. Solid grounding in moral theory
is, in fact, what is required for dealing with moral problems at any level. The other
extreme advocates working through elaborate case studies as the way to help people
reason about practical moral problems. The Harvard Business Schools case studies
are in this mould. This position argues that we dont need to deal with moral theory
at all; what we need are detailed case studies. The idea here is that this is the way
the real world comes to us: detailed cases, not packaged in theory. What we need
practice in is ways in which to sort through and sort out the details with the aim of
reaching a moral decision.
We do not favour either of these methods. Each has serious flaws. Briefly,
although theory is very important, we do not think that, by itself, it is sufficient to help
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readers connect with practical moral matters. We have tried to indicate this in the
previous discussion about what is at work in moral reasoning, which we suggested
is not simply a matter of top-down reasoning. On the other hand, case studies, by
themselves, do not reveal the proper importance of theory. In dealing with particular
cases, ones consideration should be informed by theory. There is another difficulty
with elaborate case studies. A detailed case study often presents itself as a complete
picture: no loose ends, no missing pieces and no particular nuances that need
further investigation or further interpretation. Very often, however, the moral world
does not present itself in this way. There is more left to do, more left to speculate
about; many things are unknown. And sometimes the environment in which the
decision must be made is one in which such loose ends remain and cannot be
tied up before it is incumbent on us to reach a decision. Generally, the moral world
we encounter in real life is a good deal less clear and less complete than that of a
self-contained case study.
What we present here are shortsome are very shortcase studies, which we
invite you to consider, being mindful that discussions should be informed by theory.
We do not expect that the introduction to moral theory that we have provided in this
chapter is where your thinking about moral theory will begin and end. We certainly
do not think that the purpose of encountering moral theory is merely to enable you
to label things properly. Similarly, the case studies are not the be all and end all of
the factual situations that you should consider.
Why case studies?

The connections between ethical reasoning and business are best discussed in
relation to cases. Case studies exemplify problems and allow for complexity and
ambiguity, but above all they have the virtue of being believable. On the one hand,
it is easy to dismiss talk in terms of principles as sermonising or else as having only
academic interest. On the other hand, empirical surveys of beliefs and values might
be useful in diagnosing a problem, but they do not tell us what to do. If we are content
with our present ways of doing things, then surveys can confirm our beliefs. But we
cannot find out what to do simply from looking at what we have done. Case studies
tell us more than what we have done: they illustrate values, reasoning, reactions,
decisions and consequences. They tell us something of the character of a practice.
Take, for example, the issue of whether what is legal is ethical. Very often there is
a close alignment between the two, but often it is to the advantage of one party to
insist on what is legal to the detriment of what is ethical.
REVIEW QUESTIONS
1 Is it clear what the attraction is to the idea that good ethics is good business?
Is it also clear what the danger is with this idea?
2 Can you give an example from the field of business or the professions that reveals
moral pluralism in approaching an ethical issue?
3 a Is it clear that the ethical requirements of a profession cannot be rule-bound?
b Is it also clear that within this context it can be shown that an ethical requirement was breached?
c Can you give an example?
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CHAPTER OUTLINE
7h Public office and business: altogether
outside ethics?
7h Different perspectives: public and private
morality
7h
7h
7h
7h

Necessity
Review questions
[T]here is such a gap between how one lives and how one ought to live that anyone
who abandons what is done for what ought to be done learns his ruin rather than his
preservation: for a man who wishes to make a vocation of being good at all times will
come to ruin among so many who are not good. Hence it is necessary for a prince
who wishes to maintain his position to learn how not to be good, and to use this
knowledge or not to use it according to necessity. (Machiavelli, The Prince, ch. 15)
This quotation illustrates a difficulty in business that may be called the problem of
dirty hands. The term is borrowed from political theory and relates to the ethics
of role and the doing of what is necessary, even morally necessary, to fulfil that role.
The classic expression of dirty hands can be found in the short, powerful and even
infamous work, by Machiavelli, The Prince:
the experience of our times shows those princes to have done great things who have
little regard for good faith, and have been able by astuteness to confuse mens brains,
and who have ultimately overcome those who have made loyalty their foundation
Therefore a prudent ruler ought not to keep faith when doing so is against his
interest
Moralists have thought this line of reasoning repugnant since it was written nearly five
hundred years ago. But Machiavelli was articulating an ethics of public not personal
life. Everyone wants to be ethical or at least appear to be ethical but, as Machiavelli
shows, such an aspiration can be self-indulgent in a bad world. People can be ethical
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CHAPTER 2 DIRT Y HANDS
at home in the bosom of their family, with those they can trust. But to be ethical in
this private sense while at work is to fail to notice the changed environment. Such
private fancies can ruin a state for a ruler, or a corporation for a manager, and cost
employees their jobs, stockholders their investments and customers their supplies.
In business, as in politics, ethics seems to be an option that is not always available.
This argument found classic expression in an article by Albert Z. Carr,1 which,
despite echoing the views of Milton Friedman,2 caused an unprecedented reaction
from readers when it appeared in the Harvard Business Review. It remains one of the
most cited articles from that journal. For Carr, business is a game-like activity. People
do not exactly cheat, but they do not express personal virtues either. They perform
as circumstances require and expect that others will do likewise. Hence there is no
deception, but rather a shared expectation that all parties will exaggerate or bluff.
This is not acceptable behaviour at home, but business is not family life and different
rules apply. For example, when a fund-raiser comes knocking on your businesss
door asking for contributions to a political party you would never vote for, you give
because that is the price of doing business. People can lie in business and politics
and break promises too because, to quote Carr, within the accepted rules of the
business game, no moral culpability attaches to it. This is not a criticism of business
activity. Rather, it is an expression of a difference in the moral hierarchy in business.
It is an expression of a difference between public morality and private morality.
Public office and business: altogether outside ethics?

Do as you would be done bythe golden rule of Confucius, St Paul and Kant
is alien to business on this account. To quote Carr again, A good part of the time
the businessman is trying to do unto others as he hopes others will not do unto him.
It does not seem to Carr that, if these are the accepted rules of the game of business,
the golden rule must apply. For if people are prepared to do to other players what
they would not like to have done to themselves, it is only a matter of time before they
themselves are excluded from the game or other players behave as they do and the
game collapses.
Carr clearly sees business practices as akin to Stephen Potters gamesmanship:
a style of play exemplified in coughing just as a snooker opponent is about to hit
the ball, disturbing the concentration of a chess player between moves or sledging
in cricket. These illustrations of gamesmanship are legitimate for Carr as long as
the laws of the game are not broken; and the same applies in business. Why? Carr
and Friedman would reply that business is about winning, about making a profit,
and therefore any legal means to this end are fair. The major tests of every move
in business, as in all games of strategy, are legality and profit, writes Carr. Altruism
belongs in peoples private life, and there is no inconsistency between managers who
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are both tough at work and sensitive and caring at home. For Carr and others like
him, business is a zero-sum game, and there can only be one winner. How different
that is from the models of American corporate excellence Peters and Waterman
identify as collaborative, attentive and values-driven.3
What Carr misses is that real people conduct business; it is not just a matter
of deals but of human relations, involving belief in, and pursuit of, human values.
People not only cannot leave their private values at home; they should not, or at
least they should not leave ethics to their private life only. There is now a large
management literature that would give the lie to Carrs position, but we shall cite
from just one well-known source: The productivity proposition is not so esoterically
Japanese as it is simply human loyalty, commitment through effective training,
personal identification with the companys success and, most simply, the human
relationship between the employee and his supervisor.4 In other words, Carr is very
successful at building a model, but that model is not one of successful business. It
reflects a narrow view of rationality and the belief that hard numbers trump values.
But is this being unjust to Carr? Have we misrepresented his case? Is he amoral?
Have his views been unfairly criticised? Carr has faced a similar response to that
accorded Machiavellis Prince, a work of political theory that has upset many modern
interpreters. Machiavelli tried to show that a ruler must be prepared to take actions
that we would never accept in non-political life. A ruler must be prepared to have
dirty handsdirty in the sense of common morality. Whereas common morality
would object to lies, torture, deceit, murder, bribery and so on, these strategies are
necessary to the defence and survival of a state and the rulers position within it.
These are not personal matters in any sense; a prince who acts from personal motive
will jeopardise the state. These are acts of political necessity.
Cant the same case be made for business? After all, there are actions necessary in
business quite apart from the personal preferences of managers. Is it not sometimes
necessary for a manager to write a report on a friend that is damaging to that friends
career prospects? Is not a manager sometimes forced to sack people?
These examples are perhaps not morally as significant as others suggested by John
Ladd.5 Ladd distinguishes personal actions from social actions. The former serve
personal goals, the latter organisational goals. When managers, judges or politicians
pursue their personal goals in their official capacity, they are doing the wrong thing.
They must take responsibility for the consequences of such actions individually.
Only actions related to the goals of the organisation are social, and only these are
owned by the organisation. Putting personal goals ahead of organisational goals is
wrong, even if the personal goal is usually called moral. Private morality is a personal
goal, not an organisational or official one, and therefore is not one to be condoned.
In this respect business is like a game, and Ladd is in agreement with Carr.
Games occur in contexts. We do not allow people to punch others in the street.
This is assault. But we do permit the sport of boxing, hedged by rules that state what
counts as a fair punch, and that require other conditions such as medical certificates
as well. So too with business, according to Ladd, Actions that are wrong by ordinary
moral standards are not so for organisations; indeed they may often be required.6
Ladd gives examples of what he means as secrecy, espionage and deception, and
argues that while a naval officer who grounds his vessel should be court-martialled
for defeating the goals of his organisation, an officer who bombs a village and kills
innocent people should be praised for achieving the goals of the military. So much
for war crimes. As Peter Heckman points out,7 on Ladds account organisations can
never do the wrong thing. Their goals, by definition, fall outside the realm of private
moral appraisal. This would mean that conventional, private morality should be
abandoned as a guide to action in the public sphere, where it is appropriate to judge
by criteria of public moralityhence the necessity for dirty hands in political and
organisational life. Business cannot avoid such moral soiling if it is to succeed.
What Carr said could hardly have been new to his critics, so why all the fuss?
One reason might be that business people did not like acknowledging the truth
about themselves and their occupations. Perhaps they preferred to believe that they
behaved in business as they would in private life. Instead of speculating, let us look
at some of their replies to Carr.
Alan Potter, a senior manager with Ciba, holds that it is not at all the case that
businessmen do not expect the truth to be spoken The economic system would
collapse without mutual trust on a practically universal scale among business
executives.8 J. Douglas McConnell of Stanford Research Institute believes that it is
impossible to insulate business from broader social judgments. And Harry R. Wrage,
manager of MEDINET at General Electric, puts the stakeholder position,
Business is not a closed society, free to operate by special rules as long as all the
players understand them. Nor does business want this status. The responsible businessman recognises a great responsibility to non players in Mr. Carrs gameto
employees and suppliers, to customers, and to the general public If we do not all
meet all of these responsibilities all of the time, that is understandable, but this is not
evidence of the existence of, or a need for, special and looser ethical standards for
the business community.9
And from Mrs Philip D. Ryan of New Jersey: Plainly, the true meaning of a mans
work escapes Mr Carr. A mans work is not a card game; it is the sum of his selfexpression, his lifes effort, his mark upon the world .10
Carr has done a valuable service in bringing to the surface a widespread
scepticism about business ethics, but he is in error in supposing that some kind
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of business necessity excuses dirty hands. Many situations in life are tragic, and
because of the risks of business and the frequency of failure there are bound to be a
fair number of business tragedies. But that does not mean that people have to invent
a separate ethic to explain the tragic decisions that must be made. It is arguable that,
depending on the context, different moral requirements have greater or lesser weight.
Thomas Nagel, for instance, has argued that the context of holding political office is
such that the officeholder acquires moral obligations that are not present in private
life.11 It is thus a moral requirement that these obligations be taken into account in
determining the morally correct course of action to be taken in a persons role as
a political officeholder. Further, Nagel suggests, having regard for consequences is
morally more important in public, political life than in private life, where other moral
concerns and other moral virtues carry greater weight. It is not only that there are
different considerations and different moral requirements. It is also the case that
there is an important difference in the ordering of those requirements.
Using the metaphor of a game in relation to business makes it acceptable to
abandon ethics and normal standards of conduct. To claim that business has its own
ethics and then fail to show that anything counts as ethics at all in business except
results is precisely to exempt business from ethics, not to show that business is
special. Look at the professions. What distinguishes them from each other and from
other occupations is their values. But these values do not exempt professionals from
normal standards of conduct; on the contrary, professions take on extra personal
and social obligationsfor example, pro bono work in law, or rendering assistance
at accidents for medical practitioners.
In his reply to his critics, Carr seems to retreat a little from his original position.12
But plainly he is still muddled. Here is one disturbing defence: My point is that,
given the prevailing ethical standards of business, an executive who accepts those
standards and operates accordingly is guilty of nothing worse than conformity; he is
merely playing the game according to the rules and the customs of society.13
The confusion here is that Carr accepts the prevailing standards of business as
normativeas representing a standard not only of how businesses do behave, but
of how they should behave. If we are playing tennis or Monopoly, of course we are
bound by the current rules, but in the activities of life, this is not so. The game
analogy misleads Carr into supposing that business people need to look no further
than to established business practice and custom in order to discover what is morally
required of them.
We do not want to discount altogether a view of morality that gives some weight
to the opinions or feelings of a group as a determinant of moral conduct. As indicated
in discussing moral reasoning, we do not want to insist that morality must be a
matter of discovering a theory and then overlaying that theory onto practical matters
of behaviour. Moral reasoning and moral commitment can very much be a matter of
relating theory and practical intuition. In this way, having regard for a communitys
moral commitment to something is not irrelevant in suggesting a correct moral
position. The English jurist Lord Patrick Devlin has gone so far as to claim,
If the reasonable man believes that a practice is immoral and believes also that no
right-minded member of his society could think otherwise, then for the purpose of
the law it is immoral. This makes immorality a question of fact with no higher
authority than any other doctrine of public policy.14
This very important questionabout what morality is, and what the law should
consider it as beinghas received much attention. Lord Devlin advocates that
(at least as far as the law is concerned) morality is a matter of anthropology or
sociology: to be moral is to be felt as moral by the relevant group. This view has
attracted a fair bit of criticism. First H. L. A. Hart15 and then Gerald Dworkin16 (and
many others) offered objections to Lord Devlins characterisation of morality, and in
particular what it is to recognise a group as having a morality or a moral view. While
not endorsing Lord Devlins view wholeheartedly, neither do we want to dismiss it
altogether as inappropriate or inapplicable in the context of morality in business.
However, recognition of the legitimacy of a view like Lord Devlins, certainly does
not require acceptance of the type of laissez-faire view advocated by Carr.
And why would we assume that ethical conduct was not itself a legitimate goal
of business? Of course, if we are doing business in morally dubious ways it becomes
difficult after a while to see the fault. And then, as some of Carrs critics suggest, business becomes degraded. We can see this with accounting, law, psychiatry and many
other professions that sustain standards and prevent such degradation by striking
wayward practitioners off their books. Is business to be the last refuge of scoundrels,
where bad or unethical practice can survive as a norm? Given the central place of
business in the creation of wealth in our society, one would hope for a more positive
view of its aspirations.17
That compromise is the rule rather than the exception, and that dirty hands are
sometimes unavoidable, is no reason to abandon standards of conduct or to pitch
them at the lowest level tolerable.
Consider a case offered by Sir Adrian Cadbury, Chairman of Cadbury Schweppes.
Sir Adrians grandfather was a strong opponent of the Boer War. He was so strongly
opposed that he bought the only British newspaper that shared his views so that
he could reach a wider audience. But Sir Adrians grandfather was also opposed to
gambling, and removed all references to horse racing from his paper. The circulation
of the paper fell accordingly and defeated the point of buying it in the first place. An
ethical choice had to be made: report on horse racing and acquire a large audience
for moral arguments against the war, or stick to principle, allow no help to gambling
and lose an anti-war voice. Sir Adrians grandfather decided that opposition to the
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war was more important than offering some small encouragement to gambling, and
the reporting of horse racing was resumed.18
The important point to note here is that, even though Cadbury made a decision
he considered ethical, it was not ethically cost-free. He had to sacrifice a principle,
something that is as difficult for a principled person to do, as the sacrifice of material
goods is for one devoted to wealth. There was an inescapable ethical price to pay,
whichever way Cadbury chose. Significantly, he chose to compromise on a strongly
held personal belief in favour of promoting an ethical principle of greater urgency
and with more far-reaching consequences.
Take another case, this time fictional. Suppose that you are chief executive officer
(CEO) of the Healthy Life breakfast cereals company. You rose quickly to this position because of your management skills that have positioned Healthy Life products
at the top in a health-conscious market. In fact, you have made Healthy Life just the
kind of company that might serve the diversification interests of a corporation trying
to protect its future in an increasingly difficult environment. And so it is that Healthy
Life is taken over by the R. J. Smudge tobacco empire. In the restructuring you are
offered control of a languishing tobacco products division with the specific mission
of increasing market share, as you had done with cereals.
You now face an ethical dilemma. You do not like smoking and believe it to be
harmful to the health of tobacco users and passive smokers. You did not resign when
Smudge took over Healthy Life because you remained in the cereals division. If you
are now moved sideways into tobacco marketing, you face the choice of resigning
or marketing unsafe products. For some people there would be no problem: they
would not market a product in which they did not believe or which they found
morally objectionable. They would simply resign.
But is this not walking away from a problem, rather than resolving it? After all,
somebody will take the job, probably someone who does not have your scruples.
If you do not do the morally wrong thing, someone else will. Does this not give
you moral permission to do it? Moreover, the product is legal and it is up to people
to make the choice of whether to smoke or not. Your primary task would be to
increase the wealth of R. J. Smudge and its shareholders, employees and contractors
by maximising its share of a market comprised of people who have made a choice
that is legitimately theirs: to smoke tobacco products. What if an alcoholic beverage
company had taken over Healthy Life? Would you have faced the same kind of
problem? How paternalistic is an individual required to bethat is, how far should
a manager let his or her private values impinge on a matter of public policy? Is it not
a form of self-indulgence to take a principled stand that ignores the consequences
of choices made for others?
These questions require reconsideration of the nature of the problem. For it is one
thing to see it as a matter of public policy that it would be unreasonable to expect
a marketing manager to solve, but quite another to see it as an issue of personal

morality that invites a person to compromise morally or to behave inconsistently.
Different perspectives: public and private morality

We have seen that the great sixteenth-century Florentine political thinker Machiavelli
held that a ruler ruled well who took account of political necessities and did not
flinch from the hard tasks of government because these necessities conflicted with
conventional morality. We mentioned that Thomas Nagel has held that the moral
requirements are different and the moral hierarchy is different in public and private
life. Bernard Williams has argued that in public life (particularly in politics) sometimes the right thing to do is something that is not moral, and that sometimes this
has the result of allowing that there is a morally disagreeable remainder even after
one has done the right thing,19
The possibility of such a remainder is not peculiar to political action, but there
are features of politics which make it specially liable to produce it. It particularly
arises in cases where the moral justification of the action is of a consequentialist or
maximizing kind, while what has gone to the wall is a right: there is a larger moral
cost attached to letting a right be overridden by consequences, than to letting one
consequence be overridden by another, since it is part of the point of rights that they
cannot just be overridden by consequences. In politics the justifying consideration
will characteristically be of the consequentialist kind.20
While Nagel argues that moral requirements and the moral hierarchy are different in the private and public arenas, Williams argues that it is not that the hierarchy
changes, but rather that in the public arena it is sometimes appropriate that something
override the requirements of morality. Either way, this is often called the problem of
dirty hands. Dirty hands are inescapable in life. Barristers avoid questioning their
clients too closely about their guilt or they will not be able to defend them. Justice
is served by remaining ignorant of the guilt of the accused. Priests hear the confessions of child-abusers and know that such people are likely to re-offend. Priests,
unlike doctors, nurses or social workers, will not notify the appropriate authorities.
Journalists will expose malpractices in corporations, but will not reveal their sources,
although this would allow people to prosecute for recovery of their money. Generals
will send soldiers to capture a position knowing that casualties will be high. In the
best of cases, dirty hands are simply soiled; in the worst, they are bloodied.
In the fictional case of R. J. Smudge, the manager is in a similar position to a ruler,
barrister, priest, journalist or general. Like them, the manager must make decisions
that he or she might not make in private life. It may be that the manager does not use
the companys own productssuch as tobaccoat home. But at work a different
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standard applies because the manager has fiduciary duties to the corporation, to
shareholders and, arguably, to the employees. The sphere of decision-making is
circumscribed by the role of the manager in the corporation, by the corporations
articles of association and by the law. The manager has an obligation to further
the interests of the corporation. The problem for the ethical manager, then, is the
reconciliation of private values with the duties of role and position. How can this
difficulty be resolved?
At about the time that Machiavelli was writing The Prince, the English lawyer,
diplomat and intellectual Thomas More was writing an equally famous book called
Utopia. In the first part of the book the problem of dirty hands is discussed. The
main character, Raphael Hythloday, the wise traveller to the isle of Utopia, the best
of all known societies, is asked why he does not serve some European rulers and
thereby make more widely available the wisdom of the Utopians. His reply is that
the rulers of Europe care only for new territories, not for the proper government of
those they already have. If a wise counsellor were to advise them against war and to
make better laws for their own peoples, he would be useless because rulers brought
up on warfare and injustice are hardly likely to listen to a counsellor who advised
them against following their inclinations. So the two courses for a virtuous and wise
counsellor are either to agree with the evil schemes of kings or else to resign.
To this defeatist line, another important character, Morus, who understands the
politics of dirty hands, replies,
If you cannot pluck up bad ideas by the root, or cure long-standing evils to your
hearts content, you must not therefore abandon the commonwealth. Dont give up
the ship in a storm because you cannot direct the winds. And dont force strange and
untested ideas on people who you know are firmly persuaded the other way. You must
strive to influence policy indirectly, urge your case vigorously but tactfully, and thus
make as little bad as possible. For it is impossible to make everything good unless all
men are good, and that I dont expect to see for a few years yet. 21
This is a beguiling solution to the problem, but does it hold good for the manager?
Earlier, in the context of acceptable limits of non-disclosure, we briefly discussed an
issue about concealing the relevant truth and about informed consent. Is Moruss
concern similar or analogous to that discussion, or is it simply different? The role
of the manager is not quite the same as that of the politician who might have to
make a decision to go to war, to raise interest rates or to cut public spending, or
a general who knows that he will lose troops in battle. The reason is simple. The
ruler is charged with protecting the interests of the whole community, whereas
the manager is committed only to the welfare of the corporation.
There is enough in common between the political leader and the business
manager, however, to warrant an analysis of the problems of business ethics through
the issue of dirty hands. For both business and politics lay a stress on consequences,
on getting a result. (As we have seen, both Thomas Nagel and Bernard Williams
have regarded this point as particularly important in the context of political decisionmaking.) Business and politics are both driven by the imperative of success, and if
that is the measure of conduct, it is easy to see why they share the problem of dirty
hands. The rationales for action are similar: in the case of the politician, the welfare at
stake is that of the state; in the case of business, it is the corporation or enterprise. In
both cases, the appeal to a higher cause to justify action does not refer immediately
to principle but to a good to be achieved. The good of the state or corporation is
assumed to be an adequate justification, whereas self-interest usually is not.
Sometimes, however, altruism is cited as a justification for dirty hands. The classic
comedy Arsenic and Old Lace is a good illustration of the point. Two old ladies kill
elderly gentlemen to relieve them of their difficulties with ageing and, measured by
the standard they have assumed to represent good, their actions are not murder but
kindness. The telling thing about this comedy is its prescience: it captures many of
the moral issues facing modern society, such as euthanasia and the international
arms trade. Moreover, it exposes the problem of defining right action solely in terms
of some particular desired good. This is shown clearly in the case of the kindly old
killers. Does the problem arise here because they did not produce good? In their
terms they did. They got their hands dirty, and they were a little crazy in killing
their gentlemen friends, but their intentions were good and they were concerned
about the welfare of others. Raimond Gaita has called this the RSPCA view of human
good.22 It adopts a perspective according to which evil may be done that good may
come, because its benevolent attitude assumes that the alleviation of misery is the
prime object of human existence. If this is so then what is done to others cannot be
anything but good if it does them no physical or psychological harm. Harm is almost
a synonym for pain here. The very notion that one is doing evil to produce good is
ruled out definitionally. The ends are held to justify the means as long as the latter
are in proportion to the former. Good ends make for good means.
In the film A Few Good Men, two marines at Guantanamo Naval Base in Cuba are
charged with the murder of one of their fellow marines. The death of the marine had
occurred during the enforcement of an informal standard called Code Red. Code
Red is the internal correction of infractions of rules or good disciplinethat is, the
punishment of offenders by their peers rather than by superior authority. The dead
marine was a victim of a Code Red action that went wrong. The man had a condition
that was worsened by the attack on him.
Under cross-examination, the commandant of Guantanamo admitted that he
had ordered the Code Red, and the men were acquitted of murder but convicted
of conduct unbecoming a member of the armed services and were dishonourably
discharged. One marine expressed amazement at this verdict and the punishment:
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We did the right thing, he says to his companion. After all, they followed orders.
The other marine knows the true gravity of his offence. The role of the marines
was to protect the weak, and they had killed a weak man even under orders. They
had corrupted the organisational aims of the marines. Even within the organisation,
obedience to commands is only one requirement. And this was a case where that
requirement came into conflict with another, with the verdict that the other requirement was such as to overrule this one. As for the commandant, he is arrested. He
nonetheless can see nothing wrong in ordering a Code Red, in lying, or in deception
and fraud because he sees himself defending lives. His hands must be dirty by the
standards of common morality, but he has no time for such niceties. As he puts it, he
has breakfast every morning less than 100 metres from the communist enemy. He
believes that those who preach common morality do so from the safe cover provided
by his protection and that the price of that protection is acknowledgment of a different kind of correct practice, one that involves Code Red disciplines, and loyalty
to the unit and the Marine Corps even before God and country. In other words, he
exhibits goal perversion.
Yet to regard the moral victory as going to the prosecutors is too simple, whatever
the demands of the plot. For the commandant is expressing the values of agent
relativity, and this is also what is demanded of marines in general. For people in any
occupation, the issue of agent relativity comes with the job. Agent neutrality is the
position of the prosecutors and the audience, and that is the position that is affirmed.
This is too simple, too black and white, too ready to cleanse dirty handsor rather,
too ready to declare that the hands are nothing but dirty. For, from the agent-relative
position of the marines, they do have reasons to place the corps and country ahead
of God, shocking though this seems from an agent-neutral position.
The problem of dirty hands is essentially one of whether evil may ever be
done, not just in exceptional circumstanceswhich most people are apt to find
excusablebut as an inevitable part of human life. Is the problem of dirty hands
simply part of the human condition, an existential difficulty that cannot be resolved
by any theory of morality because it is not a matter of simply making the right moves,
but inescapably the horror of having to decide between two repugnant choices? In
recent times it has been used to justify carpet-bombing of cities, nuclear weapons,
abortion, genetic engineering and some very odd business decisions. Of course, in
the case of unusual circumstances it is quite common for the act in question to be
defended in terms of choice of the lesser evil. The dropping of the atomic bombs on
Japan is just such a case. In less dramatic circumstances, the dilemma is presented
as almost unresolvable and inevitably tragic whatever decision is made. A poignant
and much publicised case was that of a 14-year-old pregnant rape victim in Ireland
who, in 1992, wished to travel to England for an abortion. Arguably, whatever choice
she made, morally speaking it was not cost free.

There are two issues to deal with here: one, the distinction between public morality and private morality; and two, the possibility of dirty hands. In the senses in
which we are using the terms, public morality does not mean something like that
which you do in public as opposed to that which you do in private; and private
morality does not mean something like that which you do in the privacy of your
home. Rather, private morality refers to morality and moral requirements and
considerations present in ones personal affairs, whether or not those affairs are
private. Public moralitysometimes called role moralityrefers to morality and
moral requirements and considerations present when one has a public persona,
role or position. Questions arise about whether there are different moral factors
between these two arenas, and whether a hierarchy of moral requirements might be
differently organised between them. For example, in the moral scheme of things for
individuals acting in their personal conduct, the duty to keep ones promises probably occupies a fairly high position within a hierarchy of moral requirements. Some
have argued that in the case of public morality, however, and particularly in the case
of the political arena, keeping promises is not as high a moral priority as some other
requirements that, placed in a private arena, would rank lower. This is not a claim
about how politicians act, nor is it a criticism directed at the untrustworthiness of
politicians. Rather, it is a suggestion about the correct ordering of priorities, and a
difference in the correct moral ordering between the public and the private arenas.
Dirty hands amounts to a situation that is something like, but not quite like,
damned if you do, and damned if you dont. It is a situation in which, even if you do
the morally right thing, you have also done something that is morally wrong. Morally
speaking, it is better that you did what you did; but that does not mean that in doing
it you did not also do something immoral at the same time. That is, moral choices do
not always amount to win-win situations. Sometimes there is a moral cost to doing
the morally right thing. In some instances where moral values come into conflict,
the situation is such that opting for one over the other is not only the right thing to
do, but it also involves no moral sacrifice. Sometimes, however, it seems that even
when we do the right thing, there is still a moral cost. This is not quite a situation of
damned if you do, and damned if you dont. It is more like damned if you do, and
more damned if you dont. That is, the moral cost is not such that it then becomes
a matter of indifference which choice you make, but it is nevertheless the case that
when you do the morally right thing, you are also responsible for something that is
morally not good. For people who have seen this as an appropriate characterisation
of some moral choices, this is referred to as a matter of dirty hands. 23 A dirty hands
situation is one in which doing something that is right (morally good) carries with it
something for which you are responsible that is wrong (morally bad), the wrongness
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of which, itself, does not evaporate simply because of the rightness of your act. Many
moral philosophers have either denied that this is actually possible or that it is a
good way to characterise the situation. On the other hand, many have considered
the notion of dirty hands to be an important notion, and the characterisation to be
an important insight into a particularly difficult and gut-wrenching area of moral
decision-making. Consider these examples.
Imagine that you are walking through the jungle somewhere in surroundings that
look just right for a Mission Impossible adventure. You come upon a firing squad.
The sergeant in charge looks at you, cigar in his mouth, which has assumed an evil
grin, and he says to you, Okay, either Im going to shoot these twenty people or else
you take the gun and kill one of them. You choose. 24 What are you going to choose?
What is it that you are thinking about when you are trying to decide what to do? And
suppose you choose to shoot one. Will there be nothing of substance to the moral
complaints of the parents of that person when they say to you that you murdered
their child? Suppose that you decide to refuse to accept the option that would involve
you in killing anyone at all. And suppose also that you deny that the blood of the
twenty is on your hands. Even in thinking that you have done the morally correct
thing, do you think there is anything of substance to a claim that might be advanced
against you that you are nevertheless responsible for the occurrence of something
morally untoward?
Here is another example: some children are in danger. You can save either your
child or some other child. Or, you can save your child or two other children, five
other children or, indeed, you can save your child or all of the people in Sydney?
What are you thinking about when you are considering what you should do in these
cases? And do you think that, even when you have made the correct moral decision,
you are nevertheless open to legitimate moral criticism?
Is the following perhaps an example both of the distinction between public
and private morality and of dirty hands? Legal ethics requires legal professional
privilege. This is a privilege on the part of a client, and an obligation on the part of
the lawyer. The lawyer has an obligation not to disclose information learned about
clients or from clients for the purpose of giving legal advice or in litigation involving
the clients, without the approval of the clients themselves. 25 Suppose a client tells the
lawyer that he or she did, in fact, commit a murder. The lawyer cannot disclose this.
Suppose a client tells the lawyer that he or she plans to go and rob a bank. It is clear
that there is a legal duty not to disclose.26 It is also clear that there is a professional or
ethical duty (which in this context amounts basically to the legal duty) inasmuch as
it forms part of the code of ethics for lawyers. It is arguable that there is moral duty
as well.27 We might argue that the legal system we use is morally valuable and that it
requires that clients can speak absolutely confidentially with their lawyers. Allowing
that it is morally permissible for lawyers not to maintain confidentiality with their
clients, or even that there are exceptions to this duty, could damage the legal system.
Although some moral harm might occasionally result from the maintenance of confidentiality, more moral harm would result from not strictly maintaining it. Therefore it
is not up to lawyers to consider each individual case on its merits in order to decide
whether, morally speaking, they should maintain confidentiality. Rather, it is that,
morally speaking, confidentiality should be maintained without exception.
Suppose that we accept this argument. Let us notice the points that bear on the
discussion of public and private morality and dirty hands. The profession presents
an obligation that is not present in private life. This obligation is present precisely
because of a persons professional, or public, persona; and it is something different
from that present in the area of private morality, where the maintenance of confidentiality has some moral significance, but is not the strict duty that applies within or for
the profession. Perhaps this is a difference between public and private morality. Even
if a lawyer has done the morally required thing in maintaining confidentiality, might
there not be some moral (immoral) repercussions in allowing the client to perform
some undesirable action because confidentiality was maintained? If the answer is
yes, then this is to say that the lawyer has dirty hands, even though the lawyer did
what should have been done professionally.
If there is a problem of dirty hands, what, theoretically, makes it possible for such
a problem to exist? If the rightness of an action were simply judged by the overall
happiness or welfare that resulted from that action (that is, if simple utilitarianism
were the only moral consideration), there could be no problem of dirty hands. In
this approach, if the overall result is a balance of happiness over unhappiness,
then the act was right; if the overall result is a balance of unhappiness, then it was
wrong. If, in the course of producing a balance of happiness over unhappiness,
some unhappiness also results, that is just a feature of the production of the overall
balance of happiness: in order to make an omelette, you have to break eggs. This
is one story. Suppose, however, that moral deliberation is not simply a matter of
tallying up the consequences and reaching a sum total. Suppose that the moral
features of a situation involve other elements as wellfor example, respect for
rights, performance of obligations, and doing your duty. It is possible that there are
conflicting obligations. It is also possible that rights can come into conflict with
duties. In such situations, even if one of them outweighs the other (and it is clear
what is required by morality), it might also be the case that the heavier one does not
altogether eradicate the lighter oneit simply outweighs it. Perhaps it is thus possible
that there remains an element of, say, moral unpleasantness because of the failure
to satisfy the one obligation. There could remain a moral complaint against you,
a moral uneasiness felt by you, even though what you did was morally correct. As
mentioned earlier, Bernard Williams has argued not only that it is possible that there
is a morally disagreeable remainder, a resulting justifiable moral complaint, but
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also that it is sometimes appropriate for something (non-moral) to override moral

considerations entirely (a point significantly different from that suggested here as
creating the environment where dirty hands is possible).28 It is exactly this that,
according to Williams, creates a situation where there is a morally disagreeable
remainder even when the correct act has been performed. What Williams addresses
in the context of politicsthe justifiability or desirability of putting political concerns
ahead of moral onesis very similar to a problem that occurs right at the centre
of business ethics concerns, namely the justifiability or desirability of putting the
businesss welfare ahead of transparently moral concerns. For example, you might
know that you are acting immorally but also that it is legal to do what you are doing.
Or you might witness immoral behaviour within your company or, perhaps, immoral
behaviour of your company as a whole. Should you be willing to run the business
into the ground in order to quell this behaviour? Is this a situation in which something
other than moral concerns becomes paramount? Is it one in which different kinds of
moral concerns come into conflict? Is this a problem of dirty hands?
The presence of different kinds of moral valuesrights, duties, obligations,
consequencescreates an environment in which it is possible that some morally
important considerations must be forgone for the sake of others. Possibly the result is
not dirty hands (that is, there is no moral remainder), but possibly there is a genuine
moral remainder in such an environment. A terrible danger (for the moral theorist,
as well as for anyone who comes face to face with moral decision-making) is that
there are occasions on which different kinds of moral values are not only different,
but also incommensurablethat is, they cannot be compared morallyso that
a moral calculation cannot yield a result (Do this!) in a situation in which two
incommensurable values are involved.
You considered the jungle scenario and the other descriptions that might present
the impression of a situation of dirty hands. What might make you think that there
is a genuine moral remainder in these situations? Perhaps it is that you are unhappy
with some of the features of the decision that you regard as the morally correct one.
Perhaps you do not feel good about some aspects of the decision. Maybe that is the
answer; but possibly it is not the answer at all. Perhaps the feeling of unhappiness (or
whatever) is not a matter of recognising the presence of a moral remainder, a moral
complaint that persists even when the morally correct decision has been taken.
Perhaps it is, rather, a matter of being affected by other dimensions of the situation
as well, one effect of which is that you confuse the moral dimensions with other
aspects. These may not be situations of dirty hands; perhaps there are no situations
of dirty hands. The point here is not to convince you either that dirty hands is a
legitimate phenomenon or that it is not. Rather, the point is to call the possibility to
your attention, because, as in war, it is used extensively in business to justify conduct
that some people find morally objectionable.
Necessity
Sometimes it seems that behaving immorally is inescapable. If a business is to survive, some difficult decisions have to be made. People who do not have to face such
basic challenges might view these decisions as unethical. If, say, a firm is operating
in an environment where secret commissions are standard, how can it be expected
to survive, let alone prosper, without doing the same thing? If a company is faced
with cost pressures, how can it avoid sacking staff or reducing wages? If a factory has
overseas competitors who freely pollute the environment, how can it hope to keep
its workforce employed, contribute to national income and live to fight more cleanly
another day if government regulations, levies and other penalties apply? Perhaps
these questions appear easy for the detached and disinterested moralist to answer,
but for managers and owners they are not black and white problems.

As we stated in chapter 1, the slogan good ethics is good business has considerable
persuasiveness. We would issue a caution, however, about reading it as ethics is
only good when it is good for business. At first sight this is just the kind of incentive
that seems to be needed to get business to take ethics seriously. It appeals, or seems
to appeal, to the profit motive and therefore is likely to be more convincing to profitoriented business people than injunctions to do the right thing for its own sake. The
public have an interest in ethical behaviour. And shareholders, the public at large
and the government all have a direct interest in the ways that businesses behave. If a
business does not behave in what is perceived to be an ethical way, there is a strong
likelihood that it will suffer. Share prices will drop, there can be a reaction against
the businesss products and there can be government interference in or regulation of
the businesss activities. In short, there are strong prudential reasons for businesses
to be ethical.
Overcoming the ethical reticence of business in this way, however, solves a practical
difficulty at the expense of morality. If ethical conduct is held to produce good profits,
then being ethical is a matter of prudence. It might be prudent to be ethical on two
grounds: first, that the market will ultimately punish unethical behaviour with failure;
and second, that if unethical practices abound, governments will legislate to protect
consumers and to control trading. Both reasons appeal to self-interest. However, selfinterest is not an ethical reason for acting. Hence, appearing ethical to enhance the
interests of your business is not what ethical business conduct would prescribe. What
is done by a corporation might well coincide with ethical practice, and this is not
something that those doing business with that corporation would lightly dismiss. But
a routine of transactions based merely on self-interest can never produce an ethic.
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But more than these considerations is the issue of what end is to be served by
ethical conduct. Ethics is not about self-serving; it is about doing the right thing
despite the personal costs. So, if good ethics is good business, it cannot be simply
in the sense of making sustained profits free of government interference and a
tangle of regulations. Ethical considerations and ethical reasons can conflict with
consideration of self-interest alone. These can be considerably different kinds of
considerationsperhaps not always, but clearly sometimes.
We do not have to take a cynical view of ethics being good for business: ethics is
good for everyone, and for too long business has been considered beyond the pale
in some sense. This is no doubt due to a common attitude that blames business for
many of the ills which beset societyfor example, the banks for high interest rates.
There is also the idea that markets have nothing to do with morals; that they are free
in the sense of requiring no constraints apart from those that participants voluntarily
impose on themselves through entering into contracts with others. This seems to set
business off from those occupations that have acquired the status of professions.
The professions have core bodies of knowledge, clearly defined practices, and
identities that distinguish them. Business is a more generic domain and is more
varied in nature. Yet there have always been practices, knowledge and norms in
business that have exercised a shaping if diffuse influence. It is these norms and
practices that are the object of ethical interest.
The fact that business is not a profession should not suggest that it has no need
for ethics. Recall our earlier observation that unless business cleans up its own problems the regulators will move in. The concern if regulation is increased or tightened
is not only the cost and inconvenience this will cause entrepreneurs and managers,
but also the potential for damage to the enterprise. Regulators commonly take a
purely legal view of affairs, and tend to be indifferent to matters such as morale,
trust and camaraderie. Regulators must live in a world of rules, formal requirements
and bureaucracy. Hence, business needs to be aware of the ethical dimension of
its practices and to understand that mavericks can do immense harm by being
morally negligent, reckless or blind. The Sarbanes-Oxley reforms were a response
to the collapse of Enron. When the United States government bailed out American
International Group (AIG) and other firms in danger of collapse in the 200809 global
financial crisis, it expected old practices to be discarded. It was after all, a crisis, a
turning point, a departure from previous practices. Instead, AIG continued business
as usual. It was not alone, but its decision to pay bonuses to its staff triggered outrage
in the media and Congress. Those who received bonuses were pressured by New
York Attorney-General, Andrew Cuomo, to return them voluntarily (but on pain of
being named if they did not). Congressmen were not so flexible: the New York Times
reported that lawmakers began rushing to impose heavy taxes on bonuses paid to
executives of companies receiving federal support. The House on Thursday voted
overwhelmingly in favor of a near total tax on such bonuses. 29 This anger was not
the most rational expression of ethical concern, but it would be a stupid businessperson who ignored it.
REVIEW QUESTIONS
1 Compare these two considerably different views about the position of business.
Albert Carr:
People can lie in business and break promises because within the accepted
rules of the business game, no moral culpability attaches to it.30
Harry Wrage:
Business is not a closed society, free to operate by special rules as long as all
the players understand them.31
Are you clear about the differenceand what difference it makes?

2 Consider the following view.
A dirty hands situation is one in which doing something that is right (morally
good) carries with it something for which you are responsible that is wrong
(morally bad), the wrongness of which, itself, does not evaporate simply in virtue
of the rightness of your act. It is a situation in which even when you do the right
thing, there is a morally disagreeable remainder.
Is it clear how this is a different view from the one that would offer a characterisation,
rather, in terms of in order to make an omelette, you have to break eggs, if you have,
in fact, done the right thing, and there was some unpleasant fallout that resulted
from it or was attendant with it, then thats a shame, but it is nothing for which you
should apologise? That is, there is no morally disagreeable remainder; there is only
an unfortunate feature that accompanies doing the right thing in this case.
3 With reference to the material in both chapters 1 and 2:
a Is it the case that business requires the kind of ethics that recognises the
realities of the marketplace?
b What could it mean (or could it make any sense at all) to say that there is a
different kind of ethics that is appropriate to the marketplace?
4 In what ways are the principles of ethics set out in chapters 1 and 2 relevant
to business? Is there anything special or different about the way they apply to
business? Give two or three examples.
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CHAPTER OUTLINE
7h The problem with the notion of stakeholder
7h The usefulness of the concept of stakeholder
7h Occupational health and safety
7h Random testing of employees

7h Consumer protection and product safety
7h Review questions
Recent attempts to gain purchase on the problems of business ethics, especially to

overcome the bias towards self-interest, have appealed to the notion of stakeholders.
The term seems to have been coined in the early 1960s as a kind of pun on stockholders1 and has found its way into common usage both in the business community
and beyond it.
Stakeholder, as it is used in discussions of business ethics, has a meaning
different from that which it has in discussions of law, conveyancing and gambling.
If a couple of people are shooting pool, they might want a stakeholder to hold the
bet, and then pass it along to whoever wins. If someone is buying a house from
someone else, the purchaser might want a stakeholder (usually, the estate agent)
to hold the deposit for some period of time, until it is safe to pass it along to the
vendor. In these contexts, a stakeholder is a disinterested third party: someone with
no vested interest in the activity for which they are holding the stake. In another
context, stakeholder means something very different from this. Often in discussion
of topics in the areas of business ethics, professional ethics and sometimes simply
practical ethics, a stakeholder is someone who does have a vested interest in some
activity or some situation, someone who is or will be affected by some outcomes.
The reach of the concept is deliberately broad, but there is a spectrum across
which arguments about stakeholders are deployed. A widely held view identifies
six groups of stakeholders: owners, employees, customers, suppliers, industry and
the community. This notion of stakeholders identifies those whose opposition to
a companys operations or goals could seriously harm it: Stakeholders do hold
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the power of life and death over an organisation.2 By contrast, Edward Freemans
definition places more emphasis on interdependence,
Simply put, a stakeholder is any group or individual who can affect, or is affected
by, the achievement of a corporations purpose. Stakeholders include employees,
customers, suppliers, stockholders, banks, environmentalists, government and other
groups who can help or hurt the corporation. The stakeholder concept provides a
new way of thinking about strategic managementthat is, how a corporation can and
should set and implement direction.3
Stakeholders are the broad constituency served by business. As such they have a
deemed interest in what a firm does in order to earn profits. While stockholders have
a prima facie right to consideration in decision-making, it is not sufficient to negate
the rights of society to a say in business dealings. As a former American executive
put it, Every citizen is a stakeholder in business whether he or she holds a share
of stock or not, is employed in business or not, or buys the products and services of
business or not. Just to live in American society today makes everyone a stakeholder
in business. 4 In a word, the move towards a stakeholder approach is most frequently
a bid for social responsibility in business.
In engaging in some practice, the interests of the stakeholders should be taken
into account. However, it is a topic of some debate whether or not all types of stakeholders should be taken account of. For example, religious zealots may well have a
vested interest in some activity that a business is considering undertaking; and it is
problematic whether that business should, morally speaking, take account of those
interests in reaching a decision. In one view, although anyone with a serious interest
is (by definition) a stakeholder, not all their interests must be taken into account,
and not all their moral standing warrants consideration by someone proposing to
engage in an undertaking. In some contexts it would be important to distinguish
genuine stakeholders from people whose interest is officious; and to distinguish
genuine stakeholders from those who might have a genuine interest, but who are
not affected sufficiently to give them the status of stakeholders. In some cases, for
example, merely being offended by the presence of some practice, or merely having
a genuine concern for the well-being of others, does not, by itself, render one a
stakeholder in relation to the practice. An analogue here would be that of standing,
or standing to sue, in court, where only those who have standing can bring a claim
against another party. In the present context this will not be particularly important.
The more important point here has to do simply with taking genuine stakeholders
interests into account, regardless of how the notion of stakeholder itself is characterised or restricted.
What is it, then, to take account of the interests of stakeholders? The simple
answer is that it is to calculate the impact of an action or a practice on the
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stakeholders, and to figure into the overall calculation the effect of the practice or
action on them. Usually this is seen as a matter of calculating the utility or disutility
of a proposed practice for the stakeholders, recognising that various stakeholders
(groups of stakeholders) have different stakes in the possible outcomes of some
activity. Kenneth Goodpaster has made the important point that merely identifying
a group as stakeholders in some activity does not, by itself, point towards a correct
or appropriate ethical analysis of the activity.5 It may be a significant prerequisite to
moral reasoning, but it is not more than this. A stakeholder analysis by itself is not
strategic. The phrase stakeholder analysis has had some currency in the literature.
While it is an important notion, there is also a danger that, as a phrase, stakeholder
analysis might simply become synonymous with social responsibility, while
presenting a misleading impression that there is some methodological substance
to it as a particular type of analysis, or that identification of the stakeholders itself
implies something about taking others interests into account and how to do this.
This is a danger. Nevertheless, stakeholder is an important notion, and the injection
of a consent consideration into a stakeholder analysis amounts to recognition of a
very important element in moral reasoning.
Reaching a decision about whether a possible practice would be advantageous
or disadvantageous to a particular group need not involve actual consultation with
that group. Sometimes the options available and the choices to be made are such
that it is not presumptuous for someone other than the stakeholders to decide what
is in the stakeholders interest. If a certain activity would endanger the health of a
group of stakeholders, and offer no prospects of advantage to them or to anyone
else, it would not be presumptuous to calculate accordingly, without consulting with
the stakeholders themselves. In such a case we probably would not consider that
the decision not to endanger their health was being paternalistic. It would simply be
deciding not to engage in an activity because of its possible harmful effects on some
groupeffects that are not offset by anything else.
In some cases, however, decisions about whether to engage in an activity might
be based on trying to take account of the groups welfare in the context of competing
claims about that welfare, or at least in the context of advantages and disadvantages
associated with the activity (for example, fluoridation of a communitys water supply
or stringing power lines over the homes of some of its members). Here, to decide to
act one way or another because of the benefit to the group could well be to engage
in a paternalistic decision: Well do this, because itll be for their good, or Well
allow this risk, because the likely benefits are such as to make it a risk worth taking,
or Well do this because the disadvantages or losses are outweighed by the benefits
that will accrue. In such cases, someone decides the matter for those who will be
affected by the activity. This differs from the earlier case (where there was nothing
but disadvantage) in that there was, in effect, nothing to decidegiven that the
C H A P T E R 3 S TA K E H O L D E RS
proposed activity had no benefits to offset its likely disadvantages. And it also differs
from a case in which it is decided that the possible disadvantage to one group is
outweighed by the possible advantage to another, and where the original calculation
was to sacrifice the disadvantaged groups welfare for something else.6
As an alternative to paternalistic decision-making by whoever has the power
or the authority (governmental body, professional organisation, business entity or
individual), it is important to keep in mind the possibility of taking account of the
wishes or decision of the potentially affected group itself. It is important to recognise
that stakeholders are not only to be taken account of but, when appropriate, given
a voice. Sometimes this is so (or should be so) because the stakeholders can give a
worthwhile opinion about the costbenefit of the proposed activity. Sometimes there
might be a real question of what that group would consent to. Given that there are
some disadvantages or some risks associated with a possible gain for the group concerned, there might be a real question of whether incurring those disadvantages or
risks is worth the possibility of that gainwhether it is worth this to them. And here
it should be recognised that it is not always the case (perhaps it is hardly ever the
case) that only one decision is the rational (or even the reasonable) one. That being
so, there is something to be decided, some choice to be made, on grounds other
than simply, say, the dictates of rationality. Here, very importantly, is an occasion
for taking account of the interests of stakeholders. And its an occasion where being
informed of the actual view or opinion of the stakeholders themselves is important
to properly take account of their interests.
The problem with the notion of stakeholder

As already indicated, the notion of stakeholder is not trouble free. Unreflective use of
the notion can be dangerous. It can lead you to believe that you have moral responsibilities to any number of interested parties when, in fact, there is no particular
duty to them simply because they have taken an interest in your activities. An interest
is not necessarily a stake. Even people who are affected by your activities do not
necessarily have a stake in them. It is salutary to be mindful of Milton Friedmans
viewmentioned briefly in chapter 1. It is probably not an overstatement to say that
the entire literature on stakeholders has been a reaction to Friedmans view about
the appropriate responsibility of business. Friedmans viewdeveloped mainly in
the 1960s and popularised mainly in the 1970sis that the appropriate interest of a
business is its stockholders only. Aside from what is required by the law, a business
has no business at all taking anyone elses interests into account. A company not only
need not but should not have an interest in benefiting anyone else at all. To engage
in so-called socially responsible behaviour or to have an eye on the interests of any
erstwhile stakeholders is, in effect, to steal from the stockholders, who are the only
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ones with a rightful claim on the companys concern and its profits. We will not go
further, with arguments specifically for and against Friedmans view. We simply want
to call attention to the view as a counterbalance to the extreme view that because
someone or some organisation could benefit from the attention of a business, therefore the business should direct its concerns towards producing that benefit.
The term stakeholder is useful; but you should be careful that you do not find
yourself overcommitted simply by having used that word. On the whole, the literature
takes the notion of stakeholder as a given. Yet its character is very much that of an
asserted rather than a demonstrated proposition. Indeed, in much of the literature
the use of the term is question begging: the social responsibilities of business are
the thing to be proved, and talk of stakeholders as analogous with stockholders does
not offer such proof. On the contrary, given that business starts from the premise that
unfettered trade is a social good, the imposition of obligations beyond those of trade
might be thought to stand in need of considerable justification.
Even this simple criticism exposes much that is wrong about using stakeholder
to formulate a more inclusive definition of the responsibilities of business. As the
quotations from Freeman and Leibig show, a concept that is over-inclusive is virtually
useless. Why not just refer to all citizens, rather than referring to stakeholders at
all? Nor does the notion of stakeholder of itself present a clear ethical claim for
consideration among many. Take the building of a paper pulp mill at a time of recession and unemployment. To some people advocating a stakeholder position, the
interests of stakeholders mean the interests of environmentalists. To others they
are those of the unemployed, of the community in which the mill will be located,
and of the nation through exports. All are right, and this means that the notion
of stakeholders does not do more than shift the argument to the question of who
are the real stakeholders, or the utilitarian question of which of the stakeholders
is greatest, can generate most good, and so on. In other words, a broad notion of
stakeholder adds nothing to the discussion of business ethics.
Stakeholder is used to connote an interest in business, usually in a particular
business. The problem with this is that while societys interest in business as a
whole is intelligible and can even be the source of ethical principles, it is difficult
to extrapolate from this general social interest to specific interests in particular
businesses. Identifying the moral claims of stakeholders in IBM or BHP is potentially
a confusing, unproductive and inefficient means of judging the merits of claims.
So while the term stakeholder is a striking contrast to stockholder, it is most
peculiar conceptually. For if the term means something different from simply anyone
with an interest, then how does one acquire a stake? It is clearly quite like a property
holding without explicitly being one: it trades on its similarity to and difference from
stockholder. In the sense that stakeholding implies a moral footing with serious
claims against property-holders, how is such a holding to be justified?
Robert Nozick is quite clear about this. People acquire a holding not through
being affected by an activity but by a proper consensual procedurethat is, not by
accident.7 Even in those cases where business is transacted between parties, this
must of necessity be limited to the agreed matters if business is to be done at all.
For if every dealing were potentially open-ended there could be no clarity about
responsibility, liability and other matters pertaining to fairness and justice. Even in
consensual matters there is a limit on the deemed involvement of parties to the
matters covenanted.
In a very general sort of way, creditors, employees, suppliers, customers, banks
and local, state and central governments have an interest in businesses. They stand
to gain from their success. They might even stand to lose from their failure. But
such losses are properly described as proximate rather than direct. For stockholders
invest in a corporation as a risk, while those trading or dealing with it do so as
part of more general activity; no one deal is all or nothing, although unpaid bills
are an unfair burden on any business activity. In other words, stockholders make a
commitmenteven risking the whole of their investmentbut those who benefit
indirectly, like small retailers in a mall whose major tenant is a crowd-pulling retailer,
have not put anything directly into the business. Nor have governments, creditors
or banks. Stakeholder claims seem, then, to be asymmetrical: they apply only when
self-interest is at stake, not when some sacrifice is required. Clearly whatever is due
to the associates of a business must be covered by agreements as well as ethical
responsibilities; it is not adequately covered by a notional obligation to them as
stakeholders.
Can the same point hold true for employees? This is connected with the very
old question of the rights of employees. A view that held that employees were no
different from other dealers with a corporation would see the sale of labour as
no different from the sale of raw materials or services or credit facilities, and would
give the employees of a firm in difficulty no priority over the employees of creditors
who might also be adversely affected by a corporate collapse. That is, the addition
of the term stakeholder to the term employee confers no special rights. Employees
are entitled to risk their capital in their place of employment by buying its shares,
but a corporations liabilities extend no further than the legal requirements of the
land and the contracts it has freely entered into. Nor should employees be especially
privileged, for this must be at the expense of other interested parties, principally
stockholders.
The case of employees, however, provides a good illustration of what is wrong
with a stakeholder view of business: if one party is to benefit, it will often be at the
expense of the others. The stakeholder theory does not by itself rank or give different
interests their due. It is a misconception of stakeholder theory that it completes the
moral analysis of a situation. This disturbs the long-established view that rewards
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are tied to contributions. Such a conception seems to give a spuriously democratic,

egalitarian hue to the world of business, but only at the expense of the rights of
all parties.
All this can be obscured by talk of stakeholders. Stockholders who did not know
the extent of liability of the firm they were investing in would not be in a position to
assess the risk of their investment. On one interpretation, the notion of stakeholder
makes business potentially liable to claims against it in an open-ended way, and
thereby asks people to risk their capital with even less assurance of a return than the
usual vicissitudes of market and nature provide. The notion might allow that any officious interest, anyone affected in any way by an activity, is therefore a stakeholder
in the activities of that organisation. In short, the notion of stakeholder might be
superfluous or dangerous. The reasonable aspects of stakeholder analysis are generally covered by other requirements anyway. It adds nothing positive; and it provides
a hide for an ambush on a company and the assets of its investors. It is odd that in
intention the concept is aimed at a fair voice for all players in the market, but can
end up by unfairly disadvantaging those whose capital is essential to any business
successby not transparently favouring stockholders over other stakeholders.
This view cuts across the territory of some critics of business, such as welfare
theorists. Their concern for equity makes them sensitive to the misuse of public
funds, a concern that might lead them to be natural allies of business but for competing agendas in other areas. The welfare theorist most commonly associated with
the criticism of public support of business is Richard Titmuss. Titmuss argues that
opposition to welfare is blinkered by ideological views that regard payments to the
needy as a drain on the public purse, and ignore the often hidden benefits bestowed
on the better off. Hence, Titmuss offers a redefinition of welfare to reflect the transfer
of payments actually made in society. Besides the social welfare familiar to people
in the United Kingdom, Australia, Germany and New Zealand, he identifies fiscal
welfare in the tax deductions allowed to wage and salary earners but denied to
social welfare recipients; and occupational welfare in the perks offered to certain
employees as part of their salary package in order to avoid tax. All of these measures
and not only social welfare are part of the welfare system, argues Titmuss.8 He has
a point; opponents of social welfare are usually on unsafe ground when they base
their attack on economics. The decision of society to redistribute wealth on the basis
of need is no different in principle from the decision to allow certain expenditures
as tax deductions. But that does not make the latter welfare. In this respect, Titmuss
is guilty of the fallacy of persuasive definition: he defines his terms to suit his case
rather than making that case. The fact that welfare is a transfer payment and that tax
deductions are transfer payments obviously does not make tax deductions welfare.
(This is the fallacy of the undistributed middle.)
If incentives are offered to business to induce it to enter a particular field, this

carries with it no implicit obligations. As a partner in a venture the state is no different
from any other partner. But if its interest is to induce the development of a particular
scheme, then whatever inducements it offers do not cover the risk of those who
undertake the development. Usually the incentives simply make the scheme viable
against the competition of rival opportunities for investment and, to that extent, a
government might see social or economic advantages in supporting one scheme
over another. Ultimately, the wisdom of such policies is something that the voters will
decide, but such incentives and the provision of infrastructure and other assistance
do not of themselves give government or society a stake in particular ventures.
They are environmental policies to encourage private equity to flow in a particular
direction, not investment opportunities to bring a direct return to the public purse.
Again, the stakeholder theory blurs the kind of interest the public has in business.
The usefulness of the concept of stakeholder

Despite these reservations there are virtues in the use of the term stakeholder in
business ethics. The point of our criticisms is to show that awareness of and reference to stakeholders is not the instant solution to moral problems that some writers
suppose it to be. Freeman, for example, recommended the mapping of stakeholders
in business decision-making as an aid to strategic management, and it might have
similar value in identifying the ethical dimensions of decisions. But a stakeholder
map does not replace moral reasoning; it can only be a convenient starting point.
The virtue of the stakeholder concept is to remind managers, investors and others
with a large vested interest in business organisations that a market economy is not
an unrestricted one; that a free society makes demands on its citizens not only in a
personal sense but also as members of social institutions. In this sense, the concept
of stakeholder reminds us of the principle of business outlined in chapter 2: business
operates on behalf of society, and the free market economy is deemed to provide
the most successful way of producing public benefits through business. The concept
can be used then as a useful corrective to the mentality that sees the market as the
solution to all of lifes problems.
The following cases and examples consider some of the stakeholder groups
who are among the most vulnerable to corporate decisionslessees, employees
and customersand even some who would be thought to be rather safe: corporate
directors. The cases are not all about ethical malpractice: the SPC story illustrates
cooperation between a company and a union that benefited all stakeholders (a
cooperation that has become more common in the years following this case).
The Dollar Sweets case is offered as a contrast from the same era. Some of these
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casesthe Bond lessees, for exampleare classic instances of evasion, but recent
cases show that some tactics of corporate leaders remain almost timeless.
CASE 3.1: Smaller stakes, fewer rights?
case
question
Among the many colourful stories in Paul Barrys book The Rise and Fall of Alan
Bond there is the sad saga of the dispossessed publicans. In 1985 lessees of
pubs tied to the Tooheys brewing firm began receiving notices to quit. Tooheys had
recently been taken over by Alan Bond. Over the years the lessees had developed a
tacit understanding with Tooheys about the value of the goodwill in their pubs. Bond
declined to recognise this understanding, so when he did not renew the leases, he
felt no obligation to pay for the goodwill that the publicans had themselves paid for
in the purchase of their leases. About 130 publicans were affected. Bond claimed
that he was not party to any arrangement about goodwill, and was not legally bound
to make compensation. It was a matter for the leaseholders that they had decided
to pay so much for the leases of their pubs. It had nothing to do with Tooheys and
nothing to do with him. He regarded neither the original value of the goodwill nor
the investment in maintaining it as placing any obligations on him.9
Tooheys had never evicted publicans, and the lessees had (reasonably) assumed
that they were making a sound investment in their pubs, although they were aware
that the sale of goodwill was a matter of custom recognised by Tooheys. Bond
formed a company called Austotel to buy the hotels, and this insulated Bond Brewing
and Bond personally from the hostility that followed the eviction orders. According
to Barry, during attempts to negotiate compensation, two representatives of the
publicans were told by Bond executive John Booth, You want to know what Alan
Bonds message is to you blokes? Well, Ill tell you: Alan says burn the bastards.10
Bonds view was that the lessees had made a commercial decision to buy into the
pubs, that they should have been aware of the basis of their entry into them, and that
consequently nothing was owed to them. They were not entitled to compensation
because there was no contract to that effect and the law did not require it. If such
conduct was not illegal in business, it was not immoral.
This point might be rephrased to reveal more of its meaning: it really seems to
mean that whatever is not explicitly forbidden is permitted; whatever is not legally
forbidden is ethically permitted.
1 Is it possible to sustain the position, Whatever is not legally forbidden is

ethically permitted in business? What collateral damage to a conglomerate
might flow from indifference to the moral claims of particular stakeholders such
as the publicans?
There are always ethical issues when capital is raised, and cases like this show
them to be far from straightforward.
CASE 3.2: An employeemanagement partnership: the rescue of SPC11

In December 1990, the full-time employees of SPC voted to give up a package of
employment entitlements over the next 12 months in order to save the company
$2.5 million. The package affected not only the 300 or so full-time employees but
also the 1300 seasonal employees (who were not consulted). The savings in the
wages bill were part of a wider cost rationalisation program throughout the company
as it was grappling with projected losses of $10 million over the next year. These
losses were due to a failed diversification strategy by management, implemented
during the late 1980s in an attempt to secure the companys long-term survival in
the face of significant over-capacity in the canning industry, growing competition
from subsidised imports and a federal government decision to dismantle the
industrys statutory marketing arrangements.
Facing this scenario, the new board called in accountants KPMG Peat Marwick
to conduct a corporate review, and many of their recommendationsincluding
redundancies of one-quarter of the permanent workforce, closing two offshoot businesses and ending joint marketing arrangementswere implemented immediately.
However, SPCs bankers, fearful of the high debt structure of the company, wanted
more. The chairman, John Corboy, called a meeting with the union shop stewards
and made them aware of the financial difficulties facing the company and the
need to cut a further $2.5 million in labour costs. They presented the workforce
representatives with twenty-six alternatives, all costed annually, to consider and
left the details of the package to them. After this meeting, which ended up with an
eleven-point pay-pruning plan, each of the shop stewards discussed the issue with
their union members. Most also contacted their union bosses at their Melbourne
head offices, none of whom seemed particularly interested in the deal. Consequently,
at a secret ballot taken the following afternoon, 94 per cent of workers across
all unions voted in favour of the plan. Key savings included the cancellation of
monthly rostered days off for all employees, agreement to work Saturdays and
Sundays at single-time rates, the removal of a $26 a week over-award payment
to seasonal workers, the removal of the 17.5 per cent holiday leave loading for
SPCs 150 monthly salary earners (non-unionised workforce only), the axing of meal
allowances and the cancellation of some rest breaks. The agreement was to last
twelve months, at the end of which the financial situation was to be reviewed. The
company had also promised that when SPC returned to profit, a profit share would
reward the workers for the year of going without.
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CASE 3.2 (continued)
case
question
When news of the deal broke it was opposed by the secretary of the Victorian
Trades Hall Council, John Halfpenny, who asserted that the SPC workers had no right to
trade off award conditions, thereby threatening the conditions of other unionists. The
Trades Hall threatened that they were prepared to oppose the agreement by stopping
all distribution from the company. Talks between the company and the Trades Hall
representatives broke down, and SPC filed to have the agreement ratified before the
Industrial Relations Commission. However, further talks between company and the
unions over the New Year break agreed on a compromise that left award conditions
intact, but delivered alternative cost savings to the company by reducing non-award
entitlements. The key to the new deal was the cutback of over-award arrangements
and work practices at SPC, which meant that the substantial cost saving of $2.4 million could be achieved without touching the industry standard award conditions that
the unions had been concerned to protect. The workers subsequently ratified the
agreement, and SPCs chairman said, As far as the company are concerned, we have
everything we could wish for. It is a very practical solution which demonstrates that
the system has the flexibility to help companies like ourselves.
1 Although, as it turned out, this seems like a good-news story, is there a way
to balance the interests of employees as stakeholders with the interests of
other stakeholders, particularly stockholders? There can certainly be competing
interests between these two. Is there any systematic way that they can be
legitimately and fairly balanced when they come into conflict?
The following case raises the question in general of the right to take industrial
action. How far should it extend? How far should contracts of employees to employers
and vice versa bind?
CASE 3.3: Wanting your cake and eating it too? Union v. Dollar Sweets12
Dollar Sweets manufactures hundreds-and-thousands, cake toppings and other
confectionery. Their employees were members of the Federated Confectioners
Association of Australia (FCA). FCAs award allowed for automatic six-monthly
salary adjustments in accordance with the Consumer Price Index. This award also
required a 40-hour week from the employees. By agreement with its employees,
Dollar Sweets allowed that workers working a 38-hour week would be covered
by the award. However, a national wage decision, the accord, determined that
a condition of salary increases was that employees not seek a reduction from a
38-hour week. In 1985 FCA began a series of rolling strikes in support of a 36-hour
week. Dollar Sweets circulated to each employee a questionnaire asking whether
or not they were prepared to abide by the terms of the award, saying that, if not,
they would be fired. Twelve of the twenty-seven employees said they did not want
to pursue the 36-hour week. Before the deadline for returning the questionnaire,
fifteen employees, together with officials from FCA, set up a picket line that, among
other things, blocked the laneway to Dollar Sweets premises. It was a particularly
effective picket. It seriously disrupted Dollar Sweets business, not just because
it was a picket, but because of the behaviour of the picketers: intimidation of
drivers of delivery vehicles, threats of violence, some actual physical violence, and
more. On application from Dollar Sweets, the Australian Conciliation and Arbitration
Commission recommended that FCA lift the picket. FCA refused. Dollar Sweets
commenced proceedings, alleging that FCA committed interference with Dollar
Sweets contractual relations, intimidation, nuisance and conspiracy to injure Dollar
Sweets. Dollar Sweets also sought an interlocutory injunction to restrain the picket
pending the hearing. This action was successful,
[T]he picket has obstructed all persons who have wished to do business with
other shops in the said lane, shops unconnected with the plaintiff
The apparent success of the picket line in disrupting deliveries to and sales
from the plaintiffs premises would appear to be due to the fear which drivers
and suppliers have of the consequences should they defy the picket the acts
of all the defendants which have now been repeatedly performed over many
months cannot be considered to be a lawful form of picketing, but amount to a
nuisance involving obstruction, harassment and besetting.13
Occupational health and safety

In March 1993, the National Occupational Health and Safety Commission (Worksafe
Australia) published Industry Occupational Health and Safety Performance Australia,
the first comprehensive study of work-related injuries in Australia. Not surprisingly,
the study showed that the mining, construction, manufacturing, transport, agricultural and fishing industries, and electricity, gas and water production had higher
incidences of occupational injury than the national average. Community services
and retailing were lower than the average. A particularly interesting aspect of the
findings was that most of the injuries in the high-risk categories were preventable.
They were caused by over-exertion and physical stressfor example, incorrect
lifting or attempting to move too weighty an object.14
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Random testing of employees

CASE 3.4: Weyco: A healthy policy?
In January 2005, four employees of Weyco Inc., a health benefits company acquired
by Meritain Health in 2006, left the company rather than take a test to determine
whether they smoked.15 The tests were required in accordance with Weycos
non-smoking policy for all employees. The unusual feature of this ban was that it
applied not only to the workplace but also to employees private conduct at home.
Testing was applied to ensure that employees did not cheat. Another unusual
aspect of the ban was that it applied to employees spouses if they were covered
by the employees medical insurance.16 Though these measures against smokers
are prohibited in some American states, policies like Weycos are entirely legal in
Michigan and nineteen other states. Weyco has just one smoker on its staff but he
is employed in Illinois, which protects his right to smoke.17 In Michigan and other
states, employers have the legal right to fire at will as long as they dont violate
discrimination laws, which do not apply to smokers.
The companys founder, Howard Weyers justified the policy as protecting Weyco
against high health care costs. I dont want to pay for the results of smoking, he
said, adding, The biggest frustration in the workplace is the cost of healthcare.
Medical plans werent established to pay for unhealthy lifestyles.18 Yet, Weyers
admits he has not measured how much smokers have cost him and acknowledged
that they might have cost him nothing at all.19 After all, the serious effects of
smoking frequently show up later in life, when many smokers would have left
employment with Weyco.20
Since the introduction of the policy, about twenty of the companys employees
have quit smoking. Weyco offered a variety of free programs, from drug therapy to
acupuncture, to help smokers break their addiction. FreshStart, an organisation
that assists people who wish to stop smoking, has offered any Weyco employee
free access to its program. FreshStarts CEO, Matt Godson, said that he was
sympathetic to both parties at Weyco,
From the employers perspective the burden caused by lost productivity through
excessive smoking breaks, not to mention smoking related illnesses can be considerable. From the employees perspective, smoking remains the No. 1 cause
of preventable death in America. Quitting smoking can not only save your job, it
can save your life.21
Part of the Weyco policy is to employ a fitness coach and to offer incentives
packages called the Lifestyle Challenge. The coach teaches employees about
issues such as stress management, and leads exercise groups at lunchtime and
after work. Those who take the Lifestyle Challenge can earn bonuses of $110
per month. There is a $45 bonus for exercising at a health club; a $20 bonus for
keeping a log of water and food consumed, and exercise undertaken; and $45 for
meeting fitness standards based on age and sex. People are assessed for the
bonus every six months.22
Weyco denied planning to fire other employees who make lifestyle choices
that it deems unhealthy. Weyers might have nurtured a desire to do so, but legal
protections cover most other conditions, such as obesity.23
This restriction has not quelled objections from civil liberties bodies. The civil
liberties response has been to represent Weycos policy as the thin end of the
wedge. Civil libertarians ask whether Weyco could now require all employees to go
on a low-fat diet to cut health care costs. Lewis Maltby, President of the National
Workrights Institute, an affiliate of the American Civil Liberties Union, declared,
The problem is lots of things increase your healthcare costs. Smoking. Drinking.
Eating junk food. Not getting enough sleep. Dangerous hobbies. Skiing, scuba
diving. If you allow employers to regulate private behavior because its going to
affect the companys healthcare costs, we can all kiss our private lives goodbye.24
[Its] crazy that an employer has the right to dictate to a worker what he
or she does in their own home. Its none of your bosss business what you do
in your own homeor at least it should not be. You can drive a motorcycle, you
can read Playboy, you can do what you want as long as it does not affect your job
performance. If it affects your job performance, then fine, fire them for their poor
job performance, but dont fire them for smoking.25
As it happens, other companies besides Weyco have wellness programs:

Quaker Oats, Johnson & Johnson, Honeywell, Motorola and IBM have cut employee
health insurance costs by introducing wellness programs.26 By 2005, almost a third
of US employers had introduced programs to encourage their employees to stop
smoking.27 It is an extra step to introduce non-smoking policies that apply beyond
the workplace, but it is a step that a number of employers have taken. Alaska
Airlines and Union Pacific Railroad question applicants about smoking. An Omaha
transport company has stopped hiring smokers in seven states. In California and
Florida, sheriffs departments require applicants for jobs and employees to sign
no-smoking agreements and even take a lie detector test on smoking. Kalamazoo
Valley Community College refuses to employ smokers.28
Howard Weyers was able to implement his policy because he owned the company. He had been a college football coach and brought a particularly strong set of
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CASE 3.4: (continued)

values about health to the management of his firm. Morely Safer put it to Weyers
that he had a kind of intolerant attitude to the habits, foibles, eccentricities of
other people. Right, replied Weyers, I would say Im intolerable. Intolerable and
intolerant, suggested Safer. I am. But I just cant be flexible on the policy, Weyers
declared.
Clearly health insurance costs are a consideration for corporations that provide
employees with cover, but Weyers was extreme by prevailing standards. He did
fitness training five times a week and wanted his employees to follow his example.
I set the policy and Im not going to bend from the policy, he said.29
The question arises, where does this kind of intrusion stop? What of the case of
Ross Hopkins, who worked for an Anheuser-Busch/Budweiser beer distributor? He
went out with his girlfriend, ordered a beer and the waitress mistakenly brought him
a Coors (another brand of beer). He didnt want to make a fuss, so he took the beer.
Unfortunately, his bosss son was at the same bar. He offered Hopkins a Budweiser,
Hopkins said no thanks, and the next day he found himself fired for drinking the
oppositions brew. The matter was resolved, but the terms were not revealed.30
Consider the issues at stake in these examples: the employers right to foster
and maintain a healthy work environment, and the right to present a public image
that accords with management values and objectives; the rights of employees to
privacy; the intrusiveness of breath and blood tests on workers; the adoption of
inflexible policies; and the reputational cost of such policies. At the margins it is
relatively easy to identify unacceptable behaviourMr Weyerss wish to test the
spouses of employees seems to be a clear instance; the sacking of Mr Hopkins
seems to be anotherbut the ethics of testing and behaviour regulation are not
black and white matters.
case questions
84
1 Was respect shown to stakeholder staff at Weyco: were they regarded as stakeholders or merely as servants of the company, and its boss?
2 Is the Weyco no-smoking-anywhere requirement justifiable?
3 Is the Weyco requirement that spouses not smoke justifiable?
4 Is there a difference, ethically speaking, between requiring something in the
name of anti-smoking or anti-drug-taking, and requiring something in the name
of anti-obesity?
5 Can you articulate a principle for demarcating areas where an employer can
justifiably formally interfere with employees personal habits/lifestyles?
The Australian work environment is rather different from that of the United
States, but there are some parallels with it with respect to workplace testing for
consumption of drugs and alcohol. In February 1994 an arbitrator decided that
coalminers at Newland Mines in Queensland could be breath-tested at random to
ensure the safety of all workers at the mines.31 The testing of employees for drug or
alcohol intoxication at their place of work has long been discussed as an option for
employers, especially those in industries and services where safety is paramount. In
some industries, such as the airline industry, there are already stringent restrictions
on the consumption of intoxicating substances. Ferry masters and train drivers, it
has been argued, should be subject to the same random testing for intoxication as
truck and taxi drivers. Opponents of such measures see this as an invasion of privacy
that cannot be justified as a preventive measure. If a person is clearly intoxicated at
work, then action should be taken; employers should not go looking for drug and
alcohol abuse.
The problem for employers is that they are required to ensure that minimum safety
measures are met. A failure in this respect could leave them and their companies
vulnerable to a successful suit. Random testing could also be seen as being in the
interests of employees, for it could protect them from the unsafe work of intoxicated
colleagues. This was a view put by the head of the Australian Chamber of Commerce
and Industry.32
The other side of the issue is that random drug testing could detect drug use
by employees during non-working hours. This is an invasion of privacy that could
be used as an excuse for retrenching employees, compiling damaging records on
them that have nothing to do with their work efficiency, or setting a precedent for
discriminatory employment policies, such as the hiring of non-smokers only. In
short, once this type of intrusion begins, it is difficult to know where it should stop
or to what use it will be put. When does private behaviour become of concern to
employers? Victimisation and discrimination could infect a workplace under the
guise of occupational health and safety. Where do you stop? If some employees are
tested, should not this apply to all employees from the board of directors down? And
should testing just be a company-by-company matter, or should there be a rule for all
in order to avoid indirect discrimination?
In any case, it is not clear that testing for substance abuse works. Lewis Maltby,
speaking this time as vice-president of American manufacturer Drexelbrook rather
than as president of the National Workrights Institute, said that one-third of American
companies using drug testing believe it is unhelpful. According to Maltby, testing
is bad management because it is aimed at drug use rather than poor workplace
practice; it is looking at the wrong thing. Moreover, it establishes a climate of distrust
between employees and employers.33
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Corporate surveillance
Privacy has become an increasingly important issue as technology allows it to be
invaded in novel ways. Employer surveillance of employees through hidden cameras,
computer and phone monitoring, and other means has been seen as particularly
objectionable. In an Australian wrongful dismissal case, evidence came to light
that the deputy chief executive of aged accommodation developer, Primelife, had
secretly recorded 65,400 private telephone conversations made by executives, legal
counsel and her personal assistant between 2001 and 2003. She had also videotaped
board meetings in contravention of a directive by the chairman of Primelife that she
ensure cameras were switched off. She told the Victorian Supreme Court that she
had tapped the calls in order to prevent confidential information being leaked.34 The
wrongful dismissal case was thrown out. The judge commented that her conduct
was fundamentally destructive and subversive of the trust which must exist between
a company, through its board of directors, and its chief executive officers.35
This is more a case of a rogue employee than a corporate policy of surveillance.
Clearly a responsible corporation should develop clear IT policies to protect its
valuable resources and to guard against liability for employee misuse. Such a policy
should also protect employees from passing temptations, such as the urge to fire off
an irate message to a politician, another business or a lover using corporate equipment. Banks already employ video surveillance of tellers to protect their money and
the tellers themselves: such surveillance allows mistakes to be distinguished from
theft and supports honesty in a potentially tempting environment. If a corporation
provides access to email, mobile phones and the Web, it can be implicated in
criminal and civil matters, from harassment and bullying to fraud. According to an
article in Forbes, monitoring occurs because Press leaks, theft of trade secrets and
time wasting are big concerns. But the main reason is fear of lawsuits Almost
25% of companies have had employee emails subpoenaed because of a workplace
lawsuit, usually involving harassment or discrimination. 36
Here is how one company, SpectorSoft, promotes an employee-monitoring
product:
Spector 360Company-wide Employee Monitoring
Dont have time to look at every web page each employee views, every email they
send, every instant message or every keystroke they type? Let Spector 360 do the
work for you by analyzing the data and showing you the worst offenders, so you know
which employees to zero in on with Spector 360s detailed investigative features. 37
If a corporation avails itself of such a product to implement its policy, how is that
different from applying policies about other matters, such as rules about leave or
health and safety? How is such a policy in particular a breach of privacy?
CASE 3.5: The Hewlett Packard case38

Through 2005 and into 2006, there was a series of serious leaks from the Hewlett
Packard (HP) boardroom. Sensitive information appeared in the Wall Street Journal
and on CNET. The source of the leak might have been an HP employee or a member
of the board. HP Chairwoman, Patricia Dunn, initiated an investigation to find it.
Leaks from the boardroom are an especially serious matter for a corporation of HPs
size and value, and Dunns concern is understandable: she would have been failing
in her duty if she had not taken action. Clearly it is not only a matter of sensitive
information about strategic matters being made public that is at issue, but also the
very functioning of a board seemingly tainted by a breach of trust. The methods
employed to find the culprit and Dunns part in the investigation eventually became
bigger stories than the leaks. She approved recruitment of private detectives through
a series of cutouts, designed to insulate HP executives from too much knowledge
of investigative procedures. The man chosen to drive the investigation was Kevin
Hunsaker, a senior attorney in charge of corporate complianceand ethics.
From emails tabled later before a congressional subcommittee, it is clear
that Hunsaker took to his task with relish.39 He quickly drafted plans to spy on a
journalists email traffic; floated the idea of intercepting text messages from HP
directors mobile phones; authorised private detectives to keep surveillance on
reporters, HP employees, and the suspected leaker, board member George Keyworth;
and organised extensive pretexting.40 Hunsakers team was at arms length from
Silicon Valley headquarters. Anthony Gentilucci, head of HPs global security unit
in Boston, contracted Ronald DeLia of Security Outsourcing Solutions, who then
subcontracted another firm in Florida, which outsourced surveillance and telephone
records acquisitions to investigators in Florida, Georgia, Colorado and Nebraska.
This elaborate track covering seems at least partly designed to keep HP and its
executives in a position of plausible deniability.
The most publicised tactics used by investigators involved pretexting and
monitoring a journalists computer messages. Pretexting is a grey area legally,41
but is clearly dubious. It involves pretending to be a phone subscriber in order
to gain access to phone records, which could then be used to check whether HP
employees or board members had been phoning journalists. Spyware was used to
monitor the email traffic of CNET News.com journalist, Dawn Kawamoto, by creating
a bogus employee called Jacob to gain her confidence. Jacob, under the pretext
of providing information, sent Kawamoto an (undisclosed) HTML-based email that
would permit HP investigators to monitor any recipients to whom this message was
forwarded. Kawamoto would have thought that the email was a usual text message,
not an HTML-based communication, traceable to any further recipients.
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Hunsakers emails clearly show he was aware of the need for top-level
authorisation to spy, but Chairwoman Dunn denied knowing the operational details
of the investigation. Hunsaker knew that such spying was questionable: Of course,
Im not sure we want this directly traceable back to HP , he said to Gentilucci.42
Was this ethical scruple? No, it was a fear of more bad publicity for HP if CNET
found out. When Hunsaker asked Anthony Gentilucci, How does Ron (DeLia) get
cell and home phone records?, Gentilucci told him that investigators call phone
operators under some ruse to convince the operators to disclose confidential
information. Gentilucci said that such tactics are on the edge, but above board,
to which Hunsaker replied, I shouldnt have asked 43 Vincent Nye, an internal
HP investigator, recognised that pretexting was a dont ask, dont tell practice.
Speaking for myself, I wont use this particular tactic on those cases I have been
assigned to lead, he wrote in a memo.44
When Hunsakers team discovered telephone contact between board member
Keyworth and Kawamoto, Nye was not excited: I have serious reservations about
what we are doing, he emailed Hunsaker. It is very unethical at the least and
probably illegal. If [it] is not totally illegal, then it is leaving HP in a position [that]
could damage our reputation or worse. Nye requested that pretexting stop and that
information gathered from it be discarded.45
The surveillance of journalists and board members was the undoing of Dunn
and her confederates. Journalists can be unfriendly if cornered, and very rich board
membersformer director, billionaire Tom Perkins and Dunn had a falling-outcan
create adverse publicity about investigative methods of which they do not approve.
Perkins reported Dunns activities to the Securities and Exchange Commission,
the Federal Trade Commission, the Justice Department and the California AttorneyGeneral. The HP investigation rather than the leak became the story. As one
journalist observed, Sometimes efforts at damage control do more harm than
good. HP should be winning plaudits for its recent stock price highs. Instead, the
high-tech giant is in the news for the lengths it went to hunt down a board member
with loose lips.46
Another asked this fundamental question, How did a lawyer responsible for
overseeing HPs business conduct find himself at the center of a company ethics
scandal?47 The answer is complex. First, Hunsaker was assigned conflicting roles as
a professional lawyer, as an employee answerable to his superiors and as a source
of independent compliance advice to HP. Then his enthusiasm for the investigation
seems to have made him ready to believe the assurances of his associates about
the legality of their methods, itself an indication of his role confusion: he was
supposed to be the compliance officer. Finally, perhaps he believed that if an action

is legal, its ethical. At least this is what his lawyer said.48
At the conclusion of the investigation, Keyworth was alleged to be the source
of the media leaks and Hunsaker was promoted to the position of director of
HPs standards of business conduct; that is, HPs chief ethics officer. Alas, he
enjoyed this status for less than six months. When the scandal was exposed and
a congressional inquiry set up, he left the company.49 He was not the only one to
do so. In September 2006, several HP officers and private investigators appeared
before a congressional hearing into the investigation. Most, including Hunsaker,
Gentilucci and the private investigators, invoked their right against self-incrimination.
Hunsakers boss, General Counsel Ann Baskins, resigned her position only hours
before she was due to testify and, like most of her colleagues, invoked the Fifth
Amendment. Dunn did appear before the congressional subcommittee to claim that
she believed the investigation had used legal means. Then she left HP.
That was not the end of the matter. HP have had to pay $14.5 million to
settle a civil complaint filed by the California Attorney-General. Dunn, Hunsaker,
Ron DeLia and two of his hired investigators were charged under Californian law
with identity theft and conspiracy. These charges were later downgraded and the
judge dismissed the case against Dunn altogether. The judge ruled that the other
defendants, who pleaded no contest to the misdemeanour of wire fraud, would
have charges against them dismissed if they performed 96 hours of community
service and paid restitution to victims. Lawyers claimed complete vindication for
the defendants.50
Legally, this might have been so, but ethically? Lesley Stahl asked this question
of Dunn on 60 Minutes: Isnt it just wrongisnt it just ethically wrong, forget
whether its legal or not, to go in and get peoples phone records? Dunn replied,
People who sit on public company boards have a very different attitude about this
than probably the general public. you give up a lot of privacy when you go onto
a board Your life is a much more open book when you have this kind of a public
trust. But what about the reporters? asked Stahl. That was just wrong, said
Dunn. The idea that I supervised, orchestrated, approved all of the ways in which
this investigation occurred is just a complete myth. Its a falsehood. Its a damaging
lie.51 According to the SOX first and BusinessWeek websites, Dunn also made this
statement in the 60 Minutes interview,
Every company has investigations. Investigations, by their nature, are intrusive.
If you think that Hewlett-Packard is the only company that has an investigations
forcewhich by the way, is peopled mostly with former law enforcement officers
that do all kinds of private detective work, monitoring, posing as other people in
order to solve problems to protect shareholder valueyoure being nave.52
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She is undoubtedly right: Boeing has been reported as using many of HPs
tactics, including computer monitoring, spying and following employees, photographing and videoing them.53 Boeings investigations confirm Dunns comment about
intrusiveness and no doubt many corporations protect themselves by spying on
employees. That doesnt make such conduct ethically defensible or safe legally. In
2008, the four private detectives in the HP investigation were ordered to pay a total
of $600,000 in a civil suit brought by the Federal Trade Commission.54 In 2007,
one of them, Bryan Wagner, entered a guilty plea to charges of identity theft and
conspiracy. The quashing of the original charges against Dunn needs to be viewed
in this light: the courts found improper conduct at the hands of people brought into
HP on her authority, and she cannot disavow moral responsibility for what ensued.
Public reaction might differ from boardroom reactions, but if so its time for boards
to take a reality check. It might be board members like Dunn who are nave if they
arrogantly believe that they can continue business as usual. Here is a reality check
for legislators from David Lazarus of the San Francisco Chronicle,
Lets get this straight: You spy on board members of the largest computer company in the world. You spy on reporters who cover the company. Your actions
spark outrage over privacy violations and lead to congressional hearings. And
when alls said and done, your punishment is to spend a few hours picking up
trash from the side of the road?55
Dunns attempt at a defence has the ring of Bart Simpson about it: I didnt do
it; you didnt see me do it; you cant prove a thing. She set the investigation in
motion, did not get formal board approval, approved Hunsakers plans and then
denied responsibility when her conduct was publicised. Would she have made a
similar disclaimer if the whole incident had remained inside HP?
Apart from being a topical case, this story offers some lessons in ethics. The
first might be transparency: Dunn should have been open with the board. Keyworth
is reported as admitting to a board meeting that he had talked to CNET. According
to Newsweek he said to the board, I would have told you all about this. Why didnt
you just ask?56 Dunn claims that she and the CEO tried to get Keyworth to admit
that he was the leaker two months earlier but Keyworth declined.57 The adoption of
a more transparent investigation would have averted some of the fallout. Dunn and
the board could have called in the police. The chances of keeping the investigation
in proportion with the offence would have been greater with full board involvement.
Reliance on legal advice, some of it second-hand, to take care of ethical matters
was mistaken. This was the kind of case that lent itself to discussion through an
case
questions
ethical decision-making model, but when ethical objections were raised they were
buried. Only one set of stakeholders is identified by Dunnshareholdersand
others affected by the activities she initiated seem to be unfortunate collateral
damage. Finally, those in charge of the investigation tried to deflect responsibility
for its damaging consequences.
1 Did Dunn really do anything that was so bad?

2 If Dunn should not have done what she didgone to such lengthswhat could
she have done? After all, corporate leaks of sensitive information (not whistleblowing [see chapter 9]) are a very serious, potentially extremely harmful matter
for a company.
The issue of employee monitoring goes beyond corporate protection. Terrorism

including cyber terrorismnow concerns governments and they wish to combat it
by using surveillance of electronic communications. In 2008, the Australian Government announced that it would consider introducing new laws to allow employers to
check employees computer communications without their consent. According to
the Government, better protection for computer networks was needed. This would
be balanced by rules to protect privacy: the Government was not interested in
communications from employees friends, their children, other family members.
The Opposition expressed reservations about giving companies such investigative
and quasilaw-enforcement powers. The head of the Australian Council of Civil
Liberties, Terry OGorman, questioned the need for new laws against cyber terrorism: We have passed so many laws in the name of fighting terrorism that were at
serious risk of losing the balance between giving the intelligence services sufficient
powers to fight terrorism while at the same time keeping longstanding and cherished
civil liberties. 58
These concerns are widely shared. The argument for security and corporate
protection is strong, but not decisive. Privacy and free communication are very large
considerations in a democratic society and civil liberties place side constraints on
what corporations and governments can do, even for the best of reasons. HPs Dunn
seemed to dismiss this in the same way as the commandant in A Few Good Men.
It is reasonable to expect that corporations will try all appropriate measures to
eliminate or manage risk. If the technology is available, then why not use it? Measures
to minimise and manage risk will inevitably compromise discretion. Discretion
involves trust and that is a risk. That element of risk can be eliminated but at the cost
of discretion and trust. In other words, an organisation that tries to secure itself from
liability by risk minimisation will be caught in an apparent paradox: it runs another
kind of riskthe risk of becoming risk averse. Without autonomy, responsibility and
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trust, individual ethics withers and, with it, creativity, initiative and the willingness
to take risks that increase wealth. Judgment is risky: it is required in any healthy
organisation. Occasionally it can fail but a healthy organisation should be prepared
for that failure. Risk management that will not accept this will seek to eliminate the
discretion necessary for the exercise of judgment.
Consumer protection and product safety

In the United States there are many famous cases of component and product failure
that raise legal and ethical questions. The Ford Pinto, Challenger space shuttle, Bay
Area Rapid Transit System and Ford Explorer/Firestone Tire cases are among the
most famous of manufacturer neglect. To those may be added more recent cases,
such as drug company Mercks foot-dragging in warning consumers about potentially lethal side effects of its pain-relief drug, Vioxx; and the sale of milk products
adulterated with melamine by Chinese dairy firm, Sanlu.
At one time, Merck was a shining example of corporate social responsibility,
indeed benevolence, for its development of the cure for the Third World disease,
river blindness. There was no profitable market for this cure, a drug called Mectizan,
because the disease it treated affected people too poor to pay for it. So Merck
donated the drug to prevent human suffering. Yet, in the Vioxx case, the firm was
prepared to risk its corporate halo to protect a big-selling product. After a number
of studies linked Vioxx to increased risk of heart attack and stroke, Merck withdrew
the drug from sale in 2004.59 Ever since, it has been fighting legal battles. It settled
a class action in the USA for $714 billion without admitting liability. In Australia, a
class action reached the courts in 2009. Documents made available in the Australian
action show that Merck was aggressive in pursuit of critics of Vioxx and drew up
a hit list of doctors whom it had to neutralise or discredit.60 Why would a drug
company with a reputation to protect engage in risky behaviour? Why would such a
visible corporation think it could get away with conduct that could harm the public,
its shareholders and its own success?
In the Sanlu case, 300,000 children were made sick by contaminated milk and
milk products and six children died. The person primarily responsible, Zhang Yujun,
was sentenced to death, along with two accomplices, for selling 550 tonnes of protein
powder bulked out with melamine. The former chairwoman of Sanlu, Tina Wenhua,
was sentenced to life in prison for continuing to sell contaminated dairy products after
she learned that they were laced with melamine. Given the stringency of Chinese law,
it is strange that the perpetrators were prepared to take these risks.61
Australia has not produced a consumer advocate such as Ralph Nader and we
do not have the same level of interest-group pressure on behalf of consumers, but
similar cases arise here. The question that defenders of the minimally regulated
market must answer is this: why would manufacturers with a great deal to lose risk
their market by supplying dangerous goods? Undoubtedly they must in some very
important respect think it is worth the risk. Still, a product that puts the lives or health
of consumers at risk places a great ethical responsibility on all concerned with its
manufacture, approval and supply.
Amid the many cases of failure there are examples of good corporate conduct,
which mitigate the doctrine of caveat emptor (buyer beware). In March 2009, Ford
recalled more than 83,534 of its Territory four-wheel-drive vehicles in Australia
because it became aware that the front brake hose could wear and break. Although
Ford believed that the problem affected fewer than 2 per cent of vehicles, it issued
the recall as a precautionary measure.62
The Mistral fan case provides a good example of problems associated with the
responsibilities of all the parties concerned, and good material for stakeholder
analysis.
CASE 3.6: The Mistral fan case63

In Melbourne in January 1988 two children were killed in a house fire. The fire
started with a Mistral fan and the subsequent coronial inquiry exposed a sorry
history of indifference and poor regulatory control.
The Mistral Gyro Aire was introduced in 1968 and soon accumulated a number
of design awards. In 1976 the fans caught fire twice during quality-control testing
at the Mistral factory. The following year the fans caused severe damage to a
Singapore Mistral showroom. By 197778 the fans were the subject of a product
recall notice in New South Wales, Queensland and Asia that did not mention the fire
risk; comparatively few fans were returned. In 1977 Royal Melbourne Hospital was
supplied with forty fans assembled from parts of obsolete units; two of these fans
caught fire. Mistral again won a design award in 1980, and expanded business to
the United States. A further fire in the Melbourne factory in 1982 did not prevent
the fan winning another award, but in 1984 nineteen fires were reported. In 1984
Mistrals CEO, John Hasker, resigned. In a report to the board quoted by the coroner,
he stated, The problem at Mistral had developed from poor leadership and bad
management Evidence of ineffective management style was seen in excessive
stocks, debtors out of control, [and] inferior quality of products, both from a design
and manufactured aspect.
By 1985 the manufacturer had before it evidence of fifty-two fan-related fires.
Mistrals product development manager, Kevin Cummins, sent a memorandum to
his superiors and the firms solicitor in which he stated, I strongly believe there is
nothing Mistral can do about these units, short of a product recall.
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The deaths in 1988 of two children in a fan-related fire prompted a public
warning about the faulty models by the Coroners Court, and Mistral, which had
been acquired by new owners the previous year, began a systematic recall. Following
another change of ownership Mistral issued public warnings to destroy the old
fans. This warning was echoed by the State Electricity Commission of Victoria in a
full-page advertisement in Electricity Supply Magazine, June 1992.
The coronial inquiry revealed just how extensive were the problems with the
fan and its manufacturer. It contained faulty or inappropriately specified electrical
components that Mistrals own engineers identified in reports. The manufacturing
processes were not of high quality. And the plastic case surrounding the fan was
combustible. In short, the Mistral was a time bomb. The coroner put it in these
terms,
The central problem is that at some point in the life of the fan failure is
likely and the casing is not made of flame-retardant plastic. If the failure results in
sparking or overheating, ignition of the casing is a strong possibility. The fan motor
will continue to operate during failure and with the fan blades turning, the fire is
fuelled by oxygen and the plastic body provides the combustible material.
In his report the coroner detailed a series of missed opportunities, irresponsible

management decisions and professional failures. Most of the minutes of Mistral
management meetings, having gone missing, were unavailable to the coroner, and
only one director, who claimed ignorance of the fire risk, gave evidence to the inquiry.
Despite these handicaps, the coroner concluded, By 1976 it should have been
clear to the designers and engineers that measures aimed at reducing the risk of
fire should have been part of the design brief. He also criticised the manufacturers
who, once the problem [was] identified, as a matter of expediency [chose] to
supply and accept recognised underrated components with an inadequate safety
factor. He found that Mistral tried to protect its corporate image at the expense
of public safety and failed to seek assistance from the appropriate authorities.
The coroner attributed this sheer incompetence in management to three senior
executives whose indifference to public safety in the face of known risk contributed
to the deaths of the Stott children. The only risk considered by management
was financial; there was no recall during 198485 and nothing was done to warn
the public. He concluded, Perhaps the financial corporate ethic of the 1980s was
an influence in placing public safety lower on the scale of priorities than it should
have been, and the Mistral Fan fire saga is only an apparent example of where
financial expediency and eventually corporate survival came first.
case
questions
What of the regulatory authorities and insurance companies? The inquiry found
that Mistral was evasive and sometimes outright deceptive. Management gave
misleading figures about the number of fans that caught fire, although it was aware
of the truth. Mistrals insurers were not told the truth for many years about the fire
risk of the Gyro Aire fans, but the coroner found that by 1986 they had enough
information to take action in the public interest, as well as their own.
The State Electricity Commission of Victoria Approvals Board was criticised for
failing to collate information on fan fires, and for keeping inadequate records on
its dealings with Mistral. One aspect of the Commissions oversight of the Mistral
affair was the presence on its Approval Board of L. Milton, the inventor of the
fan. Although no longer with Mistral, Miltons presence led the coroner to make
these comments: The position of Milton on the Approvals Board is a matter of
considerable concern and it is difficult to escape the conclusion that the decision
not to take the matter further may have been affected by his involvement.
The technical context in which the Mistral incidents took place should have
triggered a timely and complete recall. In 1977 Underwriters Laboratories in the
United States evaluated the Gyro Aire and found that the plastic housing did
not meet American flammability standards. Ironically, only a few years earlier a
committee of Standards Australia was established to examine flammability testing
for electrical products. A Mistral representative was a member of the committee. An
Australian standard was not available until 1978, four years after the review began
and six years after the appearance of a standard developed by the International
Electrotechnical Commission. Before July 1979 the approval of electrical fans was
voluntary. Electric shock was seen as the main danger, not fire risk. The coroner
observed that There was a considerable delay in the introduction of an obvious
safety standard.
1 Who were the stakeholders that Mistral noticed? Who were those they
ignored?
2 Which other parties were indifferent to stakeholder interests in this case?
3 In what ways would stakeholder awareness have changed the ethics of the
major parties?
The notion of stakeholder is not conceptually trouble-free, and this has practical
limitations. But it does immediately offer a way of calling attention to the interests of
others affected by a business decision. And it does enrich the business vocabulary
ethically without having the appearance of unwelcome moralising. It provides a
way to take into account two very simple but universal assumptions in our society:
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people should be informed about things done to them and risks presented to them
and, where possible, people should be asked for their consent before things are
done to them, whether they are directly concerned in a business decision or are
third parties.
1 Why would it seem important to widen businesss appropriate concerns from stockholders to stakeholders?
2 Do you think that business has a duty to take account of stakeholders interests
interests beyond those of its stockholders? Why?
3 Do you think there is a way to determine whose interests a business should take
into account beyond that which is legally required or required by some appropriate
regulatory bodythat is, who should be regarded as stakeholders in any particular
businesss activities?
4 Is it clear what it means to say that a stakeholder analysis is not strategic?
5 Sometimes looking after stakeholder interests is a matter of paternalism, and
sometimes it is a matter of other thingsfor example, stakeholders wishes. These
are different types of considerations. Can you itemise the different kinds of considerations that can enter into trying to take account of stakeholders interests?
6 We mentioned that in the United States there are many famous cases of component
and product failure which raise legal and ethical questions about appropriate regard
for stakeholders: Ford Pinto, Challenger Space Shuttle, Bay Area Rapid Transit
System and Ford Explorer/Firestone Tire. If you are not familiar with some or all of
these, you might want to learn about them. They are easily discoverable through a
search on the internet.
CHAPTER OUTLINE
7h Corporate gifts and benevolence
7h Fair dealing and care
7h Two tales of Western Mining

7h Review questions
It is not surprising that some writers, such as Carr and Friedman, should have
applied the notion of rules and laws to business and exempted it from the moral
considerations that apply to natural persons. Most of contemporary business is built
upon law. Businesses are commonly what might be called enterprise associations,
collectivities of people working for the purposes of the business who might not share
much beyond those purposes. These enterprise associations can be distinguished
from social or community ones, where conviviality or even a loose set of objectives
provides the rationale for the association.1
The relationships in enterprise organisations serve the purposes of the organisation rather than personal or social ones. We can see, then, why corporate obligations
have been cast in legal terms. Corporations are legal creatures, artificial persons.
They do not give up their seats in buses to the infirm; they do not argue with parking
police; they do not console a colleague who has lost a parent; they do not lose their
temper when the supermarket trolley veers to one side. The obligations of corporations
appear to be only the things that they have contracted to do or for which they are
liable under law. Increasingly, however, this view of obligation has failed to meet either
public expectations or legal judgments. The argument that business operates under
laws, rules and assumptions peculiar to itself, while ethics regulates the relations of
real persons of flesh and blood, does not carry the conviction it once did.
If ethics is about human excellence, it is also about setting minimum standards
for any agent, whether natural or artificial. Natural persons are people, human
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beings. Artificial persons are corporations or collectivities that can exercise powers
of agency. When corporations like HIH or Enron or OneTel fail, the ethics of the
managers and directors occupy the public spotlight. Figures of the moment, such as
Alan Bond, Jeffrey Skilling, Jodee Rich, Brad Keeling and Bernard Madoff, have their
lifestyles covered on the evening news. Ethics in such cases means personal morality.
Business ethics also refers to minimum standards of organisational conduct. The
nature of corporate personality has been debated, with some philosophers claiming
that a corporation can have a decision-making capacity that gives it attributes of
natural persons, such as a conscience. We shall not enter into that debate here.
Indeed, some writers believe that the law has overtaken the philosophers and that the
courts now view corporations in similar terms to natural persons.2 This is particularly
the case in the United States, where Federal Sentencing Guidelines for Organizations
have been in force since 1991.3 The Guidelines basically penalise companies that
come before the courts without having made any effort to take ethics seriously.
What the Guidelines seem to require, as a minimum, is the introduction of ethics
programs into the workplace. It is hardly surprising that organisational ethics should
be supported legally, given the powers that corporations possess and the powers that
flow to those who run them. As Lord Denning put it over fifty years ago,
A company may in many ways be likened to a human body. It has a brain and nerve
centre which controls what it does. It also has hands which hold the tools and act
in accordance with directions from the centre. Some of the people in the company
are mere servants and agents who are nothing more than hands to do the work and
cannot be said to represent the mind or will. Others are directors and managers who
represent the directing mind and will of the company, and control what it does. The
state of mind of these managers is the state of mind of the company and is treated by
the law as such.4
Personal ethics is a matter of virtues and character. Organisational ethics is a

matter of systems of compliance, accountability and culture. It is not usually possible
to make ethically weak people moral gladiators through organisational means, but it
is possible to require all members of an organisation to meet minimum obligations
and standards set by their employer. There might not be much personal credit in
observing a minimum, but compliance can go a long way in sustaining a corporations integrity.
Although ethics sets a higher standard than the law, the legal standard is not to
be despised. Law sets the publicly promulgated, enforceable minimum standards
upon which business can build. Some would say that legal standards are the only
ones that should apply and that ethics is a matter for people, not corporations.55 This
is not the position of the law, especially as United States courts look increasingly for
institutionalised ethics and corporate integrity in their deliberations and sentencing.
C H A P T E R 4 E T H I C S I N T H E M A R K E T P L AC E
Moreover, a reliance on law over ethics in setting standards sends a dangerous

message to business. This message comes in two forms: the first states that if conduct
is legal, then it is ethical; the second form states that if conduct is not illegal, then it is
ethical. In other words, if ethical issues have any real substance to them, then they
ought to be covered by law. This message suggests that the only effective controls
on business behaviour are external. This suggestion is not only inaccurate, but also
risky.6 Demands for more regulation, increased surveillance and harsher penalties
will not produce a more successful business environment. They are reminiscent of
the unfortunate fashion of the 1970s, when bars and restaurants, not content with
carpet on their floors, ran the stuff up the walls as well. Carpeting business with
regulations is no more attractive or functional than this bygone fashion.
Consider this image of the relation of law to ethics. Imagine that you are in the
Sistine Chapel. Where is your gaze directed?to the ceiling. That is the reason you
are there. What do you stand upon to observe that ceiling?the floor. Without the
floor, there is no platform from which to view the ceiling. Without the ceiling, there
is no point to standing on the floor. Each has its function. So it is with law and ethics.
Law is in the floor, along with directives and other limits to discretion. Ethics is
in the ceiling. It is what we aspire to above the law. The Sistine Chapel would not
be enhanced by having either more ceiling or more floor. So it is with laws, rules
and regulations in society. Maybe there ought to be a law against it, but maybe
the creation of new laws, policing and penalties is the architectural equivalent of
driving the floor of the Sistine Chapel up the walls. It is not a matter of reaching for
legal measures to shore up ethics. We will return to this point and, in particular, the
error of trying to create ethical behaviour and the exercise of good judgment by
the creation of rules and regulations, in chapter 7.
Corporate gifts and benevolence

Although gift giving has long been an accepted part of corporate life, the practice is
coming under increasing scrutiny. The rationale for external corporate benevolence
is that it builds relationships with clients or that it gives a corporation public profile.
Hospitality offered to staff of a corporation is justified as rewarding performance,
showing appreciation or boosting morale. Whatever the justification, corporate
giving involves the expenditure of funds, which was once regarded by many as
discretionary. Also discretionary within limits was the receiving of gifts. Whereas
in the public sector all but token gifts, such as ballpoint pens or mugs, have been
prohibited by codes of ethics, in the private sector attitudes have been more flexible. That seems to be changing. For example, the Australian Institute of Purchasing
and Materials Management has prohibited members from accepting anything more
than a token gift on ethical grounds. If a company is involved in tendering, then its
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members are counselled not to accept even tokens as gifts. The reason for rejecting
even minor gifts is to retain a sense of independence and both the appearance and
reality of probity. Moreover, there will be no danger of an incremental creep: a small
gift one day, a bigger one the next, and so on until the receiver is compromised. Of
course, the size of some kinds of gifts may be a disincentive to accepting them. A ride
in a jet trainer, for example, can cost over $1600 for a short flight, and this can place
an obligation on the receiver to reciprocate with a favourable business decision.7
Gifts that can influence a decision are corrupting and harmful. They are akin
to bribes and do the same kind of damage to trust in the market system. If they
influence business decisions, then products will not be bought and sold on merit
but on grounds that could not be justified in the cold light of day. However, this view
is not accepted universally. Nick Reid, former president of the Australian Incentive
Association, is not concerned with the size of gifts if they come without strings.
If the recipient is not involved in a decision about the giver, then a large gift may be
accepted. Another exception he would allow is a gift given after a deal had been
closed.8 It is difficult to reconcile these views with ethical appearances. There are no
free lunches, let alone laptop computers, extreme adventures or tropical cruises.
Although corporate gift giving for business purposes has attracted public criticism,
benevolence to charities and community projectsthe kinds of giving Friedmanites
would questionhas not. On the contrary, it seems to be expected. This, no doubt,
is because corporate persons are often held to the standards that apply to natural
persons. In the 1999 Millennium Poll on Corporate Social Responsibility, sponsored
by PricewaterhouseCoopers, more than 25,000 consumers were interviewed about
the role of business in society. The poll found that Two in three citizens want companies to go beyond their historical role of making a profit, paying taxes, employing
people and obeying laws; they want companies to contribute to broader societal
goals as well. 9
As an example, take the celebrated neurosurgeon, Jeffrey Rosenfeld, who has
been frustrated about inadequate funds for research and development in Australia.
Rosenfeld asks, Why cant we encourage our major companies to put major dollars
into healthcare? The Government can only do so much. Im not critical of the
Government. Im critical of the corporations. Among the corporations that attract
his criticism are drug companies that will not devote their resources to diseases
that plague the Third World. Profits are difficult to generate in such environments,
so remedies for these diseases are not researched. They have a responsibility to
spend some of their profits on Third World disease, says Professor Rosenfeld.10 It
would be good for exotic diseases to be fought with medical science, but science
is expensive and investors take a risk with their money in funding it. But that is
not the main point. Like so many others, Rosenfeld treats private and corporate
wealth as though they were equivalent. And corporate responsibility is taken to
equate with the responsibilities assumed by generous individuals like Professor

Rosenfeld. The problem with this way of thinking is that it can lead executives to
treat the corporations money as their own as long as they believe a cause is worthy
of support, and it can excuse improper uses of executive discretion.
The best-known instance of this in recent times is found in the generosity of HIH
founder, Ray Williams.
CASE 4.1: HIHA worthy cause?

Ray Williams, founder of HIH, was a quiet but generous donor to medical research
and other worthy causes.11 Indeed, he added HIH money to his own contributions.
He gave the Reverend Dave Smith of Dulwich Hill, in Sydney, $15,000 for his work
rehabilitating drug addicts, and another $10,000 from HIH, after reading about the
difficulties facing Smiths foundation. After the collapse of HIH, Williams received
more publicity than he had been accustomed to, and just about all of it was bad.
Smith did not forget his friend in such difficult times. His response to criticisms of
HIHs donations to charity reveals some of the confusion that surrounds this issue.
I still find it preposterous to think that the media should have acted so selfrighteously, so indignant, about the fact that the poor shareholders were losing
potential income because it had gone to the childrens hospital. It is just ridiculous.
And it is appalling the number of people who have turned their back on Ray.12
Another who has praised Williamss generosity is Harold Sharp, chief executive
officer of the North Shore Heart Research Foundation. If I had to stand up in court
and give a character reference under oath, I would have to say he is one of the
finest people I have ever met, said Sharp. The problem, according to those who
worked with Williams, is that there was often confusion about whether Williams
or HIH was the donor. HIH Royal Commissioner, Justice Owen, found that Williams
did not keep his shareholders and directors adequately informed about company
donations. While Williamss personal generosity was unquestioned, his largesse
with company fundsestimated to have been worth $20 millionearned him
criticism. Moreover, Williams sat on the boards of several charities that benefited
from HIH donations. This conflict of interest was a point of criticism during the
Royal Commission by senior counsel, Wayne Martin, but it is a problem that does
not seem to have occurred to Williams.13
Williams is not alone in his views and, considering the value of reputation, perhaps
corporate benevolence is more justifiable than Friedman and his followers have
recognised. This is an area not sufficiently recognised as grey. Indeed, some who
subscribe to Friedmans view wish to go further than the master. Elaine Sternberg
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accuses him of being too polite in describing the use of a corporations funds for
benevolent purposes as socialism and covert taxation. She calls it theft:
Business managers who use business funds for non-business purposes are guilty not
just of the legal crime of theft, but of the logical offence of teleopathy: in diverting
funds from strictly business objectives to other purposes, they are pursuing the wrong
ends. And teleopathy is a serious offence, the generic form of prostitution. Just as
prostitution occurs when sex is proffered for money rather than love, so it exists when
business pursues loveor social responsibilityrather than money.14
Sternberg is mistaken, of course, in calling teleopathy a logical offence. It might be

a moral offence to aim at the wrong goals in corporate life, but it is hardly illogical
to be immoral. It would be a nice argument with a prostitute to inform her that her
trade defied logic. But Sternberg also makes the mistake of Friedman in taking profit
maximising to be the only goal of business and the only goal of the ownersby
which she means shareholders. The activism of shareholders across environmental
and ethical investing fronts gives the lie to this.15 And she also seems to assume that it
is possible to draw a clear distinction between business and non-business purposes.
This overlooks the importance of reputation and customer perception. If the ethical
use of corporate funds amounts to justifying their use in terms of business purposes,
then that need not exclude benevolence. It should exclude, however, managers using
their discretion unaccountably and without respect for investors. That would really
be to substitute stakeholder theory for traditional concepts of ownership.
Fair dealing and care

The requirements of fair dealing and care in business relations are difficult to observe
in the face of the competitive nature of business and its regard for self-interest,
on the one hand, and the moral and fiduciary requirement to take advantage of
opportunities to improve profits for shareholders, on the other.
The ethical basis of a market economy is that it places a great deal of emphasis
on respect for individual autonomy and choice. This implies strong limitations on the
role of government and an anti-paternalistic bias. According to this view, if individuals are to be free to make genuine choices and to create the kind of demand that
will sustain an economy, then government should not have too strong a presence.
This limitation on government respects the rights of individuals to choose to consume alcohol or smoke or view pornography, as well as to invest, sell and purchase
as they choose. This also means that governments should not fund the choices of
individuals or be expected to pay for their consequences. Such an emphatically
liberal view of the market has been held by prominent economists (one thinks again
of Friedman16), but like any model, it works perfectly only in theory. We do restrict
the buying and selling of certain goods such as tobacco and alcohol because we
believe that the harm done from an unrestricted market in such goods outweighs the
social benefit. In cases of hardship resulting from individual choice, the government
either intervenes as the agent of society, or abstains and allows the development of
social conditions that make life in that society unpalatable. It is true that government
interventions reduce the incentive of people to exercise their own control (as indeed
insurance coverage can make people less cautious).17 Yet it is implausible to suggest
that the market could be a perfect instrument for meeting human needs and desires
if only it were allowed to operate freely. Markets are social constructions; they do
not arise if individuals are left to their own devices, but rely on a social context and,
concomitantly, on government to provide order, security and continuity.
Between government regulation and utter licence lies ethical responsibility. That
is, it is possible to have a relatively unregulated society when its members preserve
core ethical values: hence the importance of ethics to a market economy and the
society that benefits from it. Individuals are worthy of respect. We can take a positive
ethical view of market economies and see them as being, if not perfect, at least a
good way of accommodating and respecting the autonomy of buyers and sellers.
What are these core ethical values? Here are some important ones: honesty,
trustworthiness, compassion, fairness and justice. Honesty is a kind of accountability; it means being accountable for the truth to certain individuals. If a friend asks if
you like his new tie, an honest answer will help him decide or perhaps save him from
embarrassment. If your host at a dinner party asks you to admire her new painting, it
would be insulting, not honest, to tell her she has poor taste. Peoples relationship to
each other dictates the nature of what honesty requires. This is not a value carried
around like a pocket calculator to assess situations or find universal answers; it is
a way of addressing a variety of situations with very different demands and responsibilities attached to them. While it is care for the truth, not all information belongs
to everybody who asks for it. An honest person will find it repellent to deceive, and
especially so to deceive those who have placed trust in themfamily and friends,
or shareholders, employees and customers. Trustworthiness is the other side of
honesty; it is being able to receive a truth or a responsibility and sustain the confidence of others that you will not use it lightly or in an inappropriate way. A person
who keeps their word is such an individual. Compassion means that one respects the
full humanity of others. It is a spirit of generosity that can soften the rigours of justice.
It would give a sucker an even break. Fairness does not mean being unstrategic or
stupid in doing business. It means avoiding dirty tricks and underhanded tactics to
get your way. Fairness is part of justice, the part that relates to equity: treat everyone
with respect, treat equals (or like cases) equally and unequal persons (or dissimilar
cases) unequally. Give each and every person their due. Do not let self-interest overwhelm decision-making. Follow procedure. Beyond these prescriptions, fairness is
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often a matter of law and is determined in the courts. The same is true of justice, but
legal justice is not identical to moral justice (what positive law calls justice can only
be part of what any society means by the term). Justice takes into account things
that many definitions of fairness leave out: need, contributions, merits, social value
and risks are seldom present in the same theory.18 Compassion and caring could
also be added to the list, and then justice becomes the inclusive virtue of ethics, the
principle that orders all others and is their best expression.
There is another ethical aspect of markets that should incline us to a positive
view of them. They should provide the most efficient allocation of scarce resources
to meet demand. Without market competition there is no incentive to minimise
waste and maximise productivity, and prices will be higher than they should be. The
strength of a market economy should be to provide the most efficient allocation of
scarce resources to meet demand. Competition is essential to the market, for without
it there is no incentive to minimise waste and maximise productivity. Without competition, resources will be allocated inefficiently and prices will be higher than they
should be. From this line of thinking, it follows that businesses and customers must
be relatively unconstrained. Each seeks to gain from a transaction: the customer
wants the lowest price, and the seller wants the maximum profit. They meet at an
equilibrium point on price. In a kind of premonition of chaos theory, Adam Smith
showed how these free and competitive transactions worked by an invisible hand
to bring about the maximum economic benefit to society.
Smiths insight has been used to argue against government intervention in the
market and to justify liberties that Smith would never have countenanced. The selfinterest that he believed motivated people to be productive was not an unfettered
right to pursue profit. Gain should only be sought within the confines of justice and
social morality. It is these moral restrictions that are usually forgotten when Smiths
theory is mentioned.19 Business is not, as Carr imagines, run according to its own
rules, but must work within the rules and conventions of the social system.
Business, then, should function in a market economy in accordance with, or
constrained by, the principles of justice and morality that prevail in society. There is a
constant temptation, however, to minimise competition and the access of customers
to alternative sources of goods and services. Marx believed that a movement to
oligopoly and monopoly was characteristic of late capitalism,20 but this is a latent
tendency of business and can be as strongly supported by labour (in order to
preserve jobs) as by management and owners. Although the law attempts to deal
stringently with this area of business, the pressures of competition, especially during
a recession or when a business is in decline,21 can be difficult to resist. Hence, there
is a common problem in business-to-business relations of dealing fairly not only with
ones stakeholders, but also with ones competitors.
The following cases illustrate some of these issues. They give the lie to the belief
that market systems are self-rectifying and need no externally imposed ethical and
legal constraints. They are cases not only of personal moral failure, but also of the
failure of business ethics.
Nowhere is this difficulty more apparent than on the issue of fairness. The three
cases below illustrate some ways in which justice as fairness can be harmed.
CASE 4.2: David Tweed

The saga of attempts by shareholders, corporations, regulators, the courts and
government to curb the activities of Melbourne share dealer, David Tweed, illustrates
Adam Smiths often overlooked point that market transactions must respect fairness and common morality. Some cases give rise to ethical perplexities; this one
doesnt. There is not a great deal to consider ethically, but this is an important case
for illustrating ethical disengagement, which is far too common in business.
For many years Tweed (born David Otmar Tschernitz), a Melbourne share dealer,
has used a string of companiesincluding Country Estate and Agency, National
Exchange, Australian Share Purchasing Corporation and Direct Share Purchasing
Corporationto scour share registers for holders of small parcels of shares,
usually from demutualisation schemes. He then offers to buy these shares, either
at a price well below market value or on terms that no financially aware person
would accept. Shareholding is widely distributed in Australia, so mass mailouts of
offers to purchase shares below market value are bound to catch the unwary and
the innocent. The 1990s, however, were especially propitious for predators. This
was the era when cooperatives and friendly societies, such as the NRMA, AMP
and IOOF, demutualised and distributed shares to their members. Many of these
new scrip holders had no previous experience of the stockmarket, and quite a few
were ignorant of the value of their holdings. Many were elderly pensioners. It is
not surprising that some were persuaded by an official looking letter from a Tweed
company offering to buy their shares. Of course, as required by law, Tweed advised
potential sellers to seek financial advice. Not many of them did: pensioners tend
not to have financial advisers. When people find out that they have been duped,
its usually too late. Tweeds National Exchange has taken legal action against
shareholders who have had second thoughts after accepting its offers. In 2004,
Tweed sued 300 elderly shareholders,22 despite a judgment against him the previous
year. In that 2003 judgment, David Vane was sued by National Exchange in a claim
for $977. Vane represented himself before a magistrate, who ruled that he had not
validly accepted National Exchanges offer. National Exchange appealed and lost,
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and was then unable to proceed against other shareholders on the grounds used
against Vane. Moreover, it was liable for their legal costs.23 This is not Tweeds only
loss, but he is a wealthy man and can afford to continue using the law against his
opponents. From his purchases in only four demutualised insurance companies, he
made $10 million in 2003.24
These offers are not illegalit is not illegal to offer a price for shares that is below
their current market valuebut why are they unethical? David Tweed was asked about
his approaches and replied, People can accept [the offers] or reject them. If they
dont like them they can put them in the rubbish bin.25 The ethical issue is whether
the people who had to decide on the offer were in a position to make an informed
decision. Tweeds defence of his practices is hackneyed: Its a free country.26 Indeed
it is, but that does not mean that legal conduct is ethical. Although a great deal of
business has to do with asymmetries in knowledge, Tweed is a shameless predator
on the unwarynot on those who know the rules of the game, but precisely on those
who do not. Mr Tweed has made no secret of the fact that the aged and ill-informed
were his quarry. He has admitted as much to the Federal Court.27 A corporation that
develops a new drug or a new model of stock market analysis has the advantage
over its competitors until that knowledge becomes widely used. We accept that such
advantages are legitimate rewards for effort expended and risk taken. Tweeds activities, however, are of a different kind. Fairness is the issue. Tweed has built his wealth
by targeting the unsuspecting. In the words of the Federal Court,
This is not a case of shrewd commercial negotiation between businesses within
acceptable boundaries. The conduct can properly be described as predatory and
against good conscience. This is not a case of obtaining a low price by shrewd
negotiation. It is predatory conduct designed to take advantage of inexperienced
offerees.28
ASIC and parliament have tried to restrict Tweeds activities. In May 2003, ASIC
imposed a condition on the licence of National Exchange that required Tweed to
disclose the market price of any shares he was offering to buy. The condition also
applies to unlisted shares, and requires any offer to set out a fair estimate of the
value of the securities and the method by which the estimation was reached.29
Attempts to stop Tweed do not end there. In a highly unusual move, parliament was
moved by Tweeds activities to tighten the Financial Services Reform Act in 2003
(the Financial Services Reform Amendment Bill 2003).30 Henceforth, unsolicited
offers to purchase shares had to disclose the current market price. Of course,
Tweed had a reply: he offered to purchase shares at better than market price
but to pay for them over a 15-year period. It seems that whatever legislative and
regulatory barricades are put in his way, Tweed circumvents themand uses the
law to do so. Ironically, changes to the law might have helped Tweed make his offers
safer legally. In any case, the Federal Court found that, though not models of their
kind, they were not deceptive, misleading or legalistic.31
In Australian Securities and Investments Commission v. National Exchange Pty
Ltd, the Federal Court found,
7h that Tweed did not conduct his business in good faith
7h that National Exchange systematically took advantage of a group of inexperi-
enced persons who would act irrationally from a purely commercial viewpoint
and would accept the offer
7h that these people were perceived to be vulnerable targets and ripe for exploitation, as they would be likely to act inadvertently and sell their shares without
obtaining proper advice, and they were a predictable class of members from
whom Tweed could procure a substantial financial advantage
7h that there was a strong element of moral obloquy in this case
7h that the conduct of National Exchange in this case clearly offends against
basic notions of good conscience and fair play.32
In October 2006, ASIC permanently banned Tweed from providing financial
services. This ban was set aside by the Administrative Appeals Tribunal in June
2008.33 Denying Tweed access to corporate share registers has often been suggested and it would certainly be an obstacle to his schemes. At present, however,
corporations cannot legally do this. Even passing on the full cost of obtaining a
copy of the share register for Tweed is not legally safe, as AXA found in 2008: the
Federal Court reduced the fee to Tweed from over $17,000 (the cost to AXA) to
$250.34 Companies have to tread warily in trying to protect the interests of their
shareholders. In 2002, Tweed offered former members of OFM Investment Group
between 50 and 62 cents for their newly issued shares ahead of the companys
float. The shares were subsequently listed for $1.60. When the board of OFM tried
to prevent Tweed from registering shares acquired through his offer, he retaliated
with successful legal action. Yet the board had simply tried to act with a duty of
care to former members (now shareholders). The chairman of OFM explained the
boards decision in these terms: I felt aggrieved when he wrote to our shareholders
because I felt the board still had some trustee or protective role. OFM was started
about 20 years ago to encourage older Australians to save. Many of our members,
therefore, were unsophisticated in terms of investment skills.35
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Many corporations whose shareholders have been targeted by Tweed and other
predators, such as Hassle Free Share Sales, try to protect shareholder interests,36
but they have to be careful not to fall into the trap that snared OFM. Nor can they
be seen to offer shareholders financial advice. Hence, firms like AMP, IAG and AXA
Australia Pacific warn shareholders to check the current value of their shares and
to seek independent financial advice before accepting unsolicited offers.37 When
applications for copies of their share registers alert corporations to the interest
of predators, many issue cautions to shareholders. IAG, for example, sent a letter
in May 2002 to shareholders warning that National Exchange had been buying
shares for $1.42 below market value.38 It issued similar warnings in 2004, 2005
and 2006. In the long history of Tweeds pursuit of shares on the cheap, nothing
seems to change: in 2006 Coles urged shareholders to check the market price of
their stock ($10.72 at the time) and compare it with Direct Share Purchasings offer
of $6.00.39 BHP Billitons chairman sent a similar letter to shareholders in 2006.40
In 2008, it was Suncorp bank and Incitec Pivot warning their shareholders.41 They
were joined by a Woodside warning about Hassle Free Share Sales.42
Perhaps in the past more people in business would have excused Tweeds conduct on the principle that if an activity is legal, then it is not unethical. Nowadays,
that kind of rationale is no longer convincing. Talk of free markets, the free exchange
of property and the like do not excuse conduct like Tweeds: it is naked opportunism
that violates the core values nominated as essential for the conduct of business
honesty, trustworthiness, compassion, justice and fairness.
The case of Tweed illustrates many things for the ethics of business:
7h the moral irrelevance of market justifications for ethically repugnant conduct
7h that law alone is insufficient to support good business, as Adam Smith recognised
7h that not much can be expected ethically of persons unable to empathise with
(care about) those with whom they deal

7h the fragility of trust and how those without scruple can exploit it within the law
7h that unscrupulous persons will evade legal restrictions if they are sufficiently
determined.
Tweed might just be the exception to our rule that nobody accepts ethical defeat:
apparently he told one elderly victim, I didnt do morals at school.43
A classic case of obviously unfair competition was revealed in the legal action
taken by Virgin Atlantic against British Airways.44
CASE 4.3: Virgin Atlantic and British Airways

In December 1991, Richard Branson, founder of Virgin Atlantic airlines, wrote an
open letter to non-executive directors of the board of British Airways alleging a dirty
tricks campaign by British Airways staff against Virgin Atlantic. British Airwayss
chairman, Lord King of Wartnaby, alleged in turn that Branson was simply trying
to generate publicity for his airline. Branson replied with a libel suit, and British
Airways cross-sued over his initial allegations.
In January 1993, the claims were settled in the High Court with Lord King and
British Airways agreeing to pay Branson 500,000 and Virgin Atlantic 110,000
(a total of A$1.4 million) and costs of 3 million. Lord King also offered Branson
an unreserved apology for the dirty tricks practised against Virgin Atlantic. Counsel
for Lord King and British Airways accepted that their employees had been guilty of
regrettable conduct, but stated that British Airways directors were not party to
any concerted campaign against Richard Branson and Virgin Atlantic.
The man directly responsible for the campaign against Bransons airline, public
relations adviser Brian Basham, claimed otherwise. In an affidavit he asserted,
At no time did I act without the knowledge or approval of the British Airways
board. A letter from Bashams lawyer declared,
Lord King, Sir Colin Marshall (British Airways chief executive) and Robert
Ayling (director of marketing and operations) well know they and the company
gave full authority to his actions and it was Brian himself who played a
major role in exercising restraint in what was allowed to appear in the press
about Branson.
The dirty tricks included computer hacking, poaching passengers, impersonation

of Virgin staff, document shredding and press smears.
The Tradestock case does not involve such obviously dirty tricks. In this case,
established transport interests sought to reduce opportunities for competitive pricing
through exclusion from the market of Tradestock Pty Ltd. The notion of a market
economy is to deliver the lowest possible prices for consumers and the most efficient
distribution of resources within the economy. The way the market actually operates
in cases like Tradestock, however, could make one sceptical about these claims: free
enterprise is greatif you can get a piece of the action. This case became a classic
for competition policy and enforcement in Australia.
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CASE 4.4: Tradestock

Tradestock was founded in 1975. As transport consultants, Tradestock advised
clients on competitive quotes, little-known or unpublished discounts and rates, and
about entering into long-term fixed price agreements. It also offered its negotiating
servicesfor example, in seeking competitive quotes or in making representations
to transport companies against rate increases. Its fees were charged either at a
flat rate or at an agreed percentage of savings to the client.
Within a year it had become clear that such activities would not sustain a viable
business, so Tradestock decided to commence a more comprehensive transport
broking business. Tradestock investigated clients freight transport needs and
prepared reports and proposals for the most efficient ways of meeting them. Then
it negotiated contracts with freight carriers for the best service to its clients. Clients
agreed not to deal with freight companies directly for the duration of the brokerage.
No fees were charged to the client and Tradestocks profits were made by way of
a percentage of the fee charged by the freight companies. While other attempts
had been made to set up transport brokerages, none had been successful and
Tradestock was the only such broker in business at the time.
Tradestock was at first successful. It attracted clients who believed they were
served well by its negotiations with smaller freight firms who agreed to its commission terms. Tradestock had difficulties, however, in dealing with the major freight
companies. Some simply refused to respond to Tradestocks approaches. Others
dealt with Tradestock for a time and later withdrew from contact and made it clear
to Tradestocks clients that they would not deal with them unless Tradestock was
excluded entirely from all relevant communications.
Many of these major freight companies were members of the National Freight
Forwarders Association (NFFA). At meetings of NFFA, Tradestocks business
approaches were discussed, and at three of these meetings there was unanimity
that it was better for the client and freight company to deal directly without the
intervention of a broker.45 There was a general agreement that, with Tradestock
as an intermediary, the carriers charges would rise by the amount of the brokers
commission. Tradestock had pointed out, however, that the carriers would require
fewer sales staff and thus be able to reduce costs accordingly. The market power
of the large freight firms prevailed, however, and they effectively prevented Tradestock from operating as a broker. For a short time it operated directly as a freight
forwarder, but eventually went into liquidation in 1978.
In December 1976 Tradestock commenced proceedings against the major
freight companies alleging that, in restraint of trade, the freight companies had
case
questions
shut them out of the market.46 Financial difficulties prevented them from continuing
proceedings, but in 1978 the Trade Practices Commission took over the case under
the Trade Practices Act 1974. (The Trade Practices Commission was replaced by the
Australian Competition and Consumer Commission in 1995.) Relying on the minutes
of NFFA, the Trade Practices Commission alleged that the defendants were parties to
one or more of three arrangements or understandings, each in breach of the Act.
The court found that, although certain arrangements or understandings were
proved, these arrangements or understandings were not in restraint of trade
because they did not have the requisite significant effect on competition between
major freight forwarders. The court found that the field for the transport of goods
in Australia was highly competitive at all relevant times and the freight forwarders
competed actively with each other. The prosecution, nonetheless, made the Commission more determined to fight cartels and in particular the freight industry
cartel. For their part, freight forwardersor perhaps their lawyersbecame more
aware of the requirements of the Act. This does not seem to have been enough to
deter cartel behaviour, however, and in 199495, the Commission was successful
against freight giant TNT. Parker et al. suggest that in the Tradestock case, It is
highly likely that although TNT, Ansett and Mayne Nickless staff knew what they
were doing was probably illegal, they did not perceive it as being seriously wrong.47
When business is seen as a kind of game removed from morality, it is not surprising
that such perceptions prevail.
1 The court did not find any breach of the law, but does the exclusion of Tradestock
from the market nevertheless constitute an ethical wrong? What ethical issues
does the case raise?
2 Is there anything morally wrong or ethically troubling about cartel behaviour?
Two tales of Western Mining

CASE 4.5: Lady Bountiful
In June 1987, Consolidated Exploration Ltd (Consex) paid $201 million for a halfshare in a Western Australian goldmine called Lady Bountiful. Only three years
earlier, Lady Bountiful had been valued at about $1 million. Consex bought the stake
from Western Mining Corporation Ltd after receiving advice from Sydney stockbroker
Ord Minnett that the price of $201 million was fair and reasonable. The mine did
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case
questions
not live up to production estimates, and by the time it closed in 1991 Consex had
lost millions. It then sought damages of $175 million plus interest and costs from
Minnett for misleading advice. The basis of this figure is the estimate of N. H. Cole
and Associates, who argued as an independent expert that $201 million had not
been a fair price for the mine and that the true figure was closer to $30 million.
Others had been optimistic about Consex. The stockbrokers Jacksons Ltd had
described the stock as good value: The companys two major assets, the Lady
Bountiful and Davyhurst mines, will have a combined production of approximately
75,000 ounces a year. But according to Consexs lawyers, Mallesons Stephen
Jaques, Minnett should have known better. Mallesons held that Minnett appeared
to have adopted a comparative valuation technique, based on gold mining share
price relativity. They held that the open market value of the mine was the standard
of valuation that should have been used. Mallesons claimed that Minnett should
have taken specified steps to protect their client.
In reply to this claim, Ord Minnetts lawyers, Ebsworth and Ebsworth, argued that
Consexs directors should, among other things, have done their own valuation and
produced a report on ore reserves. In other words, the directors should have checked
more carefully before the purchase as part of their normal responsibilities.
The case is complicated because the information for Minnetts independent
valuation was derived from financial statements and geological reports from
Consex itself. Both Western Mining and former Consex directors were joined as
third-party defendants. Consex claimed that both had provided information for
Minnetts valuation.
The valuers who signed the valuation were quoted as saying, We have relied
upon directors of Consex to provide us with details of the various transactions being
proposed. The valuers did not actually inspect the mine in preparing their report.
In June 1987 Consex shareholders had the Minnett valuation before them and
agreed to the purchase from Western Mining. This was made with $100 million in
cash and $101 million in Consex shares. Western Mining did not emerge happily
from its dealings with Consex.48
1 Does the hire of expert advice relieve an obligation on the buyer to beware?
2 Should Consexs directors have been more cautious?
3 Is any special ethical issue involved in this case?
CASE 4.6: Ernest Henry

In October 1991, Savage Resources Ltd sold an option over six mining leases near
the north-western Queensland town of Cloncurry to Western Mining Corporation Ltd
and its junior venture partner, Hunter Resources Ltd, for $1000 a year. A matter
of weeks later, in December 1991, Western Mining announced the discovery of a
world-class goldcopper ore deposit on one of the leases, known as the Ernest
Henry deposit. The deposit was described as being capable of supporting a lifelong
mine with the capacity to produce more than 100,000 ounces of gold and 100,000
tonnes of copper concentrate in a year. The potential value of this deposit was
speculated at $2 billion. Under the option agreement, Savage was due to transfer
the leases to Western Mining and Hunter by 20 October 1992.
The executives of Savage Resources, however, were suspicious of the speed
with which Western Mining had found such a large and valuable deposit so soon
after signing the option agreement. As Western Mining held most of the ground
adjacent to the crucial lease, the Savage Resources executives believed that
Western Minings geologists might have conducted exploration on the lease (the
Savage Resources site) before the option agreement. Savage Resources decided
not to transfer the leases. Lengthy negotiations with Western Mining failed to reach
a settlement. So, in October 1992, Savage Resources began court action against
Western Mining, alleging trespass, misrepresentations and fraud. In the meantime,
Hunter Resources executives had become concerned that Western Minings actions
might have put at risk their very valuable interests in the Ernest Henry deposit, and
made it clear to Western Mining that they would sue for damages should Savage
Resources allegations prove correct.
Western Minings first reaction was to go to court to challenge Savage Resourcess
title to the lease. This action was settled out of court, and the parties moved on to
the main litigation in July 1993.
In court, Western Mining was forced to admit that their geologists had trespassed
and conducted magnetic surveys on the lease and had even taken samples in a
drilling program. Those explorations had discovered early indications of the size of
the Ernest Henry deposit, but the Western Mining executives said nothing about
the encouraging exploration results to Savage Resources when negotiating the
option deal. Indeed, a letter sent by the Western Mining legal department to Savage
Resources said that no significant [exploration work] was carried out on or in the
immediate vicinity of the Savage Resources lease prior to 16 October 1991 (the
date of the option agreement). On hearing this evidence, the judge ordered an
adjournment of the case and advised Western Mining to consider its position at the
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highest level. A few days later Western Mining and Savage Resources announced
a settlement according to which Western Mining surrendered all claims to the
Ernest Henry deposit. Additionally, Western Mining had to pay Hunter Resources
$17.5 million for its share in the now defunct joint venture and the substantial
court costs of Savage Resources and the Queensland Government (which was
at one stage involved in the dispute), and provide Savage Resources with all the
technical information gathered on the orebody. Altogether, the costs of the litigation
amounted to an abnormal loss of almost $20 million. Over the final week of the
court hearing leading up to the settlement, Western Minings shares had fallen
43 cents whereas Savage Resources shares had more than doubled.
The directors of Western Mining immediately ordered a review of internal
procedures. In a statement they said, The board of WMC Holdings considers it
a very serious matter that such a situation could have arisen. The procedures
within the company which allowed it to happen will be subjected to an immediate
investigationwith participation of appropriate people from outside the company
and corrected.49
A three-man inquiry team, headed by recently appointed director, Ian Burgess,
former managing director of CSR Ltd and self-styled corporate troubleshooter,
reported back to the board at the end of August. Burgess described the Ernest
Henry affair as something of a misadventure, involving no conscious dishonesty
on the part of WMC staff. It isnt a very bad breaking of the law, if I could put it
at that, he said. The inquiry said that assignment of the blame was complex, but
that there may be some shortcomings in the Western Mining organisation and
internal procedures that need attention. However, dismissal of company officers
was not warranted. Instead, senior executives involved, including managing director
Hugh Morgan, who had accepted responsibility for the affair, were to be denied
participation in the senior officers share plan for the next two years, and the
exploration manager directly involved was to be transferred to a non-managerial
position within the exploration department. Additionally, Morgans workload was
to be reduced and his personal and political activities curtailed, so that he could
concentrate on implementing the boards reforms of management procedures,
including a code of conduct for all company officers. A new executive committee,
consisting of the chairman of the board and two independent directors, would
be available to the managing director for advice and consultation between board
meetings, in particular to review unusual developments and discuss progress in any
problem areas. Although Morgan would not be required to consult the committee
case
questions
before taking decisions, commentators believe that the establishment of the

executive committee represented a severe curtailment of his ultimate authority as
chief executive.50 The trespass on Ernest Henry seems to have been an innocent
mistake. The ethical issues arise subsequently.
In November 1993 the board adopted a code of conduct as a statement of
values, believing that WMCs reputation for integrity is a competitive advantage
that it is essential to maintain. The 10-page booklet had been written by employees
and outlines a five-point plan of business ethics for its workforce. A selection of
senior executives would be surveyed annually about the implementation of the
code, and an advisory committee of senior management was set up to review
ethical issues. The code states, We conduct ourselves with integrity, are fair and
honest in our dealings and treat others with dignity.51
1 What should WMC have done when the mistake was discovered?
2 What should they not have done?
3 In considering these questions, what weight should be given to fair dealing
with Savage?
In chapter 10 codes are discussed at some length, but suffice it to say here that
WMC responded appropriately to a series of chastening experiences by reviewing
its values and stating its commitment to ethical business. This contrasts with other
enterprises whose only clear values are competitive advantage and the profits this
brings. Though often obscured by the demands of competition, fairness and justice
remain integral to the practice of business. Sometimes business is reminded of this
only by the emergence of a crisis.
REVIEW QUESTIONS
1 We do restrict the buying and selling of certain goods because we believe that
the harm done from an unrestricted market in such goods outweighs the social
benefit. What are the competing interests alluded to here?
2 Explain the statement, Between government regulation and utter licence lies
ethical responsibility.
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CHAPTER OUTLINE
7h
7h
7h
7h

7h Bait advertising, and the bait-and-switch

7h Morals and marketing
7h Review questions
In discussing advertising ethics, two questions come to mind at the outset: first, what
scope is there for ethical concern, apart from a legal concern about the practice of
advertising and the particular content of individual advertisements? (For example,
fraud is illegal; what additional room is there for ethical concerns? If it is legal to
sell a product, then should it not be legal to advertise that product?) Second, is
there anything morally peculiar to the situation of advertising, and are there any
special considerations that should be taken into account here that might be absent
from the moral arena in other situations? The short answer to both these questions
is that there is plenty of room for moral concern, and that because of the nature of
advertising and its audience, legal concern itself is not (and should not be) limited to
fraud and the like (that is, there is an expanded set of legal interests when it comes
to advertisingbeyond the range of those present in other public arenas).
Moral concerns about advertising are present on three levels. At the macro level
we could discuss the moral justification of the practice of advertising per se and its
place or overall justification within society. At the micro level we could consider
particular advertisements and evaluate them morally. Some writers have suggested
that in order to consider the micro level, reference must be made to the macro
level, because it is only by considering the social justification for advertising as a
practice that criteria for the evaluation of particular advertisements can emerge.1
Between these two perspectives there is another not related to the entire practice of
advertising or to individual advertisements, but rather to concerns about advertising
different types of products. The Trade Practices Commission and the (now defunct)
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Advertising Standards Council, for instance, both recognised that special considerations should apply to advertisements pertaining to alcoholic beverages, cigarettes,
slimming products and therapeutic products.
Advertisements can be objectionable in different ways and according to different
criteria. It is possible that an advertisement offends you or that you find it objectionable, but that, nevertheless, you do not believe that it is morally objectionable or that
it should be subject to legal sanctions. You may believe that it is ugly; you may find
the product itself or the depiction of it unappealing; you may also find the advertisement to be in bad taste. Maybe the old Rita-forr Eta margarine advertisements fall into
one or more of these categories, or maybe the advertisement for Stayfree Maxipads
(the blood of the murder victim is mopped up with the pad), or Ajax multipurpose
cleanser (worshipped by the housewife in the bathroom), or WILD-FM (featuring
amputees who cannot dance to the great music played by the radio station).
In thinking about the ways in which advertisements, and advertising in general,
can go wrong, it can be helpful to try to distinguish types of objections into three
groups: moral, legal and other. In using legal here, we are not referring to present
laws, but suggesting that legal sanctions should be present: there ought to be law.
Surely it is possible that some advertisement is objectionable in some sense, but
nevertheless should be morally and legally toleratedthat is, there should be no
legal or moral sanctions against it or legal or moral criticism of it. There is a significant question as to whether (and to what extent) it is possible to believe that an
advertisement is morally objectionable and yet, at the same time, there should be
no legal sanctions against it.
One commentator on batteries for laptops put the matter with admirable clarity:
Lately weve had many people complaining about the length of time their laptops
last when running on batteries. While there are many reasons for this, as a public
service, I have decided to reveal the main reason: manufacturers and salespeople
lie. I know, it is hard to believe they would deliberately mislead, but they do. 2
Advertisements can deceive by means other than simply lying. They can deceive
by means of half-truths, and by implying something that is not the truth, without
actually lying. Esso once advertised its petrol with the claim that cars run better on
an additive present in Esso. The advertisement did not mention that all brands of
petrolnot merely Essohad the additive. Duracell advertised that its batteries outperform Eveready batteries. The television ads showed the Duracell bunny powering
ahead of Eveready in a race. In 2001, Energizer took legal action over these ads,
pointing out that the ads actually compared Duracells alkaline (top-end) battery with
Energizers second-tier, Eveready carbon zinc battery, rather than with Energizers
alkaline battery, and that this was misleading to consumers. Initially, Energizer won
their claim, basically on the grounds that Duracell had neglected to mention that
Energizer also stocked a comparable alkaline battery, and so it appeared that the
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advertisements claim was simply that Duracells batteries outperform Energizers

comparable batteries, when, in fact, the advertisement was not comparing like
with like. On appeal, however, the judges ruled in Duracells favour, but required
modification to the script so as to make clear that it was alkaline batteries that
were being compared with carbon zinc-batteries. The advertisement was allowed
to be aired with the script, Duracell alkaline beats Eveready Super Heavy Duty.
It would seem, however, that a normal viewer would still believe that they were
hearing a claim about a comparison of apples and apples, rather than apples and
oranges. There is something of a technicality here, which makes the story more
interestingand perhaps more difficult. Energizer batteries used to be Eveready
Energizer. A company restructure in 2000 and a difference of branding resulted in
dropping Eveready from the name. So, Energizer is now the name of the top-tier
alkaline batteries made by this company, the Eveready Battery Company. Eveready
now refers primarily to a group of batteries that are not alkaline batteries, one type
of which are super heavy duty, which have, in fact, been around for a long time,
and also to Eveready Gold, a lesser quality alkaline battery. So, strictly speaking,
it is true to say that Duracell alkaline batteries outperform Eveready batteries
because, these days, Eveready refers only to non-alkaline and admittedly lower
quality alkaline batteries. It is nevertheless the case that the meaningful comparison
would be between Duracell alkaline batteries and Energizer (alkaline) batteries.
The context of the advertisementsincluding the history of the ad campaigns
about these batteries, our out-of-date knowledge about Eveready Energizer,
which, in fact, no longer exists, and our expectation that the advertisement really is
comparing apples with applesleads us to believe that the claim is about two comparable (alkaline) batteries, which, of course, it is not. It is not the actual claim that
would lead us to buy Duracell over Energizer or over Eveready, but our reasonable
understanding (which is actually a misunderstanding) of the claim being made.
Despite the fact that Duracell states the facts correctly, this is a readily predictable
misunderstanding, which, one might well believe, is being counted on in making the
claim about Duracells out-performing Eveready. After all, how effective an ad would
it be if it said, Duracell alkaline batteries outperform all non-alkaline, carbon zinc,
lower quality, less expensive batteries, including Evereadyand, by the way, were
not talking about Energizer here?
Advertisements can coerce and manipulate. The extreme of manipulation is
subliminal advertising. The message need not be subliminal in order for it to be
manipulative, however. Related to this point is the fact that it is possible for advertisements to fail to treat people as persons, and fail to respect their autonomy, their
role as decision-makers. They can fail to allow people to enter the transaction as
autonomous agents making their own decisions through informed choice.3 The
extent to which an advertisement is coercive or manipulative depends not only on
the construction of the advertisement itself (as in the case of subliminal advertising
or blatant lying), but also on the audience for the advertisement. For example,
advertisements aimed at children, slotted into childrens television timeslots, or that
have other particularly vulnerable target audiences are well positioned to manipulate
either intentionally or unintentionally.
CASE 5.1: Motherhood and spin

In October 2008, Coca Cola ran advertisements in the press and on television
featuring Australian actress Kerry Armstrong. These ads were unusual: they broke
from the classic Coke techniques that celebrate youth, sport and good times, and
cast Ms Armstrong in the role of myth-busting mum. They followed other motherhood
types of advertisement that push an informative rather than a persuasive line (the
Brandpower and Whats New advertising on Australian television), but caused ire
in the dental and medical communities and, well, were not very convincing. They
were soon gone.
Here is part of Kerry Armstrongs message: When I was asked to speak out
in favour of one of the worlds largest brands, Coca-Cola, it became clear that it
was surrounded by all kinds of myths and conjecture. What myths were Coke and
Armstrong busting? What about the claim that Coke makes you fat? The ad states
that No one single product makes you fat. This must have been welcome news to
chocolate addicts. But, if you get fat, thats your fault. Coke is about helping people
make informed choices about whats right for them depending on their individual
needs. But what about all that sugar in Coke that your body burns instead of
metabolising fats and complex carbohydrates? Well, there is always sugarless Coke
Zero and Diet Coke. What were the other myths that Coke needed to bust in
order to burnish its image? How about that Coke was once green? Thats a myth
that needed fixing in a hurry, particularly for the health conscious. This myth has
no currency and is mentioned only to enhance the informative appearance of the
ad. And what about the myth that Coke contained cocaine once upon a time?
Perhaps, once upon a time was meant to suggest a fairy story, but whether Coke
once contained cocaine or not is hardly an issue now. Nobody with the powers of
reason, let alone one who has consumed Coke, believes that a mass-produced soft
drink contains a prohibited drug. So, it doesnt contain preservatives: how many
know that it contains phosphoric acid (its on the label)? The ad did not address
this point, but it did state that Cokes caffeine content was basically no worse than
that of other soft drinks. As for the most familiar charge, that Coke rots your teeth,
the ad claims to bust this, too. It does not deny that Coke is acidic, but no more so
than many other food (sic) and drinks. In any case, saliva removes the soft drink
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from the mouth. So, its back to you, the consumer: Make sure you look after your
teeth by brushing regularly and visiting your dentist.
No sources are given for these alleged myths, though dental advertisements
warning of the dangers of fizzy, sugary soft drinks had been running on television
for some time before Cokes campaign. The dental ads, however, were hardly myths:
they were scientifically based and clearly in the public interest. It might seem,
then, that Coke was targeting a straw man. There are no great myths about Coke
that required clarification by the company, especially as its sales were healthy
(Australians consume more of the product per capita then anyone else). The
take-away message from this information campaign is that Coke does not rot your
teethif you are sensible. Well, that is hardly news.
So, this advertisement seemed to put a spin on a product to allay health
concerns and it was this spin that brought a reaction from the Australian Dental
Association. It took exception to the claim that the ad busted the myth that Coke
rots teeth. Its president, Dr John Matthews, said, We shouldnt rely upon Coca-Cola
for giving us dental health advice. They have underestimated the problem and put
a spin on it. Most people know Coke is bad for them but they continue to do it so
I dont know why Coca-Cola feels the need to do this.4 The Advertising Standards
Bureau received a number of complaints about the ad, but cleared it of using
the image of good mother to promote consumption of Coke because it did not
encourage excessive consumption. Objections to the ads denial of the effect of
soft drink on dental health were dismissed because it stressed the importance of
good dental hygiene.5
Coca-Cola stood by its ads. A spokeswoman said, We wanted to bust the myth
that you cant consume Coca-Cola and have healthy teeth. This is simply not true.6
Unfortunately for Coca-Cola and the Advertising Standards Bureau, the
Australian Competition and Consumer Commission took up the matter and came
to a very different conclusion about its helpfulness. Cokes messages were totally
unacceptable, creating an impression which is likely to mislead that Coca-Cola
cannot contribute to weight gain, obesity and tooth decay, said the chairman of
the ACCC, Graeme Samuel.7 Totally unacceptable and the potential to mislead
parents are a long way from Coke not encouraging excessive consumption.
Indeed, so seriously did the ACCC view the original advertisements that it required
Coca-Cola South Pacific to give enforceable undertakings to provide accurate
product information on Coke in newspapers across Australia and on its website. The
Advertising Standards Bureau turns out to have got it wrong either in its judgment
or in the level of standard applied to this case. At any rate, Coca-Cola showed poor
judgment in the myth-busting promotion and the Advertising Standards Bureau was
not up to telling them so. It scored an own goal against industry self-regulation.
case
question
1 What do you think? Is all this being too hard on Coke?
There is another side to concern for autonomy. On the one hand, a concern for
respecting peoples autonomy is a reason to consider the imposition of formal, legal
limits on advertising. On the other hand, however, a concern for peoples autonomy
can offer reasons for refraining from imposing limits. The imposition of legal limits
amounts to taking a paternalistic role with regard to the people who are exposed to
advertising. It amounts to formally, legally, assuming the role of looking after their
welfare, and making decisions about what they should and what they should not be
exposed to, and what they should and what they should not be allowed to expose
themselves to. The other side of the concern to protect people from entering into
unfair, manipulative transactions is the possibility of not allowing people to enter
into transactions into which they would otherwise choose to enter. This question
about how paternalistic it is desirable to be in this area has been briefly considered
by Richard De George, who suggests that this is a political question rather than a
particularly moral one. That is, in this area, the proper paternal role of government
should be decided by the people through their representatives, and with a majority
rule, limited by the rights of individuals and minority groups.8 According to this
view there is nothing morally compelling about paternalistic concern in the area of
advertising, but neither is there anything morally repugnant about it. Like a number of
other important matters within society, this one is properly left to societys preference
about what it would like to dowhether it wishes to be more or less paternal in its
conduct in this area, whether it wishes to have more or less paternalistically oriented
legislation about advertising. This is a very important point. Not every significant
decision that we make about what to do or what kind of society or person to be must
be a moral decision. Many very important decisions are rightly matters of preference
or political decisions; that is, decisions about which it is appropriate to take a vote.
In appraising whether or not an advertisement or an advertising practice should
have moral and, in particular, legal sanctions imposed on it, we must consider not
merely whether the advertisement or practice is morally offensive or is in some other
respect morally objectionable. Having decided that it is objectionable should not
settle the question of whether the advertisement should have sanctions imposed on
it or whether those who judge it to be objectionable should tolerate it. Toleration is
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recognised as an important principle in other areas of interpersonal activity, and the

principle should carry some currency in this area as well. Having said that, however,
we offer no suggestion about exactly how much weight should be accorded to this
principle.
Some things that we might want to consider as unethical advertising are actually scams, and not advertising at all. Sometimes there are no products at all on
the other end of these advertisements, but just someone to take your money. The
internet has certainly given rise to lots of these, and also provided lots of examples of
unethical advertising (probably, in fact, far more unethical and/or illegal advertising
than legal).9
Here is an interesting type of misleading advertisement. Different people react to
this in different ways: some are outraged and completely misled by it, while others
seem not to be misled at all.
CASE 5.2: Free sunglasses

An email arrives, with the subject line, Free sunglasses for j.brown [the name of the
email addressee]pick them up today! The body of the email then says Overstock
sunglasses. Sunglasses for free. And then, WHATS THE GIMMICK? How are you
giving away sunglasses for free?
The answer, we are told, is this:
Sunglass Manufacturers produce millions of dollars in excess inventory each
year. Overstocked Sunglasses has built a relationship with select, leading
manufacturers, and retailers to move this inventory and make room for new
merchandise. *While these manufacturers will accept a loss on these products,
they would rather give them away and opt for a Tax Write-off than sell them for
near cost and reap no benefit.
click here to view entire selection of Free Sunglasses or to order [hotlink]
The Sunglasses featured here are First Quality Sunglasses you will find in the
store that sell for anywhere between $19.95 & $49.95 and compare to designers
like Armani, Maui, Ray-Ban, and Killer Loops!
The only catch is that most of our products come in limited quantitiesso if you
see something you like, choose it now, because when theyre gone, theyre gone!
If we go to the website, we see a list of brands of sunglasses. We can click on

any of them and we get a better look at and description of those glassesand all
the rest are shown under them. We then discover that the particular ones we are
interested in cost either $1 or are free, and the postage and handling to anywhere in
the USA is, roughly, US$5. This still seems like a tremendous deal for good-quality
sunglasses. If we look carefully, we might notice that above the list of brands of
sunglasses, the heading is Inspired Styles. Then, we might also happen to scroll
clear to the bottom of the screen and happen to notice this, in very small print:
Disclaimer: *We have no association or relationship with the above named
sunglass companies, stores, products, or trademarks whatsoever. The reference
is to simply compare our prices and products to the above. Our products are
unique and different than the above-mentioned products. We do not represent
our sunglasses to be the originals nor are they copies of the above.
So, an inspired style might be Christian Dior, Nike or Boll, but those are
inspired styles only. And while it is true that the disclaimer does appear on the
website, it would be very difficult to argue that the website is not designed to appear
to provide sunglasses that are the real McCoy; particularly when one goes to it by
means of the direction that is included in the personalised email. If we re-read the
second paragraph of the email, after having noticed the disclaimer on the website,
then maybe we can get an inkling that the sunglasses are not really name brands
at all. But even here, it is still maybe; and it is a certainty that the enticement for the
sunglasses is a claim that the sunglasses on offer are the real thing.

In Australia, advertising is scrutinised and subject to formal regulation from a number
of sources, particularly the Commonwealths Broadcasting Act 1942 and the Trade
Practices Act 1974. From 1974 to 1996 an Advertising Code of Ethics and four productspecific codes were in place, and were administered by the Advertising Standards
Council (ASC).10 The ASC was established by the (now defunct) Media Council of
Australia, which was the advertising industrys accreditation authority. The codes
were the advertising industrys self-regulating codes of conduct, in that they applied
to all member bodies of the Media Council.11 The codes and other formal regulations
divided the media into the categories of print, television, radio, cinema and outdoors. Additionally, there wereand still areseparate clearance bodies for each
of the various media organisations. Each medium has its own organisation to which
advertisements must be submitted for clearancefor example, the Commercial
Acceptance Division of the Federation of Australian Commercial Television Stations
(FACTS), and the equivalent division of the Federation of Australian Radio Broadcasters (FARB). These organisations preview advertisements, checking for content
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that is specified as unacceptable by the Australian Broadcasting Tribunal, as established by the Broadcasting Act 1942 (Cwlth), and they can also receive complaints.
For example, both FACTS and FARB prohibit, among other categories, advertising
that is misleading, subliminal or inciting of hatred on grounds of race. The ASC did
not preview, or function as a clearance body, for advertisements. Its role was to
respond to complaints from the public concerning advertising that they had seen or
heard. In order to impose any sanction on an advertisement (such as requiring that
the advertisement be altered or that it be removed altogether), the ASC would have to
find that the advertisement breached one or more clauses in the general advertising
code of ethics or in one of the specific product codes. By far the most significant and
widely invoked clause in the general code was clause 6: Advertisements shall not
contain anything which in the light of generally prevailing community standards is
likely to cause serious offence to the community or a significant section of the community.12 Surprisingly, a particularly contentious and troublesome clause was clause
7: Advertisements shall be truthful and shall not be misleading or deceptive.
The ASCs treatment of these two clauses probably played a major part in its
downfall. On a number of occasions, the ASC was accused of paying too much
attention to the letter of clause 7 and not enough attention to the spirit of that clause.
For example, according to the ASCs case report for November and December 1998,
it received five complaints regarding a lamb roast advertisement in which a young
girl asks her mother if she can have dinner at a friends house. Her mother agrees,
but when the girl realises that her mother is cooking a lamb roast, she tells her
friend that her mother has refused permission. She told a lie. The ASC wrote to the
advertiser, cautioning them about using such fib devices in future advertisements.
In this respect, the ASC was seen by a number of advertisers as being draconian and
out of touch with the community.
Clause 6 was very important, and by its nature required that the sanctioning
body be in tune with community feelings. The ASC itself trumpeted the fact that the
code was to be a living codethat is, changing as the communitys mores change.
However, the ASC was often criticised for being out of touch with how the community
at large would react to particular depictions in advertisements. The presence of a
directive such as clause 6 also raised serious questions about the limits of what
should be tolerated, even if it is objectionable. We noted this consideration earlier.
There were probably two or three major factors that contributed to the demise of
the ASC. As just discussed, one factor was that a significant portion of the advertising
industry thought that it had become out of touch with the community, as well as too
authoritarian, rule-bound and perhaps capricious in its judgments. A separate, but
not unrelated, factor was strong dissatisfaction within some parts of the industry
with the operation of the Media Council and a certain amount of unhappiness with
the presence of such a body at all. As mentioned above, the Media Council was
the umbrella organisation governing the ASC, as well as being its funding body.
The industry decided to do away with the Media Council as its self-regulatory and
accreditation body. Among other things, this involved the disestablishment of the
ASC. In this respect, the demise of the ASC was an effect of the disestablishment of
the Media Council, which was the central target. Inasmuch as the Media Council
was the industrys accreditation body, disestablishment of this body amounted
to deregulating the advertising industry in other ways as well. It also seems that a
significant group of advertisers wanted a new regime because they wanted more
freedom in advertising; they did not want to be responsible to an organisation that
had real clout in its decision-making and sanctioning functions. All these factors
seem to have been at work. The noteworthy outcome was the end of a relatively
long-standing regime, a hiatus, and then the institution of a new regime.13
The new regime

In 1998, under the umbrella of the Australian Association of National Advertisers
(AANA), the Advertising Standards Bureau, the Advertising Standards Board (ASB)
and the Advertising Claims Board (ACB) were established, as was the AANA Advertiser Code of Ethics. Like the former ASC, subscription to the Advertising Standards
Bureau by advertisers is voluntary. Unlike the ASC, the ASB does not have legal clout
in sanctioning advertisements. Instead, it relies on the prominence of the board
members themselves and the publicity emanating from the board to furnish incentive for advertisers to comply with the boards decisions. The ACB deals basically
with matters of truth in advertising. Its principal role involves dispute resolution
among competitors. The ASBs principal role is to judge matters of taste and decency
in advertising, responding to consumer complaints. Using the Advertiser Code of
Ethics as its terms of reference, the ASB considers advertisements which people
find offensive on the basis of discrimination (race, nationality, sex, age, sexual
preference, religion, disability, political belief), violence, language, portrayal of sex,
sexuality or nudity, health and safety, alarm or distress to children.14 The Code is set
out in Appendix 2.

Here is how advertising advertises itself:
WITHOUT ADVERTISING, THE PRICE OF A JAR OF HONEY COULD REALLY STING YOU
Its basic economics. The more people who know about a product, the more people
are likely to buy it. Advertising is the medium that brings the message to millions.
It helps increase the volume of sales and decrease the cost. So whether its a jar of
honey or a jar of pickles, advertising helps keep a lid on the price.15
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The basic function of advertising is to inform buyers about what is available in the
market. It allows sellers to attract customers by praising the virtues of their goods
and services. Advertising, then, may reasonably be seen as a fundamental part of
the operation of markets. It informs, allows comparisons of products and prices,
and is essential to competition. As these basic functions also support newspapers
and other media outlets, advertising thus performs a public service beyond its role
in marketing.
These basic functions, however, have become more complicated in the world
of modern technology. Advertising is more than just the transmission of essential
information. True, most advertising is still placed in the classified columns, but most
of the national advertising budget is spent on mass campaigns through direct mail,
glossy magazines, posters, radio, television and film. Most of the services and products advertised are consumer goods that depend on volume sales for their success.
So advertising must persuade as well as inform. This is where modern technology
comes in and where most ethical objections arise.
Persuasion has always been a part of selling. Socrates had a good deal of sport
at the expense of the universal persuaders of ancient Athens, the Sophists. In turn,
the Roman satirist Lucian made fun of the extravagant claims of philosophers to
give instruction in what today we would call lifestyles. But modern techniques of
persuasion, and the ability of modern media with their information on demographics, allows for more pervasive, intrusive and subtle forms of persuasion than were
previously available. The excessive boosting of products, the use of subliminal and
other psychoactive techniques, product placements and endorsements, and the use
of sexual or violent images all give rise to ethical concerns about advertising. The
question is whether such concerns are justified.
Perhaps the central ethical issue in advertising is deception in a variety of hues.
It is questionable, however, how far this issue extends. Medieval philosophers distinguished between officious, jocose and mischievous lies. The last kind, outright
lying, say for the sake of fraud, is not ethically contentious: it is just plain wrong. Real
questions arise, however, about the first two cases in which the truth is distorted or
exaggerated. St Thomas Aquinas was prepared to countenance the first two types
lies that have a good purposeas not seriously wrong. The law, as well, tolerates a
fair amount of puffery: untruths or exaggerations that are assumed to be recognised
as such by people who are exposed to them.
Take the ultimate case of deceptive advertising: the promotion of a product that
does not exist. As part of research on the effectiveness of billboard advertising,
Chris Tyquin of General Outdoor Advertising put up a large poster for Haka bitter,
a non-existent beer. The poster carried the slogan, Naturally booed in Australia
(the first choice, Haka bitterfor those sheepless nights, was abandoned after
being rated unacceptable by the Outdoor Advertising Association). Demand for the
beer eventually saw the hoaxers make a licensing arrangement with a small brewer
to produce the beer in limited quantities, with the agencys profits being donated
to the Prevent Blindness campaign.16 This is the kind of story more associated with
improbable fiction than fact. It is amusing, at least to Australians; our cousins across
the Tasman have not been favourably impressed. The point about the case is that
it illustrates the enormous power of advertising in the creation of a market, and the
opportunities to deceive consumers with that power.
It is generally accepted that advertising does exaggerate, but it is not always clear
that this is wrong, for if everyone is in on the act it hardly becomes a matter of
deception.17 For quite some time, the law has recognised puffery as acceptable, for
exactly this reason.
In the film Crazy People, Dudley Moore plays an advertising man who is tired of
lying. He suggests to his employer that it would be novel to tell the truth about the
products he is promoting: Volvo is boxy but good; Metamucil keeps you regular and
lessens the risk of death from colonic cancer; Sonybecause Caucasians are too
tall (to work accurately on integrated circuits). The humour only works because
these are precisely the concealed messages of conventional hyperbolic advertising.
The low-voltage irony of this film is that the only people capable of telling the truth
are psychiatric patients; when the Madison Avenue executives realise that truth
works, they try to write truthful campaigns themselvesand fail. They have become
so used to lying that they can no longer talk straight, no matter how hard they try.
This irony is underlined by a role reversal in which the patients become more like
the men on Madison Avenue the more advertisement writing they do.
The point is that most of the time exaggerated advertising is obvious. Is this a
moral problem? To insist that it is allies one with a venerable but mistaken line of
moral theorising. Tertullian, a father of the Christian Church, wrote against stage
plays because the players took the parts of various characters. Tertullian held that
such pretence was a species of lying and therefore forbidden to Christians. What he
seems to have ignored is that such impersonations were not designed to deceive the
audience into believing that dramatic roles were anything but roles. Therefore no
deception was intended and indeed could only arise for a few exceptional people
not familiar with the conventions of the theatre.
The same is true of advertising. Anyone unfamiliar with its idioms is likely to
make poor judgments about the moral problems involved. This is not to deny that
product boosting often crosses the line between praising real or imputed virtues
and making claims that are insupportable. Just as dubious is what is left unsaid, or
merely suggested. Lying and deception take their character from the contexts in
which they are practised and are difficult to define in simple generalisations.
It might be thought that saying something false is lying, but people can often mislead others by saying something that they believe to be true but that is nonetheless
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false. A resident of Alaska, for example, might reply to his daughters question about
the capital of Australia that it is Sydney. Or we might honestly but falsely believe that
Auckland is in the south island of New Zealand. On the other hand, we might tell
an ailing relative that they will get better soon, believing death is inevitable when in
fact a diagnosis has been made and indeed the relative will recover. The fact that
we believed that death would come makes well-intended words a lie even though
they turned out to be true. So we can lie even if we are not telling a falsehood.
Even a relatively straightforward definition of lying, then, turns out to be difficult
to construct. If it were simply about intention to mislead, then fairy stories told to
children would be lies, and so would many a compliment around a barbecue and
dinner table. If it were simply about deception for personal gain, then do untruths
designed to protect other people cease to be lies?
Not only is the definition of lying difficult, then, but also more importantly its
significance is also context dependentthat is, it depends on what the liar is trying
to do in a particular context. A person who intentionally and deliberately misleads
you so that your surprise party will not be spoiled should be judged after the party,
not at the point of telling the lie.
Advertising that makes false statements that the public is expected to take at
face value is patently wrong and that is the end of the story. The real issues reside
in advertising that does not make false claims, but which may nonetheless be
misleading. The important point has to do with misleading, not with lying. People
can mislead by telling the truth. Remember the example of Esso noted earlier. The
line between what is permissible boosting of a products merits and misleading
exaggeration is a matter of pitch, context and the assumptions of the reader.
1 Should advertisers and marketers avoid exaggerated, offensive or tasteless
campaigns altogether?
2 Should there be legal prohibitions on them?
3 Are there any principles that can be employed to determine whether or not a
particular advertisement is unethical?
4 Are there any principles that can be employed to determine whether or not a
particular advertisement should be legally prohibited?
It is clear that many vocal groups in society would answer yes to questions 1 and
2. Not long ago, Hahn beer advertised itself in a poster featuring a smiling African
man with an elongated neck adorned with rings and the caption Didnt even touch
the sides. A number of people found this advertisement racist. Similar complaints of
tastelessness and sexism have been made in graffiti on posters advertising womens
underwear. In 1993 Magistrate Pat OShane dismissed charges against two women
who defaced a billboard for Berlei underwear because they found its depiction of a
woman being sawn in half sexist. Sometimes it is the slogans that seriously offend.
An advertisement for Thermos hot and cold containers proclaimed It takes more
than big chests and nice jugs to attract customers. Many years ago, an advertisement
for Speedo womens swimwear featured an attractive woman in a brief (for then)
swimsuit, with the caption, Gentlemen, start your engines.
One of the most controversial advertising campaigns of recent times was run by
Benetton with eye-catching posters of a burning car, poverty, an AIDS sufferer and
a naked Signor Benetton himself. These advertisements attracted much comment
and some outrage from people who thought they exploited human suffering for
commercial advantage. Perhaps the most controversial advertisement of 1993 was a
one-day newspaper poster by Saatchi and Saatchi for the Toyota wide-body Camry,
a description of which follows.
CASE 5.3: The Toyota case

The advertisement for the Toyota wide-body Camry attracted a great deal of public
attention, for it featured not a picture of a car but the naked torso of a pregnant
woman together with the caption, Theres Nowhere More Comfortable Than Inside
a Wide Body. The advertisement parodied a Ford campaign that featured a man
jumping into his Falcon and travelling at high speed in wet conditions. At the end
of that advertisement, we see that he has been driving his very pregnant wife to
hospital. The advertisement also suggested the controversial cover of Vanity Fair
featuring a pregnant Demi Moore posing naked. The Toyota advertisement certainly
attracted much public attention and created debate about whether it demeaned
or exploited women. Many feminists found it offensive and exploitative. Women
parliamentarians supported this view, Senator Margaret Reynolds declaring the
advertisement Insulting and dehumanising, firstly because it ridiculed pregnancy,
and secondly because the picture showed a headless woman.18 And, at least as
far as the media reported the reaction, only a few women commended the advertisement or were neutral towards it. As those who found the use of the pregnant
woman objectionable had not been asked about the cover of Vanity Fair, it is not
possible to state whether they also found that objectionable. What is clearer is
that the controversy surrounding the Moore photograph was of a different kind,
more about seeing a celebrity disclosing her pregnant nakedness than appearing
naked per se. Yet this act was no less commercial: Moore was selling Vanity Fair,
and selling herself, too.
A few months after the Toyota advertisement appeared, a very large billboard
appeared in Melbourne displaying the naked body of a 17-year-old youth, Vadim
Dale, advertising boxer shorts. It read, Every day every man should drop his pants,
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look down and smile. No complaints were received by the Advertising Standards
Council according to then executive director Colin Harcourt, who said, Although the
number are increasing, the percentage of complaints we receive about the depiction
[of men] is still minuscule. The advertisement was the work of Style Counsel, whose
spokesperson, Laura Kininmonth, reported a favourable response to the poster, saying, It is a flagrant flaunting of young flesh. More and more you are seeing it happen,
men dropping their pants in television commercials and movies. It is something to
be flaunted and it is an indication of how much men have evolved.19
The questions that arise in the Toyota case are many.
1 Why is it objectionable to use a naked pregnant woman in an advertisement to
sell cars, but less controversial to use one to sell magazines, or for that matter,
Demi Moore herself?
2 What precisely is objectionable in the Toyota advertisement: the use of a torso
without a head, the use of pregnancy to sell cars, the caption across the photograph, the calculated and dramatic use of an ordinary but very precious human
condition to capture public attention, or the sexist nature of the advertisement
(using naked women yet again as objects to sell other objects)?
These questions apply to many advertisements today and are perplexing in

a liberal society. The same kinds of displays can be acceptable or objectionable
depending on who is publishing them, the purpose for which they are being published, and who is viewing them. The feminist journal Refractory Girl published a
photograph of a naked pregnant woman holding a melon in front of her head in
its August 1993 issue. Fairfax and Roberts jewellers ran advertisements for Paul
Picot watches in the Australian and Sydney Morning Herald. The first advertisement
featured a Helmut Newton photograph of a woman sitting on a chair with one hand
on her lap and the other holding a book, which she is reading. She is wearing a satin
evening gown, one strap falling off her shoulder. Standing behind her chair is a man
with his hand down the front of her dress, holding her breast. Two quotes from
the copy are, If youre searching for satisfactions and When you see this model
in the flesh, youll express your desire for it on sight. After all we never told you to
look but not touch.20 As with the Toyota advertisement, the Advertising Standards
Council received a great number of complaints. Typical of the complaints were these:
[The advertisement] conveys the dangerously misleading message that women
condone and enjoy being molested by men and that this behaviour is completely
normal. It objectifies women, demeans women and advocates sexual harassment
and abuse, which is absolutely unacceptable. I am amazed that an advertisement
which is blatant soft pornography is tolerated in what I would consider a family
newspaper. 21 As with the Toyota advertisement, this advertisement was judged to
be in breach of clauses 5 and 6 of the Advertising Code of Ethics, with the result
that the advertisements were withdrawn from publication. Notwithstanding this
sanction, and perhaps owing in some measure precisely to the storm of protest that
they generated, the advertisements were surely effective as one-shot exposures.
The line between sexy and sexist may not be clear. The term sexist implies
that women are being demeaned or dominated for the purposes of men. The use of
women in sexual advertising is held by some feminists to be objectifying. Suppose
this is true: why is it unethical? Other feminists, however, believe that there is a
puritanical strain in feminism that wants to deny that the sexual element in women
is as strong as it is in men. If this were so, it would explain the tendency to blur the
distinction between sexual and sexist.22 The innuendo in Sleep wonderfully warm
with Linda has been played up to the point of inanity. So has a suggestive series of
posters on buses and elsewhere of rugged males sprawled between sheets adorned
with slogans like Supreme in bed.
A market-oriented view would take the position that if these advertisements are
sexist, offensive or inane they will not work and will be killed off by others in a
kind of Darwinian struggle to survive. This libertarian view could be applied to all
the ethical questions about advertising. It would hold that if a product or service
is legally available, then its advertising should not be restricted.23 The market will
decide what kinds of advertisements will work. Obviously that which offends most
people will be ineffective, as will misleading or exaggerated or deceptive advertising.
But is this so?

According to one of Australias most successful advertising men, John Singleton, the
only kind of advertising that is objectionable is that which does not work. Responding to the controversy created by the Benetton campaign, Singleton asserted, There
are no wrongs involved. The ad campaigns really deserving of debate are all those
you cannot remember. If an advertisement shocks people, creates controversy or
even outrages, so much the better. The tactics are not new, nor are the hysterical
outbursts that multiply their effect, wrote Singleton. His rationale is, It doesnt matter
to Benetton what percentage of the market they alienate because its only the ones
they win that are important. It doesnt matter if you lose 90 per cent if you win the
other 10 per cent as market share. 24
On Singletons reasoning, Toyotas wide-body advertisement might not be as
successful as they had hoped. When selling to a mass market it seems sensible to
be aware of consumer values. Still, this is a liberal pluralist society, and if firms with
services and products to sell wish to use unorthodox, even outrageous, means to do
so, should they not be permitted the liberty to fail or succeed?
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This is an ethical question. So, too, is the issue of stereotyping women, people
with disabilities or ethnic groups. It is simply incorrect to say that the market will
exclude bad advertising, unless bad is used in the sense of unsuccessful, in which
case it is trivially true that bad advertising will be excluded. Advertisements that sell
may still be offensive, as Singleton acknowledges.
The Toyota advertisement ran for one day, but provoked a record ninety-five
complaints to the Advertising Standards Council. The ASC had been subject to strong
lobbying from womens groups to act on sexism in advertising. Before the Toyota
advertisement, John Singleton had run a highly controversial campaign for Eagle
Bitter in South Australia around a scene in which a dog pulls a womans jeans off.
This caused a storm of protest to the ASC, though, curiously, not as much as Saatchi
and Saatchis use of a pregnant woman to sell a car.
Although a member of the National Womens Consultative Council had a seat
on the Advertising Standards Council, the latter had been holding meetings with
womens groups in order to keep its views in line with those of the public. Eventually,
the ASC ruled that the Toyota advertisement contravened two articles of its code and
censured Saatchi and Saatchi.
Kate Henley, former executive director of the Australian Association of National
Advertisers, expressed the view that the industry has lost touch with some shifts in
social attitudes and beliefs:
We can no longer ignore marginalised attitudes The traditional response to attacks
has been that this is a fringe and ratbag element. But I think we have to accept that
these womens groups have pinpointed the trend. Advertisers need to accept that
a change has taken placethat views held by women are less radical but also
widespread. They have not come up to speed on that shift.25
If Henley is right, then free speech will ensure that advertisers are self-regulating;
they will not run advertisements that alienate customers. But to opt for political
correctness, to deny free expression even of offensive views is contrary to the kind
of democracy that the West has long stood for. It may seem a small cost initially to
ban advertising that offends anyone, but the long-term costspolitical and social
rather than economicwill be much greater. Balancing the important democratic
principle of toleration with, say, provisions 1 and 6 of the Advertising Code of Ethics
was very difficult indeed.

There has been concern expressed in the United States about the ethics of product
placement, and we see the same trend in Australia. Product placement involves
buying a place for a product in a film or television show. Clearly identifiable products,
such as cars, will be commonplace fixtures of film and video entertainments, but
product placement can enhance the prominence of, say, a soft drink or evade
restrictions on tobacco advertising. Some years ago, Paramount Pictures produced
a television series called Viper after the name of its central character, a Dodge
Viper sports car. A New York Times report, reprinted in the Sydney Morning Herald,
commented on the marketingentertainment symbiosis:
Not only would Viper double as a program-length commercial for the Chrysler model
but plans call for merchandising the series with tie-in products such as toy cars and
apparel. That, of course, offers the potential to deliver still more advertising messages,
over and above those that the viewers of Viper would watch in the form of commercials appearing in each episode.26
Similar concerns would apply to some game shows in Australia. Some companies are
virtually acting as sponsors for game shows by donating prizes in return for publicity.
But one game show, Supermarket Sweep, was nothing else but a competition built
around supermarket lines. Is this not product placement? And what if it is? What is
wrong with product placement?
Product placement is an ethical problem because consumers are exposed to
a form of subliminal advertising. The placing of subliminal messages in films was
banned in the 1950s, but product placement is a camouflaged variation on the practice. The camouflage used is in a sense obvious: the Coke signs are obvious when
Sally Field walks into James Garners drugstore in Murphys Romance. And that is the
whole point. Depending on the context, the reference to a product might or might
not be an endorsement. In the film Rain Man two large corporations are mentioned
favourably and unfavourably. In the most famous piece of (apparently) free advertising it has ever received, Qantas is endorsed by Raymond, the autistic prodigy,
who refuses to travel by any other airline because they have had crashes. However, K-Mart does not fare so well. Originally an exclusive K-Mart shopper, Raymond
changes during the course of the film and says at its conclusion, K-Mart sucks!. Of
course, if this is product placement, not endorsement, then John Singletons point
holds: mere mention of a retailer is more important than endorsement, and K-Marts
unfavourable mention counts for as much as the implicit endorsement of Qantas.
Clearly the fortunes of K-Mart or Qantas will not stand or fall by these few
remarks, but it is also clear that it would be unethical to pay for such lines to be
inserted into a script. Why? Is it important that we know that an advertisement is
an advertisement? Is this an element in the objectionability of product placement?
Brand names are part of our lives and our culture (some, like Biro, Hoover and
Kleenex, become generic names) and it would be artificial, and silly, for cinema and
video to refrain from mentioning them. (Was Andy Warhols painting of Campbells
soup tins an endorsement, a subtle product placement?) But this is precisely why it
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would be unethical to seek favourable treatment or to belittle a competitor by paying

for product placement or displacement. Like subliminal advertising, it would be an
abuse of freedom of speech and artistic licence. When endorsements are made by
prominent people or organisations it should be clear that the endorsement is not
posing as something elsesay, information, entertainment or even news.
Endorsements
It is not always necessary or desirable that endorsements be paid for. Some publicinterest organisations make recommendations for the public good. The National
Heart Foundation counsels about diet in terms that are not helpful to the dairy
industry. The Australian Conservation Foundations first ever endorsement was to
give approval to a low-energy, long-life tube to replace the conventional incandescent
light globe. It sees this product as furthering its interests in energy conservation,
pollution savings and so on. The danger with paid and unpaid endorsements is that
the credibility of the public figures and public interest organisations can be brought
into question. From the advertisers viewpoint, high-profile figures can become
exclusively associated with a product, something that can have ramifications beyond
the conduct of their personal lives. If they were, say, to advertise a competitors
product, there would be implicit comparative advertising.
In a case before Justice Davies of the Federal Court, Raid insecticide was restrained
for a time from using the radio announcer John Laws to promote their product because
of Lawss long association with rival brand Mortein. Although Laws had not uttered
the Mortein slogan (When youre on a good thing stick to it) for eleven years, Justice
Davies reasoned that Raid had recruited him precisely because of that association.
The judge ruled that Laws could mistakenly be taken to be endorsing another Mortein
product, but an even more likely inference to be taken here is that Raid is engaging in
masked comparative advertising. After a sufficient elapse of time, Laws advertised a
rival product using a parody of the Mortein campaign: in his newer ad, Laws said (for
Raid), When you find a better product, switch to it.
Bait advertising, and the bait-and-switch

Bait advertising is the use of selected items to attract customer interest when the
advertiser knows full well that there is sufficient stock for only a few customers.
The practice is for sellers to then harness the interest of the potential buyer in the
unavailable item and use it to sell another product. In other words, it falls under
the head of false pretences. The bait-and-switch is even worse. The ploy here is to
advertise something that you plan not to sell: either you do not have it, and you then
try to convince the prospective buyer that something else (more expensive or with
a higher mark-up) is available, or you have it but have planned to try to convince
the prospective buyer that it is not the thing to buy, whereas something else that
you stock is. The idea is that you use something that sounds very attractive as bait,
planning all the while to switch the prospective buyers interest to something else.
Here is an interesting example of bait (perhaps bait-and-switch).27
CASE 5.4: Le Winters Radio Stores
case
questions
In New York in 1938, Le Winters Radio Stores displayed a refrigerator, attached to

which was a sign. In large letters on the sign was printed 1938 Norge $119.50.
In smaller letters, the word from was placed in front of the price. Le Winters was
taken to court over this matter. In People v. Le Winters Radio Stores, Inc., it was
argued that Le Winters was not ready to sell the refrigerator at the price printed on
the sign, but rather was ready to sell only a smaller refrigerator.28
1 Apart from the legality of the matter, the sign was clearly misleading. Still, it is
worth asking, given that a prospective buyer does not have to buy, what is so
terrible about bait advertising?
2 What about bait-and-switch advertising?
Some situations are not so clear-cut.
CASE 5.5: Grace Brothers

It is common practice for department stores to hold post-Christmas sales. In
1992 the Grace Brothers Sydney store had advertised remarkable bargains on
selected whitegoods, typically refrigerators. The store stated in its advertisements
that only a certain number of such items would be available. Crowds gathered in
such numbers for the bargains that people were hurt in the crush to reach the few
heavily discounted items first. People knew that bargains on household appliances
were few, so this form of merchandising does not seem at face value to be bait
advertising. Yet the offer, even of a few items at extraordinary discounts, raises
an interesting ethical question. The fact that people have been hurt in the rush for
such discounts indicates that they are substantial crowd-pullers. And, the selected
whitegoods themselves would surely not have been regarded by Grace Brothers as
warranting such massive advertising.
A change of heart ensued in the face of poor publicity. Grace Brothers no
longer massively discounts a few whitegoods, and security procedures have been
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case
questions
improved for the post-Christmas sales. Moreover, the store has also improved the
atmosphere among the bargain-hunters who gather outside its doors in the early
morning. Both the publicity for the sale and Grace Brotherss image has improved.
1 Is this a form of bait advertising?

2 Grace Brotherss initial response was to deny responsibility for the harm caused
to customers by this first-come, first-served form of marketing. Was this
defensible?
Morals and marketing

Beginning in July 1993, telephone customers were asked to vote for the long-distance
carrier of their choiceOptus or Telecom (now Telstra). If customers did not vote,
the default option was Telecom, so Optus had a large stake in just persuading people
to vote, especially as surveys showed that most people were averse to the idea of a
ballot.29 In order to provide an incentive to vote, Optus wanted to offer prizes such
as cars and holidays. Not surprisingly, Telecom, which had an interest in people not
voting, but was shown in a TimeMorgan poll to have a substantial lead over Optus,30
was opposed to such incentives.
1 Would Optus have been acting ethically in offering incentives to vote?
2 Was Telecom acting ethically in opposing incentives?
CASE 5.6: Telstra v. Optus

On 3 June 1993 Telecom ran two full-page advertisements in the Sydney Morning
Herald labelled Corrective Advertisement. They began, The Trade Practices
Commission has directed Telecom to issue this corrective advertisement. Both
advertisements admitted that previous advertising might have been misleading.
The second stated in part,
The advertisement may have misled readers to believe that the cost of a five
minute call from metropolitan Sydney to metropolitan Brisbane is cheaper using
the Telecom Business Circle Flexi-Plan as compared with the Optus standard rule.
In fact, at no time would the cost of such a call be cheaper under the Flexi-Plan,
in comparison with the Optus standard rate, when the $1 per month Flexi-Plan
access fee and the Optus advantage discount are taken into account.31
If the Trade Practices Commission had not directed Telecom to publish these
corrections, it seems that consumers might have been none the wiser. Pressure
for government regulation of advertising is increased by cases like this. Of course,
Optus might also have complained to the Advertising Standards Council, under
provision 7 of the Advertising Code of Ethics. If they had been successful, then selfregulation (that is, industry self-regulation) would have been effective against the
Telecom advertisement. Without the intervention of a regulatory body, misleading or
incomplete information might be provided to customers. As Lemke and Schminke
have argued, the incentives to mislead are greater when business is under stress,
as Telecom clearly was by the entry of a competitor into the long-distance telephone
market. Marketing under conditions of stress may produce inflated claims and
ethically suspect strategies. The presence in the marketplace of an adjudicator can
make a difference to the confidence of all stakeholders and other interested parties
when such claims and strategies are challenged.
It will not always be possible to monitor the ethics of marketing, but this does not
relieve marketers of their responsibilities to have regard for core ethical principles.
Sometimes they do not even seem to perceive the presence of an ethical question.
The following case illustrates this situation.
CASE 5.7: School Sample Bag Company

In June 1993 a school-based marketing scheme was the subject of some controversy. Children in New South Wales state primary schools were given sample bags
to take home by the School Sample Bag Company, and the schools received cash
payments of up to $500. The practice attracted the ire of Carl Vagg, a parent at
Faulconbridge Primary, whose 6-year-old daughter brought home a bag labelled
dedicated to learning and containing product samples and a survey with a Gold
Coast holiday as an incentive to return it. Also in the bag to which Vagg objected
was a copy of Who Weekly, which contained a photograph of a woman showing
scars from the removal of breast implants.
The Department of School Educations policy is to let individual principals decide
whether to distribute the bags. Vagg, however, found the practice objectionable: It
is a deceptive Trojan horse invasion into the home posing itself as an educational
product, whereas its really a slick marketing exercise. Of course, there is nothing
intrinsically wrong with slick marketing, but the president of the NSW Federation
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case
questions
of Parents and Citizens Associations, Dr Graham Aplin, said he was dumbfounded

at this use of children.32
1 Can an arrangement that benefits schools, parents, marketers and producers

be unethical? Why?
2 If the contents of the bags were uncontroversial, would the ethical difficulties
disappear?
The moral issues in marketing are an extension of those in advertising.

1 Is it wrong to market foundation and skin-nourishing creams to women knowing
that claims about skin rejuvenation are false? Cosmetics manufacturers say
that they are making women feel better about themselves. Marketers know that
some kinds of packaging are more appealing than others.
2 Is it wrong to sell products in large-volume containers, which suggest a larger
product or which give a better image or a higher profile to perfume or breakfast
cereal?
3 Is the problem one of deception or of wastage in packaging or both?
Some of these questions are clearer if we take as a case a range of childrens

bath-time products from Johnson & Johnson.
CASE 5.8: Johnson & Johnson

Johnson & Johnsons childrens bath-time products come in the shape of animal
characters from A. A. Milnes stories of Winnie the Pooh. The first question that
arises then is the marketing of such products in packaging that will appeal to
children (and perhaps their parents) because they have the appearance of toys.
These products could be harmful to children if their contents were consumed
from the container or came into contact with their eyes. Hence there is a warning
on the label, in rather small type, This is not a toy. Might such a warning not
be rather beside the point when the product presents as a toy, is modelled on
a storybook character, is cast in soft plastic, and belongs to a range of similar
items that distinguish themselves from other shampoos and bubble-bath soaps
by their shape and colour? Such denials are known in philosophy as pragmatic
contradictions, and Johnson & Johnson would do well either to acknowledge that their
product differentiator is in fact a toy and take appropriate safety measures, or
to repackage their products and find some other marketing strategy for selling
childrens bath soaps.
A second question arises in relation to these products, however, from a report
made public by the ABC television program The Investigators.33 The program found
that Johnson & Johnson had imported bottles of bubble bath from the United
States in the shape of the Pooh character Tigger the tiger. The American label with a
warning about safety had been covered by an Australian one with no warning at all.
Australian labelling laws are less strict than their American counterparts, and do
not require the safety warning that the soap could sting a childs eyes. Johnson &
Johnsons new (Australian) label covered this warning on Tigger, the only one of the
five characters whose contents are not no more tears. This action was legal. But
was it ethical? This behaviour might seem all the more peculiar, given the particular
position of Johnson & Johnson, which apparently has taken to heart and seriously
tried to put into practice its Credo, which includes the following:
We believe our first responsibility is to the doctors, nurses, and patients, to
mothers and all others who use our products and services. In meeting their
needs everything we do must be of high quality
We are responsible to our employees
We are responsible to the communities in which we live and work and to the
world community as well. We must be good citizens
In a series of Credo Challenge Meetings, the companys CEO held frank and
open discussions with employees around the world about how to implement the
philosophy and provisions of the Credo, allowing that the document could be
changed. Commitment to the Credo was truly put to the test in the late 1980s. Over
a short period there were instances of intentional contamination of some containers
of Tylenol, one of the companys products. A very expensive decision was made
(not even by the top management, so well was the Credo instilled throughout the
company) to remove all Tylenol from the retail shelves in the interest of customer
safety. In the companys view this was the right decision. The publics welfare was
seen to be paramount, and this ethos was evident throughout the company. Of
course, the possible damage that could be caused by the Tigger bubble bath cannot
be compared with the damage that could have been caused by a terrorists spiking
of Tylenol. There is, nevertheless, a generic question about looking out for the
welfare of the consumers of the product.
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Consider the marketing of the Saturn motor car in the United States, compared
with the marketing of other new lines of motor car.
CASE 5.9: Saturn cars

Honda marketed the Acura in separate showrooms and under a separate badge
from the rest of its range of motor cars. Honda distanced (not to say, concealed)
its association with the Acura. Mazda did the same thing with the Eunos. Toyota
has the Lexus. In each case, the manufacturer was trying to enter a market with
which it had not been associated, and it believed it could best move up in class
by, as it were, introducing a new player, rather than by introducing a new product by
an old player with a reputation in a lower-class market. On one level, the situation
in the United States with Saturn motor cars could be regarded as analogous. The
Saturn is a General Motors car, marketed, manufactured and sold under its own
badge. It is, in fact, produced by the Saturn Corporation. In this case, however, the
car itself is quite mediocre. Unlike the story of the Acura, the Eunos and the Lexus,
the story here is not one of moving into a more expensive market, where the quality
of the car is higher. Its new class is one of ethics and customer care. The Saturn
distances itself from General Motors by breaking new ground in these areas. There
are basically two fundamental tenets underlying the marketing of the Saturn that
mark its move to a higher class:
1. Absolutely hassle-free car buying

Saturns prices are transparent and non-negotiable. They even have a website,
where you can click on the various options (there are not many) and the model and
colour you are interested in (there are not many) and see the price. And it shows
you what you will pay. Salespeople are not pushy. They have escaped the mould of
car salesman. Apparently, the car has become particularly popular with women
car buyers, who statistically are more put off or intimidated by the typical car sales
techniques.
2. Fair, above-board dealing in selling cars, and an ethical approach to

manufacturing them
Throughout the company, the employees are recognised as part of the management
team. Throughout the organisation, the notion of team figures prominently. The
Saturn Shared Values statement promises that We, at Saturn, are committed to
being one of the worlds most successful car companies by adhering to the following
values: commitment to customer enthusiasm, commitment to excel, teamwork,
trust and respect for the individual, continuous improvement. Saturn boasts that at
its factory in Spring Hill, Tennessee, the air leaving the plant is cleaner than the air
going in, and when we built the plant, two hundred trees were moved to a nursery
and later replanted on site, rather than being killed.
The companys approach is very much as stated in its Shared Values: it is out
to do the right thing by its customers. It is this, rather than any particular qualities
of the cars themselves, that Saturn is trading on. And it is apparently doing so with
considerable success. Saturn reports that it leads the automotive industry in customer and sales satisfaction. Saturn captured the No. 1 position in the J. D. Power
and Associates Customer Service Index and Sales Satisfaction Indexthe first
non-luxury brand to capture the top position for both in the same year.34
CASE 5.10: Coless branding

Following a front-page story in the Sydney Morning Herald, Australian supermarket
giant, Coles, announced that it was rebranding its own-brand products.35 Whether
the publicity was the reason for this exercise or not, the company had been fending
off criticism for two years that its SmartBuy and Youll Love Coles logos were too
similar to those of the Heart Foundation. In particular, the Coles logo featuring a red
tick on a white background resembled the Heart Foundations product endorsement,
a white tick on a red background. The Heart Foundation tick is earned by companies
that meet fat, saturated fat, salt, fibre and other nutritional content standards for
their products. Tests on foods are conducted regularly and independently. The tick
is a comparative standard, not an absolute endorsement; that is, it compares foods
in a particular classthough obviously some classes of food would not be eligible
for the tick. Labelling clarity on products is also a criterion of the Heart Foundation
in bestowing the tick.36 One of the benefits of companies having their products
so endorsed is that consumers can readily identify the healthy option on crowded
supermarket shelves without having to read nutritional information on the label.
Recognition is a big factor in such branding.
The Heart Foundation was advised that legally Coles was within its rights to
use its tick because it could be interpreted as an item of common use. The Sydney
Morning Herald report, however, raised questions about the ethics of the practice,
particularly because some of Coless products, adorned with its own tick, had
significant levels of saturated and high levels of trans fatty acids. In the case of
Coless canola and vegetable oils, which sported a red heart logo and claimed to be
cholesterol free, the levels of trans fats caused cholesterol levels of consumers
to increase. One consumer with a history of heart problems did not receive a reply
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from Coles when he complained. He told the Sydney Morning Herald, [I had] been
using the canola oil for some time before I read the fine print on the label saying it
contained 4.6 per cent trans fatty acids I was very shocked and angry because
since the (heart bypass) operation Ive been very careful about my diet.37 Coles has
undertaken to reconfigure these products and remove the cholesterol free label.
FIGURE 5.1
Coless branding
Source: SMH Graphics / fairfaxphotos.com
It is not hard to identify the ethical questions here: the potential to mislead consumers about the contents of products and to suggest that lower priced items are
as nutritious as more expensive ones; the use of a logo that resembles the leading
endorsement for healthier products; and potential free-riding on that endorsement,
which is subject to testing, auditing and payment of a fee. Moreover, it does not
enhance Coless image to be accused of taking advantage of a not-for-profit organisation whose aim is health promotion. It is all very well to say that customers should
read labels (after all, there has been agitation from consumer groups for producers
to label their products fully and accurately, presumably so that consumers will read
this information), but if there is an indication that this is unnecessary, then why
would people do it? If the Coles logo could be mistaken for the Heart Foundation
logo, then the buyer, far from having a reason to be careful, could well be lulled into
a false sense of security. None of us is vigilant all of the time. That does not mean
that we are fair game on those occasions when we are not.
REVIEW QUESTIONS
1 Do you think there is anything ethically objectionable about the advertisement for
sunglasses that was described in the chapter?
2 We quoted John Singleton as stating that the only kind of objectionable advertising
is that which doesnt work. What do you think about this point of view?
3 Not everything that is objectionableeven morally objectionableshould be
sanctioned (that is, have laws or formal regulations against it). Toleration is the
appropriate regard for some such things. Could you give an account of what makes
any particular objectionable advertisement sanctionable rather than tolerable?
What role, if any, does awareness of community standards play in your thinking?
4 Do you think there are special moral considerations about advertising of some
types of products, such as alcohol, tobacco, firearms, prescription drugs, breakfast
cereals, toys, health food or anything else? If you do, why?
5 Do you think that, legitimately, there is anything left to let the buyer beware, when
it comes to listening to an advertisement?
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CHAPTER OUTLINE
7h Employment discrimination
7h Sexual harassment
7h Disability
7h Review questions
Perhaps one of the earliest lessons in life is that outcomes are not equal. This is clear
from games, school and business. The very existence of difference seems to breed
inequality. Yet one of the most familiar democratic ideals is equality. As a society we
identify injustices and set policy agendas in its name. The notions of one vote one
value, of the equality of franchise and of equality before the law are the normal
expectations of citizens in a democracy.
For all that, there is constant confusion between the political and moral senses
of equality on the one hand, and peoples physical and psychological qualities and
abilities on the other. Most people do not believe that we are all equally endowed
with talents or that the talents of each person are merely different in kind rather than
in degree. Some people are very gifted and some are relatively deprived. This confusion becomes more clearly an issue when the moral ideal of equality is transposed
into corporate life. How can business be expected to compensate for the missed life
chances of individuals, and why is it the responsibility of business to do so?
Identifying the responsibilities of business in these respects is first a matter of
looking at the law. Equal opportunity, anti-discrimination legislation and affirmative
action programs all regulate business to some degree. Beyond these requirements,
the old questions about equality arise.
A voiced concern is that disadvantaged groups lack the power to rectify the
legacy of discrimination, and that injustices will be remedied much too slowly if
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radical measures are not employed. If a lack of power has prevented some members
of society from enjoying equality of opportunity, then power should be used to
redress this. While this view may have had some sway with governments and the
requirements they impose on business, what moral obligations are there on business
itself to pay regard to equality?
If people differ in ability, what is it that business should pay attention to? When
we talk of people being equal, it is obvious that we do not mean that they are the
same height or weight. Nor do we mean that they have the same talents or the same
potentials. What we mean is that their differences should not be used as a reason
for treating them less fairly than others. For example, in the past, women were paid
less for doing the same work as men. Such distinctions are unfair and inappropriate,
inasmuch as they have nothing to do with criteria of reward, such as merit and
contribution.
But what if a person has a disability or even becomes pregnant? Why should
they not be less well favoured than a person able to fit more easily into a companys
system? A caution is necessary here: we should not assume that a disability or pregnancy is a barrier to high performance. It is easy to give examples like Stephen
Hawking, who is a first-rate mathematical physicist despite suffering motorr neurone
disease for virtually all of his adult life. One of Australias leading judges gained
the medal of one of its top law schools while pregnant. Too much can be made of
disability or pregnancy and not enough of a persons abilities.
Still, there is a legitimate question here. A company might not be set up to employ
people who use wheelchairs. Most do not have child-care facilities. Over the past
two decades there have been changes to the law to require more of business, and
doubtless more changes in the name of equality will follow. But what is the moral
basis of this?
The idea of equality behind anti-discrimination, equal opportunity and affirmative action is that of fairness. If people are worthy of equal respect then there is an
obligation to place them in a position to give their best, just as the state provides
public education to allow all people to develop their abilities and potential. Hence,
those who have suffered some disadvantage must be treated unequally in some
circumstances in order to satisfy the demands of fairness. Those in need or denied
opportunity might receive more resources than people without disadvantages in
order to allow them to attain some social norm, such as a certain level of education or employment. Likewise, appropriate arrangements must be made for those
with disabilities. Not long ago, ignoring the needs of the disabled, even for everyday
amenities such as access to shopping centres or public transport, would not have
caused a second thought. Today, it is regarded as a form of negligence. The courts will
decide the legalities, but the central ethical idea behind such decisions is fairness.
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Employment discrimination
Employment is considered almost to be a right in advanced industrial societies.
People depend on employment, unemployment is regarded as a personal and social
problem, and governments institute programs to enable people to find work. The
denial of work on irrelevant grounds to those who are capable of performing it is
unfair. It can cause personal harm in the denial of a host of life opportunities
independence, personal development, family, education and a full social lifeas
well as various social and economic losseslost wealth generation, welfare
dependency, health expenditures and taxes forgone. So employment is an area
that is subject to criteria of individual and social justice. The same is true of the
work environment. Issues such as wages and conditions have long been subject to
regulation, but stronger measures to protect the health and safety of workers and
others in the workplace have increased the regulated responsibilities of employers.
So have anti-discrimination measures. To adapt a theme that runs through this
book, if the responsibilities of employers are restricted to observing the letter of the
law, they will not achieve fair hiring and promotion policies, a safe workplace or a
confident and fully productive workforce.
Comments about discrimination in general

Discrimination can be a virtueas in Exercise discrimination in choosing your
career, your friends and your wardrobeor a viceas in The firms failure to
promote him was discrimination. Discrimination is often used in the latter sense
as a kind of shorthand for unjust discrimination or unfair discrimination. But it
is important to keep in mind that discrimination per se is not a dirty word. Some
instances of discrimination are matters of legitimate preference. What is the difference between unjust discrimination and a legitimate preference?
Lets think for a moment about discrimination in generalnot solely within the
context of business. Lets consider three types:
7h commendable or benign discrimination
7h invidious discrimination
7h formally intolerable discrimination.
As we have just indicated, discrimination can be benign, so it may be nothing

to worry about, and in some cases it may even be something to applaud. In other
cases, discrimination is objectionable: let us call that invidious discrimination.
This is discrimination in areas where one should not engage in such conduct. In
these areas, the behaviour is offensive and obnoxious. To say that some behaviour
is invidiously discriminatory, however, is not, by itself to say that there ought to be
a law (formal regulation) against it. Assume, for instance, that a person, Bob, wants
to associate only with people of his own race, and would never invite someone
of another race to his house or even engage in any social interaction with other
races. Perhaps he does this merely (merely!) because of his personal preference and
comfort level; and perhaps he does this because of some morally obnoxious beliefs
about either his race or other races. Bobs behaviour is not only discriminatory, but
invidiously discriminatory. Still, most of us believe that there should not be any law
against Bobs behaviour in this regard. Rather, we believe that our society should,
in fact, formally tolerate Bobs behaviour. We believe that Bob should be allowed
to act on his preferences or beliefs, even though those preferences or beliefs might
be obnoxious. We certainly do not condone the behaviour or the beliefs; and we
probably regard them as morally condemnable. Rather, it is simply that we do not
believe that the behaviour or beliefs should be made illegal. We do not think there
should be a lawor other formal regulationagainst it. This is a separate matter:
whether or not we (society) should tolerate it.
In the world of thinking about discrimination, these are important distinctions.
In the context of business and the professions, it is reasonable to ask whether (and
where) the distinctions between the second and third types of discrimination
(invidious discrimination, and formally intolerable discrimination) have applicability:
Is it an important distinction when thinking about someone in their private business?
A corporation? A profession? The public service? Employees personal behaviour in
all aspects when at work? We will not go further with these distinctions here, but we
do regard them as important, and believe that discussion about discrimination in
general should bear them in mind. Simply, not all discrimination is bad, and not all
bad discrimination should have formal prohibitions and/or sanctions attached to it.
Here are three cases, all of which involve discrimination. Do you think that they
are different from each other? Do you think that it would be appropriate to have
formal rules or regulations in the workplace that prohibit any or all of them? Do
you think that informally (without rules or regulations) any or all of them should be
frowned upon or discouraged?
1 A group of employees eats lunch together. They would rather not have Ahmad,
a Muslim, eat with them, and so they dont allow him at their table.
2 A Christian reading group gets together at lunchtime twice a week to discuss
issues of Christianity. They publicise their meetings as inviting Christians to
attend. They do not want people of other faiths to come along, and they have
made this known.
3 A womens issues discussion group gets together at lunchtime twice a week. They
do not want men to attend, as they regard such attendance as inhibitory to frank
and open discussion of the issues that are important to them; and they have
made it known that men are not welcome to attend.
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Discrimination can be direct or indirect. It can be overt or concealed. It can

be intended or unconscious. It can be singular or systematic. It can be an effect of
history or result from a current prejudice. In each case it is an example of unfairness
and injustice, and that means that it requires rectification. That rectification is not
always in the form of compensation for individuals. When people are discriminated
against because they are members of a group or class, then provision for that class
might be necessary. The following discussion deals with these issues.
Discrimination does not result only from an intention to discriminate. Discrimination can be the result of some activity without being the aim of that activity.
Sometimes this is referred to as indirect discrimination, in contrast to direct discrimination, which is the intention to discriminate. Suppose a business advertises for
men to load trucks and then hires accordingly. This is direct discrimination against
women. Suppose that a business, concerned that its employees be strong enough
and that they can negotiate over tailgates, stacked-up cartons and so on, advertises
for truck-loaders, must be at least 175 cm tall. Hiring according to this criterion
would result in a (statistically) disproportionate number of male employees as a
much higher percentage of men than women would meet the height requirement. As
such, this amounts to indirect discrimination against women. It is, of course, direct
discrimination against everyone shorter than 175 cm. Of course, any conditions
or criteria of employmentfor example, the ability to type at least fifty-five words
per minutewould, strictly speaking, amount to direct discrimination against the
group who do not satisfy the conditions. But not just any employment criterion is
fair, relevant or appropriate. A height requirement for truck loaders may or may
not be irrelevant. Thus, ethically speaking, notions of fairness, relevance and
appropriateness make all the difference in an analysis of justified or permissible
discrimination, and impermissible discrimination. Equality is a remedy against
unjustifiable discrimination. It remains a relevant principle in measuring injustice,
and for that reason it is an important concept, not only in political ethics, but in
business as well. The importance of the effect of discrimination is illustrated in the
cases that follow.
CASE 6.1: BHP and employment opportunities for women

In a classic case of victory over employer discrimination, 743 women won compensation from BHP for their exclusion from the workforce in the early 1980s. BHP
had maintained two waiting lists for employment at its Port Kembla steel works:
one for men and one for women. The womens list had more than 2000 names and
up to seven years waiting time for employment. Those on the mens list usually had
work within a month. Women constituted only a small part of BHPs workforce. After
complaints to the Anti-Discrimination Board in the late 1970s, women were hired
at Port Kembla, but within three years most of these women had been retrenched
in line with the companys last-on, first-off policy. Thirty-five of the women alleging
discriminatory employment practices took their case to the New South Wales Equal
Opportunity Tribunal, which awarded them more than $1 million. This determination
was overturned by the New South Wales Court of Appeal, and the women then
took their case to the High Court. In 1989 the Court made a finding that followed
Canadian and American precedents that eight of the women had been indirectly
discriminated against, and confirmed a $1.4 million compensatory damages
payment.1 Then 709 women, mainly of non-English-speaking backgrounds, took
legal action on the same grounds, and this matter was settled out of court in
February 1994. The compensation agreed to by BHP is confidential, but is believed
to have been about $9 million.
Michael Hogan, director of Sydneys Public Interest Advocacy Centre, which

assisted in the womens case, said,
This historic case has resulted in jobs being available to women in a host of areas,
not just the steelworks, based on merit and capacity rather than on stereotypes
and prejudice The case drew attention to the unfairness of and inefficiency of
traditional approaches to the employment of women.
This case had positive results in other areas. Quite apart from changing attitudes
towards women workers, it brought reforms to old safety procedures and regulations
and caused improved codes of practice to be adopted.
Workplace discrimination
What is workplace discrimination? Employers are responsible for providing a
safe but also non-threatening working environment. That means that harassment
or bullying in the workplace is an employer responsibility, not merely a matter of
personal relations. What happens in the workplace is a matter of for employers,
managers and colleagues. An illustration of this point is the case of Heather Horne
and Gail McIntosh. In 1994 they were awarded compensation of $92,000 for sexual
harassment by the Western Australian Equal Opportunity Tribunal. In a groundbreaking decision, the tribunal ruled that the compensation was to be paid by the
employer and the womens union.
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CASE 6.2: Horne and McIntosh v. Press-Clough Joint Venture and MAWU
Between 1990 and 1992 two women, Heather Horne and Gail McIntosh, who
worked as cleaners, were subjected to verbal abuse, graffiti and the display of
soft- and hard-core pornography in their place of work, the Goodwyn A gas platform
being constructed near Fremantle. Complaints to their union organiser and male
workers about offensive displays in the workplace were met with hostility; the men,
who dominated the workforce by six hundred to two, insisted that the environment
was male and the women would just have to cop it. Horne and McIntosh accepted
this to the extent of tolerating semi-naked pin-ups, but drew the line at grossly
offensive and degrading hard-core porn. Male workers, however, threatened to
strike if the pornography was removed. The union took their side against the women
and convinced the employer that the problem had been resolved. After more than a
year of such conduct, Horne and McIntosh found the work environment so stressful
that they resigned. No one concerned with the matter disputed that the material
displayed was pornographic, but after Horne and McIntosh complained to the
Equal Opportunity Commission, the offending material was removed and an equal
opportunity training program was instituted.
In deciding for the women, the tribunal criticised their employer, the PressClough Joint Venture, and their union, the Metals and Engineering Workers Union,
for treating complaints of harassment with contempt:
We do not say it was easy; but we are positive in our view that the issue had to
be confronted. Anything less is capitulation, and that is what happened here.
The short answer to the question posed is quite simply that we must do what
we know to be right, to stop what we know to be wrong.2
Jennie George, then assistant secretary of the Australian Council of Trade Unions
(ACTU) agreed: The boys have got to understand there are legal penalties and moral
responsibilities, she said.3 While most people would agree with the decision of the
tribunal, some would find it politically correct, paternalistic and even undemocratic.
They would ask,
1 Why should two women be able to dictate to six hundred men what they put on
their walls? Why should the union take a special interest in the moral and gender
position of two members against the wishes of the overwhelming majority of its
members?
2 Why should the employer support two women who have a choice to work under
prevailing conditions or resign?
3 Why should minorities be able to arrange things as they please and have their
private choices backed up by public authorities?
These questions are not uncommon, and in answering them we can provide a
model for case analysis in business ethics.
First, what is the nature of the offence? This case offers a clear example of
the violation of the ethical principle of respect for persons. The two women were
respected neither by their fellow workers and union nor by their employer. This
is ethical failure at the personal, group and institutional levels. Where a dispute
affecting individuals and their access to work cannot be resolved by employers,
unions and employees, it becomes a matter for independent arbitration. As the
charges of harassment affect legally protected rights, the Equal Opportunity Tribunal
had a proper role in this case. The legal protection of rights is hardly undemocratic
because it safeguards a minority from the majority.
To suggest that two women wished to dictate to six hundred men misrepresents
the situation; the display of offensive pornography was anything but innocent. The
two workers were bullied because they were different. This difference happened to
be one of sex. It might as easily have been one of religion: how would a Muslim have
greeted such a display? The fact that the harassed employees were women is in one
sense not significant, for bullying tactics against anyone is morally reprehensible. In
another sense, the harassment is a particularly nasty display of sexism; the women
were attacked as women. There was a clear assumption that women did not qualify
for equal esteem with men (let alone equal employment opportunity and conditions),
that they were powerless and that they could be degraded through ridicule of their
sex. None of this is acceptable in society at large, and has been proscribed in the
workplace. Yet the union turned a blind eye to the plight of the women, whom it
seemed to regard as insignificant and expendable in the face of a hostile majority
and their threat to strike. This reveals moral cowardice in an organisation that, one
would expect, has a role to defend the powerless against the arbitrary exercise of
power. To suggest that the victims of harassment should accept such treatment or
resign is to abandon the notion of justice in the workplace.
It is the employers responsibility to ensure that the workplace is a safe and suitable
environment for employees. This means that an employer should know if overt harassment is being practised and should treat complaints from employees seriously. The
failure of the employer in this case illustrates the dangers of ignoring this. Quite apart
from considerations of justice, the penalties attached to discrimination and negligence
in protecting employee rights can be heavy. Many Australian laws give protection to
moral rights, not only to the benefit of the individuals directly concerned, but also
to the community of stakeholders with an indirect interest in such exemplary cases.
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A modification of the facts in this case could give rise to some other serious
questions. For example,
1 Is it significant that the display of pornography was directed at the two women
employees and that they were subjected to harassment, or should the mere
presence of hard-core pornography be prohibited? The transmission of pornographic images in the workplace via email has met with increasingly tougher
penalties from employers.4
2 What if there were no objections raised by the women or all the workers were
male? Some types of objectionable behaviour should be tolerated. As a matter
of fact, commitment to a principle of toleration is itself an important moral
commitment.
3 At what point, in the matter of morally objectionable conduct, does toleration
become less important than some other moral value?
These issues are the foci in the following cases.
Pregnancy discrimination
When Lesley Mutsch was dismissed from her position as a record keeper at
Beaurepaires Tyres in Wodonga, her employer claimed that the dismissal was part
of a retrenchment scheme following the introduction of a computerised accounting
system. The Human Rights and Equal Opportunity Commission found, however,
that Mutschs pregnancy was a factor in her dismissal, and awarded her $12,000
compensation.5
Mutschs case is an old one, but even today it not unusual to find pregnancy
discrimination. The existence of such discrimination despite legislation and huge
shifts in attitude over the past couple of decades is strange. In 2009, the New York
Times reported that subtle forms of pregnancy discrimination persist despite laws
against it dating from 1964. Discriminatory dismissals, for example, can be disguised
by restructuring and downsizing, making legal appeals difficult.6 In Australia, too,
old attitudes persist. For the period 200506, 20 per cent of complaints made under
the Commonwealth Sex Discrimination Act 1984 were about pregnancy discrimination.7 Some employers still refuse to employ women of childbearing age and
include questions on plans for children and contraceptives in application forms
and interviews, the report said. Other forms of discrimination identified include
dismissal, demotion and denial of promotion, loss of employment benefits and
training, and workplace harassment.
Pregnant women were being denied access to sick-leave related to their pregnancies, and confusion about entitlements to annual and long-service leave during
pregnancy and maternity was widespread. Discrimination against pregnant women

has been worst in areas of employment that have been traditionally male, and in
small business.8
Glass ceilings, glass walls

When Patsy Peacock, partner and director at McCarthy Watson and Spencer,
resigned from the advertising agency she reflected on the difficulties of a woman
making it to the top. She had become frustrated over the years with the struggles
faced by women in reaching senior-level management positions in the advertising
industry. At the time of her resignation she was one of the last female executives left
in advertising. Peacock believes that agencies have not adequately recognised the
merit and contributions of women:
Definitely the talent is there, all you have to do is look in middle management in
agencies. [Women] seem to be held at that level Advertising is a combination of
a lot of commonsense and emotion and traits that women generally have a greater
percentage of than men. In my almost 19 years in the business Ive only ever had one
client that had a problem working with a female in the agency side.9
Patsy Peacock had hit her head on the glass ceiling.

The glass ceiling refers to an invisible barrier that prevents qualified people from
rising above a certain level of rank or salary in business organisations. Although it
came into widespread usage in the 1980s to label one kind of discrimination against
women, it also applies to minorities such as particular ethnic and religious groups
and to people with disabilities. It is an institutionalised form of bias that prevents the
promotion of qualified individuals to higher levels of management on the basis of
characteristics such as sex, religion or ethnicity. This is different from discrimination
in employment; equal opportunity and affirmative action programs are aimed at
minimum requirements, but strategies to remove transparent barriers to executive
positions demand a lot more of a company.10
In the 1990s, the United States Department of Labor investigated the problem. It
was not seeking to advance women and minorities in some token way, but to remove
artificial barriers to fair competition on merit. The promotion of women, say, on
gender grounds alone does neither the women nor the organisation any good. It can
breed hostility from men who are evaluated on merit, and from women who have
to try harder to prove that they hold their positions because of their abilities. And,
of course, it raises ethical problems: is it fair to advance individuals from underrepresented groups at the expense of individuals from over-represented groups in
order to correct systematic biases? For the Department of Labor the crucial aspect
was not necessarily to change corporate culture but to change corporate behaviour
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so that women and minorities were included rather than excluded from career
development on demonstrated merit.11
One female manager of human resources at a manufacturing company believed
she had hit a glass wall rather than a ceiling. Although her firm was paying her way
through a management school, she felt she had few future prospects because she
headed a service, not an operational division. Im seen as the soft option, she said.
I am often excluded from general manager meetings because they dont think I have
anything to offer. A lot of stuff gets done on the golf course and I dont play golf.
This view encapsulates the subtlety of glass barriers. They allow a clear view to
the top, and suggest that corporations have transparent promotion and performance
evaluations. Thus bias is not apparent, and because the culture of organisations
can be invisible, men are quite likely to be unaware of it. They would deny overt
prejudice, but if business culture is organised around male interests, gatherings and
social occasions such as golf, then some adjustments beyond the more obvious
structures are required for women to be accepted at the top. The glass ceiling can
be a nasty shock for women. It can also confirm the secret belief of some men that
women cannot really succeed at the highest levels of business.
Not all women, however, accept that the glass ceiling is a barrier of this kind.
Some say that the very concept is disempowering for those it is supposed to help.
There may be truth in this view (Leonie Still points out that some barriers attributed
to the glass ceiling have been erected by women themselves12 ) but it cannot go
far in explaining the kind of pattern that betrays the existence of the glass ceiling.
While statistics do not tell the whole story, they can reveal patterns that cannot be
explained simply by the particular circumstances of individuals. Women who should
have every prospect of advancing to the highest levels of organisations stop well
short of the goal in sight, resign and typically go off to work in smaller ventures, often
ones they start themselves. Still suggests a reason why: The culture of the current
business organisation is not comfortable for women.13
The trend over the past two decades in both Australia and the United States
has been for women to respond to corporate frustrations by setting up their own
small businesses. In Australia, despite a decade of anti-discrimination laws and
affirmative action programs, the Business Council of Australias Equal Opportunity
Council reported a disturbing trend among highly skilled women to leave the ranks
of middle management to set up their own businesses.14
It could be that women are choosing not to pursue executive positions in the
same numbers as men. In a small survey (138 responses) of Yale women for a New
York Times article, Louise Story found many contemplating full-time parenthood
after a period in the workforce.15 They did not mind short careers interrupted to
have children and resumed on a part-time basis. Story commented that, For many
feminists, it may come as a shock to hear how unbothered many young women at
the nations top schools are by the strictures of traditional roles.16 More significant
than such anecdotal findings is the change of mood in reporting them. The representation of women as victims of structural injustice seems to have softened and this
is reflected also in other studies. Without discounting sex discrimination altogether,
Susan Pinker has argued that if women are as talented as men, and have had decades
of affirmative action and equal opportunity, but still do not populate the board rooms
of the corporate world, then it must have something to do with their choices. Pinker
gives a large weighting in these choices to womens differences from men, and part
of this difference is their choice to find significance in their lives outside that epitome
of male achievementthe corporation. Pinker does not believe that the glass ceiling
explains the relatively small number of women climbing the corporate ladder. She
argues that women, on average, are more motivated by intrinsic rewards at work.
An interest and an ability to contribute to a field, and a capacity to have an impact
in the real world are more powerful drivers for women than higher salaries, job
security and benefits.17 The glass ceiling explanation assumes that women would
desire the same things as men; that if employment conditions were fairer, women
would succeed on the same model as men. Pinker questions this.18 She believes that
women have choices that are discounted, and that women who have exercised their
choices against standard (male) models of success are unfairly branded as victims
of discrimination.
These theories notwithstanding, the number of women in leadership roles in
Australian business is low by international standards. The 2008 Australian Census
of Women in Leadership found that only four women chair boards of ASX200
companies and hold only 125 out of 1505 seats on those boards.19 Clearly there is
something to be explained here. While the theories of difference between women
and men make an interesting story and could be relevant to workplace issues, the
story about discrimination does not change. The low participation of women at
senior levels of management is a question of equity for corporations. Whatever
womens choices and the influences upon them, there is an ethical obligation
upon corporations and employers to ensure that merit is recognised, prejudice is
eliminated and opportunities are open to all. This is a matter of justice to employees
and shareholders alike.
Sexual harassment
Sexual harassment has been mainly, but not exclusively, an issue of discrimination
against women. It is surprising that it should still be considered acceptable in
some quarters. Sexual harassment is like any other form of bullying or abuse of
power. Its distinctive element is the making of sexual comments, suggestions, jokes,
remarks or gestures that are objectionable to the person to whom they are directed.
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Showing an interest in someone is not sexual harassment. Pestering them with

sexual innuendo or touches is.
Although there has been a great deal of publicity given to the problem of workplace sexual harassment, it still occurs. This is not surprising: the workplace provides
many opportunities for the development of personal relationships as well as harassment. The important thing is to recognise the difference between showing an
interest in a co-worker and making their work life difficult, if not miserable. Suppose,
however, that a manager is engaging in sexual banter and is not seriously pursuing
a staff member? Is this harassment? Here is a case that well illustrates the problem,
and its ambiguities.
CASE 6.3: Good clean fun
case
questions
In 2008, Dean Alexiou was found to have harassed an apprentice at Westpoint

Cylinder Heads in Melbourne. The harassment had begun in 2003 when the apprentice, Christopher Thomas, was 17 years old. The Victorian Civil and Administrative
Tribunal (VCAT) found that Mr Alexiou had harassed Mr Thomas by repeatedly asking
him to shower with him and, when Thomas was working on a car, grabbing the
apprentice from behind and simulating sex with him. Mr Alexiou denied harassing
Thomas and said that his behaviour, which took place in front of other employees,
was just horseplay. Mr Thomas took a different view, testifying that he would
tell Mr Alexiou to f**k off and leave me alone. Usually these exchanges would
provoke laughter in other workers. The Tribunal found that Mr Alexiou had sexually
harassed Thomas between 2003 and 2006, and awarded Mr Thomas $35,000
in damages.20
1 What are the ethical issues in this case? Would those issues be clearer if the
apprentice had been a woman?
2 What if, instead of making sexual innuendos in front of staff, a boss had
celebrated an employees birthday by hiring a stripper to deliver greetings?
3 What, ethically speaking, should employers and employees be aware of in cases
of sexual harassment?
Disability
It is common now to talk of people with disabilities rather than talk of handicapped or disabled people. This is not just pedantic language. The idea is to stop
the identification of the whole person with the particular disability she or he has.
Some disabilities, of course, make it difficult for a person to participate fully in the
workforce, but too much is made of this. With appropriate assistance many people
with disabilities make a valuable contribution in the workplace.
Two obstacles to fuller participation in the workforce for those with disabilities
have been the lack of access to services such as transport and attendant care, and
sympathy.
What are the rights and responsibilities of business with respect to people with
disabilities? Employers have a right to expect that a person appointed to a position
will be able to assume its duties fully and productively. In turn, employers should
know something about disability so that they may give fair consideration to a persons capacity to do a job, rather than prejudging that their disability automatically
precludes them from it.
These social responsibilities are supported by legislation. In 1992, the Disability
Reform Package was important in giving impetus for reforms to employment of
people with disabilities. The Disability Discrimination Act gives force to the principles
of the package. It requires employers to modify the workplace in order to allow a
person with a disability to perform a job properly if they are the best person for
that job; for example, by building ramps or providing a large computer screen or
by giving mentoring support. Employers can gain advice on these matters either
from the employee or from a qualified agency or expert. The Act does contain
an unjustifiable hardship provision that exempts an employer from making these
modifications if they will cause unreasonable costs. This does not let employers
off the hook. A claim of hardship has to be backed up with evidence. Over the
past decade, Commonwealth welfare services departments have introduced a range
of measures to protect the employment rights of people with disabilities, and to
encourage their participation in the labour market.21 In 2004, a National Disability
Recruitment Coordinator began providing comprehensive employment services to
industry and people with disabilities through a new organisation called Disability
WORKS Australia.22 None of this government-sponsored support can address the
demands of fairness by itself: it is necessary but not sufficient. It is important that
employers should not see the hiring of staff as a private matter for which they might
not be held accountable by an external body. On the contrary, it would be in the best
interests of all stakeholders for employers to be proactive in the cause of fairness, if
not for ethical reasons then for prudential ones.
CASE 6.4: The HIV-positive employee

In 2007, Harry Beecher was working as an area manager in Queensland for
Complete Table when he learned he was HIV positive. He informed his employers
about his status. There was no immediate adverse reaction to his disclosure, and
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Complete Table told Harry that his conditions of employment would not be affected
by his HIV status. But later, in conversation with senior management, there was
some discussion about all staff being informed of his condition, and mention was
made of using polystyrene cups for hygiene. Neither of these suggestions was put
into effect.
About eighteen months after informing Complete Table of his status, Harry
told his boss that he wished to move to Melbourne to be closer to his doctor and
specialised medical treatment. Complete Table agreed to a transfer, but to a shop
assistants position at $35,000, not to a comparable management position at
$70,000.
Harry felt the companys actions were demeaning and discriminatory and took
his complaint to the Victorian Equal Opportunity Board. He told the board that
Complete Table had an obligation to counsel him, to make plans for his short-term
and long-term future with the firm, and to ensure that he did not suffer financially
due to his disability.
case
questions
1 What was the ethical responsibility of Complete Table in this case?23

2 Was Harry being discriminated against?
3 What are the ethical issues relevant to this case?
Perhaps the most obvious aspect of equal opportunity programs to business is

their cost. Such a focus ignores their benefits not only to individuals but also to
commerce, industry and the community. Equal employment and anti-discrimination
programs might also be viewed as prejudice-removal programs. When prejudice
obscures respect for persons and the capacity to make a fair assessment of their
abilities, then all parties lose. Business needs the best people. Prejudice against
women, people with disabilities or any other group is not only morally objectionable,
it is also bad business.
REVIEW QUESTIONS
1 Much of the concern about anti-discrimination is over the provision of equal treatment. Yet much of the concern seems to require special allowances. Do you think
these two notions can be reconciled?
2 We noted some apparently rather objectionable interviews that were held with some
female applicants to engineering positions within Telecom in the early 1980s. At
the end of that discussion, we posed some questions. Perhaps you didnt pause to
think about them. What if the questions asked were designed by the interviewers
to see whether the women would be able to work effectively in a setting where
such questions might arise? What if the interview was used as a stronger test of
the women because, equal opportunity notwithstanding, women still have to deal
with sexism in the workplace? If your answer to these questions is on the order of
That shouldnt make any difference; the interviewers were still out of line in the way
they interviewed the women, then why is that so? What do you think is inadequate
about the possible responses that we have presented?
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CHAPTER OUTLINE
7h Overview of the accounting profession
7h Professional codes of practice
7h Conflicts of interest
7h
7h
7h
7h

Review questions
Professional ethics is sometimes thought to involve no more than observing the norms
and regulations of the professions. Nothing could be further from the truth. Good
professional practice calls for judgment because the principles of a profession need
to be interpreted and applied in ways that are just and compassionate. This is true
whether the practitioner is self-employed or works in an organisation. While being
a salaried professionala lawyer, architect, engineer or accountant, for instance
does not exempt one from judgments and ethical responsibilities, it can put a twist
on common problems. This is well illustrated in the decisions facing accountants
and auditors. Many of these problems relate to the issue of autonomy. The ethics of
being a loyal servant of the organisation while at the same time exercising professional judgment gives rise to a host of potential ethical conflicts. On the one hand,
organisations have a right to expect that directions will be followed. On the other,
professional status is often defined in terms of independence. Professionals take on
ethical responsibilities additional to those that apply to people generally. Richard
De George makes this point: Any profession is appropriately given respect and
autonomy only if it lives up to a higher moral code than is applicable to all.1
Overview of the accounting profession

The practice of accounting is centuries old, but the profession of accounting grew
out of the industrial revolution and the use of the limited liability company as the
engine of economic growth. The need to give a clear accounting of the performance
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C H A P T E R 7 T H E E T H I C S O F AC C O U N T I N G
of companies necessitated the development of management accountants to advise

senior management of the options open to them in decision-making, and of financial
accountants to prepare accurate reports on the financial health of companies.
External auditors were needed to assess the fairness and accuracy of financial
statements, and accountants in public practice progressively grew in importance,
offering a range of financial services from personal taxation to superannuation.
Traditionally, accountants have enjoyed good public regard for honesty and
trustworthiness. In the wake of Enronand other corporate disasters during the
first decade of the twenty-first centurythe reputation of accounting has taken its
share of knocks. One 2002 poll showed that after the Enron collapse, accountants
achieved a score of zero for image. Another poll, also from 2002, rated them better,
with a trustworthiness score of 51, well behind nurses, teachers and police, but ahead
of Catholic priests (45), lawyers (25) and CEOs (23).2 Public esteem has continued
to improve,3 although there seems to be an established order of merit in the ranking
of the professions, with nursing consistently at the top and other helping professions occupying the next highest places. According to the 2008 Gallup Poll, which
unsurprisingly saw public confidence in bankers take a plunge, accountants held
their position. Most Americans do not perceive accountants to be highly ethical
but the profession is much more likely to be viewed positively than negatively.4 One
small research project indicated that ethics might not be the only concern for the
United States accounting profession. It showed that although accountants outranked
financial analysts, lawyers and CEOs in ethics, they were well behind these other
professions in terms of power and agency. Although they are seen as being very
trustworthy, competent, and honest, (accountants) do not appear to have as much
impact (as) CEOs and attorneys. They are good but not powerful or engaged.5
Perhaps it is not surprising, then, that according to Harris Polling, American accounting does not enjoy strong perceptions of prestige compared with doctors, teachers
and lawyers. Similar findings have been made in the United Kingdom,6 so what is the
standing of the profession in Australia?
The Australian profession appears to fare better than the American and British.
According to the Morgan Poll of professional image, which include ethics and honesty, accountants still trail doctors and teachers but are ahead of lawyers. Moreover,
the poll indicates a steady improvement in esteem.7
According to a survey conducted in the 1990s, accountants themselves had
misgivings about the standards of their colleagues and the ethical standing of their
profession. Over 37 per cent of accountants surveyed believed that ethical standards
had declined in the preceding decade, and a further 18.5 per cent were uncertain.8
The family was rated as the strongest source of values (94.2 per cent), then the
conduct of peers (88.2 per cent), accounting practices (87.5 per cent), prevailing
societal norms (76.9 per cent), then the professional code of ethics (68.1 per cent)
and religious formation (61.5 per cent). This relative weighting can mask the still
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high impact of the profession on members ethical perceptions. Yet only 49 per cent
of members believed that their colleagues had any degree of familiarity with the professional code.9 Perhaps, in the light of subsequent failures, these accountants were
prescient; perhaps their ethical perceptions were better tuned than they realised.
The ethical issues they identified as most important were,
1
2
3
4
5
6
7
8
9
client proposals for tax evasion (83.3 per cent)

client proposals to manipulate financial statements (80.2 per cent)
conflicts of interest (79.3 per cent)
presenting financial information so as not to deceive users (76.3 per cent)
failure to maintain technical competence in professional practice (71.3 per cent)
coping with instructions from a superior to behave unethically (70.7 per cent)
integrity in admitting ones mistakes (66.7 per cent)
using insider information for personal gain (63.8 per cent)
maintaining confidentiality (63.6 per cent).
The respondents also ranked favours and gifts, and the solicitation of work as
significant ethical issues.10
Some of these items apply to accountants in public practice, some to salaried
accountants, and some to both. The strongest theme running through these results is
professional independence and the proper exercise of professional judgment. Of the
most important ethical issues identified by respondents, the first, second, third, sixth
and ninth all relate to independence and pressure applied by clients or employers
to achieve a certain result.
A strong sense of independence is characteristic of most professions. Some
observers make it a necessary condition of professional status: so long as the individual is looked upon as an employee rather than a free artisan, to that extent there
is no professional status.11 According to this view, only accountants in public practice
would be true professionals. The concern informing this view is that employees will
be unable to make serious commitments to ethics and the public good on the basis
of their own independent assessment because an employer can issue contrary directives that must be obeyed, even if an individual disagrees with them. Even if such
directives are not made, the professional judgment of the employee is circumscribed
in a way that does not apply to a self-employed practitioner. This view, extreme
though it is, stems from a very commonly held belief that professional status derives
at least partly from the fact that those practising within a profession must regard the
public interest as their first priority.
A contrasting view holds that it is precisely in serving their clients and employers
that professionals attain their status. According to this view, it is essential that
professionals should serve those employing their services rather than filtering their
everyday work through a sieve of ethical sensitivity. Personal judgments are alien to
this concept of professionalism: the professional is not an expert on the public good
and should not be called upon to make judgments about it. Regulation and law, not
personal morality, are the appropriate constraints upon that which a professional
may do for a client.12
The view that internal accountants are restricted in their professional judgment
by the power and authority of the employer will be correct in certain cases (though
it must be remembered that their role is not that of a watchdog in the manner of an
external auditor). But even external accountants in the best accounting firms can
have difficulties. Consider the following case based on an actual incident.
CASE 7.1: Bruces dilemma

Bruce was twenty-six years old when he joined a large accounting firm after
graduating with a good degree in commerce. He was assigned to a team of auditors
at Transition Technologies, which had just been acquired by Paradox Corp. Bruces
firm had been the auditors at Transition before the takeover and had offered to
continue at around half the going rate. Shortcuts in auditing resulted. Proper
auditing procedures were not adhered to, and Bruce was frequently left to make
decisions by himself, although he was not experienced. Bruce was aware that he
was in a competitive environment and that he was, in a sense, on trial. He did not
agree with the shortcuts and felt that it was unfair to Transition and himself that
he was sometimes left to deal with matters beyond his experience. But he also
remembered being asked at his job interview if he was a team player who could
carry other members of the team when circumstances required.
case
question
1 What should Bruce do?
Whatever you decide in the case of Bruce, there is one aspect to note: it is not
the fact that he is a salaried professional per se that limits Bruces professional judgment. It is that his firm is not behaving ethically, that he is a new and junior member
of the audit team, and that he should have been under close supervision until he
had developed the expertiseincluding independent judgmentthat comes with
experience. None of these conditions need exist for a salaried accountant.
According to the second view of professionalism, Bruce is in the clear until he
breaks a law. This view, however, is far too restrictive of the role that professionals
play in organisations as diverse as schools and hospitals. The notion that true professionals should serve their employers as far as the law extends confuses servility
with service. The old maxim that it is stupid to buy a dog and bark yourself applies
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here: when a salaried professional is hired, that person is expected to exercise

independent judgment within the limits of her or his expertise. Working to direction
is part of working in an organisation, and having to do so in some areas does not
imply a lack of independence in all of them.
In any case, independence, for all its importance, must take its place beside other
values in professional settings. According to the British Statement on the Ethical
Responsibilities of Members in Business, the concept of independence has no
direct relevance to the employed member Even for the practising accountant
independence is not an end in itself: it is essentially a means of securing a more
important end, namely an objective approach to work.13 This objective is also secured
by other key professional values: honesty, trust and good faith, fidelity and loyalty,
justice and fairness, care and compassion, responsibility and accountability, and
the pursuit of professional excellence all contribute to the ethics of a professional.
So, too, does regard for the public good, but this value usually differs significantly
from the global suggestion that a professional accountant, lawyer or teacher should
act in the public interest as the first principle of practice. It means something more
important: taking a principled position on issues of public importance that come
within the area of ones professional expertise.
Independence is important to accountants in two ways. The first might be peculiar
to their technical expertise, and the second is generic to professions in general. First,
independence is especially important to accountants providing external certification
of a companys financial position. It goes to the heart of the professions role that the
declarations that an accountant makes in, say, a financial report are not prejudiced
by the power and influence of those who stand to gain by a particular result. It is
equally important that the accountant have no interest at all in the company and
should not stand to gain or lose by any outcome of financial scrutiny. This aspect of
independence is at the very basis of the profession of accounting, for upon it rests
the trust of the public in the most inclusive sense. Threats to this independence
typically come in the following forms,
7h undue dependence on an audit client
7h loans to or from a client, guarantees, or overdue fees
7h hospitality or other benefits
7h actual or threatened litigation
7h mutual business interests
7h beneficial interests in shares or other investments
7h trusteeships
7h voting on audit appointments
7h provision of other servicessuch as valuationsto audit clients
7h acting for a client over a prolonged period of time.14
The central importance of independence to accountants is clear from even a

cursory look at the professions code of ethics, but independence clearly serves
a professional purpose and harmonises with the other values enshrined in the codes.
This brings us to the second sense of independence. Many of the classic injunctions
of professional practice have a strong personal direction. Do no harm is a principle
directed not so much at a profession (though it might be) as to its practitioners. The
same applies to other precepts and principles about competence, confidentiality,
trustworthiness and honesty. In turn, each of these principles assumes a high degree
of professional autonomy and occupational discretion on the part of individual
practitioners. These are often the very qualities that organisations try to restrict.
Organisations are not peculiar in this: individuals often compromise their ethics
when it suits them. Professional people who act with integrity will retain sufficient
independence to allow them to act ethically, but accountants must do this in a very
special way in order to do their job at all. One of the issues raised by the collapse of
Enron and other US corporations was whether the auditor was too enmeshed in their
affairs. Consider the case of Arthur Andersen and Enron.
CASE 7.2: The fall of Andersens

In June 2002, after ten days of deliberating and a difficult time sifting the evidence,
a federal jury in Houston convicted Arthur Andersen of obstruction of justice in
the Enron case. Andersens then announced that it would cease auditing publicly
listed companies from the end of August. Thus fell one of the giants of modern
accounting. With revenues in 2001 of over $9 billion and 85,000 employees in 84
countries, the fall of Andersens caused shock waves around the world. Founded
in 1913 by Arthur Andersen, the firm had become a byword for integrity until its
pursuit of profits led to its entanglement in the adventurism of the new economy.
Enron was not the only dubious client for whom Andersens provided services.
Others included WorldCom, Sunbeam and, in Australia, HIH. The fallout from such
clients cost Andersens its reputation and money. The SEC fined the firm $7 million
for overstating the earnings of Waste Management corporation by $1.4 billion.
Shareholders sued Andersens when Sunbeam admitted inflating its earnings, and
Andersens settled out of court for US$110 million.15
What could have led a firm founded on integrity to abandon its basic values?
Barbara Toffler describes Andersens as rotting from within, a victim of its own
demand for conformity from employees.16 According to Toffler, it lost its independence when it placed its lucrative consulting services before its auditing role and
became less inclined to risk the anger of clients. That might account for its failure
to caution Enron and other clients like WorldCom about their revenue statements.
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The fundamental value of accountingindependencehad been compromised.

Andersens was Enrons auditor for sixteen years. In 2002 alone, Enron paid Andersens
US$25 million in audit fees and $27 million for consulting services.
Enrons accounts were notoriously difficult to understand and for a very good
reason. Its chief financial officer, Andrew Fastow, had created a number of off the
books partnerships; that is, related but separate entities in which Enron could place
debt or assets that it did not wish to appear on its balance sheets. Such partnerships
are not of themselves improper, but the uses to which Enron and its executives put
them were. Fastow, for example, made millions of dollars in secret transactions at
the expense of Enron.17 And investments in the partnerships were reported by Enron
as revenue.
There was an issue here for Andersens because the Generally Accepted Accounting Principles (GAAP) required partnerships with more than a 3 per cent investment
from Enron to appear with the consolidated accounts. Enrons investments in its
partnerships exceeded this minimum. Andersens should have presented balance
sheets that accounted for the partnerships, but according to its CEO, Joe Berardino,
it did so only in 2001. Andersens alleged departure from GAAP standards has been
investigated by the Securities and Exchange Commission (SEC).18 Beyond the requirements of the law, there was the propriety of using related entities as Enron did. The
wisdom on this is well established. Clarke and Dean note that similar arrangements
have served improper purposes in the Australian context, where,
the corporate group emerges as a corporate oddity. Parent companies and the entities they control are selectively considered to comprise a single entity, more or less
according to how the circumstances suit. Selectively, because changed circumstances
usually dictate whether management regards it financially beneficial to present the
companies comprising a group as separate companies, or lumps some or all of them
together and treats them as a composite unit.19
Clarke and Dean identify typical signs of stressed corporations in Australia and,
perhaps not surprisingly, they are similar to those at Enron and WorldCom in the
USA and Polly Peck and Canary Wharf in the United Kingdom. Complex corporate
structures with many related party transactions, overvalued assets, understated
liabilities and bad debts, reckless borrowing, and the use of accounting fictions,
such as Future Income Tax Benefits can camouflage the precarious position of
corporations at risk.20
Andersens problems compounded when it was disclosed that Houston partner,
David Duncan, had ordered the deletion of emails and the shredding of Enron documents relating to Enron after the SEC had commenced its investigation. Andersens
informed the authorities of Duncans actions, but the firm was indicted and found
guilty of obstruction of justice.
A clutch of Enron executives has been indicted. In January 2004, Andrew Fastow,
CFO at Enron, pleaded guilty to charges of fraud in a bargain that saved him years in
jail in exchange for assisting in the investigation of other Enron executives. In 2006,
Fastow was sentenced to six years in prison. The indictment of Enron accounting
and financial services executive, Richard Causey, quickly followed that of Fastow.
The Securities and Exchange Commission alleged that Causey, Fastow and others
manipulated expenses, revenue, debt levels, cash flow and asset values through
means including fraudulent valuations, misuse of off-the-books partnerships
and intentional mistreatment of accounting reserves. 21 Causey also pleaded guilty
and was sentenced to five and a half years in jail and fined.22 It has emerged that
Enron exploited Californias deregulated energy market to hike prices and extort
US$30 billion from that state.23
Enrons operations were riddled with deception and sharp practice. There are
questions of law about this and questions of ethics. While the law takes its course,
the ethical questions hang in the air.
1 What should have been the role of the auditor with clients like this? Andersens
seemed content to take the view that the data they were given could be interpreted according to prevailing accounting standards.
2 Should Andersens have noted that the thicket of Enron accounts was a classic
indicator of corporate risk? (The chair of Enrons audit committee was a professor of accounting at Stanford, and he claimed he didnt understand the
corporations audits.) Enron could not have got into a mess without its auditors
having some idea of what was going on.
3 Did Andersens duty of confidentiality to the client override their obligation to the
SEC and various stakeholders from investors to taxpayers?
4 Did not Andersens have a duty to investors to prepare reports that more accurately reflected Enrons level of risk?
5 Should Andersens have warned that it would not continue to act as Enrons
auditor unless the conglomerate changed its conduct?
6 Did Andersens compromise professional independence by becoming too
dependent on contracts with Enron?
7 Should they have been internal auditor, external auditor and provider of management consulting services to Enron simultaneously?
8 How could shredding Enron documents be called a normal part of document
retention policy when Andersens knew that their client was under investigation
by the SEC?
There is a bigger question to be answered as well:

9 Would a closer adherence to Accounting Standards have prevented the Enron
debacle? Would more rigorous standards and policing of them have prevented
the rash of corporate collapses that occurred at the same time?
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One answer to this has already been delivered by American legislators. Another
quite different answer is given by Australian academics Clarke and Dean.
The huge losses of Enron, WorldCom and other corporations proved too much for
Congress and the American public. The response was the typical one of tightening
regulations, although the SECs powers were already considerable. Nonetheless,
Congress passed the Sarbanes-Oxley Corporate Reform Act of 2002. That Act and
the SEC regulations under it seek to strengthen the independence of external
auditors. Auditors may no longer be appointed by senior management but only by
the audit committee of the board, and auditors must report to that committee, not to
management. All members of the audit committee must be independent directors.
The reforms prescribe the structure of boards and specify the duties of directors
and some employees. The same firm cannot offer auditing and consulting services.
Transparency is enhanced and off-balance-sheet transactions must be disclosed.
Audit records must be retained. Companies must disclose whether they have a code
of ethics for their CEOs, CFOs and senior accountants. 24 This is the kind of reaction
to large-scale ethical failure that enshrines ethical basics in law and, as we noted
in chapter 4, that will not be sufficient to do the job. The profession itself has been
sensitive to issues of independence and professional integrity. The International
Federation of Accountants (IFAC) has proposed amendments to its code because
of the risk that auditors might be captured by their clients. The amendments for
auditors require the leading partner on the contract to be rotated at least every seven
years, and prohibit that partner from participating in assurance for a further period,
normally two years.25
The Sarbanes-Oxley Act has been much criticised in the United States, but there
are similar criticisms to ever more regulations and their effect on professional
judgment. The argument of Clarke and Dean has been that shackling auditors
independence to Accounting Standards will do no more good in the future than
it has in the past.26 In other words, it might not matter where the shackles are
anchoredwhether to corporations and their fees or to regulations and standards
if the independence of auditors to draw upon their experience and practice wisdom
is curbed. Moreover, they argue that standardisation of input has obscured the
importance of the usefulness of output in financial statements. If the notion of true
and fair is equivalent to meeting the defined standards then, despite the best of
intentions, the published financial statements of a firm might not meet the criterion
of serviceability. They conclude that, Unquestionably, compulsory compliance
by accountants and auditors with prescribed Accounting and Auditing Standards
provides them with a safe harbour.27
Accounting practices referred to as aggressive at Enron challenged the spirit of
the law and of professional probity. Individuals intended to evade ethical obligations
by concocting schemes that boosted the price of Enron stock, and hid debt and poor
performance. Years before the courts decided the culpability of those who devised
Enrons schemes, the legal verdict on Andersens in Houston in 2002 was enough to
bring down the whole enterprise. This was a case, if ever there was one, where the
higher standard of ethics was also the prudential one.
Professional codes of practice

The Institute of Chartered Accountants in Australia (ICAA) and CPA Australia
(CPA) have a combined code of ethics: APES110, Code of Ethics for Professional
Accountants, issued by the Accounting Professional and Ethical Standards Board
(APESB), effective from February 2008. ICAA and CPA had had a joint Code of
Professional Conduct since 1997. This was replaced in 2006 by a code that was
issued by the newly formed AESB.28 It should not be assumed that the Code provides
a comprehensive and exhaustive list of what is and is not permissiblealthough it
is specific about some points. It does, in fact, leave room for judgment in a number
of areas. However, leaving room for judgment does not amount to countenancing
or allowing just anything. Judgment can indeed be shown to be bad or outside the
limits of what is allowable under the values identified in the Code.
In the combined section of the Members Handbook (for ICAA and CPA), eight
Fundamental Principles of Professional Conduct are identified:
7h the public interest
7h integrity
7h objectivity
7h independence
7h confidentiality
7h technical and professional standards
7h competence and due care
7h ethical behaviour.
In the June 2006 release of the Code of Ethics for Professional Accountants, the
Accounting Professional and Ethical Standards Board (APESB) identified five, rather
than eight, Fundamental Principles, but these still include all the values that had been
included under the former eight principles. As mentioned above, a revised Code
took effect from February 2008, and its structure is similar to the 2006 release.
In the introduction to the new Fundamental Principles, it is noted that, a distinguishing mark of the accountancy profession is its acceptance of the responsibility
to act in the public interest. (100.1) This general statement replaces the specific identification of the public interest as a principle on its own. In addition to this general
statement, APES 110 identifies these five Fundamental Principles:
7h integrity
7h objectivity
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7h confidentiality
7h competence and due care
7h professional behaviour.
Independence, which is no longer identified as a listed principle, is discussed

extensively in section 290 and 290B as being a very significant element in both
integrity and objectivity. In fact, discussion of independence is widespread throughout the new 88-page document.
Technical and Professional Standards is now incorporated into Competence
and Due Care. It is appropriate to consider these together, even though they are
speaking about different concerns: technical and professional standards concerns
a requirement to maintain an up-to-date knowledge base, whereas competence and
due care concerns the standard at which one is required to exercise that knowledge
base. It would be impossible to perform competently and with due care if one
did not possess the requisite skills and knowledge. But, possession of those skills
and knowledge on its own is a different matter from applying them competently and
with due care.
Ethical behaviour has been replaced with professional behaviour; and here,
too, the thrust of the provisions is the same as it has been. The name change is
appropriate. After all, it is a code of ethics, and, as such, it would seem somewhat
odd to have as a principle ethics, given that the principles themselves are identifying
the areas of particular ethical concern. It is in the area of professional behaviour
that there is concern about not merely behaving in a professional manner, but also
avoiding behaving in ways that bring the profession into disrepute.
The significance of independence, the appearance of independence and the
importance that independence not be compromised is evident in all the Fundamental Principles, as explained in the Code.
The central professional values expressed in the successive codes of Australian
accountants are similar to those that apply internationally,29 and mirror the generic
values of professional ethics discussed above. Basically, they address the relations of
practitioners to various stakeholders and the standards of professional and personal
integrity expected of accountants. There is a high degree of linkage and overlap
between the principles, and their number varies from code to code, but they can be
summed up under six headings. First, the public interest: accountants are expected
to act in the best interests of clients except when those interests conflict with obligations to society, the law and social and political institutions. The Code of Ethics of
Professional Accountants (AUST100.1.1) specifically acknowledges that the profession serves the collective welfare of society. This is linked with the second basic value,
integrity, which means that accountants should be honest and sincere in their work.
They should do nothing to bring their profession into disrepute. Third, accountants
must display objectivity; that is, they must act fairly and free from conflicts of interest.
Fourth, independence is fundamental to accountants and should be apparent as well
as real. It also means that accountants should not do anything that could suggest
that their independence might be compromised. Fifth, accountants should exercise
diligence and due care in the performance of their duties. They should exhibit
competence and ensure that they are competent to perform the work assigned by
clients, and they should maintain their competence through appropriate measures.
They should adhere to accounting and auditing standards, and to standards issued
by their professional association. Finally, accountants must maintain confidentiality,
which means not only that they may not disclose information provided by clients to
unauthorised third parties, but also that they should not use information gained in
the course of their duties for personal or third-party gain.
As we have noted, there is much in these principles that applies generally to
the professions. In this respect, accountancy represents an example as much as
it represents a special instance, but the responsibilities of accountants in the business world, and hence in society at large, mean that ethical failure can have huge
ramifications.
Recognising conflicts of interest is very important. It is also important that the
professional not even appear to be in a position in which there could be a conflict
of interest. This is important in all professions, but it is especially important in
accountancy, which frequently identifies independence as the cornerstone of the
profession. Consider, for instance, what the purpose of an audit is, and what it is that
an auditor attests to. The requirement of independence is closely related to what
the profession has come to recognise as a central ethical issue in accountancy:
whistleblowing (see chapter 9).
Professions almost always recognise both a duty to the public interest and a duty
to the maintenance of the profession itself. These duties are often expressed in terms
of, on the one hand, making the public interest a first priority and, on the other, doing
nothing that brings the profession into disrepute. These are very important duties,
but they can sit uneasily next to each other. For example, it might be in the public
interest to criticise some aspect of the profession. Such situationsand they are not
uncommoncan easily bring these two duties into conflict with each other.
As with other professions, issues accompanying the position of the professional
as salaried employee are prevalent and often difficult to resolve. Professionals carry
the ethical responsibilities of the profession with them into their positions as paid
employeespositions that have their own ethical requirements. Put simply, you owe
something to your employer (call it loyalty to a greater or lesser degree) and you
also owe something to your profession as a professional. You carry this obligation
with you into your employment.
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Conflicts of interest
Much of the domain of independence concerns avoidance or management of
conflicts of interest. Conflicts of interest are among the most pervasive concerns in
organisational ethics. They are the cause of controversy in corporate governance,
merit protection in recruitment, tendering, business-to-business relations and a host
of other operational areas. Most businesses and professions have mechanisms for
dealing with conflicts of interest and potential conflicts of interest. The mechanisms
are usually good. But there are often misfires. These occur most frequently at the
individual level, not the organisational level. Manyprobably mostdifficulties
encountered with respect to conflicts of interest arise through reasonably simple
misunderstanding about what a conflict of interest is.
Conflict of interest & being adversely affected by a conflict.
A persons having a conflict of interest is not the same thing as a persons being
affected by a conflict of interest.
Most commonly, difficulties over conflicts of interest arise because a person

(or an organisation as a whole) confuses having a conflict of interest with being
affected by a conflict of interest. If the person (honestly) believes that their judgment
or behaviour is not affected by conflicting interests, then they believe that therefore
they do not have a conflict of interest. This is not correct! Having a conflict of interest
is being in a situation where there are conflicting interests that impinge on the person
concerned, regardless of whether or not that conflict has any effect at all on that
person. It is the interests that are in conflict. And whenever you are in a situation in
which you have to act or form a judgment or deliver an opinion in the presence of
interests that conflict with each other, then you have a conflict of interest.
Lets go a bit further with this. We often deal with matters in which there are
competing interests concerned, interests that conflict with each other. That alone
is not enough to produce a conflict of interest. For instance, in the context of a
business wanting to function more efficiently, you might be asked to give advice
about whether or not to reduce the size of staff. In such a situation, the overall interest
of the business and the interest of the staff of the business (particularly those whose
jobs are at risk) conflict with each other. But you do not have a conflict of interest in
your role in offering advice. The situation would be different, however, if, say, one of
the employees in that businessone whose job is at riskis your spouse. Here the
interest of the business (efficiency only) and the interest of your spouse (and hence,
you) are in conflict; and you have a conflict of interest.
You have a conflict of interest if you have competing (conflicting) professional,
personal and/or business interests. If you are forming a judgment, offering an
opinion or engaging in any action in the context of these competing interests, then
you are acting in the context of a conflict of interest. It is your interests (professional,
personal and/or business) that are in conflict. And you have this conflict of interest
whether or not you are affected by the conflicting interests involved. We will explain
this further below.
Sometimes, conflict of interest is characterised in terms of interests that pose a
threat to impartiality. Although it can be helpful to think of conflict of interest in this
way, it is not entirely accurate, for two reasons:
1 It puts emphasis on the effect or possible effect of the conflict, rather than on the
conflict itself. While this is clearly a central part of the rationale for paying attention to conflicts of interest, potential conflicts of interest and apparent conflicts
of interest, it need not be the defining feature of the conflicts themselves.
2 There are many occasions in which ones role is not that of being impartial: you
might be asked precisely for an opinion supporting a particular course of action.
You are asked to muster the best arguments you can in support of that particular
view. The (unobjectionable) goal here is quite expressly partial, but it does not
involve a conflict of interest simply by virtue of that fact.
Personal and business matters are not the only interests that can come into conflict, though it must be said that this is by far the most common form. Even when the
precepts of a code of ethics are clear, the exercise of good judgment is indispensable
in managing such conflicts. The key word here is managing. Not all cases of
interest-holding or even conflict of interest need be fatal to the involvement of the
interested party in a decision. Everything resides in the way that the interest and the
involvement of the interested party are managed. Transparency is important in this
regard. Transparency is the enemy of improper conduct and nowhere more so than
in conflicts of interest.
Above all, it must be realised that the real damage done to an organisation by
the confusion of interests lies in the bad example given to others. Staff must not
treat professional entitlements as personal ones or corporate assets as their own.
Managers who do this effectively license those below them to take similar liberties.
This is an area where hypocrisy goes well beyond being a personal fault and is an
organisational danger.
A person with a conflict of interest must be in a position to affect a decision
within an organisation either directly as the decision-maker or indirectly through
the exercise of influence or power on others.
When in doubt about whether you have an interest in a matter affecting a
client, DECLARE it. The declaration of an interest does not mean that you believe
your judgment is compromised or that you could not be fair or impartial. And, it
need not always involve removing yourself from that matter. What is does mean
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is that all dealings with clients and groups will be transparent, and if you remain
involved in the matter, the presence of the conflicting interests will be known by the
appropriate parties.
Very often the focus of conflict of interest analysis is on the individual rather
than on the interest. Yet the question is not primarily one of objective judgment
or an individuals capacity to distance themself from personal interests in making
professional decisions. These are important questions, but the first question is about
whether the interests involved in a decision are in conflict. Does your role, say, as an
accountant conflict with your role as a private citizen or with your personal goals?
Does your role as an accountant conflict with your role as a business person or as
an employee?
Conflicts of interest should be managed by being as transparent as confidentiality
and prudence allow; reporting interests to superiors and seeking their advice; and
documenting decisions fully. Because conflicts of interest are the source of so much
trouble, concern and misunderstanding in business and the professions, we want to
expand on the discussion, and explore in some detail why we have characterised
conflict of interest in the way we have.
In discussing the problems of living without a government in a state of nature, the
seventeenth-century philosopher John Locke famously declared,
In the state of nature there wants a known and indifferent judge, with authority to
determine all differences according to the established law: men being partial to
themselves, passion and revenge is very apt to carry them too far in their own
cases (and) to make them too remiss in other mens. (Second Treatise, 125)
The legal remedy for people being judges in their own cases is impartial judicial
officers, but the law is only one domain in which judgment is called for. Business
and the professions constantly demand the exercise of judgment and dedication
to fiduciary duties. Self-interest or partiality to the interests of othersloved ones,
comrades in sport or business, members of ones communitycan prejudice
fiduciary duty and bias ones judgment. That is why impartiality of judgment is so
central to the management of conflicts of interest. This concern is expressed in what
we call the standard account of conflict of interest. The following paragraph is a
good statement of the standard account.
A conflict of interest is a situation in which some person P (whether an individual
or corporate body) stands in a certain relation to one or more decisions. On the
standard view, P has a conflict of interest if, and only if, (1) P is in a relationship
with another requiring P to exercise judgment in the others behalf; and (2) P has
a special interest tending to interfere with the proper exercise of judgment in that
relationship. The crucial terms in the standard view are relationship, judgment,
interest and proper exercise.30
Any number of definitions will agree in one way or another with the standard
account. At its heart is a major issue: if a large part of ethics is about the exercise of
sound judgment, then anything that endangers that judgment, such as self-interest
or competing interests, must be identified. Good judgment bespeaks independence and fairness, an absence of bias and emotion, and skill and competence in
decision-making. It is obvious how good judgment can be compromised by conflicts
of interest.
Still, bias is not the only issue, and perhaps it is not even the main issue in coming
to terms with such conflicts. One can imagine a dispassionate person protesting
that her judgment would never be compromised by private interests, family connections or other affiliations. We can imagine indignant responses from prominent
people when conflicts of interest are alleged: Are you impugning my integrity? Such
responses have a point. If impartial judgment is all that is at stake, its not so difficult
just to ask, How would an impartial judge see this situation? If a reasonable answer
to this question lines up with the judgment of the person with a conflict of interest,
then it is clear that she has remained impartial.
Unfortunately, conflicts of interest are not as simple as this. In the first place,
judgments do and perhaps should vary. That is, people can arrive at different justifiable conclusions about the same issue and all of them be right. The fact that there
are wrong decisions does not mean that there is only one right decision. Different
judgments can be defensible. The existence of a Gods-eye view of every issue is a
myth. Some issues are clear and often do not require judgment or discretion. Other
issues are not resolvable without judgment and that means that there is unlikely
to be just one right view to be taken. In other words, testing for impartiality
testing for whether or not ones judgment is impairedis not at all simple even where
it is possible.
Second, and more importantly, meeting charges of conflict of interest with this
responseMy judgment hasnt been compromised: how dare you impugn my
integrity!misses the point about conflict of interest. Yes, judgment is an issue, but
it is not the issue. Even if it were possible, demonstrating impartiality of judgment
would not make the issue of conflict of interest disappear. Impartial judgment is
not necessarily evidence for the absence of a conflict of interest because having a
conflict of interest is not the same as being affected by a conflict of interest. We call this
emphasis on the interests in conflict rather than the person in conflict the revised
account to contrast it with the standard version of conflict of interest.
So, claims that one is unaffected by a conflict of interest do not change an
objective state of affairs in which interests are at odds. Managing the conflict might
require the restoration of objective judgment or removal of the conflict or the removal
of oneself from the position of being the one to make the judgment or some other
course of action. What will not suffice is a simple declaration that ones judgment
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is unaffectedthat because the integrity of the person holding the interests has
remained (or will remain) intact, therefore there is no conflict of interest.
Of course, a conflict only arises because an individual has two sets of interests
to serve, but that doesnt make the problem (only) a psychological one. If that were
the case, then, as we argued above, all one would have to do to avoid a conflict of
interest is show sound and unbiased judgment and a lack of cognitive dissonance.
And one would be perfectly entitled to demand from those accusing one of having
a conflict that they show biased or unsound judgment. Showing a biased judgment
in business decisions can be as difficult as showing that judgment is sound.
As it happens, regulators and courts do not depend on the standard account of
conflict of interest. They look at the interests in question, and if an individual has not
declared private interests that conflict with professional or public duties, then there
can be a case to answer.
A second reason to prefer the revised over the standard account is that it simplifies
the relation of conflict of interest to potential conflicts of interest and perceived
conflicts of interest. According to the revised account, either interests conflict or
they do not. That interests might appear to conflict presents us with a problem akin
to clarifying any perception. If I say that there appears to be a camel on the road,
we can take a closer look and discover that it is in fact a rock. It is not an apparent
camel. So, too, with interests: an apparent conflict is either a conflict or it is not, and
if it is a conflict, then identifying it as such is the beginning of managing it, not some
kind of final judgment about an improper state of affairs. If there is potential for a
conflict, then this is something for the person in the situation to consider: some types
of conflict just have to be avoided, and in many instances avoidance is preferable to
managing the conflict.
Conflicts of interest turn out to be like bacteria: they are everywhere. Some are
benign or relatively harmless or can be controlled. Others are toxic and need to be
treated before they fester. There is a perception, however, that all conflicts of interest
(like all germs in some home cleanser advertisements) are signs of ethical failure
and that they need to be eliminated from business, the professions and political life.
This misconception is dangerous: if people with a conflict of interest believe that, just
because of that fact, they have somehow been enmeshed in wrongdoing, they might
very well be tempted to conceal their interests instead of declaring them. Media
dramatisation of conflicts of interest as ethical failures can discourage disclosures
of small matters whose importance is then magnified by cover-up.
Conflicts of interest do not necessarily arise from failures of ethics or good
judgment. That they require management and good judgment is indisputable, but
the big problem with conflicts of interest is denial. That is what gets individuals and
corporations into hot water and leads to neglect of the problem. When conflicts
of interest are acknowledged as an issue, they can be managed appropriately.
A member of an American Boy Scout council who happens to work in the timber
industry could use his scouting connections to advantage his corporation. 31 Or an
executive in a food conglomerate who serves on her childrens P&C committee
could be in a position to favour her corporation when decisions are taken about
what products will be available in the school canteen. It seems unlikely in either of
these examples that the business interests of the executives would constitute a large
conflict of interest with their private commitments: these would be minor conflicts.
Small though these conflicts are likely to be, the important thing is to declare them,
not because the Scout councillor or the food executive is likely to have their judgment
impaired, but because transparency is the first step to managing conflictslarge
and smalland preventing damage to either interest. Transparency is to conflicts of
interest what antibodies are to bacteria.

Conflicts of interest can harm trust in a variety of ways. First, they can damage the
notion of fiduciary duty in a professional relationship. Such a relationship requires the
professional person in acting for the client to put the clients interest first. Analogous
duties apply to directors of corporations in relation to shareholders. Second, trust in
a particular profession or business can be damaged by conflicts of interest among
their practitioners. Third, conflicts of interest can engender wider distrust in a society.
When conflicts are found in both high and low places, self-interest seems to be the
only motivator that can be relied on. Other values in business and the professions,
such as loyalty, impartiality and care, seem at best rhetorical camouflage that allows
self-interest to work more effectively.
Conflicts of interest in academic medicine

Examples of such harms abound in business (see the Merrill Lynch cases below),
but they are also quite widespread in the professions. A relatively new area is
academic medicine, where researchers with an entrepreneurial spirit are favoured
and academic salaries can be very handsomely supplemented.
In 2008, a Congressional inquiry led by Senator Charles Grassley uncovered widespread evidence of mismanagement of conflicts of interest in American academic
medicine. Senator Grassley took conflict of interest statements from medical researchers in some of the leading universities in the United States and compared them with
statements of payments from drug companies. He found widespread discrepancies.
The first was in the statement of Dr Melissa DelBello to her employer, the University
of Cincinnati, that she had been paid about $100,000 over the period 200507 by
eight pharmaceutical makers. Grassley discovered that during that period, just one
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manufacturer, AstraZeneca, had paid her $238,000. Drs Joseph Biederman and
Timothy Wilens of Harvard Medical School reported earning hundreds of thousands
of dollars each from drug companies in the period 200007. The true figure was
around $1.6 million. The issue here is not mainly about money, but about what it
buys from scientists and clinicians who are supposed to offer objective, trustworthy,
unbiased opinions about pharmaceuticals and medical devices. Universities and
medical grants bodies are supposed to ensure that conflicts of interest are declared
and that transparent procedures govern the work of those they employ. What Grassley
found was that self-regulation was not working: universities and the procedures they
employed were failing to adequately manage (and, in many cases, even identify)
conflicts of interest.32 Clinical research is now so extensively entangled with the
pharmaceutical industry that self-regulation seems out of the question. One study
indicated that about two-thirds of academic medical centers had financial stakes in
companies that sponsored research within their facilities. In another study, two-thirds
of medical school department chairs were found to receive departmental income,
and three-fifths received personal income, from drug companies. 33
Perhaps the most publicised of the many cases uncovered by the Grassley inquiry
was that of Dr Charles Nemeroff, a research psychiatrist at Emory University. Because
his research was federally funded, Dr Nemeroff was subject to external as well as
university rules and appears to have violated both in failing to report earnings from
drug companies of at least $1.2 million.
As it turns out, Dr Nemeroff had a history of not declaring interests. Over a period
of four years while he was principal investigator on a National Institute of Mental
Health grant, he assured Emory that he did not receive income from GlaxoSmithKline
of more than $10,000: my consulting fees from GSK will be less than $10,000 per
year throughout the period of this N.I.H. grant, he declared, having already earned
$98,000 that year. Fees at this level breached rules about conflict of interest, because
GlaxoSmithKline, as provider of drugs for the project, was an interested party.34 Yet,
in each of the years that Nemeroff worked on this grant, his fees from the drug
company exceeded the allowable amount. In 2004 alone he received $170,000. From
2000 to 2006, a period that covers the work done on the NIH grant, Nemeroff earned
more than $960,000 from GlaxoSmithKline, but declared only $35,000. Even when
Emory investigated Nemeroff and found other anomaliesfor example, failure to
declare conflicts of interest in drug trials involving Merck, Eli Lilly and Johnson &
Johnsonit seemed unable to bring him into line.35 One who tried was Associate
Dean Claudia Adkinson. She demanded assurances from Nemeroff about consulting
fees and took issue with him about a favourable review, published in a journal he
edited, of a device made by a firm with whom he had undisclosed financial ties.
Adkinson reproached Nemeroff for not disclosing a range of interests, including
payments to Nemeroff and his co-authors by the device manufacturer and a grant
to Nemeroffs department. Said Adkinson, I cant believe that anyone in the public
or in academia would believe anything except that this paper was a piece of paid
marketing. 36 Nemeroffs failing is not simply a matter of a persons judgment being
impaired by the presence of a conflict of interest. This seems to be, in addition,
a matter of outright dishonesty. It appears not to be a matter of a persons trying
to do the right thing, but having their judgment compromised, or inappropriately
influenced by an outside interest. It appears, rather, to be a matter of a person simply
trying to get away with something.
But why would so many medical researchers feel unconstrained by conflict
of interest and considerations of honesty? If Nemeroff is any guide, professional
arrogance and a view that the end justifies the means might account for indifference
to professional and regulatory disclosure rules. Nemeroff felt his service to the
advisory boards of drug companies was of benefit to his institution and not merely
to his advantage. He wrote to the Dean of Medicine at Emory,
Surely you remember that Smith-Kline Beecham Pharmaceuticals donated an
endowed chair to the department and that there is a reasonable likelihood that Janssen
Pharmaceuticals will do so as well. In addition, Wyeth-Ayerst Pharmaceuticals has
funded a Research Career Development Award program in the department and I have
asked (other firms) to do the same. Part of the rationale for their funding our faculty in
such a manner would be my service on these boards.37
If ones activities tend to public benefit, then how is it a conflict of interest if there
are private benefits also?
Merrill Lynch
In January 2009, financial services giant Merrill Lynch (acquired by Bank of America
in 2009) agreed to pay a $1 million fine to settle Securities and Exchange Commission (SEC) charges.38 The Commission alleged that Merrill Lynch investment advisers
failed to disclose conflicts of interest when advising clients to invest through its
brokerage services. According to the SEC, Merrill Lynch and its investment adviser
representatives could and often did receive significantly higher revenue if clients
chose to use Merrill Lynch directed brokerage services.39 The advice being offered
to clients was not, then, impartial. Merrill Lynch did not admit to or deny the SECs
allegations, but agreed to be censured and undertook not to breach securities laws
in future.
A Merrill Lynch spokesman said that the activities of one team of investment
advisers based in Florida had caught the attention of the SEC, but that these advisers
had now left the firm. Merrill Lynch had initiated changes, improved oversight of
consulting services and compensated clients whose interests had been affected.
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The spokesman noted that, The assets of our consulting services clients in Florida
grew substantially during the years we provided services to them.40
Now compare this case with another. In May 2002, Merrill Lynch paid $100 million
to short-circuit an investigation initiated by New York Attorney-General, Eliot Spitzer
(later famous as the short-term Governor of New York who resigned over a prostitution scandal in 2008). Spitzer was investigating claims that Merrills stock analysts
had promoted the stocks of certain companies in order to secure investment banking
business for the firm. Allegedly, this was encouraged by links between the analysts
and investment bankers at Merrill Lynch, including the evaluation of analysts performance and the determination of their salaries by investment bankers.
Spitzers evidence was emails from former Merrill high-flier, Henry Blodget, which
disclosed that he and other Merrill analysts privately derided stocks that they were,
in fact, promoting to clients. According to Spitzer, this showed that the analysts made
their recommendations not in the interests of clients, but in order to boost Merrills
relationships with companies whose stocks were recommended.41
The media gave the story wide coverage. Merrills chairman and CEO, David H.
Komansky, admitted to being embarrassed and the firm apologised: We sincerely
regret that there were instances in which certain of our internet sector analysts
expressed views that at certain points may have appeared inconsistent with Merrill
Lynchs published recommendations. 42 That apology was repeated to shareholders
and in the settlement with Spitzer, but these apologies stopped short of admitting that
Merrill had done anything wrong. Nor was such an admission forthcoming when,
as part of the settlement, the firm agreed to change the way it operated. Merrill
restructured its research department to separate its analysis from the banking side of
the business; agreed to stop analysts from suggesting that the firms corporate clients
would enjoy good stock ratings or that the ratings of non-clients might fare less
well; and removed investment bankers from determining the salaries of analysts.43
Moreover, Merrill undertook to strengthen objectivity in changes to stock ratings by
instituting a Research Recommendation Committee, and to monitor communications between analysts and banking staff. In future, analysts would be compensated
for only those activities and services intended to benefit Merrill Lynchs investor
clients rather than businesses related to the broker.44
So, why would a firm that shied away from admitting any wrongdoing submit
to such a large penalty and restructure its operations to avoid conflicts of interest?
Merrill Lynch claimed that the investigation was harming its reputationthe value
of Merrills stock had dropped sharply after the accusationsbut Spitzer saw the
payment differently: Clearly, the world is shifting. You dont pay a $100 million fine
if you didnt do anything wrong.45 He hoped that Merrills structural changes would
serve as a model for other Wall Street brokers, a claim reiterated by Komansky as
he set about rebuilding investor trust in his firm. Shortly after the settlement was
announced, Goldman Sachs followed suit by reviewing its research policies, analyst
compensation and the independence of its research.46
Some Wall Street observers were sceptical about such reforms, believing that in
serving two masterstheir clients seeking objective investment advice, and their
firms whose profitability relies substantially on investment banking feesanalysts
have a fundamental conflict.
Conflicts of interest cannot always be avoided. Where they are present, it is
important to declare the interest and to refrain from voting on matters pertaining to
it. Other measures to build a barrier between interests can be employed. A partner
in a large accounting firm might feel better able to serve their clients and their firm
by placing their assets in a blind trust, a strategy employed by politicians who need
to be free to vote on bills without inadvertently favouring their personal interests.
The issue of gifts figures in a number of discussions in this text (see particularly
chapter 4) but in the context of commercial relations. Consider this case, which is
slightly different.
CASE 7.3: A gift among friends
case
questions
Michael Bennett is the shire manager of Westborough. For his fiftieth birthday, his
family and friends throw him a surprise party at the shire football club. All in all,
it is a typical country gathering. The guests include several of Mikes staff, shire
councillors, the doctor, school principal and local business people and contractors.
After the speeches, Mike opens his gifts. Among them is a video camera. It is from
one of the leading contractors for municipal works in Westborough. Mikes spouse
and children are thrilled.
1 Does he have a problem?

2 If so, what should he do about it?
3 Would your view of the situation change if the story was varied slightly; if it was
Rogers 48th birthday; if the gift was, say, a nice watch? What about a boxed set
of Beatles CDs or a good bottle of whiskey?

Ethics and the law are closely associated. This is probably because both are regulative
and ethics is embedded in many of our laws. Ethical and legal prohibitions against
stealing property and harming persons give mutual support to each other. When
ethical failures occur in business or the professions, demands for tighter regulation
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or stronger policing are often made as though more laws and tougher enforcement
will produce better ethics. While such demands are not always misdirected, in most
cases they do not answer to what is needed if business and the professions are to
conduct themselves ethically. For one thing, if law and ethics are identified, then
people are apt to think that if an act is legal then it is ethical. The slogan, If its legal
its ethical is often heard in business and it is mistaken.
The importance of ethics in just observing the ordinary requirements of the law
is obvious if one takes the example of an archer trying to hit a distant target. The
archer has to aim high. If he aims straight at the target he will miss. So, too, with
organisations and society more generally: just aiming to observe the law sets the
sights too low. Like the archer, we have to aim highertowards ethicsjust to be
minimally law abiding.
Alan Greenspan, former Chairman of the United States Federal Reserve Board,
has put the matter well: ethical companies do not need rules to persuade them to
act in the long-term interests of shareholders, but because some firms are unethical,
these rules are necessary. The question then becomes one of balancing potentially
restrictive and expensive regulation against other drivers:
[T]here can be only one set of rules for corporate governance, and it must apply to all.
Crafting the rules to provide the proper mix of regulatory and market-based incentives
and penalties has never been easy. And I suspect that even after we get beyond the
Enron debacle, crafting and updating such rules will continue to be a challenge.47
Just four months after uttering these words, the Sarbanes-Oxley Act was passed by
the US Congress.
Accounting is one of the most regulated of professions. It seems that when any
major infraction hits the headlines, a new rule is introduced to prevent its recurrence,
or there are calls for new rules and tighter standards. The rules of accounting are
not primarily regulative, however, but constitutive.48 That is, most of the rules in
accounting are about the practice itself, not the regulation of practitioners. These
rules determine what the practice amounts tothat is, what constitutes it. They exist
to promote the practice of accounting, not to restrict practitioners or catch out frauds.
The whole purpose of accounting is to give an accurate and reliableor, according
to the classic phrase, a true and fair 49 account of a companys business affairs, but
that does not stop some practitioners from committing crimes and many more from
deviating from the spirit of accounting standards. Introducing tighter regulations
or new standards might not be the way to counter such deviations. Rather, ethical
controls related to the personal principles of the practitioner might be a better way
of assuring fairness and honesty in the duties accountants perform than imposed
external regulationsrules whose aim is not constitutive but regulative. F. L. Clarke,
G. W. Dean and K. G. Oliver argue that the ethos of the accounting professionits
commonly understood and shared principles and normshas been replaced by
regulations and standards: Contrary to the popular view, it is our proposition that
compliance with the so-called spirit of many conventional practices and endorsed
Standards produces grossly misleading data, without necessarily any intention
to deceive on anybodys part.50 The situation is very much compounded when a
wobbly professional ethos is required to stand up to deceptive and legally risky
conduct, as the case of Arthur Andersen shows.
Accounting is not the only profession or activity to suffer from the misconception
that the way to rectify ethical difficulties is by the introduction of more and more
regulation. It is, in fact, quite a common call to arms in the face of ethical (or other)
difficulties: We need more regulation. However, not only is increased regulation not
always an effective remedy; it sometimes exacerbates the difficulty. It can exacerbate
the problem by shifting attention from the real difficulty, which is usually a matter
of the exercise of bad judgment and a systemic problem with the organisational
culture onto the regulation and its technicalities.51 There is an attractiveness about
regulation as a solution to problems, in that it is simple and neat, whereas doing what
is necessary to improve individuals and corporations judgment, ethical decisionmaking skills and organisation culture is a much more difficult task.
This is only a slight exaggeration, and it is easy to give lots of examples, including
many from accounting failures: something has gone wrong; there has been basically
an ethical failure. The profession and the community at large want to remedy the
failurethey do not want it to happen again. So, from whatever external controlling
body or bodies comes the pronouncement, Clean up your act, or else! The or else,
as a threat, usually amounts to the possibility of dramatic legislation or regulation
from an external body. Under this threat, the profession knows what is being targeted,
and knows what needs to be improvedand it is almost always ethical failure of
one kind or another. Its focus is on that. It wants to fix it. Now, suppose the situation
progresses, and regulation is introduced. The stimulus for the new regulation was the
failure, by virtue of which there was the threat. Now that there is regulation, however,
the focus of the practitionersand maybe even of the profession itselfis directed
onto that specifically, rather than onto the stimulus and the real problem. So, the
practitioners concern now becomes doing exactly what the regulation requires,
or, better, doing whatever can be done to get around the new requirements.52 Any
concern for the real problemand the concern to clean up their actbecomes
lost in technicalities, procedures and repairs. Its simpler that way!
In accounting education, ethics is sometimes discussed separately from skills
and knowledge. We suggest that this view is mistaken. Rather, ethical performance
is integral to the practice of accounting per se. The internal ethical requirements
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of a professionstandards, norms, expectations, competences, commitments and

proceduresboth enable and govern its effective practice. If a doctor refuses to
treat patients with chronic illnesses, that doctor is hardly practising medicine. If a
lawyer takes only cases that can be confidently won, this is hardly the competent
practice of law. If an engineer takes shortcuts that endanger lives, that person is a
substandard engineer. If an accountant does whatever an employer instructs, even
if the accountant believes it to be unprofessional, then that accountant is behaving
not only unethically but also incompetently. In all these instances, the practitioners
behave unethically because they behaved in a manner contrary to the standards of
their professions. These standards create the internal obligations of a profession.
They do more than regulate; they constitute the competent practice of the profession.
Professions have a tradition of service to the public and, in return, the public confers
upon them certain rights of practice. Betrayal of this trust through shoddy, careless,
negligent or hasty professional practice is unethical. It is not only the nakedly
corrupt professional who has abandoned ethics; it is the uncaring, unprofessional
and incompetent practitioner as well. A wilfully underskilled, ignorant or negligent
practitioner is unethical. In this internal sense, ethics is integral to professional
practice, not an add-on component to the knowledge-plus-skills model.
Consider the following case.
CASE 7.4: Succession planning?

You have been an accountant in public practice for ten years. One day at a family
picnic, an old friend and colleague asks what arrangements you have made for your
clients in case you suddenly die or become incapacitated. Does this strike you as an
odd question? Is it your responsibility to provide for your clients? You have provided
for your family because they are your responsibility. But is not the responsibility of
the professional accountant more limited? These seem to be ethical questions, but
they are also professional because they impact on your clients.
case
question
1 What would your immediate response to these questions be?

There are penalties for not retaining sufficient professional independence in auditing.
The two cases below illustrate just some of the litigation brought against auditors in
recent years.
CASE 7.5: Bankers Trust

In 1992, Bankers Trust and eight individual shareholders brought an action for
$60 million against the former auditors of Westmex Ltd for negligence and for
misleading and deceptive conduct. The unusual action under section 52 of the
Trade Practices Act 1974 was filed in the Federal Court against Richard Moffitt,
Westmexs former auditor, and his partners. Westmex, Russell Gowards vehicle
for buying and selling companies, went into provisional liquidation in February
1990. Just five months earlier it had received an unqualified auditors report from
Thompson Douglass and Co., of which Moffitt was then a partner. Bankers Trusts
action is directed against the firm and all of its partners.
Proceedings in the matter commenced in 1992 but received fresh impetus in
January 1996, when the Companies Auditors and Liquidators Disciplinary Board
(CALDB) suspended Moffitt from registration as a company auditor for five years.
The suspension followed an application by the Australian Securities Commission.
CALDB found that Moffitt had not adequately and properly performed the duties of
an auditor during the course of the Westmex audits in 1988 and 1989.53
The second case involves issues related to an independent report that turned
out to be not so independent.
CASE 7.6: An independent report?

Angus Pilmer, partner in the leading Perth audit firm of Nelson Wheeler, completed
an independent report on a takeover by Kia Ora Gold of the merchant bank
Western United in September 1987. Pilmer valued Western United at between
$101 and $113 million. Following the disastrous October stock market crash,
its value had fallen to $3 million, but Kia Ora had proceeded with the takeover. It
later emerged that Western United and Kia Ora had common directors who were
the main beneficiaries of the takeover. Even before the crash, however, Pilmers
valuation was a long way from the figure put on it by Jeff Hall of Grant Samuel: a
mere $10 million. In what was to become the worlds longest trial, Pilmer and his
firm were sued over his report.54
All professions must now consider the possibility of litigation, and accountants
and auditors are no different. The pursuit of remedies in suits against auditors will
not solve the basic problem of greed. Moreover, litigation could have unintended
and undesirable side effects. According to one commentator, Men and women of
means and competence may well decide that being an auditor or company director
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is just too difficult. It is a reasonable observation that ever increasing professional

indemnity cover is likely to increase legal suits rather than decrease them.55 In other
words, the distinction between culpable and accidental error is in danger of being
blurred, and particularly so if competency is reduced.
George Sutton suggests some strategies to protect the auditor. First, he recommends a cap on professional liability, which would reduce the incentive for litigation
and subsequently the costs of insurance premiums. (The South Australian Government, for instance, commenced a suit against Price Waterhouse for A$1.1 billion
over its audit of Beneficial Finance.) Second, he seeks a return to the old-fashioned
notion that the auditors real clients are the shareholders, by whom they should be
thoughtfully elected and to whom they should be accountable by being required to
present a companys accounts. The corporation that employs an auditor is, in effect,
identified merely with its officers and employees: 56
The good auditor understands that transparency sometimes requires going beyond
the scope of strict legislative disclosure requirements and after intensive discussion
with the board, he must be secure enough to push for his view for the benefit of the
shareholders. The auditors should read aloud their audit report as part of the formal
proceedings at the annual meeting.57
If ethical decisions are inescapable in professional life, they are almost an occupational hazard in accounting and auditing. Clarke, Dean and Oliver lament that
there are no good explanations within the framework of accounting and auditing
rules with which accountants have to comply, so that exposure to litigation and
loss of professional status are persistent occupational risks.58 If this is true of formal
standards and rules, then most of the general points about ethics will be less helpful
than practitioners might expect because rules in accounting are not transparently
grounded in ethical principles. An ethical accountant might well claim to know
what honesty requires, but that is of little help when confronted with a case in which
adhering to the letter of a set of accounting standards involves departing from their
spirit. Everyday practice decisions do have ethical implications. In a sample of 108
financial reports in the first half of the 199293 financial year, sixty-five prompted
inquiries about apparent departures from accounting standards or the Corporations
Law 1990.59 That is, 60 per cent of the sample raised questions about accounting
practices and compliance with standards and the law. If this is so, then such practices
also raise ethical questions, but this would not seem to be acknowledged, perhaps
because the survey was not concerned with imputing improper conduct. If this is so,
then an excessively narrow view of ethics is at work, for, as stressed above, ethics
deals also with matters of competence, discretion, responsibility and excellence.
It should be noted that, of the sixty-five inquiries about departures from standards
and regulations, thirty-six were regarded as matters for the professional discretion of
auditors and most of the rest received satisfactory explanations. Practitioners need
to be able to justify their decisions, and most can. This, too, is a matter of ethics. So
when most of the auditors surveyed accepted the need for improved presentation
and disclosure and undertook to persuade their clients to make improvements in
the following years financial report,60 they were facing up to professional responsibilities that were both technical and ethical. Whether they recognised the ethical
element of their position is another matter.
In recent years the accounting profession in Australia has adopted a number
of strategies to raise the ethical awareness of its members and to reinforce the
importance of ethics in accounting education.61 Most of these initiatives are aimed
at individuals, rather than at the systemic problems of the profession identified by
Clarke, Dean and Oliver. Given the immensity of that task, it is more a matter for
public policy than a matter for the action of professional associations.
Consider the following fictional case, which raises some of the kinds of problems
that confront accountants working in organisations.
CASE 7.7: Zanicum Metals

Zanicum Metals is a rapidly expanding producer of non-ferrous metal castings.
Demand for its product is strong, and it is negotiating a large bank loan in order
to increase production. As part of its regular maintenance cycle, Zanicum must
decommission some of its furnaces so that they can be overhauled. This is an
expensive process, and it is important to minimise the impact on the companys
total operations. Management accountant Richard Ng and a team of engineers have
been assigned to prepare costings and recommend one of three potential contractors for the furnace overhaul. The kinds of factors they have to consider include the
time the furnaces will be out of commission, the likely effect on production, and the
cost and quality of the overhaul. Richards team recommends Thermatic, but the
managing director of Zanicum, Sally Richfield, is unimpressed. She seems to regard
it as a matter of course that the contract will go to Fusion Furnaces, an enterprise
in which her family company, MTSC, has an interest. Sally questions some of the
assumptions upon which Richards team made its recommendation. She requests
Richard to reconsider his assumptions and to make appropriate changes to the
costings. Richard agrees that some assumptions are open to different interpretations, but asks her whether there might not be a conflict of interest in her position.
Sally laughs and tells him that she has more shares and options in Zanicum than in
Fusion, and that her success is bound up in leading Zanicum to successful expansion. There is no conflict of interest, she declares. Richard is directed to revise his
costings and his recommendation of a furnace maintenance contractor.
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case
questions
Gloria Vineman, the newly appointed finance director with Zanicum, is preparing
the companys annual financial statements. She knows from the previous years
audited accounts that cumulative provision of $1.5 million had been made for
furnace maintenance, and that costings had been prepared in the current year
for the work to proceed. She asks Richard Ng for details of the costings, but he
merely gives her his recommendation and refers her to Sally Richfield. Sally is
evasive and eventually does not present the costings. She informs Gloria that the
costing exercise put a figure of $1.5 million on the overhaul of furnaces, but Gloria
is unhappy about this verbal advice. She has heard engineers in the firm mention a
figure twice as large. Sally firmly states that if Gloria has any concerns based on such
hearsay, she should keep them to herself and not upset the auditorsespecially
during the negotiation of a large loan from the bank.
John Ryan is the senior partner in Ryan McGrath, auditors for MTSC, Fusion and
other metalworking companies including Zanicum. Almost all of Ryan McGraths
business comes from the metals industry. John reviews the financial statements of
Zanicum prepared by Gloria and notes a significant audit risk against the refurbishment of furnaces. Despite direct requests to Gloria, John has been unable to obtain
the costings documents from Zanicum. Sally will not discuss the matter beyond
saying that the growth of the company and sustained demand for its products are
the best evidence of the financial health of Zanicum. She also makes an indirect
but clear suggestion that if Ryan McGrath cannot provide a trouble-free audit before
she meets with the bank to finalise the loan, then there are other auditors who are
more familiar with the operations and needs of the metals industry.
John and Sally eventually reach an agreement that Zanicum should make provision of $1.75 million for furnace maintenance, and Ryan McGrath signs Zanicums
statements as presenting a true and fair view. The bank loan goes through, and the
furnaces are serviced by Fusion at a cost of $2.7 million.
This case raises a number of ethical problems, but the central one concerns
professional independence.
1 What would you have done in Richards and Glorias positions?

2 To whom are Richard and Gloria accountable? Is it Sally? Does she have the
right to exercise her position as she has with Richard and Gloria?
3 To whom should the accountant be responsible in these cases?
4 What of the responsibilities of Ryan McGrath? John Ryan has placed a large
part of his companys business in a narrow field: the metals industry. Has he
case
questions
not put himself under avoidable pressure by auditing companies with business
connections and sometimes overlapping directorships?
5 Is Ryan properly cognisant of his statutory and ethical responsibilities? Sally
Richfield made it clear that Ryan McGrath would be jeopardising its own business if an unfavourable audit went forward. Is this a credible threat? What, for
an auditor, constitutes a proper distance from a client?
There are also other issues here that draw upon the problem of dirty hands (see
chapter 2). If one is implicated in covering up sharp practice, then later one can be
caught in all kinds of difficulties, which seem to result in disaster no matter what one
does. This might well apply to John Ryan, but consider also the position of Richard
Ng. Say he changes his costings at the behest of Sally Richfield. He considers this a
small thing. Then when he is approached by Gloria Vineman for details of these costings, he must evade the difficulty and refer her to Sally. If he told what he knows to
John Ryan, the loan with the bank might be jeopardised, and the future of the company and the benefits to its employees and other stakeholders might be adversely
affected. If he conceals what he knows, he is acting against his professional integrity.
This is a situation he has got himself into by initially acceding to Sallys requestthat
is, by an initial compromise of independent professional judgment. Of course, not all
cases of professional failure give rise to dire consequences or produce dirty hands
later. But ethical consistency can at least reduce the chances of being confronted
with such problems down the track. In this case, consistency would involve saying
no to Sally initially and sticking with that decision. This view says nothing about
personal costs, but these are often entailed in principled action in any case, and
there is always the possibility that one unethical act will create the conditions for
much more costly ethical failures later.
The significance of professional independence is clear in the light of these reflections. Note that similar ethical issues regarding independence, responsibility and
accountability arise in connection with the roles of other kinds of salaried professionals working in organisations. One has only to think of the engineers who advised
against the launch of the space shuttle Challenger. These issues are about the nature
of the professional role, and of what can reasonably be demanded of people whose
profession entails a good measure of autonomy.
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1 We note the results of a survey about where accountants identify the source of
their values: family, conduct of peers, accounting practices, prevailing societal
norms, processional code of ethics and religious formation. Such surveys are not
uncommon. If such places are where people believe their values come from, is
there any place for critical reflection or critical evaluationmaking up ones own
mindor independent thought about values?
2 We discuss two senses of independence as the notion applies to accountants. Are
you clear about what these are? Do you agree that these are different senses?
3 What do you think of the suggestion that increased regulation can exacerbate a
problem, rather than solve it?
CHAPTER OUTLINE
7h
7h
7h
7h
7h

Growth
7h
7h
7h
7h
7h
Waste or fertiliser
Voluntary action
Review questions
How should corporations go about protecting the environment from damage

caused by their operations? The question sounds simple, and in the case of rogue
organisations so might be the answerdont do it!but for corporations that try to
work with community standards answers are not always easy or simple. If they were,
then major corporate headaches, such as remediation of the Orica site adjacent to
historic Botany Bay in Sydney, could be solved with a plan and an aspirin. Orica,
maker of industrial chemicals and the largest explosives manufacturer in the world,
had been left the pollution problem by its forebear, ICI, whom it had acquired in
1997. Decades of operation at Botany had badly contaminated groundwater, and
until recent intervention by the corporation, a plume of toxic water was heading
inexorably from the plant to the Bay. Worse, Orica has residential housing and
cereal producers for neighbours. Finally, the Orica plant is not far from the airport,
and the results could be catastrophic in the unlikely, but not impossible, event of
a plane crash. Orica seems to be a corporation in the wrong place. It is currently
engaged in a $167 million clean-up of the site and hopes at least to be able to contain
one of its problemsthe plume heading for Botany Bay.1 The question is whether
a stronger sense of responsibility to the environment would have prevented this
problem from arising in the first place. That is, if ICI had taken responsibility in
the latter half of the twentieth century instead of waiting for government regulators
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to act, would remediation have been necessary now? What does hindsight tell us:
that ICI was morally blind or morally negligent? Perhaps ignorance and indifference
were to blame for belated recognition of a problem. For much of the last century
an attitude prevailed that the solution to pollution was dilution, as the discharge
of Sydneys effluent into the adjacent ocean illustrates. Behind the Botany legacy of
contamination is a story of ethical failures, many no doubt small, that any number
of actors, from governments and senior managers to shareholders and community
leaders could have addressed, but did not recognise or think it their business to
do anything about.2 Even small-scale failures accumulate and now there is a large
problem for a corporation and its stakeholders. One ethical lesson from this case was
put succinctly by the CEO of Orica, Graham Leibelt: You know the main lesson for us
as an organisation is dont create the problem in the first place.3 Another lesson is
that the problem will not arise in the first place if environmental consequences are
given sufficient attention and all employees are informed that their responsibilities
in this area are serious.
There is no question about whether business has some responsibility for the
environment. Laws require employers to provide safe work places and businesses
to offer goods and services that are safe to consumers and the public. Industries
must comply with waste and pollution regulations. There are issues that arise for
business in connection with the environment. The first is whether businesses that
ignore environmental factors in their operations are sustainable. This is a prudential
issue rather than a moral one, but ethical questions are not far behind. Too often,
however, these are couched in the familiar terms of fiduciary duties to shareholders.
Once prudential and fiduciary obligations are accounted for, are there any ethical
matters left? Does business have ethical responsibilities to the environment in addition to prudential, fiduciary and legal ones? And if so, what are the nature and extent
of the responsibilities?
Recall Milton Friedmans objections to business engaging in socially responsible activity. First, such activity diverts profits from shareholders. It is up to them
to spend their money on worthy causes, not for the directors of their corporations
to do this for them. Second, businesses should not trespass on the role of governments. Governments have the role of setting social policy agendas and they have the
mandate of voters to do so. Business has neither. It is for governments to set the legal
frameworks in which business operates and for business to generate wealth within
the laws and regulations established by government. Social responsibility is not a
part of the obligations of business.
We repeat these arguments because they have figured and continue to figure in
the positions of corporations that wish to reject a role in environmental protection.
They are, as it happens, out of date. The rise of the No Logo4 attitude, a scepticism
about corporate citizenship and genuine concern for social responsibility, along
CHAPTER 8 THE ENVIRONMENT
with shareholder activism and the greater spread of share ownership, especially
in Australia, mean that directors have a more complex duty to the owners of listed
companies than forty years ago. Many activities once thought extraneous to business
purposes are now an ordinary part of commercial enterprises.
Even Friedman would have allowed as exceptions socially responsible actions
that support the reputation of a corporation and hence its capacity to earn profits.
If environmentally responsible conduct can enhance a companys reputation, then
it has added value to the shareholders investments. Levis, Saturn cars, Dick Smith
electronics, Proctor and Gamble, Johnson & Johnson and The Body Shop have
all benefited from good reputations. Then there are cases of damaged reputations
because brand names came to be associated with socially irresponsible practices:
Nestl, Shell, Nike, Union Carbide, Exxon and Alcoa are a few examples. In 1990,
McDonalds had to protect its reputation by replacing its polystyrene hamburger
boxes with paper packaging. There was no clear scientific evidence that paper was
more environmentally friendly than plastic, but consumer sentiment was against
polystyrene, and McDonalds took a precautionary strategy and changed its packaging. Because reputation is valuable, it is both a strength and a weakness. It can
be a mark of trust in the market place, but it also exposes a company to activism
as well as customers attitudes and beliefs. In 2003, for example, an activist group
called People for the Ethical Treatment of Animals (PETA) organised a boycott of
Kentucky Fried Chicken (KFC) outlets. By placing pressure on the point of sale,
the group hoped to improve the conditions in which chickens were held by KFC
suppliers. The KFC brand, like other fast food chains, was under pressure from law
suits brought by litigants claiming that fast food had contributed to their obesity. In
other words, PETA took advantage of the public mood about fast food to leverage
better conditions for chickens, and the KFC brand name was the lever.5
So, far from being a diversion of shareholders money into causes unrelated to
the purposes of the business, socially responsible action may enhance the bottom
line. And neglect of such action might well weaken the performance of the business,
especially if competitors have taken a proactive position.
As for Friedmans objection about business intruding into the domain of governments, it is clear that there is no clear boundary to be crossed here.6 Social
concernsincluding environmental issuesare now very much within the responsibilities of business. The example of the potential effects on reputation is an indication
of this.
The Australian public feels strongly about environmental issues, whether from
dissatisfaction with the nations environmental record or from a concern for the
future. However, the strength of that feeling does not make the environment an ethical issue or an issue for business. Henry Bosch, a former chairman of the National
Companies and Securities Commission, was fond of putting this position. Not all
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matters of public policy, or even national social justice are matters of ethics.
For Bosch, people concerned with
such questions as the preservation of forests [think] they must be ethical issues
Of course such a position leads to absurdity Ethics must be based on a value
system and, while the business community would be wise to pay attention to what is
going on in society at large and remain open to persuasion, it must set its own ethical
standards based on its own values.7
In a different context altogether (in talking about imposing requirements and

sanctions on advertising and marketing), Richard De George suggests that some very
important matters are for political, rather than moral, decision-making.8 We touched
on De Georges point in chapter 5. In some areas, although regulation would not be
morally objectionable, neither is it morally necessary. Some matters can be matters
of general preference without being matters of morality and, De George suggests,
sometimes it is permissible to legislate because of preference. It can be a matter
of politics rather than ethics. This is an important point: not all preferenceseven
strongly felt onesare matters of morality, and some things which are not matters
of morality should not therefore necessarily be considered as beyond governmental
interference or regulation. The enthusiasms and passions of individuals do not make
their concerns ethical issues. Conversely, however, just because business groups are
uninterested in environmental issues or are immersed in their own values does not
mean that the environment is not an ethical issue.
Business hostility to the environment is difficult to understand in the light of the
history of industrialism. Among the great number of articles and books on the fate of
the environment under industrial capitalism, one of the most interesting discussions
has been over the tragedy of the commonsthe fate of commonly held property
or resources. Where things belong to everybody it is often the case that they belong
to nobody, and nobody expends sufficient time on their care and upkeep. Or, worse
still, they are regarded as free resources to be used at will, as in the case of manufacturers who pollute the air and water because there is no owner to harm in the
process. This is, of course, free-loading on a huge scale, and it is puzzling that some
cannot recognise this as a moral problem. Ultimately such individual opportunism is
harmful to all. As Garrett Hardin observed nearly two generations ago, its cumulative
effects end up destroying us all.9
This has long been foreseeable. In 1833, W. F. Lloyd observed that cattle grazing
on common land in England were leaner than those grazed on private property. The
feed on the commons was poorer because of over-grazing. Over time, each farmer
had increased his herd by only one or two cowsnot much for each individual and
not enough in each case to make a difference to the commons. But the combined
effect of such increases in individual herds meant the destruction of the commons.
The message here is clear: the earths resources are finite, and the demands already
made on them by human populations have produced changes in the atmosphere,

the oceans and the soils.
The exercise of even small economic liberties can have devastating social and
environmental effects. DuPont, for example, used to dump 10,000 tons of chemical
waste each month into the Gulf of Mexico from its West Virginia plant because it was
cost free. Even with this level of dumping, the contribution to the pollution of the gulf
would be negligible. But if every plant along the gulf acted in this way, the gulf would
suffer the same fate as the commons.10
The environment is not a source of found resources. While the environment
does not belong to anyone, this does not mean that peoples rights are not violated
by excessive exploitation and abuse. Our ethical obligations are not confined to
privately owned property. Someone in the present or in a future generation will have
to bear the cost of exhausted soils, depleted energy resources or pollution. When old
coal-fired power stations generated electricity, not all the costs were included in the
bills consumers paid. There was no charge for the atmosphere, for the greenhouse
gases or for the fallout on neighbours.11 With nuclear energy, will the same attitudes
prevail? Will the costs of safe disposal of radioactive waste be reflected in the cost of
electricity? There are no free lunches: someone has to pick up the bill, and it really
should be the user. The true costs, including the environmental costs, of doing
business should be reflected in the price of the goods and services produced. Prices
should include a component for social costs and not just the private costswages,
raw materials, taxes, interest charges and rentsof production. Then we could make
informed economic choices about whether we could really afford some products and
whether we would be prepared to live well at the expense of others in the present
and perhaps in the future. If it is not to be the user who pays, we must recognise that
someone must. Where and upon whom those costs fall is a question of justice.
The care of the environment, then, is a matter of ethics, even if not all environmental issues raise ethical questions. Still, we need to be clear about the nature of
environmental ethics. To whom is business ethically accountable for environmental
decisions? To nature or to humanity? To future generations? Answers to these questions divide into two broad groups: the humanistic and the naturalistic.

The first kind of answer is that the environment is an ethical matter because without
a clean environment, human health will be harmed; and without a natural world
with a diversity of species, human life will be diminished. Similarly, without a stock
of non-renewable resources for future generations, their life will have less quality than
our own. This is the anthropocentric or humanistic argument. It is clear that chemical
companies that pollute streams and bays with mercury have a direct influence on the
food chain, which can lead to ill-health in humans. Factories that pollute the air can
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cause respiratory problems in young children and elderly people. When business
pollutes, there is a cost to be paid, whether it be financial, in health or in amenity.
This payment is a subsidy from the person who pays it to the business, and such an
imposition is unfair. Such instances of environmental free-riding have been relatively
common, and illustrate the anthropocentric argument about environmental ethics.
William Blackstone argues that everyone has a right to a liveable environment
and that therefore others have an obligation to allow the free enjoyment of this
right.12 A person cannot flourish or develop potentials without an environment that
provides clean air and water, natural beauty, and so on. The right to these overrides considerations of property and economic development. This argument is an
extension of Immanuel Kants requirement to treat people with respect. If respect for
persons entails respect for those things that are necessary for their well-being, then
we must respect nature.
The difficulty with Blackstones position is that it does not tell us how we are
to live and still respect nature. If we do not use the resources of the earth, then
we might also be showing a lack of respect to persons who, as a result, will live a
diminished life. There has to be a compromise.
The problem lies in brokering a compromise between the green movement
and business and industry. Ultimately, economics bites, but if compromise means
waiting until either the environment is degraded or industry shuts down, then the
outcome is more in the nature of an accident than a decision. A clear instance of
this is the gradation of difficulties attending the introduction of a carbon emissions
trading scheme (ETS) in Australia. The government wanted to cut carbon emissions
by between 5 and 15 per cent in the period 201020. Many in business thought it
would be a bad idea unless other countriesparticularly Chinaalso signed up
to ETS provisions because Australias emissions are such a small percentage of the
total that we would impoverish ourselves for no appreciable result. Some CSIRO
scientists, on the other hand, thought the governments proposals did not go far
enough in reducing emissions. Then, with the global financial crisis, the pressure
to defer the introduction of an emissions trading scheme became too great and the
government delayed its introduction until mid 2011.13 The Greens offered support to
the governmentby reducing their demand for carbon emissions from 40 to 25 per
cent. Such is the difficulty of getting anything like agreement on this policy.14

The second kind of answer is that nature has intrinsic value. As but one part of
nature, humans have no dominion over it, no unqualified right to harm or extinguish
the lives of plants and animals or to destroy the ecosystems that support them. The
right to exploit the resources of the planet is qualified by the gravity of reasons
that support the inherent right of nature to our respect. With the worlds population
growing alarmingly and placing demands on non-renewable resources as all

nations seek a share of the developed worlds lifestyle, the problems of resource
and pollution management are now critical. But environmental ethicists want more
than protection for economically valuable and life-sustaining resources. They want
respect for the natural world, an ecological or naturalistic ethic.
Michael Hoffman, for example, believes that placing a humanistic value on the
environment provides no protection in the long run. If business is convinced of the
slogan that good environmental ethics is good business, then protection of the environment comes to depend on the profitability of responsible practices. It is the same
potentially misleading promise of the parallel slogan that good ethics is good business: there is the suggestion that an ethical position is just one more way to make a
profit. It would follow that if environmental irresponsibility were better business, then
one ought to take that positiongood business being the relevant standard for all
policy. But neither ethics nor environmental care is cost free. According to Hoffman,
it is important that the natural world is valued for the right reason, and that involves
according the environment the kind of intrinsic respect we give to human beings.15
A number of writers, led by Peter Singer, have argued that as sentient beings,
animals have interests that deserve consideration by humans. To disregard those
interests is speciesism, an analogy with racism. Speciesism is a prejudice or attitude
of bias in favour of the interests of ones own species and against those of members
of other species.16 Of course, the problem here is that racism is unjust discrimination
within a species, whereas speciesism is one species making use of another. It is
a genuine question whether the term discrimination can be used in relation to
the way that humans treat animals. To deny equal consideration to people on the
grounds of irrelevant differences such as ethnicity or skin colour is discrimination
precisely because we all belong to the same species. To deny equal consideration
to animals on the grounds that they are not human is not so obviously unjust. Singer
argues that because animals can suffer and feel pleasure, it is unwarranted to give
consideration to humans at the expense of the pain (and pleasure?) of animals. He
does not require that animals be treated equally with humans, just that their interests
should receive equal consideration. How one gives equal consideration without
giving equal treatment is not clear. Singer nonetheless makes an important point
about the intrinsic value of animals: if they are the kind of beings that can suffer and
feel pleasure, then our attitudes to them are not the only things that count morally.
Cruelty is reprehensible whether inflicted on humans or animals. Almost five hundred
years ago, Thomas More condemned the widely accepted sport of hunting:
[I]f you want to see a living creature torn apart under your eyes, then the whole thing
is wrong. You ought to feel nothing but pity when you see the hare fleeing from the
hound, the weak creature tormented by the stronger Taking such relish in the sight
of death, even if only of beasts, reveals a cruel disposition.17
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The case for respecting animals and their habitats is easier to make than that for
inanimate nature. Humanity is enriched by animals.18 Domestic pets and animals
in the wild are loved and valued, even by meat eaters, graziers and poultry farmers, just as forests and gardens are loved by wheat farmers and rice growers. The
world is a lesser place when it loses a species of plant or animal. But do we weep
for such losses? And what of inanimate nature? What intrinsic rights does nature
have? Most of the universe is cold, dark and lifeless. Should these desolate places
count ethically?
Imagine that we could conduct an experiment that would reveal some fundamental facts about the universe. This experiment would be very dramatic but completely
safe to humans. It would involve crashing one of the moons of Jupiter into the surface
of the planet. What reasons could there be against such an experiment? Would it
matter that Jupiter had one less moon? Would we even need to justify this experiment
in terms of the value of the knowledge to be gained? In what possible ways could this
experiment be unjustifiable? Imagine another scenario much closer to home. Say we
have devised a way to produce electricity that is a cheap and safe replacement for
fossil fuel generators. It will save hugely on carbon dioxide emissions, but alas will
produce a large quantity of nuclear waste if it is widely adopted. Thankfully, we can
solve the waste problem through using the latest generation of space vehicles to ferry
the waste to the moon. This should not be a problem because the waste dumps will
be on the dark side of the moon, and not visible to Earth. What possible objection
could there be to such a plan? We could dispose of our waste on an uninhabitable
space object and forget all about it. As it is, tonnes of debris fall every year on the
moon, so adding a bit more from Earth will not matter.
An appeal to intrinsic value might cause us to pause before destroying Jupiters
moon or dumping on ours. But how can we justify such a valuation? Is it just an
appeal to the strength of our preferences that makes us claim intrinsic value? Is it
not rather that what is valuable is what we value? If we were dealing with animals,
we might appeal to Singers argument and the extension of regard for animal life
to the protection of the habitat on which animals depend. In short, appealing to
the intrinsic worth of inanimate nature only seems to work with people who share
ones appreciation of nature. Or does it? If a person defaced a work by Rembrandt
or Picasso, would we not be shocked and saddened? When the Taliban destroyed
Buddhist statues with dynamite in Afghanistan, were not all decent people horrified?
One does not have to be an art lover or a Buddhist to be appalled by vandalism and
wanton destruction, just as one does not have to be an animal rights campaigner to
react to cruelty to animals. We can understand barbarity and appreciate that a good
is being destroyed even if we do not participate in the full meaning of that good.
That is how it is with the moons of Jupiter and with our moon. We do not destroy
the environment wantonly and should not cause major disturbances without the
strongest reasons for doing so. There is a good even in the things we do not see, and
the life of humans is diminished when species, habitats and even cold and lifeless
rocks in space are the victims of rapacity. We should not deface our heritage, but
enhance it for transmission to future generations.
Growth
An ethically responsible policy towards the environment must deal with the problem
of growth. There are strong arguments that the earth cannot sustain present growth
patterns, let alone extend them to cover more of the worlds growing population.
Affluence is the problem.19 Yet, in times of recession, growth is the watchword of
those seeking employment and profits. Whether we must have economic growth
or can develop a sustainable steady-state economy are questions that cannot be
answered by an ethicist. One can simply take note of the increasing demand on
fossil fuels and the polluting effects these will continue to have unless curbed; and
of the increasing demands of expanding economies in China and South-East Asia
and the pressure these will place on known energy reserves and arable land. It
hardly makes sense to talk of globalisation in business and restrict this to profits
and growth. Collateral effects such as rising expectations, limited resources and
pollution must also be considered. Moreover, we should not take the solutions of
conventional economists at face value. Growth statistics do not tell us much except
the size of the economy. Although Australia increased its gross national product
by about 30 per cent in the 1980s, poverty doubled, unemployment trebled and
real wages fell. Public infrastructure declined as railway services were cut back,
hospital waiting lists increased and the gap between rich and poor widened. Growth
benefited relatively few. The same is true of the United States, which on one index of
economic well-being that takes account of social and environmental factors had, by
2008, become worse off after years of economic growth. 20
No generation has an unfettered right to use the worlds resources for its own advantage without regard for the fate of future generations. Because this possibility exists, it
is something that must concern business, not only in a strategic sense but ethically.
But why should we assume responsibilities that no other generation has had to
assume? Why is there a moral obligation here? John Rawls argues that we should
adopt a just savings principle or an understanding between generations to carry
their fair share of the burden of realizing and preserving a just society.21 Each
generation should preserve the social and economic gains it has received, and put
aside for the next generations what it would consider fair to have received from its
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predecessor.22 We should leave the world in no worse a state than we found it. After
all, that is what we should be grateful for from our parents. This has implications
for the use of non-renewable resources and energy, the production of waste and
pollution, and the release of potentially harmful substances into the environment.23
The following case illustrates some of these issues.
CASE 8.1: Carson and DDT

Rachel Carson achieved enduring fame for her classic study of the effects of the
miracle pesticide, DDT, on the environment. That work, Silent Spring, was published
in 1962, and had such an impact that DDT was progressively banned around the
world. One of Carsons main allegations against DDT was that when it entered the
human food chain it was carcinogenic. These claims gained wide currency, and
many scientists backed the banning of DDT. The problem is that the claims were
not supported by evidence, and there has been in consequence a backlash against
Carson. The main charge of the critics is that the banning of DDT allowed mosquitos
bearing the malaria parasite to spread unchecked. Had DDT been available, the
health and lives of millions of people could have been spared.24
Michael Crichton, author of Jurassic Park, was one of Carsons critics. He
attacked the environmental movement for being quasi-religious (working from faith,
ideology and passion) rather than empirical (getting the data and interpreting them
scientifically). According to Crichton, only genuine scientists are in a position to
make sound judgments about environmental policy. Proper policy debates are not
possible with people who will not accept facts. You cannot talk somebody out of a
religious position, asserted Crichton, and that is exactly the position knowledgeable
people find themselves in when confronted with the unshakeable beliefs of
ideological environmentalists.
I can tell you that DDT is not a carcinogen and did not cause birds to die and
should never have been banned. I can tell you that the people who banned it knew
that it wasnt carcinogenic and banned it anyway. I can tell you that the DDT ban
has caused the deaths of tens of millions of poor people, mostly children, whose
deaths are directly attributable to a callous, technologically advanced western
society that promoted the new cause of environmentalism by pushing a fantasy
about a pesticide, and thus irrevocably harmed the third world. Banning DDT is one
of the most disgraceful episodes in the twentieth century history of America.
I can tell you that second hand smoke is not a health hazard to anyone
and never was, and the EPA has always known it. I can tell you that the evidence
for global warming is far weaker than its proponents would ever admit. I can tell
you the percentage of the US land area that is taken by urbanization, including
cities and roads, is 5%. I can tell you that the Sahara desert is shrinking, and
the total ice of Antarctica is increasing. I can tell you that a blue-ribbon panel in
Science magazine concluded that there is no known technology that will enable
us to halt the rise of carbon dioxide in the 21st century.25
case
questions
Criticisms like these point to a difficulty for business:

1 Should environmental responsibility take the form of specific responses to
problems or should it be a commitment to a belief system or ideology?
2 Does business have to subscribe to a package of environmental beliefs in order,
say, to reduce waste or to ensure a safe workplace?
It is clear that some environmental groups want nothing less than fundamental
social and economic change, and that is a difficult proposition for business to support. This concern is not misplaced. Even reputable green groups make mistakes,
and sometimes those mistakes arise from zealotry. The following case shows what
can happen.
CASE 8.2: Shell and Greenpeace

Greenpeace and other environmental groups organised a campaign against Shell
over the disposal of its obsolete Brent Spar oil rig. The campaign included boycotts
of Shell petrol, demonstrations and publicity offensives. The problem was that
Greenpeace was wrong. They mistakenly believed that Brent Spar contained 5000
gallons of waste oil and protested against its disposal in the North Sea. In the face
of sustained public opposition generated by the environmentalists, Shell decided
to move the rig to Norway for break-up and disposal. This proved to be not only a
more expensive, but also a more environmentally hazardous option.
This incident could be instanced as an example of the dangers of knee-jerk

responses made on the basis of ideology rather than factsthe kind of reaction
that Crichton warned against. It could be seen as an opportunity for a corporation
with less than satisfactory systems to change them. Shell did so by changing to triple
bottom line reporting, aligning its business principles with social and environmental
objectives,26 and thereby projecting a strong image as an ethical and responsible
corporation. In 2001, Shell was joint winner of the British Social Reporting Award
for its 1999 Report.27
While the demand for better scientific evidence in environmental decisions,
standards and policies is reasonable in theory, in practice it can take a very long
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time to produce and interpret such evidence. In cases like the Brent Spar, a less
emotional atmosphere in discussing the issues might have produced a more
satisfactory environmental outcome. The evidence should have prevailed. Not all
environmental issues, however, are like this. In somethe impact of mining on an
environment, the planting of genetically modified crops or the effect of farming
on atmospheric conditionsthe evidence takes a long time to accumulate and be
analysed, and by then irreversible damage might have been done. Herein lies the
lasting value of Carsons warnings.

In 1992, the United Nations held a Conference on Environment and Development in
Rio. One of the resolutions contained in the Rio Declaration stated,
In order to protect the environment, the precautionary approach shall be widely
applied by States according to their capabilities. Where there are threats of serious or
irreversible damage, lack of full scientific certainty shall not be used as a reason for
postponing cost-effective measures to prevent environmental degradation. 28
What is the precautionary principle? The widely quoted Wingspread Statement,

drafted in 1998, puts it like this:
Where an activity raises threats of harm to the environment or human health, precautionary measures should be taken even if some cause and effect relationships are
not fully established scientifically.29
The precautionary principle asks business to scan the horizon, and even to look
over it for the unintended harms that might come from its activities. The absence
of clearly established scientific proof has often prevented environmental concerns
from being taken seriously, and the precautionary principle reverses the burden so
that it falls on those who wish to engage in potentially harmful activities.
In essence, the precautionary principle provides a rationale for taking action against
a practice or substance in the absence of scientific certainty rather than continuing
the suspect practice while it is under study, or without study. 30
This is a higher standard than the law in environmental matters. The precautionary
principle should be a check on rashness, but reversing the onus of responsibility is
not a universal remedy in environmental controversies. Think of the example of DDT:
it might have seemed precautionary to ban it, but it was simply wrong to continue
that ban when the evidence did not show that it caused cancer and suggested that
it might be used without wholesale environmental damage.
The precautionary principle operates in areas where such evidence is absent, but
there are real concerns about harm. It is meant to serve as a restraint where there is
concern, but no causation exists. An activity might not be known to damage health,
but one might reconsider it or restrict it until concerns are allayed. This kind of thinking
is really common sense, but it has been elevated to the status of a principle because
those who oppose it ask for scientific proof. Such proof cannot always be produced,
so the precautionary principle is now invoked to change the onus of responsibility,
and sometimes provocatively: prove that the activity is not dangerous! The principle
could, however, be usefully extended. It could prompt corporations to ask the following questions. What could go wrong? What systems do we need to ensure that
the risk of things going wrong is minimised? What would we do if something did
go wrong? What back-up facilities and safe exits should we build into this project?
Space engineers have learnt about safe exits from incidents like the Challenger and
Columbia shuttle disasters, but business needs to think of exit strategies for the public
and the environmentnot for managers and directorsshould a system fail.
The precautionary principle is not cost free and can bring about its own unintended consequences. One critical supporter argues that its widespread introduction
would have costs beginning with the introduction and implementation of regulations,
then impact on productivity, wages and prices, and end up diverting money available
for other public health priorities.31 In other words, application of the precautionary
principle might end up harming health more than protecting it. That is what might
have happened had the precautionary principle been applied to the banning of
DDT. As it was, that pesticide was banned on the basis of scientific evidence, but the
case illustrates that one cost of applying the precautionary principle could be the
loss of a health-protecting chemical. Just as some toxins reveal themselves only in
cumulative effects, so the removal of a useful substance as a precautionary measure
can have long-term deleterious effects.
The precautionary principle changes the default position. Instead of requiring a
business to determine an acceptable level of risk, it asks whether risky action can
be avoided. It encourages the asking of questions from a broader social perspective.
While a development such as genetic modification of foods might present a business
opportunity, application of the precautionary principle would pose the question
of whether there might not be other ways of making a profit in the food industry.
The precautionary principle is an amber light to technology. It warns of a stoppage,
whereas a risk assessment weighs the odds of getting through an intersection
before the red. Risk assessment can sometimes resemble a green light rather than
an amberproceed with caution. If a new technology has the potential to harm,
it is better to re-examine its use rather than to wait and see if the harm eventuates.
Genetically modified crops and animals are obvious candidates for the application
of the precautionary principle.
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Waste or fertiliser
What happens to the waste material of steel mills, power stations, aluminium smelters
and concrete kilns? Some of it is sold to farmers as fertiliser. It finds a ready market
because it sells for much less than traditional fertilisers. The problem is that these
products of industrial waste are not tested by agricultural authorities. Their benefits
might be short term, and they might even be potentially harmful. The slag from
steel mills, for example, contains heavy metals such as chromium, lead and arsenic.
There are few laws in Australia against labelling such wastes as fertiliser and they
can even be legally labelled as organic. Even where regulation prevents the sale of
waste as fertiliser it can still be sold as soil conditioner.32 This discovery was shocking
to Australians, but the disposal of industrial waste as fertiliser has been occurring
in the even less-regulated markets of the USA for years. According to the president
of one waste recycler, When it goes into our silo, its a hazardous waste. When it
comes out of the silo, its no longer regulated. The exact same material. Dont ask me
why. Thats the wisdom of the EPA.33
Clearly the precautionary principle indicates that this is an area that should be
more extensively regulated, but if the precautionary principle were applied by the
suppliers, they would do their own testing. The question is complicated in this case
because producers, like BHP, are not the suppliers. BHP has professed ignorance
of the fate of their slag, which is marketed by Australian Steel Mill Services. The
latter disposes of the material to farmers and there is no deception about its source.
Does this absolve BHP of any responsibility to ensure the safe disposal of its waste?
Considering the potential costs to BHP Billitons reputation (Australian Steel Mill
Services does not enjoy the same profile) if toxins were to enter the food chain,
the precautionary principle could work to the advantage both of producer and the
public here.
The following cases illustrate these issues.
CASE 8.3: Woolworths Super petrol

When Woolworths began to sell petrol, it imported gasoline containing MTBE (methyl
tertiary butyl ether), an additive not used by Australian refiners. MTBE is toxic and
has been banned in Western Australia and Queensland. The Federal Government
followed suit in 2004. Australian refiners do not use MTBE, but according to
Woolworths, this additive has many properties that make it useful in petrol for
technical and environmental reasons.
Conservationists have criticised the use of MTBE, alleging that it poses a threat
to ground water. Let us say that the scientific verdict on the risks of small levels of
MTBE is not in. Would not a cautious approach have indicated that it was unwise
to import petrol with this additive? After all, MTBE was going to be discontinued
in any case. Woolworths had to argue after the event that an additive banned by
governments was a risk worth taking. And, because neither Woolworths nor Coles,
Australias two leading supermarket chains, has initiated environmental policies to
match those of United Kingdom and French retailers, there was no record of public
concern to which Woolworths might have appealed.
If the scientific evidence eventually supports the conservationist case, then

Woolworths has stored up a problem for itself in the future.34
CASE 8.4: Alcoa emissions

In 1996, Alcoa commissioned a refining incinerator, called a liquor burner, at its
plant at Wagerup in Western Australia in order to improve productivity and cut
costs. This device burnt impurities from aluminium ore but emitted a cocktail of
noxious fumes containing benzine, xylene, toluene and naphthalene.35 Workers and
local residents began to complain about the stink and then about sudden illnesses,
unprecedented allergies, increased sensitivity to chemicals and pitted enamel on
cars. Animals began developing unusual diseases. When Alcoas new publicist,
recruited to improve the companys image, complained about the fumes, she was
issued with a respiratorto wear in her office.36
Alcoa has since bought properties around its plant and had to face inquiries and
audits. A precautionary approach would have obviated much of this. Alcoa always
knew that there would be some negative reaction to the liquor burner, but it was too
sanguine about its own measures. A useful device in this situation would have been
to have an environmental devils advocate to put the case against the liquor burner
and to challenge the responses of the firm to potential complaints. Alcoa did bring
in its chief medical officer from the USA, Professor Mark Cullen of Yale University.
Cullen found minimal risk of illness due to the plant. If I had any other view I would
recommend the immediate closure of the facilityin line with Alcoa values, he is
reported as saying.37 Fine, but it is not unknown for corporations to bring in their
own experts to counter public concerns by creating uncertainty. In this case the
uncertainty was rapidly dispelled and precaution was overtaken by prevention.
In the wake of complaints, the state minister for the environment required Alcoa
to install modifications to its plant, including special gas-fired burners, and higher
stacks to disperse pollutants. She also required an independent audit of Alcoas
environmental management systems, and the upper house of the Western Australian
Parliament instituted its own inquiry in 2001.38
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Even before extensive investigations and modifications became necessary, Alcoa

could have taken a precautionary posture. Andrew Harper, Fellow of the Faculty of
Occupational Medicine, told the Western Australian parliamentary inquiry that The
level of a given chemical may well be below the safety level defined by government
standards, but when the chemical is mixed with others in the body it can be toxic. 39
Given the nature of the toxins emittedeven in small dosesfrom the Alcoa plant,
there was a reason for the corporation to be cautious. At the very least, the company
should have been conscious that in seeking to cut the costs of aluminium production, it was imposing social costs on the residents of Wagerup, many of whom were
also its employees. Why did not the social costs of installing the liquor burner rank
as highly as the economic ones? A more prudent and environmentally proactive
course of action might have satisfied the demand to make a profit and the obligation
to do so without harming the welfare of the town or its environment.
Voluntary action
Ethics is quite often the realm of the voluntary. Ethics sets higher standards than the
law. The perennial problem for responsible businesses that meet ethical requirements is that less responsible competitors will take the opportunity to enlarge their
market share. Christine Parker has argued that deterrence alone cannot explain
corporate adoption of environmentally responsible policies. Usually such policies
emerge from the context of crisis and the threat or actuality of harm to the corporation. But beyond enforcement and deterrence, Parker shows that management
engages with environmental policy for a variety of reasons. An example of such
engagement is the Green Challenge.40
Facing moves to recommend a carbon tax at the 1995 Berlin conference on climate
change, corporations and industry associations devised the Green Challenge.41 The
Australian Government agreed to the Challenge as an alternative to the tax and began
a partnership program to lower greenhouse gas emissions in 1996. Membership of the
Challenge is entirely voluntary, but the performance of members is audited. Action
that could potentially harm the interests of any one business becomes viable if it is
collaborative. Collaboration can forestall government action and exert pressure on
other businesses to self-regulate.
Another example of Australian business voluntarily taking on environmental
responsibilities is found in subscription to the International Organization for Standardizations 14,001 environmental management systems standards. By January 2002,
1173 Australian companies had signed up.42 Japan ranked first, with 8169 signatories,
then Germany, the United Kingdom, Sweden and Spain. The USA is just ahead of
Australia, which occupies seventh position. This indicates that, at least by international
standards, Australian business is well disposed to adopt environmental standards.
A further indication of this is the rate of voluntary compliance with what has
become the global standard in environmental reporting. In the late 1990s, John
Elkington coined the term triple bottom line reporting to indicate that the social
and environmental aspects of a corporations operations were as important as the
economic ones.43 The idea joins corporate social responsibility with profits. One of
the ways in which this reporting has been promoted is through the Global Reporting
Initiative (GRI) begun in 1997 by the Coalition for Environmentally Responsible
Economies (CERES), but now a separate organisation. The object of the GRI is to
promote the Sustainability Reporting Guidelines on the economic, environmental
and social dimensions of business activities, which it does in collaboration with the
United Nations. By 2009, more than 1500 companies had adopted the Guidelines,
which are now in their third iteration (G3). The GRI claims that the G3 Guidelines
have become the de facto global standard for reporting.44 None of this should
suggest that regulation is now superfluous, but, as Parker suggests, compliance is
more complicated than threatening corporations with penalties.

Business attitudes have changed over the past few decades and it would be incorrect
to characterise them as hostile to the environment or even as defensive. These
changes, however, have generally come as a result of crises. One of the best-known
examples of a proactive stand on environmental protection by business is the work of
a coalition of concerned investors, environmentalists, religious groups and pension
trustees called the Coalition for Environmentally Responsible Economies (CERES),
which produced the CERES Principles (formerly called the Valdez Principles after
the environmental disaster that took place when the Exxon Valdez ran aground in
King William Sound, Alaska, in 1989).45, 46
The CERES Principles attempt to extend environmentally responsible business
practices across the globe and across all kinds and sizes of business. The scope
of the principles is broad, covering environmental protection, conservation, waste
reduction, risk reduction and public accountability. Although the Principles seem to
add to an ever-increasing list of standards, experience has shown that if business is
unprepared to regulate its own operations, government agencies are not reluctant
to regulate for them. So, for all the difficulties of adopting standards like the CERES
Principles, there are incentives for large corporations at least to support them and
use them credibly.
There are ten principles:
1 Protection of the biosphere: provides for the elimination of pollution, protection
of habitats and the ozone layer, and the minimisation of smog, acid rain and
greenhouse gases.
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2 Sustainable use of natural resources: commits signatories to conservation of

non-renewable resources, the responsible use of renewable resources and the
protection of wilderness and biodiversity.
3 Reduction and disposal of waste: obliges signatories to minimise waste, to dispose
of it responsibly and to recycle wherever possible.
4 Energy conservation: commits signatories to conserve energy and use it more
efficiently.
5 Risk reduction: provides for minimising health and safety risks to employees and
the public by using safe practices and being prepared for emergencies.
6 Safe products and services: seeks protection of consumers and the environment
by making products safe and providing information about their impact on the
environment.
7 Environmental restoration: accepts responsibility for repair of environmental
damage and compensation to those affected.
8 Informing the public: obliges management to disclose to employees and the
public information about environmentally harmful incidents. It also protects
employees who blow the whistle about environmental or health hazards in their
employment.
9 Management commitment: commits signatories to provide resources to implement
and monitor the Principles. This also means that the CEO and the companys board
will be kept abreast of environmental aspects of the companys operations. The
selection of directors will give consideration to commitment to the environment.
10 Audits and reports: commits signatories to an annual assessment of compliance
with the principles that it will make public.

The Australian government is committed to the development of policies of ecologically sustainable development,47 as set out in the report of the World Commission
on Environment and Development (the Brundtland Report).48 The report argues that
economic development and ecological responsibility are complementary rather
than contrary.
The Australian approach to developing policy has been sectoral, with working
groups producing reports on agriculture, energy, fisheries, forests, manufacturing,
mining, tourism and transport. Each sector of industry has its own needs and appropriate methods of enhancing environmental protection. The Intersectoral Issues
Report stated, Ecologically sustainable development can in many respects only
provide a starting point what constitutes sustainable development in a specific
context can often only be determined in that context.49 Ecologically sustainable
development, then, is difficult to define closely, and not readily specified in terms of
pre-cast criteria.
The Brundtland Report defines ecologically sustainable development as development that meets the needs of the present without compromising the ability of
future generations to meet their own needs. Ecologically sustainable development
attempts to integrate economic, social and ecological criteria, and to balance present
economic and social goals and the just-savings principle. In other words, ecologically sustainable development tries to get some perspective on the just requirements
of future generations while paying regard to the demands of equity in the present.
Of course, the issue facing our heirs might not be the degree of comfort available
to them on a planet with depleted resources, but survival itself. In resolving the
inevitable clashes that will occur in distributing equitably for the present and saving
adequately for the future, the issue of survival should indeed be kept in mind.
Despite the Business Council of Australias endorsement of ecologically sustainable development, implementation faces obstacles. People are unwilling to begin
paying for the environmental subsidies they are accustomed to receiving.50 As already
noted, someone, even if not the ostensible user, is paying these costs. An example
might be the use of lead in petrol. When the government put a surcharge on leaded
petrol there was an outcry from the welfare lobby in particular. They argued that less
well-off people had older cars and so would be paying more than those people who
were better off. This violated equity, they said. But someone was already subsidising
those using leaded petrol, and that someone was not just the environment polluted
with lead; it was children with high lead concentrations in their bodies.
Resistance to measures for intergenerational equity, such as an economic rent
on petroleum, could also be anticipated. Proceeds from rents for non-renewable
resources could be invested to provide a continuous stream of income and this
is equivalent to holding the stock of that capital constant.51 Obtaining public and
business support for such a measure is another matter.
Policies of recycling at all cost can ultimately lead to the exporting of rubbish, and
in the face of low demand this means paying for rubbish to go offshorean increasing
practice condemned by green activists. In Australia, Williams writes, the requirement
to recycle rather than incinerate can only result in the pressure on landfill being
maintained. A week after this warning, Recyclers Australia sacked twenty workers and refused further waste paper after continuing international price collapses.
American and European waste had flooded the market and driven the price down.
At Australian Paper Mills, recycling manager John Davis said that successful recycling
campaigns had resulted in an oversupply of old newspapers. Although the collection,
baling and shipment overseas of old newsprint cost $75 a tonne, Australian Paper
Mills can only get $20 a tonne for it. We cant continue to recycle unless we have a
market for the product or someone is willing to pay for it, said Davis.52
The problem of recycling waste seems again to be one of perplexity with a
moral aspect. If the problem was not generated, then remedies would not be
necessary. Recycling massive amounts of waste material shifts the problem rather
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than addressing it. Treating the symptoms rather than the causes will eventually
be unsustainable. The prudential and ethical obligation is not primarily to dispose
of waste responsiblya difficult task when waste continues to be produced on
a massive scalebut to avoid producing it in the first place. Whatever theory of
environmental protection you might subscribe to, the fundamental responsibility is
to use resources responsibly and avoid using industrial waste disposalincluding
recyclingwhere possible. The case of Ok Tedi takes us back to the kind of issues
we saw first with Orica. This case, like the earlier ones, also illustrates the immense
financial and reputational costs to corporations of persisting in a course of action
often with governmental approvalthat is inevitably calamitous. Like the other
cases, Ok Tedi is a classic illustration of poor decision-making that had large-scale
repercussions for core stakeholders, and for the commercial well-being of one of the
worlds major mining corporations.
CASE 8.5: BHP and Ok Tedi

In the early 1980s, BHP (now BHP Billiton) with its partners, the Papua New Guinea
(PNG) government and the Canadian Inmet Mining Corporation, formed Ok Tedi
Mining Limited (OTML). OTML sought to develop a huge copper and gold lode,
but the project was fraught with problems from the beginning. These ranged from
difficulties with venture partners, to strikes, droughts and landslides. The ore
deposits are situated on Mount Fuliban in the Star Mountains near the border with
West Papua. This area is geologically unstable. Drenched by 10 metres of rainfall a
year, it is subject to powerful erosion, which carries sediment into the Ok Tedi River,
thence into the Fly River, and the Gulf of Papua.
During construction of a tailings dam for the Ok Tedi mine in 198384, the
foundations collapsed and an investment of $70 million was washed into the river
system. This set the scene for all the ensuing problems for BHP and the Ok Tedi
peoples. In brief, the mine was developed without a tailings dam, and tailings were
thenceforth released into the Ok Tedi River. The result was that the Ok Tedi and
Fly rivers were seriously contaminated. Much of the Ok Tedi became unusable, and
people who relied on the river for water and fishing could no longer do so.
While a safe tailings dam could not be constructed initially, BHP insisted that it
would continue searching for a way to manage the problemincluding construction
of a dam. BHP did not cease its mining operations in light of this. Its investment
in the project was too great. OTML did employ about forty environmental officers
who reported to the PNG government and were audited by independent scientists.
Despite these measures, local landowners called the OTML operations at Ok
Tedi a disaster and lobbied for the Australian government to introduce a code of
conduct for Australian mining companies operating abroad.53
In May 1994, they launched a $4 billion action against BHP in the Victorian
Supreme Court. Two billion dollars were sought for exemplary damages and the
building of a tailings dam, and another $2 billion in compensation. An injunction
against further mining until a dam was constructed was also sought. The reaction
of the PNG government was immediately hostile. In repeated statements, Prime
Minister Wingti warned of the damage that such actions could do to overseas
investment confidence in his country. He stressed the importance of dealing with
such legal issues inside PNG, not through foreign courts. The Ok Tedi matter
is a matter taking place in PNG and we are going to make it so we handle this
within our own country under our own laws, he said shortly after the action was
launched.54 This determination to deal with such actions within his own country led
Wingti to consult with BHP over the preparation of legislation to secure a favourable
outcome. By the time the legislation was introduced into parliament in December
1995, it had caused a public relations nightmare for BHP and produced its own
legal difficulties.
The combined BHP/PNG government case

In order to make any judgment about the issues involved here, it is necessary to
place OTMLs mining in context. Each year (drought years excluded) rainfall washes
over 90 million tonnes of sediment into the Fly River. Mining has added another
40 million tonnes to this, which is mainly deposited over a 20-kilometre stretch of
the 1000 kilometre Fly River. The company, however, has forecast that, by the time
mining is completed in 2010, this sediment will be washed to the sea by the large
volumes of water from the catchment. BHP claimed that the main problem is the
amount of sediment, not its toxicity, and has produced evidence to show that the
copper levels of fish in the Fly River are lower than in metropolitan Sydney.
The Ok Tedi mine is the largest enterprise in PNG, contributes about 20 per
cent of the countrys export income and has provided employment for thousands
of local people. Since it commenced operations, benefits from the Ok Tedi mine
have included the investment of $300 million in infrastructure, including roads,
power, water, communications, schools and medical facilities; the education and
training of over 1500 workers; a decline in infant mortality rates from around 33
per cent to less than 3 per cent; generally improved health, with a dramatic decline
in malaria infections and an increase in the average life span from 30 to 50 years;
and greatly expanded educational opportunities for children. Apart from voluntary
compensation initiated by BHP for disturbance of traditional ways of life among
the Western Province peoples, a trust fund has been established for community
development in areas such as school buildings and small business assistance. By
the time mining has concluded, this trust fund is expected to total $80 million.
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BHP summed up its position in these terms:
BHP is proud of what has been achieved at Ok Tedi but recognises the difficulties
the mine has created due to its environmental impact and its effects on the
lifestyles of some of the people living along the river. The Company would very
much like to find a better solution to the problem it confronts. Closing the mine
is not an optionit is too important to the economic and social welfare of
Papua New Guinea and is not advocated by any but a small number of people in
case
questions
the region.55
1 What is the ethical issue here? This is an important question. Is it the

despoliation of the environment?
2 Why is mining in PNG an ethical issue when mining in Australia is not?
3 Are tailings in the Fly River the main issue? If so, how should this ethical obstacle
be explained? Under what circumstances could the obstacle be overcome, or
is it absolute? Does the issue arise because local residents have had their
lifestyle changed or destroyed? Why is this a problem if the nation as a whole
benefits from the mining? Is it because these particular stakeholders were
insufficiently compensated?
4 Simon Longstaff of the St James Ethics Centre has suggested that the ethical
question is one of a foreign firm driving the government of a developing nation
along the path to profits. In other words, there is a power inequality between
BHP and the government of PNG, and this power differential raises an ethical
difficulty. Do you agree that this is the central ethical question here?56
Geoffrey Barker of the Australian Financial Review, a journalist who takes an

interest in ethics, identifies three ethical questions related to the Ok Tedi affair:
1
Should companies be able to do abroad what they cannot do at home? Should

there be universal standards for environmental protection? Should global consistency be demanded of firms like BHP?
What is the proper relationship between multinational firms and the governments
of poor countries desperate for development and foreign exchange? More precisely, how closely should firms be involved in drafting the regulatory frameworks
in which they are to operate?
If local villagers are to suffer losses for wider national gains, should they be
consulted by incoming firms? This raises fundamental issues of autonomy and
justice: how much notice should firms take of villagers desires to preserve
traditional lifestyles if national governments are eager for development? On what
basis should compensation be paid for environmental and other losses? 57
In June 1996, BHP agreed to a $400 million out-of-court settlement for the landholders, which included $110 million in compensation, $40 million to relocate ten
villages and $7.6 million in legal expenses. BHP also agreed to sell 10 per cent of
OTML to the PNG government for the benefit of local communities. BHP did not
undertake to build a tailings dam, but did promise to look at all feasible options for
tailings containment. The mine pumps 80,000 tonnes of tailings into the biologically
dead Ok Tedi and Fly rivers every day.
1 If BHP had offered such a package before they commenced mining, would the
ethical issues identified by Barker have been avoided?
Consider the second and third of Barkers questions.

2 Say the PNG government and BHP had been at arms length during all negotiations about the mine. And suppose that BHP had consulted local villagers and
obtained their consent to mining on terms identical to those that applied later.
Would the Ok Tedi operation then have been ethically trouble-free? If you believe
not, then consider this: what amount of compensation would have removed
ethical obstacles to the mine?
BHP and the PNG government were not at arms length. They were partners,
and one of the partners (the government) was, among other things, responsible for
regulation of the other.
3 Is there an issue here of conflict of interest? Are there other ethical concerns
that arise in virtue of the partnership?
A government has responsibilities to its people as a whole, but also to each of

its people individually. It has responsibilities to sustain the economy and attract
productive investment, but it also must protect its environmental heritage. As a
partner in OTML, the PNG government was in a position that made it difficult to
discharge its responsibilities. Consider the ethics of the situation in PNG.
These questions pursue only two of the questions asked by Barker. Let us move
to his question about standards of environmental protection. Is the central issue here
whether the standards of BHP in PNG differ from those in Australia, or is it the impact
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of mining on the Ok Tedi ecosystem? Both issues are important, of course, but the
question of standards would not arise unless mining had had a major impact there.
1 How is it possible to legislate regarding practices from one setting to another?
2 Would not any acceptable code require interpretation that might permit another
Ok Tedi?
As corporations learn from confrontations with stakeholders, Shell learnt from

Brent Spar, and BHP Billiton learnt from Ok Tedi. Both now subscribe to triple
bottom line reporting, and BHP Billiton has taken a positive attitude to sustainable
development.58 This does not mean that the corporation does not raise environmental questions, such as the fate of its blast furnace waste.
Understandably, such changes are often greeted with cynicism by those who see
economic activity in Marxist or quasi-Marxist terms: as the result of forces alone and
not of human intentions. If this is so, then all the activism to bring about change in
corporate conduct seems wasted. If reforms are rejected as cosmetic, the answer
must lie in systemic changethe replacement of capitalism and its institutions
altogether. It is not clear just what political and economic substitute would dissolve
the problems of waste, pollution and energy consumption, especially as many of
them are historical in nature. This is not to deny that prevention is preferable to
remediation. Still, for those with less revolutionary ambitions than the replacement
of the capitalist economy, it seems unfair to demand change from corporations on
the one hand, while on the other claiming that efforts to be more environmentally
responsible are no more than greenwashing.
All of this suggests that the place to begin discussions of environmental ethics is
not with Friedmans objections, but with the reasonable expectations of business in
a sustainable future. While environmental ethics needs the support of enforceable
regulations, these will not be effective without the willing collaboration of business.
1 We asked, Is it not just an appeal to the strength of our preferences that makes
us claim intrinsic value for the environment? What else could it be?
2 Could there be a systematic statement of, and then enforcement of, the precautionary principle?
3 Could there be such a statement that would do justice to all stakeholders in a
proposal?
4 What are the practical limits of the precautionary principle?
CHAPTER OUTLINE
7h Internal and external
7h The Australian situation
7h Review questions
If ye cannot bring good news, then dont bring any. (Bob Dylan, The Wicked
Messenger, John Wesley Harding, Columbia, 1967)
Whistleblowing is making public matters that organisations have ignored or wish

to keep hidden, but which constitute a significant wrong or an immediate danger.
It might be done in response to an endangerment of the public or it might be to
protect employees or others affected by the organisations disregard for their safety
or well-being. In Australia, whistleblowing is mostly confined to the private sector.
The public stance of Andrew Wilkie, an Australian Government intelligence officer
who disputed the Howard Governments defence of the war in Iraq, is an example
of a public official blowing the whistle. Depending on jurisdiction, public sector
employees might come under anti-corruption legislation that compels them to report
corrupt conduct, and protected disclosures legislation that protects their identity
and makes it a crime to intimidate them.
The important thing to note about whistleblowing is that it is a matter of
judgment. There are no rules for blowing the whistle, although some conditions for
its permissibility are stated below. There are some professional bodies and some
writers who believe that there are some circumstances in which it is mandatory to
blow the whistle, but given the personal losses of those who do so, it seems clear that
this is a matter that calls for moral judgment rather than clear requirements.
Remember Frankenas four basic requirements of ethics: avoid evil, prevent evil,
remove evil and do good. Concern for others seems to extend our minimum ethical
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obligations beyond not participating in evil to preventing harm. Whistleblowing is

an attempt to avoid, prevent and perhaps to remove evil. The question then arises,
why should I be the one to blow the whistle? About forty years ago a woman was
assaulted and killed in New York in full view of a large number of bystanders. The
assailant was convicted of the crime, but the judge was most scornful of the socalled innocent bystanders who might at least have called the police or even got
together to stop the attack, but who did nothing but watch. While one is not required
to intervene in such a situation if ones vital interests are likely to be endangered, one
is morally required to intervene to the extent that such interests are not threatened.
So if one were not a large person and had no one to assist, then one might not intervene personally but would call the police. If one had an infant in ones care, then one
might call for help from others rather than risking the infant in ones care. The point
is that one should do something in such cases if one can. Bowie and Duska argue
that personal responsibility is commensurate with,
7h the extent of the need
7h ones proximity to the person(s) in need
7h ones capacity to assist
7h the availability of others likely to render assistance.1
These grounds for acting are relevant to the evaluation and justification of
whistleblowing.
Consider the following cases from this point of view.
CASE 9.1: Dan Applegate and Convair

In 1972, Dan Applegate, a senior engineer with Convair, wrote to his vice-president
detailing design faults in the fuselage of the DC-10. Convair were subcontractors
on the project for McDonnell-Douglas, and Applegate was director of the project.
Applegates concerns focused on the design of the cargo doors, which he believed
could open during flight. This would depressurise the cargo bay, causing the floor
of the passenger cabin above to buckle. As the floor housed the planes control
lines, the risk of a crash was very high unless design modifications were made to
doors and floor.
Convairs response was a financial rather than a technical one. Management
argued that informing McDonnell-Douglas of the problems would place Convair at
a competitive disadvantage because the costs of delays and rectifications would
be very high. In 1974, a fully loaded DC-10 crashed on the outskirts of Paris; 346
people lost their lives.2
C H A P T E R 9 W H I S T L E B LO W I N G
CASE 9.2: Murder unseen?

In 1964, the New York Times reported on the murder of a young woman named
Kitty Genovese in the Kew Gardens area of Queens. Apparently this murder took
place in full view of thirty-eight people in New York. Although Ms Genovese called
for help as she was being stabbed, and although the attack lasted some time, most
of the witnessesthe so-called innocent bystandersdeclined to get involved
by, for example, calling the police. At the subsequent investigation their conduct
was condemned as morally inexcusable.3 This case is often cited in psychological
textbooks in discussing what restrains people from intervening to stop wrong-doing
or to minimise harm. Here it may stand for the inaction of people who are aware
of corruption and unethical practice in their workplace, but do nothing to stop it
because it is none of my business. They, too, are innocent bystanders. They, too,
refuse to take responsibility.
Whistleblowing is reporting on misconduct or potential harm or failure from

within an organisation or after separation from it. Investigative reporting is not whistleblowing, nor is the work of private investigators. Dissent is not in itself whistleblowing,
but public dissent in order to prevent harm or injustice may be. Whistleblowers are
insiders in the organisations where the reported misconduct occurs, and therefore
in some sense are party to the responsibility of the organisation for causing harm.
Usually it is moral revulsion that leads them to speak out. Typically this is at some
cost to themselves. In this they are somewhat like civilly disobedient protesters:
although they do not challenge the law, they do challenge established practices.
And, like civil disobedient protesters, whistleblowers are usually prepared to take
the consequences of their acts.
Common mythology notwithstanding, an ethical stand does not confer good guy
protection from the adverse consequences of whistleblowing. In Australia at present
there are no explicit protections for whistleblowers in the private sector. Going to the
media might invite an injunction against publication or even a defamation suit. The
wise course is to see a lawyer before a reporter.
Whistleblowers commonly suffer for their actions. Most lose their jobs or are
demoted. Many are subjected to psychological testing by their companies. Some are
prosecuted. Many of them face lives marred by marriage failure, alcohol abuse and
bankruptcy. Such costs should not be necessary for the conscientious and honest
employee. John McMillan has put the principle succinctly:
Telling the truth should be neither difficult nor costly. Employment in an organisation
should not require that a person accept complicity in all activities which the employer
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has decided to pursue or to conceal. To accept that employees can be persecuted for
honesty, loyalty, or upholding the public trust undermines some of the legal and moral
principles on which a society is necessarily based.4
While McMillan is undoubtedly correct from a moral point of view, in practice we

live in an imperfect world, and organisations develop lives of their own that defy the
rational expectations of justice. Whistleblowing tells an organisation that something
is gravely wrong with it, and the organisation reacts to this threat.
Internal and external

Whistleblowing usually begins internallythat is, information on the conduct is
reported to superiors in the organisationas happened, for example, in the cases of
the DC-10 and the space shuttle Challenger, which was launched despite clear indications of a significantly high probability of a disaster.5 If reporting to ones superiors
through the established channels of authority fails, one might pursue the matter
internally, but outside the normal channels of authority. Here, one would report to
someone else (usually higher up) within the organisation. If neither sort of internal
reporting succeeds in preventing potential harms from becoming actual ones, then
the next stage is often the riskier option of seeking external intervention to overcome
the problem. This might mean informing a senior public authority or seeking to elicit
public interest through the media. Such actions are examples of whistleblowing.
Although some writers distinguish between internal and external whistleblowing,
we believe that only the latter is genuine whistleblowing. Take as an example Time
magazines nomination of its Persons of the Year for 2002, Cynthia Cooper, Coleen
Rowley and Sherron Watkins.6 There is no doubt that these are unusually courageous
and principled women, but should their actions properly be called whistleblowing
(see Case 9.3)? If a matter can be dealt with by an organisations internal procedures,
then reporting it internally hardly fits the category.
CASE 9.3: Is this whistleblowing?

Cynthia Cooper, vice-president of internal audit at WorldCom, discovered inaccurate
accounting and pursued it. Hunting down a $400 million anomaly, she found that
WorldComs auditors, Arthur Andersen, seemed not to have noticed. So Cooper
brought it to their attentionwithout success. Then she informed the CFO, Scott
Sullivan, who told her to mind her own business. Cooper used her internal audit
team to review Andersens audit and discovered the extent of misreportinga
$662 million loss had been accounted as a $2.4 billion profit by calling operating
expenses capital expenditures. Cooper informed Sullivan, the audit committee of

WorldComs board, and the corporations comptroller, David Myers, of her findings.
The audit committee fired Sullivan and told Myers to resign. Unusually, Cooper kept
her job. At no stage did Cooper resort to publicity. Her pivotal part in the exposure
of sharp practice was made known to the press by a Congressman who released
her audit memos to the press. She and former FBI agent Coleen Rowley reject the
term whistleblower.7
Coleen Rowleys whistleblowing was to testify at Congressional hearings
into FBI shortcomings after the September 11 tragedy. Rowley believed that the
agency had informationif not the systemsthat would have enabled it to track
the terrorists who committed the atrocity, but she sent her concerns in memo to
FBI chief, Robert Mueller, and members of the Senate Intelligence Committee. She
did not solicit media attention and came to the notice of the press only after her
memo was leaked.
Sherron Watkinss whistleblowing was to write in response to an invitation to
employees from Enron chairman, Kenneth Lay, to voice any concerns they had
about the company. Watkinss reply was an anonymous memo expressing concern
that Enron might collapse because of the accounting scandals she had lately
uncovered. She had been unable to make sense of accounts that basically hid debt
in off-the-books partnerships. When her memo had no effect, Watkins arranged a
time to see Lay in person, and she laid out before him the crooked deals that had
brought Enron to the brink. Lay told her he would get the firms lawyers to look into
her allegations, but shortly after Enron filed for bankruptcy. Watkins did not go to
the media and only became known to the public after the bankruptcy action.
In each of these cases, the term whistleblower is appropriate in the context of the
gravity of the issue and the courage needed to bring it to the attention of appropriate
authorities. Nevertheless, it is better to reserve the term for last-resort measures to
rectify grave injustices. Internal reporting should be part of the normal feedback
channels of an organisation, and if they work there is no need to go outside. Even if
these normal feedback channels do not work, internal whistleblowingfor example,
going straight to the CEOdoes not violate the authority of the organisation per se,
nor does testifying before a parliamentary or congressional hearing.
Whistleblowers are not ranged against pettifogging superiors or incompetent
colleagues, but against corporate closurethe mutual protection that can seize
members of an organisation and cause it to intimidate, scapegoat or expel dissidents
who disturb its unspoken rules of survival. Whistleblowers have in a sense already
moved outside an organisation when they take it on, so only external whistleblowing
will be treated as the definition of the term in our discussion.
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Whistleblowing appears to be a term denoting accomplishment. That is, it is

not the mere communication of information to a superior, but the achievement of
some exposure through doing so. Whistleblowers often have to persist in the face
of substantial obstacles in order to achieve an effect. Although persistence is not
necessarily part of whistleblowing, it is one of the difficulties that whistleblowers
often have to overcome in order to act effectively. One can think of cases in which
important information has been communicated without result. Whistleblowing is
not mere communication of the nature of the wrong; it is the pursuit of changes
that avert a public harm in the face of indifference or opposition. Imagine that the
mysterious Deep Throat in the Watergate affair had told Woodward and Bernstein
about Nixons plumbers resorting to dirty tricks to have the President re-elected,
and that these journalists had thought the story too far-fetched to print. That would
not have been whistleblowing. It was the persuasiveness of the information that
marked Deep Throat as a source, and the publication of a story that made him
a whistleblower. The view that whistleblowing is an accomplishment restricts
the concept in a useful way, but also seems to suggest that the focus of the discussion should be on the heroes who perform this public service. Most studies of
whistleblowing have this focus, not unreasonably considering the human drama
involved and the fact that case studies of whistleblowing are also the case histories
of brave individuals. As Quentin Dempster remarks, Without the courage of the
whistleblowers we would not be informed about what really goes on in our sometimes very uncivilised world.8 The danger with this focus, however, is that it can
mistake the conscientious dissenter for the whistleblower, and genuine organisational disciplining of the dissenter for intimidation and retribution.9 The key question
is whether there are adequate systems of reporting, accountability and control within
the organisation, rather than whether individual rights to dissent are recognised.
As we note below, not all wrongs call for a principled disclosure. A person who
took an officious interest in smoking in the toilets or in colleagues who conducted
an extra-marital affair out of working hours might be a principled nuisance rather
than a whistleblower. We regard this point as important: it is one of the reasons we
advocate a restricted definition of whistleblowing.
What counts as genuine and morally justifiable cases of whistleblowing? First,
the matter has to be serious and the informant should have good evidence of the
alleged misconduct. Sissela Bok suggests that the threat from the misconduct should
be imminent and specific: grapeshot disclosures with no immediate effect might
make good gossip, but they are not whistleblowing.10 Second, the information has
to be of public benefit, and the public must have a right to know (the public might
benefit from many things that it does not have a right to know, such as the secret
recipe of Coca-Cola). The information should not be mischievous or malicious. This
would exclude from public disclosure personal details of a political, religious or
sexual kind. Third, less damaging ways of rectifying the problem, such as internal
procedures, must not be available to the whistleblower. Fourth, if other avenues for
rectifying the problem were available they should have been tried. Fifth, blowing the
whistle is likely to remedy the problem.
There are two considerations running through these criteria. The first is that the
public interest is threatened by some policy or procedure of the organisation, and
the second is that employees of the organisation have tried to rectify matters through
normal lines of responsibility and management. Where the first is present and the
second fails, whistleblowing is a legitimate option.
Richard De George goes further and says that if these conditions are met and the
whistleblower has documented evidence that would convince an impartial person
of an organisations potential to harm the public interest, and if the probability is
good that going public will bring about change for the better, then the employee not
only has a right to blow the whistle, but an obligation to do so.11 Others have argued
that, at most, an employee can have a right to blow the whistle, but because of the
real possibility of resultant hardship to oneself, one never (or only in exceptional
circumstances) has a duty to blow the whistle.12 Whether one looks to the right or the
duty, it is important to stress that the means used should be proportional to the end
to be achieved or, more simply, do not use a sledge-hammer to crack a walnut.
Whistleblowing is, on the whole, a grey area. It is important to be aware of the
conditions of its justification, but it is equally important not to be beguiled into
believing that the term names a clear, identifiable type of conduct that can be used
as a template for resolving moral conflicts in the workplace. Whistleblowing is simply
a shorthand way of referring to classes of information disclosure.
Ross Webber echoes some cautions about whistleblowing first made by Alan
Westin:
1 Verify your evidence. Is it sufficient?
2 Are you objecting to illegal or immoral conduct? If the conduct is morally objectionable but legal, you might not have a future in your industry. Illegal conduct
is not as likely to damage your career.
3 Discuss your proposed action with close stakeholders; namely, your family.
They will be affected by what you do.
4 Exhaust organisational procedures for dealing with complaints and objections.
5 Consider whether it is better to act publicly or anonymously.
6 Document every action you take.
7 Dont spread your heat: keep the objection confined to those who need to deal
with it, and be civil to those handling it.
8 If you are fired you may resort to publicity, but recognise that your right of free
public discussion might be limited.
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9 Consider a lawsuit.
10 Appreciate that your hands will get dirty whatever you do about unethical
conduct.13
This last point is worth emphasising. Whistleblowing exemplifies the problem
of dirty hands. It does seem to involve betrayal of friends, stress on ones family,
and hurt to the good as well as to the bad. Apart from the personal risks involved,
it amounts to placing an individual judgment above that of the organisation, and
forsaking the duty (sometimes a fiduciary duty) that an employee owes to the organisation. Consider the following objections to whistleblowing. First, it is informing,
perhaps on peers or mates. Informing was characteristic of the worst excesses of
Nazi Germany and the Soviet system. It is sneaky, underhanded and destroys trust
in the workplace. Second, it involves disclosure of information that is owned by
the organisation, not by individuals. It is theft to disclose that information without
authorisation. This might lead competitors to gain an advantage and destroy an
organisation as effectively as leaking damaging information. Hence, the third objection: taking on the responsibility of looking after the public interest is arrogant and
might destroy the organisation and the jobs of colleagues. How can this kind of
conduct be distinguished from leaking? Fourth, a person does not necessarily have
the full picture in going public with potentially damaging information and hence
might not be in a good position to judge if the public interest will be served by
disclosure. In this respect (like the arrogance to which the third objection calls attention), whistleblowers place their own judgment above that of the organisation. Fifth,
the act breaks an employees contract with the employer. Sixth, an employee has a
duty only to report concerns to superiors, not to rectify the problem personally.
These objections will vary in strength depending on the particular circumstances
a potential whistleblower is facing. A whistleblower might be a hero, someone who
is not a sneak but puts his or her neck on the line for honesty, probity and the public
interest. If other avenues existed for bringing harms to public notice or correcting
the harms in some in-house way, who but an idiot or a misdirected hero would risk
discovery, loss of job and career opportunity, and perhaps professional censure?
It is also conceivable that a whistleblower might be a sneak, or someone with
an illegitimate interest, a grudge or a cockeyed perspective on an organisations
activities. We disagree with Bowie and Duska14 that whistleblowers necessarily act
from an appropriate moral motive. A whistleblower might act in the public interest
because he or she seeks revenge after being sacked. It is still whistleblowing. Awareness of a whistleblowers ignoble motives might affect his or her credibility (as a
practical matter), but it does not mean that they have not blown the whistle.
As for loyalty, moral obligations to colleagues or to an organisation cannot bind
someone to immoral conductat least not to seriously immoral conduct. Given
the damage usually done to them, the question is not whether whistleblowers are
morally justified, but whether the silence of others can be excused. This may seem
unrealistic or heartless, but perhaps it is better to talk of loyalty in emotional rather
than moral terms in relation to major issues. When the DC-10 went ahead, there
were people in a position to know but who did nothing. The same is true of other
disasters, such as the Challenger: people who knew of the unacceptably high risks
did nothing.
What could excuse such inaction? Usually it is a dislike of reporting colleagues
or a fear of retribution. The reporting excuse really does not hold water any more.
In a random survey of 2000 public sector employees in New South Wales, 94 per
cent believed that dismissal of a staff member who blows the whistle on fraud is
corrupt.15 This may, however, be too simple. Research suggests that organisations
with cultures that encourage consultation and participation in decision-making view
loyalty in terms of people voicing their views. Conversely, silence is likely to be taken
as disloyalty. On the other hand, organisations with strong hierarchical cultures are
likely to perceive loyalty in terms of silent compliance, and disloyalty in terms of
overt criticism.16 Such organisations are more likely to encourage internal critics to
leave than to voice their criticisms. They are also more likely to create the conditions
that give rise to whistleblowing.
In all of this there is an important distinction to be made between petty informing and bringing matters of public interest to the publics attention. A criterion of
proportionality should help in deciding on borderline cases, but we hold that there
is no duty to inform on others where the matter is not serious or the damage caused
by informing is not justified by the benefits to be secured. This qualification should
not be seen as minimising the issue of rights; we are not arguing that one persons
rights may be sacrificed for the good of an organisation and its stakeholders, but that
the good to be achieved by whistleblowing should be in proportion to the gravity
of the act.
Retribution is a large issue and is likely to remain so, even where whistleblower
protection is present. Until recently there were no such protections for whistleblowers
in the public or private sectors anywhere in Australia, and whistleblowers have had
to take heroic measures to bring matters of urgency to public attention. Ideally there
should be procedures and mechanisms for dealing with genuine concerns inside
an organisation, so as to minimise the need for heroism with its attendant risks and
disincentives. Criticism should be taken seriously, and the reporting of transgressions
could be made mandatory, thus removing the discretion from the individual and
avoiding the opprobrium that can sour relations between a whistleblower and even
colleagues of goodwill.17 Such measures would need to be internally enforceable,
but could be complemented with external safeguards in law.18 Yet even with better
organisational procedures and protective legislation in place, there will still be some
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instances where whistleblowing is appropriate as the only means of rectifying a

serious problem or danger. It will remain an extremely courageous act.
The Institution of Engineers Australia, trading as Engineers Australia (IEAust), has
recognised that there are situations where there can be a conflict of responsibility
for the professional, and where the professionals chief responsibility is not to the
organisation but to the public. The first tenet of the IEAust Code of Ethics says, The
responsibility of engineers for the welfare, health and safety of the community shall
at all times come before their responsibility to the profession, to sectional or private
interests, or to other engineers. This tenet amounts to a declaration of commitment
on behalf of the professional organisation; and it amounts to a requirement that
professionals take responsibility for acting in the public interest, specifically when
that comes into conflict with other responsibilities that they have by virtue of being
professionals and employees. This would seem to be a commitment to blowing the
whistle when that would best serve the public interest. This tenet of the code appears
to do significantly more than affirm and inspire institutional ethics among engineers.
It is a deterring and disciplining statement: the IEAust can suspend or expel members
for breaches. In practice, however, the IEAust has been more likely to censure those
who take a public interest voice than those who remain silent.19
A great deal of work has been done to take the heroism out of whistleblowing;
indeed, to make the act unnecessary by instituting procedures to deal with ethical
difficulties and to make it unnecessary to go outside the normal chain of authority.
Nevertheless, the fact remains that there will always be some circumstances that
procedures will not remedy. And personal courage will always be necessary for
ethical decisions. Procedures cannot be a substitute for integrity.
The Australian situation

Whistleblower protection legislation now exists across Australasia for employees in
the public sector and private citizens in some jurisdictions (for example, the ACT
Public Interest Disclosure Act 1994, but this covers actions that lie outside our definition
of whistleblowing). The same protection is not clearly extended to those in corporations or other private businesses, but prosecutions under it are difficult to obtain. A
2004 paper from the NSW Ombudsman found that the Protected Disclosures Act in
that state fails to adequately address the core objective of facilitating disclosures by
public officials.20 At the time of the report, only three criminal prosecutions had been
brought in NSW for alleged reprisals against whistleblowers. All of these prosecutions failed, and no others had been instituted in other Australasian jurisdictions.21
Extending the legal protection of whistleblowers in the private sector is more difficult
and, in an open society, might never be satisfactory.
The following case of Alwyn Johnson and the banks illustrates the issues.
CASE 9.4: Alwyn Johnson and the banks

There were no laws to protect Alwyn Johnson, an anonymous whistleblower. In July
1990 he was called into the office of Paul Kemp, CEO of Trust Bank in Tasmania, told
his services were no longer required, and escorted from the building by a security
guard. Johnson had broken the eleventh commandment: he had been found out. But
Johnson was no criminal. Quite the opposite; he was a whistleblower whose prompt
action had probably saved a bank, and with it millions of the taxpayers dollars.
Johnson had a strong background in traditional banking. He had been underwriting manager in the treasury department of the National Australia Bank (NAB) in
Melbourne before moving to the state-owned Tasmania Bank as a chief manager. At
the NAB, Johnson had been marked for rapid promotion, as attested in a letter to him
by John Astbury, treasury general manager: Your high levels of performance and demonstrated application have again confirmed your forward potential we are pleased
your efforts warrant our ongoing commitment towards your career progression.
Shortly after arriving in Tasmania, Johnson became concerned about his banks
exposure to non-performing loans to property developers in its wholesale banking division. His warnings to superiors were ignored, so in June 1990 he wrote
anonymously to the premier, Michael Field, warning that The bank is in serious
financial trouble and immediate, decisive action is required to rescue it from the
present disastrous course. Johnson wrote again in August predicting a run on the
bank unless Field intervened. The premier had already brought in the auditors. At
a board meeting in November 1990 the auditors findings were tabled, the banks
managing director resigned, and the board passed a vote of thanks to the writer of
the anonymous letter. Premier Field revealed a $150 million exposure due to serious management weaknesses. Preventive action had been taken just in time.
In March 1990 Tasmania Bank merged with the SBT Bank to create the Trust
Bank. Johnson wrote to the new CEO of Trust Bank, Paul Kemp, asking for an
executive position and revealing that he was the author of the anonymous letter to
Field. Johnson claims that from that day he was cold-shouldered by the bank.
The Trust Bank was unique in Australia in having no shareholders. And it was
no longer owned by the Tasmanian government. When Johnson became concerned
about the loans operations of the merged bank he felt he had nowhere to go
except the Reserve Bank. On 1 July he wrote to the governor of the Reserve Bank,
Bernie Fraser, stating his concerns and offering to elaborate on them personally
by flying to Sydney. He also asked that the confidentiality of the communication be
respected: Kindly do not contact management of SBT/Tasmania Bank until you are
fully acquainted with the facts, by meeting with me personally.22 Fraser rang Kemp
at the Trust Bank the next day. This has been revealed in a Freedom of Information
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search, but it is not known if Fraser mentioned Johnsons name to Kemp. Neither
Kemp nor Fraser will comment on the conversation, and Freedom of Information
access has been denied to the notes made of it. On 3 July Johnson was sacked.
Although Johnson was told that there was no place for him in the restructured
organisation, he was sent a letter on the day of his dismissal, which gave a different
impression of Kemps reasons for firing him:
The Bank has been advised that you have made contact with various individuals
and bodies in order to provide what can only be described as scurrilous misinformation regarding the Banks affairs. At least some of the recipients of this
most improper communication have expressed their concern not only as to the
content, which was properly recognised for what it was, but also regarding the
fact that a senior employee would see fit to embark upon an exercise which
reflected so poorly upon himself.23
After Johnson had declared himself to be a whistleblower it would have been no

great feat of inference to conclude that he was the person who had approached the
Reserve Bank, even if Fraser did not disclose his name. Still, there is an unresolved
problem here. When public authorities hold inquiries into institutional failures they
often comment on the bravery of those who speak out and lament that others
do nothing or cover for their mates. For example, Commissioner Samuel Jacobs of
the Royal Commission into the failed State Bank of South Australia asked why no
bank officers alerted the government or public to the banks problems. Ironically,
the Reserve Bank has been unable to help Johnson. In January 1993, he wrote to
Fraser about possible Reserve Bank action to protect people like myself who act
in the public interest, from being summarily dismissed from the bank they seek to
protect. Johnson made the point,
No bank officer will ever follow my lead and act in the public interest and advise
the Reserve Bank of Australia of problems within a bank if the Governor of the
Reserve Bank of Australia is going to immediately ring the bank concerned and
divulge the identity of that bank officer. If bank officers have nowhere to turn in
confidence when they identify problems within their bank, then taxpayers will
be destined to continue to pay out billions of dollars as banks fail or are badly
managed in the future.24
This is a fair point, although it must be stressed that there is no evidence that
Fraser informed Kemp that Johnson had written to him. If high standards of public
responsibility are to be demanded of people in private positions there should be
public protections for them. But in this case there is the added complication that
Fraser, as well, had a clear public responsibility. Whatever he said to Kemp on the day
after he received Johnsons fax, Fraser had a clear fiduciary and moral responsibility
to ensure that the Trust Bank was not in danger. It might have been difficult to do
that without indirectly disclosing that Johnson was the source of the Reserve Banks
alert. Moreover, Johnsons request for confidentiality and a delay in response until a
personal interview could be arranged could not bind Fraser in any way. As governor
of the Reserve Bank, he is akin to a banking police officer, and while attempting to
ascertain the facts, he cannot allow the public interest to be jeopardised.25
Johnsons case illustrates that protections for whistleblowers are inherently difficult to devise, so that changes in public policy will never remove the need for
personal courage, sometimes of a high order, in bringing to light institutional failures
that prejudice the public interest. The report of the Martin Committee into banking did not believe that whistleblower legislation was necessary at this stage, but
did recommend that banks establish internal processes that allow staff to report
instances of suspected fraud to senior management without fear of retribution.26
After the abrupt end of Johnsons career, Field was unsupportive, Kemp claimed
that he had been over promoted within the Tasmania Bank and Fraser denied
involvement in his dismissal. Kemps claim is at variance with Johnsons previous
record, but it fits the classic pattern for whistleblowers both in Australia and the
United States. Kemp claimed that Johnson had been administered a series of personality tests by consultants Chandler and Macleod, which found him unsuited to
a position in the new bank. In the light of Kemps letter to Johnson, doubt is certainly
cast on any claim that this personality test played much of a part in Johnsons dismissal or the appraisal of his performance (it would be odd to check a managers
performance against a battery of tests), but subjection to psychological testing is a
standard way of dealing with troublemakers, as whistleblowers are traditionally
called in Australia.27
Johnsons case fits the typical profile of whistleblowers in most respects. In
general, publicity can offer some protection because it increases the whistleblowers
visibility. It also lends credibility to the whistleblowers claims and puts a face to
them. In Johnsons case, his mistake was to reveal his action in the belief that it
would make him more acceptable to the bank he saved. But this also made him
unsafe in any future incidents of whistleblowing, such as his in-confidence fax to
the Reserve Bank.
1 What should Johnson have done? Should he have disclosed his identity at the
time of writing to the premier?
2 Would you base your view about his conduct on a consideration of Johnsons
responsibilities as an executive of the bank or on the fate that befell him?
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Aberrant behaviour has long been used to explain away whistleblowing in

Australia. In one of the most famous historical cases of whistleblowing in New
South Wales, Sergeant Philip Arantz revealed in 1971 that the Police Department
had for many years deliberately published false crime clear-up statistics. When he
took his findings to superior officers, he was rebuffed. He then attempted to have
the information disclosed in Parliament by feeding information to MPs, but this, too,
proved unsuccessful. Finally, Arantz went to the media. Retribution was swift and
nasty. With the approval of the police commissioner, Norman Allen, and premier
Robert Askin, Arantz was promptly transported to the psychiatric unit of a major
hospital where he was held for some days. He was then dishonourably discharged
from the police service and denied justice until 1989, when special legislation was
passed to allow him notional reinstatement into the police service. Askin and Allen,
who were the subjects of many allegations of corruption and criminal associations,
were long dead by then.28 Arantz died in 1998. The following year, his widow accepted
an award for courage from the NSW Police Commissioner on his behalf.
The psychiatric solution to public interest issues is still common. According
to Queensland researcher Tony Keys, psychiatry is part of the general strategy
organisations adopt in response to whistleblowing because it takes the spotlight
off the problem and puts it on the whistleblower. It is a way to avoid dealing with
the problem and at the same time make the whistleblower into the problem. 29
Of course, if a psychologist or psychiatrist assesses the whistleblower as personality
disordered, then it is possible not only to discredit the complaint and the person
making it, but also to shake the persons self-confidence and perhaps control
damage. In the former Soviet Union, the detention of dissidents in psychiatric hospitals was most successful when the patients recanted altogether. Consider the case
of Jack King.30
CASE 9.5: Jack Kings environmental protection reports

Jack King is a chemical engineer whose efforts to do his job properly made him a
whistleblower. King had for many years worked in petrochemicals before joining the
South Australian Department of Environment and Planning. His problems began
when he submitted environmental protection reports for legislation to protect
coastal waters.
His submission to Cabinet was returned with instructions to delete references
to pollution from the Port Pirie lead smelter. The CSIRO had found heavy-metal
contamination of Spencer Gulf from the smelter and widespread effects on the
organisms that lived there. King tried again to get his proposals to Cabinet but was
refused. He was told the levels of pollution did not warrant protective legislation.
After fruitless protests to his minister and the public employment commissioner,
and the lodgement of grievance appeals, a frustrated King went to the media. His
exposs achieved the desired change in policy.
Unfortunately Kings job became redundant in a reorganisation of his department. He was reinstated in the Department of State Development after persistent
appeals. His difficulties, however, were not behind him. After resisting approval of a
modern piggery, King was pressured to see a management consultant who turned
out to be a psychologist. The consultant wanted to administer the Minnesota Multiphasic Personality Inventory to King, but he refused. The psychologist wrote a report
anyway. It said that It is likely that he [King] has a severe personality problem
His personality traits are such as to produce grandiose and obsessive behaviour,
paranoid reactions and regular grievance procedures [sic] for insufficient cause.
King lost his job in mid-1989, but he did not accept the psychologists report
and sought psychiatric evaluation by a doctor of his choice. Dr Keith Le Page found
King was not a victim of personality problems but simply a dedicated scientist
trying to do his job honestly. After reading the psychologists report he said, I have
not found any evidence that he is grandiose, obsessive, paranoid.
Without doubt the stress caused to whistleblowers can damage their health.
Furthermore, the sheer struggle to have the truth recognised and accepted in the
face of official denials can make them obsessive or appear to be so. Nevertheless,
it is disturbing that the first reaction of those accused or who stand to lose is often
to call in psychiatrists and psychologists in an attempt to discredit the accuser. The
matter raises ethical questions for these professions, as well as for those who turn to
them in cases like these.
Although we have argued that external protections will never make whistleblowing safe, we believe that they should go some way towards changing a culture
of reporting. Whistleblowers may always be necessary, but they should not be seen
as deviant. The fact that whistleblowing is now taken seriously by authorities marks a
considerable change in attitude and should soften the instinct for retaliation, even in
the absence of legislative protection. The environment for public interest disclosures
has changed. Transparency is demanded of government, the public sector and business. The dire consequences that inevitably flowed from whistleblowing are likely
to be less severe today than a decade or so ago. Belatedly, even Philip Arantz got a
medal. While Alwyn Johnson was branded a troublemaker, that tag does not automatically affix itself to people who try to do the right thing. That still does not nullify
the costs of whistleblowing. Those costs can be imposed from unexpected quarters.
Consider the recent case of Stewart Cummins.
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CASE 9.6: Caught in the middle

In September 2005, the Australian Broadcasting Corporations investigative affairs
program, Four Corners, broadcast a story revealing the concerns of a corporate
insider about the financial transparency of major construction company, Multiplex.31
His identity would not have been difficult to establish for anyone with some knowledge
of the company: Four Corners had broadcast his position in the corporate hierarchy.
Nevertheless, he was reluctant to reveal it publicly and anonymity continued to
keep him from public view. Even now he considers himself bound by his contract
to Multiplex and will not discuss his case with the media.32
Steward Cummins was accounting group general manager for Multiplex, the
builder of the new Wembley Stadium. In December 2004, he voiced his concerns
about the companys accounts to the Multiplex board and then to the Australian
Securities and Investments Commission (ASIC) about the financial position of the
company and especially cost over-runs on the Wembley project. These concerns
were not made public, though Multiplex was raising capital in the market at the time.
Asked why, then-CEO John Roberts said, Well, theres discussion and debate that
continues in the normal course of all our projects on a regular basis ultimately
its a view of senior construction management and those experienced to make an
assessment at that point in time.33 In February 2005, the company recorded a
$68.3 million write-down on the Wembley project, and its share price plummeted.
By March 2005, Cummins had left Multiplex. Asked the reasons for Cumminss
departure, Mr Roberts said, I understand that he was (made) redundant by mutual
agreement. I mean if the suggestion is that he was retrenched because hes raised
issues, then absolutely thats not the case.34
ASIC investigated the matter during 200506, taking 8400 pages of evidence,
including a 220-page witness statement from Mr Cummins. In December 2006,
ASIC announced that it had accepted an Enforceable Undertaking (EU) from
Multiplex relating to the companys failure to disclose a material change in profit
on the Wembley National Stadium project in London. That EU, however, was given
by Multiplex without any admissions by the corporation.35
Apparently this outcome distressed Mr Cummins. Lawyer Andrew Watson testified in the Federal Court that Cummins felt that the ASIC settlement [with Multiplex]
was, I will use a neutral term, unfortunate.36 Cummins regarded the conduct which
had occurred at Multiplex as being very serious, he was very surprised that the
settlement had been reached, and he was very aggrieved by the fact that he had
spent $100,000 of his own money on lawyers.37 According to testimony in the
Federal Court by private investigator, Diane Schulman, Cummins said that he was
just an ordinary person trying to do the right thing.38
The irony of Mr Cumminss position is that it was worsened by other aggrieved

parties. In the wake of the Enforceable Undertaking with ASIC, Multiplex shareholders hired lawyers Maurice Blackburn to mount a class action alleging,
Multiplex breached the continuous disclosure provisions of the ASX Listing Rules
and the Corporations Act, and or engaged in misleading or deceptive conduct,
by not properly disclosing to securityholders and the ASX the full story regarding the material cost increases and delays in the construction of the Wembley
National Stadium and the consequences of those on the Multiplex Group
earnings forecast.39
Maurice Blackburn sought access to the evidence collected by ASIC, but the
Commission contested this on the grounds that Mr Cummins would be identified.40
Now it seems that whistleblowers face new dangers. Those in the private sector
trying to do the right thing seem increasingly exposed in litigation between shareholders and regulators. ASIC has contested the right of AWB class-action litigants
to use materials gathered in its investigation of kickbacks to Saddam Hussein
cronies. The effect of such contests will probably be to make whistleblowers more
wary of actions that could lead to the disclosure of their identities. Recognising
this, the Federal Court hearing applications from Multiplex shareholders for access
to ASIC documents commented upon the dangers, not just to whistleblowers but
also to the operations of regulators and enforcement agencies. Persons contemplating whistleblowing would realise that the disclosure of their identity may cause
them harm in ways they never find outemployment or promotions not offered,
friendships undermined, the judges said. The point is that such fears may well be
held by potential future informers who may, if disclosure is permitted in the present
case (Multiplex), decide that informing ASIC is just not worth it.41
There is at least a happier ending to Mr Cumminss story than to others presented
here. He went on to become the chief financial officer of a large transport and
logistics firm. That is a better result than most whistleblowers have come to expect,
and perhaps even signifies a changed regard towards principled disclosers.
Because of the courage typically involved in whistleblowing and the damage

that it often does to career, family and social life, whistleblowers are rightly viewed
as noble and self-sacrificing. They are defenders of the public interest. We do not
usually see them as public nuisances. But there is another side to all this. Because of
its claim to special status, there is the potential to abuse whistleblowing.
Consider the case of Orlando Helicopter Airways as related by its founder, Fred
P. Clark.
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CASE 9.7: Orlando Helicopter Airways

In 1986 Orlando Helicopter Airways (OHA) won a contract with United States Army
Missile Command to produce special helicoptersbasically imitations of the Soviet
Hind attack helicopterfor training purposes. It supplied fifteen aircraft over a
three-year period for around US$7 million. Large defence contractors had quoted
$20 million and a much longer completion time. The army commended the OHA
aircraft and support service as outstanding. In November 1989, however, an office
employee of six months standing at OHA wrote a memo to the Defense Criminal
Investigation Service (DCIS) alleging engineering safety breaches in the construction of the helicopters. This person was not a pilot, an aeronautical engineer or
even a mechanic. He did, however, owe $500,000 in back taxes, and in the United
States whistleblowers are promised up to 30 per cent of the money the government
recovers from successful prosecutions resulting from their evidence. The armys
own investigation found no fraud or other wrongdoing at OHA. An ambitious investigator at the DCIS, however, was determined to make a case against OHA, and
encouraged past and present employees to remove company documents. Although
nine separate investigations had found no evidence of any corruption at Orlando,
this investigator pursued his quarry by digging into OHAs certification compliance
procedures back to the 1960s. Some people in the DCIS were determined to
prosecute OHA.
During the two years of investigations, the company was the victim of slander
and innuendo, its reputation suffered, business fell off as contracts went elsewhere, and it eventually closed its doors, throwing forty employees out of work. No
findings were made against OHA.42 It was the victim of zealotry and officiousness
and perhaps defence industry politics.
So, while whistleblowing is usually depicted as the heroic stand of a principled

individual against some system, this is not the only aspect that should be considered. The fate of organisations and those who depend on them, and the dangers
of encouraging malicious reporting should be kept in mind when protection and
support for whistleblowing are being determined.
Some writers are concerned about danger from a different quarter: namely,
ethical support itself.43 The argument is that ethical support for whistleblowing
will actually harm whistleblowers. It holds that once an organisation adopts ethics
strategies, it will claim that evil has been eliminated from the workplace. If this
occurs, then the whistleblower will, by definition, be excluded. By thus excluding
the dissenter, the supposedly ethical organisation is able to use ethics strategically
to protect itself. This is an argument reminiscent of Marxist analyses of reform in
capitalist economies: the union movement, welfare, and state sponsorship of sport
and the arts all contribute to keeping the revolution at bay. Popular discontent is
abated by such measures, so any view that governments under capitalism can act in
the interests of justice is nave: governments act to protect their capitalist masters. On
the other hand, if governments do not redistribute wealth or support social activities,
then this is proof that capitalism controls the state in the interests of the ruling class.
In brief, the Marxist can never be satisfied: governments in market economies are
damned if they support social institutions and damned if they do not. The negative
analysis of whistleblower support described above comes off the same template as
the Marxist analysis of the state. An organisation that acts to minimise the necessity
for the practice is enhancing social control in the workplace; an organisation that
does not address the problem colludes in exposing the whistleblower to all the
penalties of acting according to conscience.
People have to be cautious about informing on illegal, harmful or unethical conduct, not only because they will have to bear the consequences, but also because
others will have to live with them, too; and there is in any case no easy way of dealing
with dissent in the public interest. The best of protective procedures and policies will
be limited and can probably be used for corrupt purposes. This is not an argument
for doing nothing, but a caution against believing that laws and procedures can
accomplish everything we should desire for whistleblower protection.
REVIEW QUESTIONS
1 Do you think that there is good reason for limiting the term whistleblowing to
cases of external whistleblowing?
2 Do you think it is ever the case that a person ought to blow the whistlethat
if they fail to blow the whistle, then they will have done something wrong? Or, do
you believe that any case of justifiable whistleblowing will be a case of heroic
actionthat is, action above and beyond what is morally required?
3 Employees in the private sector have a contract with their employer. What moral justification can supersede a commitment already made to be loyal to this employer?
Is it not morally discreditable to inform on a corporation to a regulator? What about
leaking information to shareholders via the media?
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7h
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Back to codes
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Review questions
An employee shall not conduct himself or herself in a manner which directly or

indirectly would be detrimental to the best interests of the Company or in a manner
which would bring to the employee financial gain separately derived as a direct
consequence of his or her employment with the Company. Moral as well as legal
obligations will be fulfilled openly, promptly, and in a manner which will reflect pride
on the Companys name. (Enron Code of Ethics, 2000, p. 13)
Enrons Code was 65 pages long and had high-sounding phrases about values,
human rights and compliance. However, when it conflicted with the goals of corporate executives, it was put in the bin. That is the handy thing about codes. Even the
long ones can be dumped quickly in time of need.
Yet codes in one form or another have been used to regulate behaviour since
antiquity. The Code of Hammurabi is one such and the Ten Commandments
another. We are most familiar, of course, with legal codes and expect that codified
principles will be clear-cut and not open to dispute and personal interpretation.
Codes have various forms: there may be codes of ethics, conduct or practice, each
species being framed to meet the specific needs of the organisation that produced
it.1 Their common purpose is self-regulation through peer enforcement. This is often
overlooked: codes are not about external regulation but self-regulation. Too much
can be made of them and, on the whole, too much is expected of them. There is too
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ready an acceptance of rules as fixes for our social problems and not enough faith
in judgment. Consider this illustration of the point.
In 2007, the German town of Bohmte decided to remove its traffic lights and signs
from its roads. This decision seemed precarious given that Bohmte lies on a main
truck route to the city of Osnabrck13,000 trucks and cars pass through the town
daily. Still, Bohmte removed its signs in 2008 and traffic accidents not only declined
but, in the first months after implementation, had ceased altogether. The architect
of this radical experiment, traffic management expert Heiner Monheim, declared,
Whats revolutionary about Bohmte is that it took off its signs on a state highway with
a lot of traffic. 2 Instead of masses of rules and signs to keep vehicles from hitting
cyclists and pedestrians, all users of the roads have to pay attention to each other,
and exercise appropriate care. Monheims principle of shared space is based on a
number of factors, including self-interest, responsibility and a greater consideration
for others than is required in a rule-bound environment. Well, there is one rule:
give way to traffic on the right. One resident said of the new system that, Instead
of thinking, Its going to be red, I need to give gas, people have to slow down, to
look to the right and the left, to be considerate. This counterr intuitive scheme does
away with the segregation of people and traffic. It replaces rules with negotiation
based on eye contact and other signals. Shared space apparently has social as well
as aesthetic and safety benefits. According to the resident, The whole village has
become more human. We look at each other, we greet each other. 3
The radical aspect of this story is the removal of rules and their replacement
with judgment. This substitution carries a heavy responsibility: fail in your judgment
and you might end up in an accident. As judgment is pretty much required in
order to walk, let alone drive, in Bohmte, it might be expected that the townsfolk
might be edgy. Not at all, according to news reports. They are more sociable. It is
tempting to think that regulation, formalised directives, rules and regulations are
obsolete, and that we might expand the Bohmte experiment into other areas of life.
Notice, however, that this example shows that judgment has to be responsible: it is
emphatically not a matter of do-as-you-like. The Bohmte experiment seemed to work
because it called forth deep values from its citizens and visitors. They recovered
sociability and respect. It should not be an unintended consequence of codes that
they mask such basic human values or render them redundant. Codes should elicit
good judgment and the appropriate values to inform it. Codes should be an aid to
judgment, an affirmation of deep values, not a cheap substitute for them.
Codes have long been used to establish standards in the professions. Medicine
came first in the early nineteenth century when physicians wished to establish their
respectable credentials by distinguishing themselves from quacks. Pharmacists
soon followed, and gradually, over the next hundred years, other professions set
boundaries around their tasks and professional identities and established regulatory
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mechanisms to go with them. Codes came to be accepted not only as important in

the ethical sense, but as necessary to a professional status. In this sense they not
only serve the public by regulating standards and behaviour, but also restrict trade,
keeping certain professional territory the exclusive preserve of those approved by
the profession. In this way professional bodies serve as credential frankers for
practitioners under the conditions set out in their codes. A certain degree of scepticism about the self-serving nature of professional codes is justified, but a profession
without one would be impossible these days.
In business there is altogether more scepticism. For a start, some would not like
to see business called a profession because that would seem to restrict entrepreneurship. Professional constraints would limit business opportunities and the participation of people whose qualifications were enthusiasm, ideas and a willingness to take
risks rather than a business degree. The ability to develop markets, innovate and sell
is not the preserve of professional elites and those with specifiable credentials, and
attempts to introduce business codes modelled on the codes of professions would
be inappropriate.
The most common form of scepticism, however, is that business codes, values
statements and proclamations of this kind are simply so much hot air. One does
not have to be unduly cynical to see that codes and statements making grandiose
claims are unlikely to be realised in practice. If practice can conform to the code
only with great difficulty, then the code is effectively impractical. Such self-defeating
statements breed cynicism and reinforce the view that they are useless in all cases.
Another form of scepticism lies in the observation that codes can discourage
excellence or even encourage unethical behaviour by stipulating what must or
must not be done: where unethical conduct is not prohibited it may be assumed
that it is permitted. Similarly, by setting out the minimum requirements of ethical
performance, expectations might be pitched too low and thereby discourage higher
achievement. As codes can never be comprehensive and are usually general, these
objections have some force.
The reply to this scepticism is simple. Some codes and values statements are
ineffective and unrealistic, while others are vital parts of more extensive programs
to promote corporate ethics. Codes can be used to escape ethical requirements as
well as to enforce them. Codes are not magical, but they are indispensable to the
development of an ethical culture in a modern organisation.
Because corporations are not natural persons, formal rules are important in
establishing their moral status. Although they have their own cultures, organisations do not possess emotions, a conscience, intellect or will. They are composed of
individuals who have these things, but, as Machiavelli showed so well in The Prince,
private judgments can bring calamity on a society or organisation. We do not expect
individuals to act in a private capacity in performing their employment duties. The
closest analogue in a corporate organisation to the virtues embodied in the characters of persons is an ethos. This is where rules come in, and clear ethical rules are no
less important than other formal regulations and informal habits of conduct. Ethical
rules are ways of ensuring minimum standards, of offering guidance for conduct,
and of stating in a shorthand way the main values of the culture of the organisation.
They are no more dispensable for organisations than virtues are for individuals.
The motivation for a company or a business to institute a code of ethics need
not come from a commitment to morality or from, say, an altruistic concern for the
public at large. No doubt a number of business and professional organisations do
have such a concern, but it is clear that the history of business is not about these
things. Having an altruistic concern or being interested in moral behaviour for its
own sake is not the only adequate motivation for a business or a profession finding
a code of ethics desirable. Self-interest can (quite properly) furnish the stimulus for
a code. Put simply, good business requires the presence of a code of ethics. Perhaps
the strongest motivation for creating a code of ethics is that the present climate of
accountability, fair-dealing, public awareness and governmental regulation is such
that it is a situation of do it, or else. In many cases it is precisely a situation of you
set particular standards for yourself, or well do it for you, where the we is some
external, perhaps governmental body. Given those alternatives, any organisation
would prefer to play a major or perhaps exclusive role in setting its own ethical standards and enforcing them. An organisation will be more sensitive to its own structure,
aims, limits, and operating costs and benefits than will an external standard-setter.
Avoiding the imposition of external regulation is only one prudential reason for
business to take the initiative. If an organisation does not have a code of ethics, it
can suffer from a number of undesirable effects in the market place. Public trust and
confidence are clearly commodities that can have a dollar value attached to them.
They are good for business. It is interesting to note that the presence of a code of
ethics itself has been used by some businesses as a form of competitive advertising,
a way of promoting that business above others. For example, the NRMA and Nissan
have both dedicated entire advertisements to their codes of ethics, and a common
sight on the windows of real estate agents is a transfer sticker that states, Deal only
with a Member of Real Estate Institute of NSW / Bound by a Code of Ethics.
Consumers can simply turn their backs on products and services with a poor
ethical reputation. The market can be as effective on ethical matters as a regulatory
body, as the damage to Nestl over Third World infant milk formula sales in the 1970s
showed. Its competitor, Abbott Laboratories, developed a code of marketing practice
in response to public reaction to selling infant milk formula into societies where its
use might be inappropriate, but Nestl persisted with its marketing practices and lost
public support.4 As protection against increased external regulation, it is desirable for
the organisation itself to institute its own code of ethics. Shareholders, as well as the
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public at large, now react adversely to perceived unethical conduct, and information
about such conduct is readily available and highly visible in newspapers and popular
magazines. In the USA, Chrysler has made a different kind of move in this direction.
It has established a car buyers bill of rights and a mechanism to enforce it. Chrysler
now claims that it judges the success of dealerships by levels of customer service
and satisfaction rather than volume of sales. It is, of course, possible (and likely)
that this is itself an indirect gauge of volume. Nevertheless, it is the service and not
the volume that is targeted. Chrysler is not unique in valuing honour as a badge
to place on a business. International executive-search firm pioneer Egon Zehnder
believes that demonstrated integrity is as basic to the appointment of an executive as
demonstrated management skills. According to Zehnder, in selecting someone for
a key job, select above all, the [person] with high integrity. Such an integrity-based
selection will permeate through management making a strong management team.5
This is not to say that prudential, self-interested reasons for having a code should
be allowed to prejudice its content or its implementation; many things in life are
done for prudential reasons and are still done well. The same is true of compulsion:
although attendance at school is compulsory and it is prudent to conform to this legal
requirement, children nonetheless benefit, even if they would rather be elsewhere.
The same is true with compulsory voting in Australian democracy. Business, like a
reluctant pupil or voter, can read a bottom line: if trust and confidence and the profits
attached to them are at stake, it pays to take ethics as seriously as other matters of
competitive service. Nevertheless, attempts to extract greater public accountability
from some Australian industries, such as banking, have not met with an altogether
positive response.
Not all businesses and professions are unconcerned about morality except
insofar as moral behaviour is good for business. If we can indicate that even for
the extreme case the business itself should see the presence of a code of ethics
as desirable, then there can be no question of its general desirability. Devising a
code can be part of a review process. The drafting and adoption of a code is an
opportunity for a firm to think through and articulate its values and objectives. The
process can be as important as the result. It can reveal accepted practices that
the organisation would not affirm publicly and that, on reflection, it would wish to
change. Once a firm has done an audit on its ethical practices it will be in a better
position to develop its organisational culture in more productive and responsible
ways. So devising a code of ethics could be seen not as an end in itself but more
as the beginning of a monitoring and reform process. The resultant code is a good
platform for measuring the success of change and developing the strengths of an
organisation to meet emerging ethical challenges. The process that produces it can
be refined and modified to update the code. The production process is thus both the
first stage in the renewal of an organisation and the object of continuing review.
Every organisation has rules about behaviour, even if these rules are not made
explicit in written or oral form. Some organisations have a written code of practice and some do not. Sometimes the written code of practice of an organisation
is at variance with its unwritten operational code. When the two are in conflict the
unwritten code is usually the more effective. This can be very sobering. An executive
of a large corporation once spoke about being the student of a famous professor
of accounting. He was a wonderful teacher, said the executive, he had wonderful ideals, we learned a great deal from him, and he enjoyed great professional
respect. But when I joined my firm I was told, The first thing you have to do is forget
everything professor X taught you. We do things differently here. The executive was
referring not just to skills, but also to values. Organisations may profess one thing
and practise the opposite. All have de facto codes of practice, though not all have de
jure (or formal) codes of ethics.
If an organisational culture fosters sharp practice and rewards unethical behaviour, the superimposition of a formal code of ethics will merely be window dressing.
A code of ethics prominently displayed can be misleading; far worse than no code
at all. Yet contemporary social pressures on business almost compel the adoption
of formal codes. Good intentions notwithstanding, this might at best be useless and
at worst a trap for the unwary. It is also paradoxical; at the heart of written codes is
self-regulation, yet implicit in the social demand is the threat that if a written code
is not adopted, then government will do the regulating. This demand seems almost
to see regulation, or rather codification, as an end in itself. The essential questions
should be these: what are codes of ethics for, and what benefits should be expected
from their adoption?
The first answer must be that a formal code of ethics states where people in an
organisation stand in relation to each other and to the organisation itself. It will also
state where the organisation itself or members of the organisation stand in relation to
entities outside the organisation (most typically, members of the public, stakeholders
or other organisations). The effect of this should be to bring the de facto and de
jure value systems of the organisation into alignment. Then the ethical culture, or
ethos, of the organisation will be transparent: every stakeholder group will know
where it stands.
The model for this view is the principle of the rule of law in the legal system.
Rule of law is an important notion in legal theory and in the philosophy of law. It
encompasses a number of aspects, one of which in particular is very important in
the context of codes of ethics. An environment of rule of law, and a code of ethics,
allows the subjects, or clients, as well as the practitioners to know where they stand
in relation to the practice. It allows people to know (and so allows them to expect
and to plan accordingly) how they will be treated in certain situations. If the prices
of products are announced, then people can choose either to buy them or not, and
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can expect to pay that amount if they decide to buy. People can plan accordingly.
Similarly, if people know that certain behaviour is prescribed in certain situations for
practitioners, then they know what to expect and can plan accordingly. This element
of consistently knowing what to expect and of being able to plan is itself valuable.
To some degree it may not matter what is prescribed (although there are important
limits and whole areas where this is not true); predictability and consistency are
valuable in their own right.
The model of the rule of law is useful in another way. Just as the law should
apply to all people equally, so a business code should apply to all people in an
organisation, from the CEO down. A set of rules for employees that excludes management, even implicitly, is sending a false message to the organisation and to the
public at large. When staff know where they stand in relation to each other and the
organisation, and have a clear statement of moral equality, a barrier has been placed
between them and unethical conduct. If a manager were to request a junior staff
member to do something unethical, the junior employee could point to provisions in
the code forbidding this. In other words, unethical conduct cannot be disguised as
legitimate direction. This barrier should discourage managers from making unethical demands, protect individuals from being placed in difficult or compromising
situations, and safeguard the integrity of the organisation. It should lessen resort
to whistleblowing and allow ethical employees to act with the assurance that they
enjoy the support of the organisation as a whole in adhering to the spirit and letter
of the code.
The point of a code of ethics is to declare professional or organisational standards for all to see. It is an invitation for those outside the profession to judge it
and its practitioners by the standards it declares. It announces to members of a
profession that certain standards and values should be respected in practice. It sets
a level playing field for all practitioners. It is an instrument for accountability and
responsibility. And it is an affirmation of the identity of an organisation, industry
or profession. Codes are not surrogate forms of law, but declarations that certain
principles will be observed in the operations of the institutions that adopt them.
These principles can be broad and general or quite specific. It is often asserted that
the development of a code is as important as the finished document because the
process brings people together around a common purpose and agreed values, and
encourages ownership of the code. There is truth in this when codes are produced
with the participation of all levels of an organisation or profession, but the production
of a code cannot of itself bring purposes and values into being. If the entity has no
clear conception of its own identity, then a code will not give it one or substitute for
one. In this respect, a code is better seen as the result of a process, rather than as
itself the instrument of initiation of a process.
It is hardly likely that an organisation without a strong sense of what it stands

for will pay more than lip service to a code of ethics. A firm sense of identity can
give rise to a wish to affirm certain values, both to encourage public trust and for
internal reasons, such as induction of new staff or sustaining a certain type of culture
in an expanding organisation. But such a strong sense of identity will not of itself
ensure that a code is used or even useful. There are still many ethical organisations
without codes in Australia, although it would be almost impossible for a profession
to practice without one. The presence of a code of ethics is often taken to be a
necessary or defining feature of professions, yet, even when codes are adopted,
uncodified or implicit norms can govern the ethics of corporations and professions.
This is because there can be two sets of norms in organisations: the informal ones
that operate on the basis of example and organisational culture; and the formal ones
that are written down after deliberation and reference to best practice. The latter are
sometimes seen as an imposition on an organisation. If the formal code cuts across
the informal one, then there will be problems about compliance. On core ethical
matters in professional practice, the values of practitioners should accord with
those in the code.
Lets think very generally about what a code of ethics is, and how, in broad
strokes, someone might go about constructing one. A code of ethics is not all there
is to ethics; it does not refer to the entire range of ethical matters. It is not out to
cover the ethical landscape writ large. Why not? Why doesnt the code of ethics have
just one provision: be ethical? In constructing a code of ethics, the appropriate
viewpoint is, of course, all of ethics, but with a view to what there is about ethical considerations, directions and constraints that has particular relevance to the
organisation or profession concerned. Suppose, for instance, that you believe that
respect for human life is an important ethical value. If you are a firm of chartered
accountants, although you might individually believe this to be an important value
and something that you certainly would not want to breach, it has no particular
relevance to your organisational activities. And so it has no place in your firms code
of ethics. The situation could well be different if, say, you were a firm of armed
security guards. For this organisation, it might be important to include something
like this value in your code of ethics. It does have particular relevance for what
you do and how you go about doing it. The point is simply that a code of ethics
is certainly not all there is to ethics; a code of ethics is not an attempt to itemise
and categorise all of ethics. But, a code of ethics is importantly related to ethical
considerations in general, in that it identifies ethical considerations and constraints
that have particular relevance and application to the organisation. We will continue
with this point below, in talking about an organisation addressing the question of
what its organisational values are.
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Another general feature to be kept in mind about codes of ethics is that they must
be enforceable. There are two parts to this point:
1 A code of ethics statements of values must be more than motherhood statements. They must actually have content that is breachable. For any provision in
a code of ethics, it is important to be able to conceive of what would examples
be of failure to comply with that provision. If you cannot imagine what a breach
of a provision would amount to, then that provision is absolutely pointless.
2 An organisation must provide a mechanism for evaluating purported breaches,
and imposing sanctions where breaches are found to have occurred.

It is important to distinguish between a code of ethics and a code of conduct. Not
everyone uses the phrases in this way (although over the past few years, it has
become more common to do so), but the distinction itself is important, whether
or not one uses the mechanics of a code of ethics and a code of conduct to do it.
A number of organisations codes are actually an amalgamation of these two. We
think, however, that it is a good idea to keep them separate.
Lets return for a moment to the distinction between What should I do? and
What kind of person should I be? from chapter 1. In terms of this distinctions applicability to business, it can be helpful to look at it in the way shown in figure 10.1.
FIGURE 10.1
Organisational culture and individual behaviours
organisational
culture
individual
behaviours
organisation principles
code of ethics
What does it want to be?
= organisational culture
individuals within
organisation
indicators re:
What should they do?
code of conduct
We can think of codes of ethics as statements about what kind of organisation

the organisation is. They are statements of principles and values that the organisation professedly subscribes to. They are statements about what kind of culture the
organisation has and/or aspires to have. In values terms, a code of ethics states
the standards to which it holds itself and its employees to account. These are its
professed virtues.
The purpose of a code is not only to state the values of the organisation, but also
to provide serious guidance to people within the organisation about how they should
act. In the extreme, organisations are not particularly concerned about what kind
of people work for them; they are concerned about the kinds of behaviours their
employees exhibit. For example, suppose a business holds equal treatment for all
as a value: it professes a non-discriminatory environment. In terms of any particular
employee, it could well be that the business really does not care at all if that person
is the most ardent racist on the face of the earth. The business does not care if an
employee has very seriously objectionable racist beliefs. What the organisation is
saying to such a person is something like this: Believe anything you like; but do not
ever display anything here but an indication of a commitment to equal treatment
for all. Statements about the organisations values or principles, its culture, speak to
employees about their behaviour, not about their beliefs and attitudes. Organisations
are concerned with employees behaviours.
In this respect, then, although a code of ethics is a statement about values, or
culturewho we areits directive to employees is aimed at the question, What
should we do? If, say, a value identified in a code of ethics is honesty, the directive
to employees is to behave in ways that exhibit honesty. The concern is not so much
that employees possess this virtue, but that they behave in ways that indicate or
exhibit it.
TABLE 10.1
Codes of ethics versus codes of conduct
Code of ethics
Code of conduct
General
Specific
Values/principles
Prescriptions/directives
Judgment
Uniformity
Empowering
Enforceable statements of specific behaviours
Aspirational
General statements of values to which people are held accountable require the
exercise of judgment on the part of any employee. This is the way it is with any
statement of value whatsoever.
Notice in table 10.1 that the word prescription is ambiguous:
1 Any statement with an ought or a should in it, or any statement that tells somebody to do anything at all, is a prescription. You should be a good person is
prescriptive; but in this case, it is not at all specific about what particular bits
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of behaviour are required in order to comply. And, in this case, there is most
certainly no definite list of requirements that could be specified. Notice, however,
that even so, in most cases it could be established that the person either is or is not
complying with the prescription. Sometimes we do not need more specification
in order to give clear direction and to establish either that the prescription is
being complied with or that it is not.
2 Sometimes we talk about things such as regulations, laws or directives as being
prescriptivesometimes overly prescriptive. This is a different sense. In this
sense, prescriptive means, basically, prescribing specifically what to do. You
should never tell a lie is prescriptive in this sense. You should answer the questions with a number 2 lead pencil. Behaving in accordance with the prescription
allows no room for manoeuvre, and no room for judgment.
Codes of ethics are prescriptive in the first sense. They not only allow for
judgment; they require it. Thats the way it is with the statement of any value or
principle. Honesty, integrity and safeguarding the public interest: these are values,
they are prescriptions, they can be breached or complied with, and they all require
the exercise of judgment on the part of whoever is expected to comply with them.
And, by and large, they cannot be replaced with or comprehensively expressed in
terms of something more prescriptive, which does not leave room for judgment. Take
these as clear examples to illustrate this point (admittedly, one is a bit extreme):
1. A nasty fellow, who simply hates Joness looks, wants to hurt him. Jones comes to
you for some help and advice (just because he happens to know that youre an okay
person). You ask him to calm down, have a seat and a cup of coffee; and you suggest
that youll help him try to figure out what to do. In the midst of this, you get buzzed to
the front office, where theres a nasty fellow, smacking his fist into his hand: Wheres
Jones? I thought I saw him come in here, and I want to teach the poofter a lesson.
Honesty does not require that you say, Righto; youll find him back in my office. And
not only that, we would rightly think that anyone who thought of honesty this wayas
simply, Tell the truth; theres nothing more to think aboutdid not really appreciate
what the virtue of honesty is: telling the truth, when that is the right thing to do.
examples
2. When your lovely, somewhat dotty aunt Margaret asks you how you like her hat, just
as she is getting into the taxi, it would clearly be a misguided view of honesty to think
that honesty requires telling her at that moment that you think its ugly.
Judgment is required; and for this reason, we say that codes of ethics are
empowering. Statements of values or principles empower those to whom they are
directed to use their judgment, or their discretion; and they hold people responsible
for this.
A code of ethics speaks in general terms. It articulates ethical values and principles
that are important to the organisation. As a simple example, lets say honesty is one
of the organisations values. Stating it and saying something about what it amounts
toin general termsfor the organisation is appropriate to the organisations code
of ethics. For those people operating under this code of ethics, honesty is a requirement, then. Now, exactly what honesty amounts to in any particular situation will
require judgment. This is the situation for any value or principle listed in a code of
ethics. Honesty is different from, say, a fanatical devotion to telling the truth. Although
extreme, the situations in (1) and (2) above make it clear that (even) honesty requires
judgment in particular situations. Usually the correct judgment will be to tell the truth,
but judgment is necessary in order to appreciate a situation for what it is and for what
honesty requires. So much for honesty. We could make the same pointsand it would
be much easierwith any other value or principle that finds a place in a code of ethics.
To recognise that judgment is required is to recognise that different responses might
be justified. This in itself can be empowering for people operating under the code.
They are empowered to behave ethically. They have to make decisions, and they
have to be prepared to offer justifications for those decisions. They are responsible
for behaviour exhibiting the values and principles articulated in the code. And their
actions with respect to each of those values or principles are to be judged by the
justifications that they as individuals can offer. Thats what the code requires.
Aspirational is a word that is often used in talking about codes of ethics. To
appreciate the sense of aspirational in this context, it is helpful to indicate what it
does not mean here. Again using the example of honesty as the value, saying that
the code of ethics is aspirational does not mean something like this: Right now
were not an honest organisationactually were quite the dishonest organisation.
However, we aspire to behave honestlyone day. Rather, to say that a code of ethics
is aspirational is to say that although we dont always exhibit the values in the best
way, and sometimes we might fall short, we aspire to get it exactly right every time.
We realise that these things involve judgment calls, and we aspire to always exhibit
excellent judgment. To say that the code of ethics is aspirational is to admit that there
is room for improvement in our judgment and behaviour with respect to the values
that the code articulates.
The difference between codes of ethics and codes of conduct is not that codes
of conduct are enforceable and codes of ethics are not, or that codes of conduct,
but not codes of ethics, are prescriptive (in the sense of (1) above). It is, rather,
that the enforceable provisions of codes of conduct are prescriptive in the sense
of (2) above.
A code of conduct should not introduce new values or principles beyond those
present in the corresponding code of ethics. Rather, a code of conduct removes
discretionary, or judgmental, elements that would otherwise apply to a code of
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ethics. They do this by prescribing certain behaviours specifically. They do not do

this holus-bolus, but, rather, selectively.
A code of conduct does not replace a code of ethics. If there is a repeatable type
of occurrence within which a value should be exemplified, a code of conduct can
specify exactly what that behaviour should be. This removes any room for manoeuvre
on the part of the agent. It removes any differences that could exist in deciding what
one should do. Prescribing modes of behaviour can produce uniformity in employees
dealing with such situations. Consider this, as an oversimplified example:
Suppose you work for the mortgage-lending section of the bank. The bank has a code
of ethics, which includes the values honesty, integrity and transparency. There has
been a bit of trouble in your section, with some clients coming away from meetings with
mortgage brokers not fully aware of the banks fees that will attach to their mortgage.
A code of conduct might specify that in dealing with a potential mortgagee, the bank
officer should disclose all the fees that the bank will charge, and how these will be
calculated. Notice that this does a few things:
example
7h It removes any judgment-call on the part of the bank officer as to what information
they should be disclosing about fees. It has produced a specific prescription in this
area, leaving no room for discretion.
7h It has not introduced a new value. It has simply specified what the bank takes as
complying with the values already present in its code of ethics in this identifiable,
repeatable situation (in this case, honesty and transparency).
7h It has addressed a specific problem, which was solvable with the introduction of a
clear and specific prescription. That is, there was a problem; and appropriate use
of a code of conduct has solved it.
Provisions in codes of conduct can also send a message, both inside an organisation and outside it, not necessarily that there are problems that need to be solved,
but that the organisation stands quite clearly for these behaviours. Whether it is a
matter of reputation (as is often the case in the private sector and sometimes with
professions) or a matter of the public trust (as is often the case in the public sector
and sometimes with professions), prescriptions in a code of conduct can give a clear
message: Let there be no mistake about what we stand for here. These are the kinds
of things that a code of conduct can do.
It is important to recognise, however, that a code of conduct cannot comprehensively spell out all that is involved in the values present in a code of ethics. And, in
fact, the more provisions there are in a code of conduct, the more it can give the
impressionto employees and to anyone else who cares to look at itthat it is
completely comprehensive in terms of articulating the values present in the code of
ethics and all the behaviours that are required. This, by itself, is dangerous. It is an
impression that an organisation should very seriously try to avoid. Judgment simply
cannot be replaced by a set of rules, no matter how comprehensive they appear to
be. Not only can there be situations that happened not to be specified. There can
also be situationseven somewhat predictable oneswhere there can be a range
of ethically acceptable ways to proceed, and so the degree of prescriptivity present
in a code of conduct would be inappropriate.
Sometimes codes of ethics are described as living documents. Probably it would
be better to consider codes of conduct this way. An organisations central values
really do not change very much. There can be some changes over time, but this
is probably neither frequent nor dramatic. What does need frequent revisiting is
a code of conduct, questioning not only whether additional prescriptions are, or
have become, desirable; but also whether any current prescriptions need revision
or should simply be jettisoned.
Recognise that judgment is valuable and that it is not eliminable. If an organisation
believes that it is important to empower, or authorise, people to behave ethically,
and so to encourage sound ethical judgments and ethical decision-making, then the
organisation must recognise that each specific prescription in a code of conduct
amounts to a diminution of ethical empowerment. As we have indicated, there can,
of course, be good reasons for specifying particular behaviours, but the organisation should realise that these requirements come with the attendant cost to ethical
empowerment. Given that this is so, careful thought should go into any curtailment
of judgment in a code of conduct. For any provision contained in a code of conduct,
we should be able to answer the question, Why is this there? That is, placing limits
on judgment should be something that any organisation is reluctant to do; and any
limits should be justified.
Before going further with this account of codes, let us say a bit more about the
idea of ethical empowerment in general.
Ethical empowerment is a top-down notion. It involves delegation of authority for
ethical decision-making. It authorises, or empowers, members of the organisation to
exercise judgment in decision-making. Increasingly, organisations have recognised
that they simply cannot afford to be risk averse. They cannot afford for their people
in managerial or supervisory roles to avoid making decisions in ethically charged
situations. The organisation recognises that the alternatives to ethical empowerment,
which gives the employee the authority to engage in ethical decision-making, are
simply not good because,
7h to pass all ethically charged decisions up the line is a recipe for inefficiency
7h to simply avoid making decisions in ethically charged situations is a recipe for
stagnation
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7h to go ahead and do something, whatever you want, is cavalier. It is very dangerous
to an organisation not to invest in systems (for example, training) that equip

managers to systematically exercise good judgment in such situations. To simply
trust in common sense (or something like this), rather than realising that the
matter of ethical decision-making can be approached specifically and dealt with
seriously, is a common error.
Rather, charging managers with responsibility to make ethically defensible decisions is a matter of authorisation, or empowerment. Appropriate responsibility, or
decision-making discretion is delegated downward through the organisation. Those
receiving the responsibility are to recognise that they must make decisions and that
they must exercise demonstrably good judgment in making them. Trust goes downward. From top downward, those authorising people below them must trust that those
receiving the delegation are up to the task. Of course, this should not be simply a
matter of luckthe person who receives the delegation must have the ability and skills
to exercise it. It can be a matter of the right person for the job, providing the necessary
resources, training, installing appropriate systems, and so on. Whatever provisions
are made, it is a matter of trusting that the person who is empowered can do the task.
Nowand this is at least as importantit is necessary that those who receive the
delegation actually trust that the people who gave it to them actually meant what they
said. We all know people who, when they say Exercise your discretion actually mean
something like, You had better do this exactly as I would if I were in your position.
Otherwise, Im going to come down on you like a ton of bricks. This is not trust. This is
not delegation. This is not a recipe for authorising ethical decision-making in ethically
charged situations. It is, rather, a recipe for second-guessing and looking over ones
shoulder. It is not empowerment at all. It is, rather, instilling fear and distrust. So,
in an environment of ethical empowerment, responsibility is delegated downward,
and trust must go in both directions. By and large this is an important notion for an
organisation that is concerned to promote ethical performance. Codes of ethics can
themselves be an important tool in this mechanism.

Discussion of codes of ethics and codes of conduct and the difference between
them is closely linked with discussion of the notions of accountability and responsibility. As we have indicated, operating according to a code of ethics necessarily
requires judgment. We want to take a little time here to focus on accountability and
responsibility, particularly with respect to their roles in an environment that nurtures
ethical judgment and promotion of ethical culture.6 We suggest that focusing on
accountability systems can be like focusing on rules and procedures, rather than on
judgmentmore like focusing on the domain of a code of conduct rather than the
domain of a code of ethics.
FIGURE 10.2
Indispensability of judgment
Ethical judgment
responsibility & responsible behaviour
Rules
Regulations
accountability
accountability
A first reaction to an ethical failure or breach or shortcoming is often, We need

more regulations. It need not be literally with trains running off the rails, as it was for
State Rail of New South Wales in the 1990s, where the causes were seen to be largely
ethical for whatever ill effects had been occurring. Train drivers lack of judgment
and attempts to thwart some procedures resulted in more than one terrible accident.
The response from the organisation was to try to install new mechanical devices
and tougher rules and regulations on drivers behaviour. In short, the organisations
approach was to try to make the dead man brake foolproof. And, of course, with its
focus only there, the remedy was bound to fail. The point is that rules, regulations
and mechanical fixes cannot do the job of replacing judgment. They cannot replace
judgment any more successfully in matters of ethics than in matters of technical
expertise and compliance. They cannot remedy all behavioural difficulties. Focusing
on such things fits with a view that if we can just get the procedures, rules, equipment and hardwiring right, and people complying with these requirements, then we
will not have these difficulties any longer.
The attraction of such a view is clear. It implies that a straightforward, often
reasonably quick and certain remedy can be produced to handle a recognisable
difficulty. It also fits nicely into any accountability or compliance regime.
The difficulty is that in many types of situations that are ripe for ethical failure or
in which there are ethical shortcomings or issues to be addressed, mechanical fixes
very often simply do not work. And, worse than that, they sometimes make matters
worse. We are certainly not the first to point out that general rules cannot handle all
cases. This is what Aristotle had in mind with the notion of equity.7 It amounts to the
necessity of judgment making a correction to a rulenot because there is something
wrong with the rule, but because of the generality of a rule, which will necessarily
make it inappropriate to some cases that it would seem to govern. Trying to accommodate, or replace, equitable judgment with additional rules simply will not work.
Accountability is a very important notion these days. Serious concerns about
accountability have developed in areas where, not all that long ago, accountability
did not receive even a mention. People in various rolesemployees, employers, directors, managers, CEOs, professionals, academics, and so onare held accountable.
It used to be that, for better or worse, people in director or managerial (or academic)
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positions were simply trusted to get the job done. This was managerialism at its
height. There were serious problems. We will return to this briefly below.
Accountability systemsand, in general, a focus on accountabilitysignal a
diminution of an environment of trust. Again, this is for better or worse. Accountability
systems focus on various elements of job requirements. They identify these and keep
track of performance in the various areas. Partly, such systems are historical, in that
they keep track of who did what when. People have to sign off. This can make for
clearer lines about where the buck stops, and who will be liable for what.
TABLE 10.2 Accountability versus responsibility
Accountability
Responsibility
Historical track
Proactive
Tick the box
Take responsibility for
Reveals liability
Discretion
Ethical empowerment, ethical authorisation
Accountability requirements not only keep account of who does what. They also
define what activities, decisions and so on are to be kept track of. They have to do
this. We are not accountable for everything. Accountability systems not only keep
account; they also declare what is to be accounted for, and what counts. They define
those activities and decisions for which people are to be held accountable; and they
themselves set standards: You are expected to do this, this, this and this; and you
are to sign off after having done them. In this respect, accountability systems declare
baselines. They define the problem (if there is one) and, more importantly, they set
the parameters for identifying the remedy or improvement, and for measuring these
things: In the name of X (say, satisfaction of your job requirements, or excellence
in performing your function in the organisation), it is these things that count. We
are going to count them, and hold you accountable accordingly.
To hold peopleor institutionsaccountable for things, the things must be
declared, the methods of counting must be specified, and a timetable must be
introduced. Inputs, outcomes, milestones, key performance indicators, metrics,
productivity, quality check, schedule and timetable: these are some of the notions
that apply. Timeframes become important. For example, the people in the materials
procurement section are accountable for ordering in, paying for, and sending out
to the appropriate departments the materials that those departments need. These
people can keep records, and can show the incomings and outgoings over a specified
period, say three months. We can see not merely that there was no fraud, but also that
there is efficiency in the operation, in terms of what and how much they are ordering,
and what and how much is being distributed to the organisations departments. We
might also have in place an accounting requirement for how the people are spending
their time. The idea is the same: we need to see evidence of inputs and outcomes,
and perhaps procedures followed, over a specified period of time.
Accountability systems do not sit very well with the creation and nurturing
of good judgment. They keep track of and report what people are doingthose
declared items that have been specified and are now countable, the identified items
that are produced, or the identified procedures that are followed. They establish and
then keep track of the norm. By and large, they fail to look at, let alone pay recognition to, anything else. And it is precisely in the anything else basket that excellence
will belong. If we have become preoccupied with prescribing, recording and counting the ordinary, and defining procedures for doing these things, then there is little
opportunity for even tolerating, let along promoting, the extraordinary.
Here, an argument might extend further: in defining the norm, defining what is to
be regarded and what is not, the declaration certainly prescribes those activities and,
in effect, proscribes others (or, at the least, offers no encouragement or incentive to
engage in them): Your brief is to make widgets. You are to produce however many of
them you can; and this will be recognised. This recognition will play a part in whatever promotions, benefits and remuneration you are to receive in the organisation.
Under this regime, when you are giving an account of your achievements, as well
as your job description, within the organisation, this must all be referable to your
widget production. The prescription to make widgets offers incentive to make them.
It also offers disincentive to make anything else. If the business is simply the manufacture of widgets, and the accountability regime is aimed only at those whose jobs
are hands-on on the assembly line, then this is probably not a bad effect. However,
let us suppose that the business is not so clearly defined, or that you are considering
those whose job descriptions are not as easily specifiable, or have a more obviously
qualitative aspect to them.
It is a well-known phraseand the title of numerous articles in management
literaturethat what gets measured gets managed. If something cannot be, or
for whatever reason is not, measured, then that thing cannot be, or simply is not,
managed. The easier and the clearer the measure, the easier and the clearer the
management and the management strategy. By and large, other things are simply
left by the wayside. They do not count. If the basis on which an evaluation is made is
a set of quantifiable criteria that apply to a large range of activities, then this is very
attractive. The evaluation itself can become mechanical, and there is no need, and
no room, for the exercise of judgment in evaluating anything.
A serious difficulty with such evaluations is that in attempting to evaluate something, strong emphasis is placed on particular specifiable facets of that activity to the
exclusion of all others. It also, like other accountability systems, focuses attention
solely on those facets.
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There are important questions, largely left unanswered; for example,

7h Are the criteria we are measuring really relevant to measuring what we are interested
7h
7h
7h
7h
in measuring? (This is a central aspect of the general issue of concept validity.)

Should we allow them to be the sole criteria?
In any particular area, is it necessaryand is it possibleto have generic criteria?
In some particular areas, is it necessaryand is it possibleto have quantifiable
criteria?
Can we legitimately do away with a judgmental element in the evaluation of
these areas?
In identifying which activities or results are to count, an accountability system

prescribes what activities to undertake. This, as well, serves as a prescription: if some
activity cannot be done in ways that have countable outcomes over a short period of
time, then, inasmuch as it falls outside the accountability regime, the activity itself
does not count. It is, in this respect, a waste of time, and a waste of resources.
Satisfaction of accountability requirements is not all there is to achievementand
certainly not all there is to ethical performance. It is a misfit to try, as organisations
typically do, to put accountability systems in the same basket as whatever there is
towards promoting excellence. These are different things.8 And the worry is that
in the respects noted here, accountability systems and promotion of excellence
can come into conflict with each other. Accountability systems display excellence
in reporting within their terms. They do not show excellence in accomplishment.
Accountability systems not only are different from excellence-producing systems;
they also can work against promotion of excellence.
Onora ONeill discusses some of these difficulties in A Question of Trust.9 For the
failing trust from the era of managerialism (let the managers manage), the remedy
was seen to be provided by increased, and then, strict, accountability regimes, with
their emphasis on transparency and openness. There are serious difficulties and
dangers inherent in this remedy:
7h Such requirements (ironically) heighten an incentive of deceit. For example, the
more likely you think it is that someone will be looking at the notes you have
written, the more careful you will be that those notes reflect what you want those
people to see (not at all necessarily the same thing as the thoughts and decision
procedures that you actually engaged in).
7h Such requirements encourage whitewashing. For example, if the minutes of the
meeting are going to be open to public scrutiny, it is more likely that the minutes
themselves will be written in a bland and uninformative way: Discussions were
engaged in, and decisions were taken.
7h Transparency and openness themselves do not guarantee that people will be
informed of what they are supposed to be informed of. For example, the fact
that directors own shares in what are conflict-of-interest ways is revealed in

small print on page 137 of the 300-page annual report in the list of shares held by
each director.
7h There are the worries (identified above) that go along with what gets measured
gets managed, including a failure to have a look at the big picture or what really
matters, which would amount to a more holistic view.
What is called for, according to ONeill, is something that really does remedy the
defects in managerialism without creating an environment with the defects accompanying the new emphasis on accountability. What is needed is (1) focus on creation
of an environment in which those who manage are trustworthy (not merely trusted, as
in the old managerialism days); and (2) cultivation and encouragement of a climate
and wherewithal that produces an exercise of judgment that is worth trusting.
Back to codes
There can be reasons for not empowering, and the reasons why the specificity and
particular prescriptions of a code of conduct can be desirable are that specific prescriptions can produce uniformity. Two other possible benefits of codes of conduct
are these:
7h A specific requirement can sometimes take the heat off an employee. Suppose the
code of ethics mentions integrity and also some appropriate reference to handling
conflicts of interest. Perhaps the code of conduct goes furtherremoving judgment in this particular situationand prohibits employees from accepting any gift
with a value greater than $20. Now, imagine this scenario, where a contractor is
offering a Christmas gift of Johnny Walker Black Label scotch. The employee wants
to decline the gift. The contractor might say, What do you think, mate, Im trying to
bribe you? Its a Christmas gift. Thats all. Here the employee might simply point out
that the code of conduct prohibits taking the gift. Thats all there is to it. Its not that
I think youre trying to bribe me. Its just that Im not permitted to accept gifts.
7h A specific requirement can help the organisation with respect to public trust:
it can make a clear, public statement about the types of organisational values
that are important to the organisation. It can be a statement about what the
organisation allows or tolerates, or, more likely, what it does not tolerate; that is,
what behaviour simply cannot be done. Such a statement can be very important.
It can be important throughout the organisation, in an organisations interface
with its stakeholders, and with the public at large. It can be a clear statement
that This is what we stand for or, No, no, no; we will not tolerate that. This is
more than a public relations matter; but it can also be that as well. We mentioned
that in a set-up for ethical empowerment, or authorisation, trust must run in two
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directions. In what we are now discussing, an organisation recognises that trust

runs in only one direction: the organisation needs the publics trust. Sometimes
the device of a clear statement, a specific prescription, can help towards that.
The following points are also important to think about in an organisations creating
its codes. First, what are our values? What are the moral values that have particular
relevance to and resonance in the activities we engage in? For example (as discussed
earlier, see p. 241), suppose that respect for human life is an important moral value.
If we are a firm of chartered accountants, then, although this remains an important
moral value for us personally, it is not relevant in our practice, and hence has no
place in our statement of values or in our code of ethics. However, if we were a firm
of armed security guards it could be a good idea to express this value because it
would be relevant to what we do in our business, and show our awareness of our
responsibilities and commitments.
Beginning from the values and principles expressed in the code of ethics, the
organisation might then consider whether there is need to spell out some of these
further and more prescriptively. This, we believe, is the best way to approach
the design of a code of conduct. Remember the above example of the insurance
company deciding that it is desirable to spell out in this way a particular situation
involving honesty.

There are structural differences between professions and businesses that distinguish
a professional from a business code of ethics.10 A professional code operates throughout a whole profession and sets the standard for its practitioners. In this respect it
operates on a monopoly. Furthermore, it also operates on an area of expertise that
is known better by the profession itself than by those outside it. Some distinguishing
features of what it is to be a profession are related to the area of expertise exercised
by those people within it. This point is significant in that it furnishes a justification
for the profession to police itself (at least partially). As itself the repository of the
requisite expertise, who is in a better position to know what the profession should
do? And who could be in a better position to police its activities?
A business code, however, can operate at the level of individual businesses. One
business can have one code, and another a different code, or no code at all. And
businesses with vastly different codes of ethics might even be in competition with
each other. By the nature of what it is, however, a professional code takes in everyone
who is going to perform a specified activity.11 The same is true of industry codes.
Professional and business codes express a moral dimension to the activities of
professions and businesses. However, codes are not the whole moral story, even for
the individuals who work within them. As already indicated, codes of ethics do not
replace or embody all of morality, even for those activities for which they are written.
A code of ethics is not a formal apparatus for rendering an individuals conscience

unnecessary; it is not a codified conscience. It is a matter of some argument about
how much of morality per se is appropriate in a code of ethics.

Beyond having the proper regard for morality per se, and beyond giving due recognition to creating an environment of predictability and consistency in the behaviour
of its members, what else should an organisation consider in determining the content
of its code of ethics? Each organisation will have particular requirements, but codes
typically contain provisions about the following:
1
2
3
4
5
6
7
8
9
10
11
12
13
a general statement of the values of the organisation and its guiding principles
definitions of what constitutes both ethical and corrupt conduct
competence requirements and professional standards
directives on personal and professional behaviour
affirmations of fairness, equity, equal opportunity and affirmative action
stipulations on gifts and conflicts of interest
restrictions on use of the companys facilities for private purposes
guidelines on confidentiality, public comment, whistleblowing and postseparation use of company information
identification of different stakeholders and other interested parties, and their
rights
a commitment to occupational health and safety
a commitment to the environment and social responsibility (a broader concern
than stakeholders alone)
a mechanism for enforcing the code, including sanctions for violations
advice on interpreting and implementing the code.
These provisions can be combined or expanded in various ways depending on

need. Not all of them are necessary for every business organisation, but the list
covers the most common concerns. We shall comment only on some of them.
General statement of values and guiding principles

A general statement of values and guiding principles should commit the organisation
to ethical principles as foundations for the conduct of its operations and the basis
for the other provisions of the code. Levi Strauss and Co. begin their Aspirations
Statement thus:
We all want a company that our people are proud of and committed to, where all
employees have an opportunity to contribute, learn, grow, and advance on merit,
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not politics or background. We want our people to feel respected, [be] treated fairly,
listened to, and involved. Above all, we want satisfaction from accomplishments
and friendships, balanced personal and professional lives, and to have fun in our
endeavours.
This style of values statement is unusual in a code, but it is clearly consonant with
the reputation for ethical business that Levis has built up over almost 150 years.12
Values statements, vision statements or codes express the common values of an
organisation, so that everybody not only knows where they stand, but knows what
everybody else stands for. According to management consultant, Lee Edelstein,
a good values statement constitutes the ultimate control system: When everyone
agrees on values, you dont need a lot of managers.13 This sentiment is echoed by
John Oertel, president of ME International of Minneapolis:
When youve got people sharing the same values, youve got what amounts to a built-in
quality inspector. It used to be our workers picked up MEs values at the company
picnic or on the bowling team. Not now. Were growing. Half our people are new.
Society itself is becoming scattered.14
Oertels point is that corporations operating in a morally pluralist society need

a code of ethics to act as a unifying device. A code permits the declaration and
dissemination of a common set of values and demands behaviour in accordance
with them.
Competence and professional standards

Matters of standards, competence and quality require reference to the kind of role
or better, the social rationale or justificationof an activity or business in the society
as a whole. As a very rough example, suppose we are constructing a code of ethics
for civil engineers as a profession. We should ask what the social rationale is for that
profession. Let us suppose that the answer is to build safe bridges. The answer is not
simply to build bridges. Bridges are no good to society unless they can be crossed
safely. If this is so, then something like provision of public safety (where this can be
spelled out in enforceable terms) belongs in a code of ethics for civil engineers. The
general point is that significant elements of a code of ethics do not come after the
fact of the activity; they are inherent in it. A code of ethics does not come simply as a
result of considering what would be good ways for the profession or the professional
to behave. It does not come from asking in the abstract about what the particular
profession, as a profession, should demand from its practitioners. Rather, the question can come about by consideration of the basis of the profession as an enterprise
that is socially justified.
Personal and professional behaviour

Codes of ethics provide guidance especially in cases that present themselves as
morally uncertain. A code of ethics can give a clear directive about how to behave.
However, there is both a good and a not-so-good aspect to this point. The not-sogood aspect is that a code may assume for people the air of an ersatz conscience or
may come to be viewed as dictates of morality requiring no further consideration.
Another aspect of this is that a code may be seen as covering everything of moral
significance that could occur in the behaviour of the organisation and its members
or staff. This danger, then, is that the code could be taken to replace conscience, to
speak with the authority of morality, and to cover all areas of moral difficulty for the
people involved. The good aspect of a code providing guidance in morally unclear
situations is related, again, to the desirability of the rule of law. Situations that are
recognised as morally unclear are those where responses by individual practitioners
could be expected to vary. This could result in a departure from uniform standards of
conduct. However, the important point here is that it creates a lack of predictability
for those served by the organisation. They would not know what to expect in certain
circumstances; and knowing what to expect is itself of considerable value.
For all their affinities with the law, codes differ because they are internally
generated and self-regulating in the corporate and the personal sense. In stating
organisational values explicitly, a code does not displace a conscience, but it does
mean that the individual does not have to rely on conscience alone. An effective
code is part of a culture that supports individuals ethically. The code itself can be
conscientiously reflected on, further developed, and modified at the organisational
level. As it stands in relation to the conduct of individuals who are members of the
organisation, it by no means has the status of stone tablets. In this sense, also, it
does not replace an individuals conscience, and it does not replace morality or
encompass all of morality.
Social responsibility and the environment

A code of ethics can specify the social responsibilities of the business; that is, the
responsibilities that are assumed towards society in general, not only the businesss
stakeholders and customers. To a great extent, business can set the parameters of
those responsibilities. An organisation can present a formal statement concerning
its responsibility to society, and can give formal recognition to the fact that it cannot
do everything itself. A business has a limited amount of resources, and through a
code of ethics can make a statement about what areas it is prepared to take social
responsibility in. For example, the organisation might make a formal commitment
to reducing pollution, while not making any other commitment to the environment.
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To a point, this is a perfectly acceptable way of operating. The existence of a formal

statement gives it direction, and can also act as a shield against potential claims that
the organisation is not doing anything in other areas of social concern.
Interpretation, enforcement and sanctions

A professional code is not merely a claim about an ethical commitment of the
organisation. It must have substance in two ways:
1 It must actually prescribe or proscribe something that is identifiable. Perhaps
this does not sound like much of a requirement on a code, yet it is surprising
how many codes fail to meet this requirement. A code cannot merely be a claim
that Were good people, and well treat you right. It must say what this kind of
treatment amounts to.
2 There must be some sanctions attached to the code. A structure is required so
that breaches of a code can be identified and penalties can be imposed. This
requires, in addition, that there is a body that has the authority and capability of
enforcing sanctions. A code cannot be merely a paper tiger.15
It is worth articulating these two requirements further. A code that is too general
or vague has virtually no value. A code must say something, and it must operate in an
environment in which there is the real possibility of inflicting sanctions on offenders.
As not all cases will be black or white, a body to interpret and apply the code is
necessary. In this respect, the situation is analogous to a law court. The provisions
of a code must be capable both of being observed and of being policed. It must
require something more than what would be illegal anyway: a code is not simply
a statement that the law has our wholehearted support. Whatever the purpose of
a code of ethics is, it is not simply to affirm the law. Norman Bowie (among others)
has suggested that a code introduces a higher standard than the law.16 Whether or
not the standard is higher, it is not simply the same as the law.
Also, a code of ethics must not be like fire regulations pinned to the back of a
doorunread, unintelligible and unserviceable in time of need. The idea of a code
of ethics should be to prevent fires. It should not be consigned to the desk drawer
after cursory perusal, but be a document that is useful in guiding the actions of
staff because it embodies the objectives of the business and its considered ways
of reaching them. It should be of the same importance as a business or corporate
plan, and part of a vision statement or company credo. In order for a code of
ethics to function effectively, its relation to the overall structure and policy of the
organisation cannot have the character of an appendage. It must be integrated into
the organisational structure and mode of operating throughout the organisation. The
presence of a code of ethics and the central features of its content must be part of the
ethos of the organisation. The Credo of Johnson & Johnson (discussed in chapter 5)
illustrates this point. So, too, does the code of Levi Strauss.
We have suggested that for rule of law reasons (among others) a code of ethics
is desirable. Those reasons are closely related to another feature of a code of ethics;
namely, that it fosters trust and confidence. The presence of a code of ethics need not
foster this atmosphere merely by implying the goodwill or altruism of the profession
or business it governs. A strong code of ethics, operating in the environment in
which it can flourish, should have more substance than that accorded to it merely
by the goodwill of the business or profession. A code of ethics can become integral
to the businesss infrastructure itself.

Codes have grown in importance in recent years. Australia has followed the United
States in this, although Australian corporate culture is still some way behind its
American counterpart.17 In the United States there are legislated incentives to develop
ethics programs, including codes, in the revised Federal Sentencing Guidelines for
Organizations, which have applied since 1991. The Guidelines give parity to Federal
Court sentencing across the United States. In the case of transgressions by organisations and their employees, they allow for lighter sentences, including drastically
reduced fines, for corporations that have made concerted efforts to introduce ethics
programs to the workplace. They are a carrot and stick approach to self-regulation
by corporations, primarily in response to amazing accounting and financial failures (Enron, Lehman Brothers). Other formal reactions, in particular the American
Competitiveness and Corporate Accountability Act 2002 (the Sarbanes-Oxley Act)
require the corporations to which they apply to develop codes of ethics. Similar
external persuasions have been necessary to convince Australian companies of
the advantages of codes. The Australian Stock Exchange (ASX) has had a serious
voice in this. The ASX Corporate Governance Council released its Principles of Good
Corporate Governance and Best Practice Recommendations at the end of March
2003. Principle 10 of the essential corporate governance principles recommends
that listed companies establish and disclose a code of conduct to guide compliance
with legal and other obligations to legitimate stakeholders. As already indicated,
codes that are embraced by those they regulate will be more effective than those
imposed by public pressure or governmental direction.18 The ASX has put ethics on
the agenda. And, it seems clear that these recommendations will acquire more bite,
and come to have more the character of requirements than recommendations.
The Banking Industry Code of Practice

Consider the Banking Industry Code of Practice. It did not arise from industry
concern about standards of practice, public risk or improved services. Nor did it
arise from the industrys own concerns for its ethical image or for the prevention
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of ethically questionable practices. Indeed, banking has been resistant to industry

self-regulation. This suggests a failure to appreciate the benefits that codes confer on
business, as well as some indifference to stakeholder considerations.
The code of practice in the banking industry was a response to threats of government regulation. In 1993 the Federal Treasurer proposed a voluntary mechanism
whereby banks could subscribe to a code that would be enforceable at law. This was
not an attractive proposition for the banks because it made enforcement a matter
for the courts rather than the industry, but it was preferable to direct government
regulation.19
The report of the Federal Banking, Finance and Public Administration Committee
of 1991 recommended a banking code of practice. In the following year a joint
taskforce comprising the Treasury, the Trade Practices Commission and the Federal
Bureau of Consumer Affairs prepared the draft Banking Industry Code of Practice.
The importance of these measures in contributing to the robustness of the
Australian banking system should not be underestimated. During the global financial crisis of 200809, that robustness served Australia well. The role of codes in
building strong institutions is sometimes overlooked. It is easy to do this when times
are good, but when the fundamentals of business are put under pressure, the cry
goes out for better codes and regulatory frameworks.
These provisions are typical of professional and industry codes. They protect the
banking industry as well as its customers and other stakeholders, but the industry did
not respond well to sustained stakeholder interest in an externally generated code.
Although initiated by government, adoption of the code could have been embraced
by the industry in a positive manner. This might have helped restore its tarnished
reputation. Instead it was an opportunity lost. In addition, the story of the Banking
Industry Code of Practice illustrates the point we made earlier: if business does
not self-regulate, government will intervene. Enlightened self-interest in this matter
can benefit stakeholders. If, however, there is a real divergence between the actual
values of the industry (its de facto code) and the values embodied in a formal code,
the imposition of the latter will fail to provide the ethos in which it has practical
effect. In such circumstances it is better for the law to set operating conditions that
will ensure compliance.
Clearly what is needed is a proactive response to the spur of government
regulation. The usefulness to business of embracing codes has to be promoted if
their effectiveness is to be maximised. This is not a plea for ethical propaganda:
in surveying 145 British companies with codes, Walter Manley found that senior
management identified eighteen major benefits conferred by the adoption of codes
of ethics.20 His research supports the case we have made regarding the benefits of
codes for business.
Codes of ethics are not a stand-alone treatment for the problems of organisational
ethics. Together with training programs, mentoring, exemplary leadership and structural incentives for ethical behaviour and disincentives for unethical behaviour,
codes form part of the mutually supporting structures of an ethical organisation.
As we have suggested, they can also be an excellent starting point in the process of
reviewing the values of a business and devising other structures necessary for the
development of an ethical climate.
There will always be temptations for people to do the wrong thing. Sometimes
these temptations can be removed or made less attractive by a system of incentives
and disincentives. Such organisational strategies are ways of institutionalising ethics.
This involves focusing on the ethics of the organisation and what its members
perceive its values to be, rather than on individual moral probity. As James Waters
put it, Rather than ask What was going on with those people to make them act that
way? we ask, What was going on in that organization that made people act that
way? 21 This is the question that needs to be answered in order to see why people
who are morally decent in their private lives behave in unacceptable ways at work.22
It is a question that organisations need to answer in order to create an ethical climate
in which staff can develop professional excellences and shun improper conduct.
This is not to suggest that there are just two types of organisational culture: an
ethical one, which produces good employees, and an unethical one, which produces
bad ones. There is no blueprint for an ethical organisation, and Waterss point is that
the normal operations and structures of an organisation can unintentionally give
rise to unethical behaviour. For example, while role modelling and mentoring are
important means for initiating new employees into an organisation, they can also
be used to induct people into unethical practices. Similarly, a strict hierarchy that
allows an employee to report only to an immediate superior can prevent adequate
feedback about the growth of unethical practices. A corporation that has successfully implemented many of these mechanisms for developing and sustaining an
ethical culture is Honeywell.
CASE 10.1: Honeywellan ethical culture

As a corporation based in the United States, Honeywell falls under the Federal
Sentencing Guidelines, but its practice nevertheless exemplifies how organisations
can take ethics seriously. It clearly states its values; takes ethical leadership seriously; makes knowledge of ethics part of the normal expectations of all employees;
audits this knowledge as well as the practice of ethics; requires reporting of code
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violations, and provides support and feedback for those reporting; and imposes
penalties for violations.
Honeywells Code of Ethics and Business Conduct comes with a Message from
the Chairman of the Board and Chief Executive Officer. This message traces the
principles and standards of the corporation back to its founding in 1885. It explains
that, while observance of the code is mandatory, it cannot be comprehensive
and does not replace common sense or conscience. It also warns that unethical
conduct can sometimes arise from good but mistaken intentions. It stresses that,
In the conduct of Honeywell business, observance of the law and strict adherence
to company policies and practices are requirements without exception. We clearly
want to succeed, but never at the expense of our integrity. In everything we do, our
ethics and our values must be the first consideration in our minds. In other words,
there is no room here for mixed messages from management. The code comes
with a card that employees are required to sign to indicate their commitment to
observance of its principles.
Because of the Federal Sentencing Guidelines, it is now common for United
States corporations to include ethics compliance in management auditing, and
this is the case at Honeywell. In the last quarter of each year, the external auditors
obtain from managers at each level of the organisation a certificate that confirms
that they and their key employees understand and comply with (ethics) policies.23
Managers are held accountable for ethical leadership.
The code contains Honeywells Vision Statement and a statement of its
values. It is divided into sections that are clearly labelled for quick accessibility,
and it is cross-referenced to other corporate policies and procedures, which are
briefly summarised. It should be difficult for an employee to plead ignorance of
Honeywells ethics policies.
At the conclusion of the code, options for reporting violations are given.
Employees may report to a supervisor, the Office of General Counsel, a corporate
compliance officer, an ethics hotline on a special number, or a designated vicepresident at head office, or they may use an email address. The advice concludes,
When you call the Hotline, the matter raised will be investigated promptly. The
results will be reported back to you. If an anonymous call is placed, a process
for a response to you will be established. These options and the commitment to
feedback make reporting of ethical failure less like snooping and more the routine
expectation of a good employer, which Honeywell insists it is. It goes some way to
removing the problem of whistleblowing, while building employee confidence in the
support of the organisation in acting conscientiously.
Discipline for breaches of the code includes cautions, suspensions or dismissal.

Such discipline applies not only to direct breaches of the Code, but also to situations
in which circumstances reflect a lack of supervision or diligence by a violators
superiors in enforcing Honeywells policies; in which a supervisor has directly or
indirectly retaliated against an employee who suspects a violation of the code; and
in which employees deliberately fail to report violations or withhold information.
Complementing the code and violation-reporting mechanisms, Honeywell has
a quick check on decision-making called Bell, Book and Candle. This catchy title
helps employees remember that they should be aware of warning signs of ethical
infringements (Bell); check corporate policies to see if proposed actions would
conflict with them or with relevant laws (Book); and consider how decisions would
look under the light of day testsay, public exposure by the media (Candle).
Ethics evaluation of managers by subordinates and peers as well as superiors is
part of the strategy for entrenching ethics into corporate life.
Honeywell exemplifies support of an ethical culture that goes beyond the minimum.
The Federal Sentencing Guidelines 24 have been treated by some corporations as a
checklist to be gone though by their lawyers: draw up a code, have employees sign
it, have the CEO give an annual address on ethics, and the matter is taken care of. In
other words, although such external pressures can offer some incentive to develop
ethics programs, they can also lead to mere conformism,25 or to a minimalism that
has nothing to do with ethics and everything to do with insuring against a heavy
sentence in the event of failure to comply.
Some of the mechanisms advocated for developing and sustaining an ethical
culture are publicly stated commitments to ethical practices emanating from top
management; establishing an ethics officer or committee; ethics training programs
for all staff at induction and updating this training periodically; channels for internal
reporting of unethical conduct; and rewards (never penalties) for ethical behaviour
and penalties (never rewards) for unethical behaviour, even if it improves the bottom
line.26 The main point here is to send unambiguous messages to all employees that
what is expected of them is ethical behaviour first and last. There should be no
hidden agenda about results at any cost. The expectations of employees should
match those of the organisation. This means that staff are not placed in situations
where competitive pressures can motivate unethical conduct. It also means making
moral decisions collegially whenever possible, rather than placing ethical burdens
on the shoulders of individuals.27 This ensemble of measures to support an ethical
culture in an organisation has the virtue of sustaining an open and sharing ethos
that is self-correcting.28
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1 Why might a business want to develop a code of ethics?

2 What would be ways of introducing and maintaining systematic attention to good
ethical decision-making by those people in an organisation who are authorised to
make such decisions? What resources could be available to these people?
3 What are the limits on codes of ethics? What wont they do?
CHAPTER OUTLINE
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Affordability
A double standard?
Review questions
International business dealings raise in a special way many of the ethical issues
outlined at the beginning of this book. One kind of challenge is presented by the
responsibilities of multinational corporations (MNCs) that operate in environments
that are less regulated, that are not democratically governed, and in which corruption flourishes. Another challenge is respecting the cultural differences that
MNCs encounter in the countries in which they operate. Another is the difficulty of
regulating commerce in globalising markets. We shall consider just some of these
issues in this chapter.
Competition in international business is such that ethics can appear to be a handicap,
if not downright irrelevant. Too often, businesspeople argue in polarised terms, as
though business had only two choices: to behave unethically or fail. It is easy to think
of the standard slogans: Its kill or be killed; Its a jungle out there; Its dog eat dog.
Leaving aside the view that ethics is irrelevant, it can be argued that the survival of
a firm should not be jeopardised in order to fulfil an ethical obligation when ones
competitors are not ethical. A case could be made that paying a bribe to an official
to secure a contract in a host country could mean the viability of the firm, help local
employment and even promote economic efficiency. Of course, making such a case
is saying that paying the bribe is not really unethical (see chapter 2 on dirty hands).
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But how many cases are there in which the survival of a firm depends on a bribe?
Just how inimical is ethics to international competitiveness? It is unconvincing, both
in domestic and international business, to dramatise the difficulties of matching competitors ethically by claiming that the competitors tactics are designed to destroy
all rivals. The survival of most businesses does not depend on one decision, and if
the matter is very serious, then being unethical in order to save the company simply
changes the nature of the risk.
For a company to embark deliberately on unethical conduct under the guise of
necessity is morally indefensible. This might seem a harsh view, especially when
the livelihood of a community is related to the survival of a business enterprise.
In a time of economic restructuring, we are only too familiar with the human cost
of business collapse. But the way to mitigate human tragedy is to appeal to public
policy, not to go feral. Corporations are not natural persons who may legitimately
steal when survival is on the line. A business conducted as though each sale is make
or break has serious problems, which breaches of ethics will only make worse, not
resolve. But it is not only failing businesses that argue from necessity: as mentioned
in chapter 2, necessity is often the excuse for a hard-nosed business culture that
seeks to normalise indifference to moral principles in businessat least in relation
to its own actions.
The link made between competition and survival is a parody of the work of Charles
Darwin: social Darwinism. It imagines a world where only the fit should survive.
Interestingly, another great English thinker, Thomas Hobbes, suggests a different
requirement for corporate survival in the arena of international competition. Hobbes
believed that a world where people did whatever was required to maintain their own
security was in a state of war. Such an unpredictable and unstable state is likely to
result in an unpleasant life and an early death.1 The remedy for this vulnerability
is enforceable authority, which will bring people under the common regime of the
state. By analogy, if international markets are to work, then a Hobbesian solution
is needed. An international legal and normative infrastructure is necessary among
states. The point that is often lost in analogies with war, however, is that a great deal
of this infrastructure already exists in private and public international law. It enables
the most complex kinds of global transactions to be conducted with a degree of trust
and predictability that is often overlooked. Moreover, business itself has initiated a
number of bodies to set standards of conduct internationally, which we will discuss
in a later section.

One of the difficulties of doing business internationally is the variety of social and
legal standards that apply around the globe. What might be acceptable or legal in the
home country of a business might be offensive or bring penalties in a host country.
C H A P T E R 1 1 I N T E R N AT I O N A L B U S I N E S S E T H I C S
Whatever the differences between other cultures and Australia, the problem for
business is arguably not primarily one of a conflict in basic values but of cultural,
economic and political differences. Corruption can exist in any context. It is the
reaction of business to that corruption that matters. There are more safe exits
for businesses faced with corrupt pressures in Australia than exist in some other
countries, such as Thailand or Vietnam. But the lack of strong formal regulatory
environments does not indicate an absence of values that we should respect and
upon which the regulatory infrastructure of business can be built.
When we observe foreign cultures, we tend to be struck more by differences than
by similarities. That is, after all, why we travel and take an interest in other peoples: to
experience the breadth of human diversity. Ethical practices are among such differences in the customs and ways of life of our hosts. As we noted in chapter 1, the words
ethics and morals originally referred to the standards of a culture: the social mores,
understandings, conventions and norms by which conduct was judged. But there
is a limit to the relevance of social and cultural difference. While we speak of the
respective mores and norms of the French, Germans and Japanese, we do not usually
speak of French ethics, German ethics and Japanese ethics. A particular emphasis
on certain values in these countries need not suggest a different ethical universe.
If multiple sets of ethics are appliedwhen in Rome then not only can one
culture not criticise another, but there can be no real basis for one culture to learn
from anothers values. Each culture would have to reject the positive as well as the
negative aspects of foreign societies. Not only does common experience contradict
such cultural isolationism, but empirical worksuch as that of the highly regarded
mythographer Joseph Campbellshows that the notion of a common humanity is
not some Western ideal born of the eighteenth-century Enlightenment.2
It is not unreasonable, then, to suggest that ethics is universal as well as rooted
in particular contexts. We expect some moral principles to transcend particular
cultures. What values might these be? High on the list would be respectfulness,
honesty, trust, integrity, sincerity, loyalty and diligence. Of course, these values are
expressed in different and distinctive ways. Let us distinguish between primary and
secondary values.3 The list above identifies primary values. Secondary values would
relate to the expression of these primary values in certain ways, such as marriage
customs, social stratification, kinship obligations and so on. In the case of Japan,
it would be important to understand the significance of harmony, consensus and
loyalty within a group or companywawhich could lead a subordinate, for
example, to cover for a superior accused of accepting bribes. According to one
research group, loyalty to ones group is a respected personal trait, which may be
compared in importance to the personal integrity of Westerners.4 In China, trust
xiyongis the fundamental value of business, much of which is conducted by verbal
agreements in underregulated environments.5 In Vietnam, Indonesia and Thailand,
the reluctance to say no directly to a request may seem evasive, when in fact it is a
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mark of respectfulness to those making the request. Understanding these differences

can increase ones regard for those with whom one is doing business, especially
if one recognises that many of the cultural mores of Asians and Australians rest
upon the same primary values and, in terms of ethics, differ only in their secondary
values. Ironically, if there were greater familiarity with Aboriginal culture among
Australians, business people would be more sensitive to the Asian reluctance to give
a blunt refusal.
Of course, the distinction between primary and secondary values does not help
business in a situation where secondary values are the problem. The point of making
the distinction, however, is that differences in secondary values might indicate cultural differences other than ethically divisive ones. It might be appropriate to give a
gift as a matter of cultural sensitivity rather than to gain an uncompetitive advantage.
So while we are not trying to reduce ethical questions to primary values shared
universally, we would suggest that the traditions of a foreign culture are directed
to preserving certain primary values and that when this is understood, unfamiliar
customs become more intelligible and are not confused with ethical transgression.
Moreover, this distinction between primary and secondary values helps us identify
fundamental issues, and permits legitimate and sensitive criticism of practices that
are believed to protect primary values but may not. Argument or discussion about
primary values is more likely to come to a sudden halt: if there is disagreement,
there may be nothing more to argue about. But secondary values thought to protect
more fundamental goods through cultural and legal mechanisms invite the kind of
discussion and dialogue that can benefit critics and defenders alike, and can invite
imaginative solutions to differences.
Take the example of face, a crucial value common in many Asian societies.
Causing a person to lose face in a business deal cuts through secondary values to
primary values of respect and trust. Westerners do not like to be publicly embarrassed
or to have their self-esteem or dignity damaged, so why should it be different for
others? Given that Asian societies are more communal and relationship-based,
and that family obligations extend beyond the nuclear and blood relationships
familiar in the West, the nature of face needs to be examined on a case-by-case
basis. The issue of face also illustrates how ethics must go beyond rules in order
to be culturally sensitive. It takes an ethical imagination to do well in situations in
which values collide. This sort of imagination was shown by a prominent Australian
businessman who was managing an MNC in Thailand. At Christmas, a lavish gift of
food and wine was given to him. He felt that it would be awkward to accept this gift
but also awkward to refuse. His imaginative solution to this problem was to thank
the gift-giver by saying how much his staff would enjoy it. The gift-givers insistence
that the gift was for the CEO was countered by a face-saving strategy of modesty
and generosity: the staff must be permitted to share in the gift because they had
worked hard. Dissipating the contents of the gift also dissipated the concern about
the creation of a direct obligation to reciprocate by offering some business favour
to the giver. Eventually the gifts stopped coming, perhaps indicating that their true
purpose had not been achieved.
Is corruption acceptable in foreign cultures?

In December 1996, the German newspaper Der Tagesspiegel ran a story under the
headline, Corruption part of traditional Thai culture. This extraordinary claim was
not made by the newspaper, however, but by the Thai Deputy Minister of the Interior,
Mr Pairoj Lohsoonthorn, who publicly told officials that his departments policy was
to accept bribes:
He had ordered staff of the land sales department of his ministry to accept any
money offered to them, he told Matichon newspaper. However, civil servants were
not allowed to ask for bribes or to circulate price lists. This is part of traditional Thai
culture, Mr Pairoj said. The acceptance of bribes was justified by the low level of pay
in the civil service.6
From such reports, one might conclude that corruption is acceptable to the citizens of Asian countries or that their authorities are indifferent to it. This inference
would be unjustified. First, as Johann Lambsdorff points out, alleging corruption in
foreign business environments shifts responsibility from those who offer bribes to
those who accept them: both sides of the equation need to be examined.7 Second,
although high levels of corruption remain, the financial and political instability of 1997
put new fight into anti-corruption programs already instituted by the Chinese, Thai,
Malaysian and Vietnamese governments. In 1999, Indonesia passed laws on Clean
Government requiring public officials to disclose their wealth, and on the Eradication
of Criminal Acts of Corruption to identify and punish corrupt practices. In China,
serious penaltiesincluding deathapply to corruption, and new institutions, such
as the Chinese National Bureau of Corruption Prevention opened in 2007, have been
introduced. Such corruption-fighting measures may be embryonic from a Western
point of view, but they are clear signs that corruption cannot be dismissed as cultural
difference. Together with improved legal infrastructures and the economic resources
to support them, such measures will lead to changes in the business cultures of these
countries. If corruption were acceptable in Asia, it would follow that Westerners
could engage in corruption in Asia without drawing comment. The hostile reaction
of Indonesian commentators to a Canadian companys mining scam gives the lie
to this.8 Anti-corruption measures now reach into the elite ranks of Asian states. In
Vietnam, the government has launched a campaign against corruption that involves
the death penalty for some crimes. Some estimates put losses from corruption at over
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A$180 million in 1996. Because corruption involves top party officials, there has been
some scepticism about whether the new laws will be enforced diligently, but already
two executives have been convicted and sentenced to death in absentia after fleeing
to Cambodia with millions of dollars. Similar stories are increasingly common. The
director of an importexport company owned by the Vietnamese Communist Party,
Tamexco, has been charged with fraud costing A$33.2 million in a scheme involving nineteen others and a total of $62 million. One of these is the former deputy of
Vietnams biggest state-owned bank, who was convicted on charges of making illegal
loans and sentenced to death by firing squad.9
Oddly enough, Japan, one of the worlds most spectacular economies, is driven
by an ethos that is not based on profit-maximisation but on values such as honour.10
Corruption is consequently a great source of shame, even in the face of necessity.
In March 1997, Hideo Sakamaki, president of Nomura Securities, the largest stockbroking firm in the world, resigned because his vice president and two managing
directors had complied with the demands of corporate extortionists.11
Would it be possible to splash the details of secret dealings over the front pages of
local Asian newspapers and find approval among readers? Clearly not. Perhaps the
most famous scandal involving an overseas company in corruption was Lockheeds
channelling of money to the Japanese Liberal Democratic Party and the eventual
charging of two former Japanese prime ministers. When one considers the magnitude of buying influence at the political summit of one of the worlds leading
economies, one wonders how such a thing could have happened.12 The audacity of
the company cannot be excused on the grounds of commercial necessity and the
absence of regulation in the United States at the time. It was blatantly unethical, and
Lockheed could not evade responsibility by shifting the blame onto the Japanese.
This scandal should serve as a lesson for all those who wish to justify the payment
of bribes by invoking its commercial necessity in an environment where bribery is
alleged to be normal. In 1977, the United States Congress passed the Foreign Corrupt
Practices Act, which prohibits American corporations making payments to foreign
governments to advance their business interests.
Scandals like the Lockheed bribe are not rare in Japan. Although they have
brought leading businessmen and high-ranking politicians before the courts, the
shame has not been sufficient to avert other corporate disgraces involving such
major corporations as Nomura and Daiwa. Some might assume from cases such as
these that Japanese business relies on fraud and corruption. If everybody is doing it,
then it must be normal. Hence, it is legitimate for foreign firms operating in Japan
to give bribes or indulge in other forms of corruption. If home country laws forbid
such corrupt practices, then a firm might form an alliance or partnership with an
indigenous company, which will handle culturally and legally sensitive issues such
as facilitation fees and undisclosed commissions. Yet it is no more acceptable in
Japan to offer or accept bribes than it is in the United States. In both countries, it
is necessary to hide this conduct because it is shameful and unethical. When the
Asahi newspaper reported that Osaka oil dealer Junichiro Izui, charged with tax
evasion, had been a conduit for senior Mitsubishi Oil officials to channel several
million dollars to Japanese politicians, there was a public outcry.13 Again, the light of
day test makes the point: once bribery is publicly exposed, people are incensed.
Cultural relativism
The mere fact of cultural difference does not imply its acceptability. Although respect
for persons is basic to civilised interaction, we are not obliged to respect every kind
of belief that people might hold simply because we wish to show them due regard.
On the contrary, while courtesy should prevail, we might on occasion feel obliged
to criticise certain beliefs from what we believe is a stronger position in our own
belief system. Were this not so, different peoples could never learn from each other.
Examples of resistance to beneficial cross-cultural criticisms are common. Slavery
flourished in the United States long after its abolition in Great Britain. Womens
suffrage was achieved only graduallyNew Zealand in 1893, Australia in 1902,
the United States in 1920, though many European countries had achieved suffrage
before thiswith Switzerland granting women the vote as late as 1969. Respect for
individuals does not mean sacrificing ones own values for those of others. Such
respect is, however, likely to reveal that there is more common ground between
cultures than is at first apparent.
In the early 1990s, a survey of 150 randomly chosen companies among Australias
500 largest exporters identified the ten most commonly perceived ethical problems
in international dealings. In order of frequency they were14
1 gifts and favours: large sums of money, call girls, travel, lavish gifts
2 cultural differences: misunderstandings about cultural matters such as the significance of gifts and tokens of esteem
3 traditional small-scale bribery: for example, small sums of money to speed up a
routine bureaucratic procedure
4 pricing practices: differential pricing, requests for invoices that do not reflect
actual sums paidfor example, for dumping or price fixing
5 questionable commissions: large sums paid to middlemen, consultants and
so on
6 tax evasion: transfer pricing
7 political involvement: political influence of multinationals, illegal technology
transfers
8 large-scale bribery: political donations, sums paid to evade laws or influence
policy
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9 illegal or immoral activities in a host country: pollution of host country, unsafe

working conditions, flouting patent and copyright provisions
10 inappropriate use of products: use of technology in a host country that is banned
in the home country.
Ranked in order of importance, these problems were
1
2
3
4
5
6
7
8
9
10
large-scale bribery
cultural differences
involvement in political affairs
pricing practices
illegal or immoral activities in a host country
questionable commissions
gifts or favours
tax evasion
inappropriate use of products
traditional small-scale bribery.
The dominant problem for businesses operating in Asia concerned bribes, gifts
and commissions. But serious breaches need to be distinguished from minor ones.
There is a difference between a payment to expedite business that is already in
train and a payment to influence the awarding of a contract. While both involve
departures from ethics, one is akin to queue jumping and the other is plain crooked.
While small failings can lead to larger onesfor even small collusions have their
coststhere are degrees of seriousness.
Australian perceptions of ethical problems in Asia are mirrored by the perceptions
of Asian managers. Indonesia, for example, was perceived by nearly 17 per cent of
Australian companies surveyed as the trading partner with which they experienced
the greatest ethical difficulties, while China had a 10 per cent rating. In a survey
of 280 Asian executives by Political and Economic Risk Consultancy Ltd (PERC)
of Hong Kong, corruption was perceived as declining only in the Philippines and
Singapore.15 (See also the discussion of the Transparency International Corruption
Perception Index on pp. 2945.) Like the Australian survey, the PERC report found
China to be near the top of the corruption list. South Korea (plagued by scandals
such as the Hanbo collapse16) and Vietnam also ranked highly in the corruption
stakes. According to PERC, control of corruption requires an institutional framework
that is lacking in many countries and can take years to develop. Vietnams corruption problems have hampered the operations of business. A downturn in the
property market and the consequent non-performance of many loans has badly
affected the banking system. Poor management and corruption are to blame.17
A survey by the Far Eastern Economic Review in 1993 identified differences in the
seriousness accorded to ethically dubious business practices in Asia and Australia.
For example, according to this review, while Malaysians and Indonesians place little
weight on pollution offences, Japanese and Australians regard pollution seriously.
Indonesians and Thais will offer a bribe in order to retain a client far more readily
than will Hong Kong Chinese and Australians. Koreans and Japanese will impose
excessive working hours on staff in ways that Singaporeans and Australians would
not. Koreans, Filipinos and Taiwanese are more likely to pay for escort services for
business associates than Australians, Japanese and Hong Kong Chinese. Malaysians
are most highly protectionist, and Hong Kong Chinese are least so. Koreans and
Singaporeans are likely to pay a family man more than a single woman performing
the same duties, something that Thais, Hong Kong Chinese and Australians will
rarely do. Filipinos, Taiwanese and Koreans are more likely to favour family members
for jobs than are Singaporeans and Hong Kong Chinese.18
Judgments about corruption are influenced by cultural factors, but what the surveys above reveal is a great deal of overlap among many cultures in what is regarded
as unacceptable conduct. Crime and corruption in Australian and other Western
business circles are often invisible,19 while highly visible instances in other parts
of the world can confirm certain stereotypes. A different reality might be hidden
beneath such perceptions. One cross-cultural study of marketing ethics suggests
that collectivist societies, such as those found in Asia, are more likely to conform to
organisational ethical standards and requirements than are individualist societies
such as Australia or the United States.20 It is useful to issue such cautions in order to
balance stereotypical judgments, and to point out that the problems Australian firms
face in dealing with corruption and unethical conduct in Asia are often the very
ones encountered by Asian firms as well.
It is not uncommon for a company to bring new skills and processes to a foreign
country. If trained staff are not available, they are trained. If infrastructure is absent,
it is built. With ethics, it is the same: insistence on certain standards of conduct,
clear statements of guiding principles, and the introduction of values and priorities
unfamiliar in the foreign environment are all part of building ethical infrastructure.
If it is absent, it is built. The point is to do it reflectively and sensitivelythat is,
without imposing home country values as though they are some improvement on
the host countrys ethics. Foreign firms should consider the impact of their activities
on local communities and build commercial and ethical infrastructure that respects
the traditions and values of the host country.
These principles are easy to preach and hard to implement. In Indonesia, for
example, the nobility (priyayi) of the Javanese majority divide the world into two:
refined or elevated elements and occupations, called alus, and the crude or tainted
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elements and activities, called kasar. Tradition places business under kasar, which
implies that it is inherently immoral. The attitude that business is distastefulfamiliar in the West until relatively recentlycan make unethical conduct self-fulfilling:
some businessmen show immoral conduct because they think that their activity
is by definition immoral. Those who dont want to be dirty never ever enter business
enterprises.21 An understanding of these values would help an MNC strategically but
could also assist Indonesia in building culturally appropriate economic infrastructure. It would not excuse unethical conduct by the MNC in Indonesia.
Corruption is, by definition, not an ethical value for any country, and so, as long as
the ways of minimising corruption are not offensive or culturally inappropriate, there
is no reason to be anxious about shaping or enhancing the ethical environment of
an overseas operation. This is well illustrated by the problem that confronted Julius
Tahija, who was managing director of Caltex Pacific Indonesia from 1967 to 1977.
When he was first approached with a kickback (which he rejected), Caltex had no
formal training programs in ethics. Tahija believes that such programs can be an
effective antidote to spurious claims of culturally relative standards,
Many people mistakenly believe, or convince themselves, that honesty and dishonesty
translate differently in different parts of the world. This is self-deception. To be honest
is to be honest . If culture pressures people toward a certain type of business
duplicity, then the transnational must counteract these pressures. Ethics classes
should be integrated into training programs to strengthen each employees personal
sense of ethics and to clarify what the company expects.22
Here the crucial goal is to meet the MNCs expectations, not to attempt wholesale
reform of a foreign business environment. It is not unusual for MNCs to require consistency across corporate culture, no matter where it is located. If they are American
corporations, the Foreign Corrupt Practices Act will support such requirements. For
example, Honeywells Code of Ethics and Business Conduct has, like those of all
large American multinationals, specific provisions against overseas misconduct. In
clear and direct terms, the code prohibits international price-fixing, bid-rigging, collusion, bribery, kickbacks or any kind of inducement to influence a transaction.23 To
the extent that such standards become global, the MNC is influencing the business
environment of its hosts.
There is, however, some merit in the complaints of MNCs about competing
ethically in an unfair market place. If all businesses are to be on a level footing,
then public policy should enforce at least a rough equality among competitors.
If this does not happen, how can people entering the market be expected to
behave fairly? Why does any particular company have an obligation to put itself
at a disadvantage in relation to its competitors? Any company doing so would go
under in a market where the less scrupulous prevail. Such reasoning is a moral
evasion, but one derived from a sound notion. We do not blame a bank teller for
handing over cash when confronted by an armed robber. Whenever duress is
applied, we reduce responsibility accordingly. In some environments, business
can be confronted with operating conditions that are analogous to coercion, so no
ethical blame should attach to them for conforming. The reason that it is an evasion
nonetheless is that it makes an exception to the rule. In making necessity a virtue, it
abandons reasonable responsibility. Companies can be caught in difficult situations,
which may be exculpating, but to make the operating environment the justification
for corrupt behaviour is unacceptable. General or stereotypical excuses will not
convince. Corporations no less than individuals are required to make sacrifices at
times: profits do not outrank morality, a point tacitly conceded by the necessity of
reaching for excuses. The answer is not to deny the wrongfulness of the conduct,
but to stop it. In the words of Richard De George, Some firms that operate in corrupt
environments claim implicitly or explicitly that it is ethically justifiable for them to do
whatever they must to stay in business. But their claim is too broad to be defensible.
Ethics does not permit a company to capitulate to corruption. 24
Richard De George has specified moral guidelines for multinational corporations.
The problem of doing business internationally is not only the relative underdevelopment of legal and commercial institutions in some countries, but also the absence
of international background institutions, such as laws, shared norms and social
requirements. Rather than providing an excuse for substandard ethical practices,
such differences place greater responsibilities on international business than those
that apply at home. De George suggests that the most important criteria for responsible business operations abroad are for companies to
7h do no intentionally direct harm in the host country
7h benefit the host country and contribute to its development
7h respect the human rights of workers in the host country
7h respect the values, culture and laws of the host country, as long as these do not
involve moral inconsistency or the abridgment of human rights, as apartheid did

7h pay their taxes
7h assist the building of just background institutions in the host country and
internationally.25
If a corporation cannot meet its responsibilities abroad, then De George suggests
that an ethical manager might even have to consider sacrificing survival:
At times, acting ethically takes some toll on a company, and it may even threaten its
existence. Although we are told human life is sacred, it is sometimes right to lay down
ones life for a friend, for ones family, for ones country Similarly, might not a CEO
justifiably lay down the life of the corporation for a cause or principle?26
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This is a course that many writers on business ethics would find unacceptable
because of the limited moral personality of the corporation. As an artificial person,
it cannot lay down its life for others as natural persons (people) can. We discuss this
issue below.

CASE 11.1: Kader Industrial Toy Company factory fire
On the afternoon of 10 May 1993, a fire broke out in a four-storey factory complex
owned by Kader Industrial Toy Company in Nakhon Pathom Province near Bangkok
in Thailand. Of the 188 workers killed in this tragedy, 174 were women and
children. The Kader factory was a notorious sweatshop, but it supplied toys under
subcontract to some of the leading toy-makers in America.
Just before Christmas 1994, the Australian published a commentary on the
fire by American journalist Bob Herbert. He did not mince words in apportioning
responsibility:
In the United States, toy company executives are immersed in the sweet season
of Christmas. It is jackpot time and they do not want the holiday mood spoiled
by reminders of the Kader horror. These executives know that their profits come
from the toil of the poor and the wretched in the Far East; they can live with
thatlive well, in fact. But they do not want to talk about dead women and girls
stacked in the factory yard like so much rubbish, their bodies eventually to be
carted away like any other industrial debris.
It is just for such occasions that God gave us the gift of denial. Much better
to think of the happy American shoppers clutching the stuffed animals and other
toys as they wait in line at the register US executives keep the misery at a
distance through the mechanism of contracts and subcontracts. They act as if
they bear no responsibility for the exploitation of the men, women and children
upon whom so much of their corporate profits rest.27
While Herbert concludes that corporations will always chase profits, no matter
how tragic the circumstances in which they are generated, he hopes that consumers
will be more ethically sensitive than corporate executives to scandals such as the
Kader fire. He believes that when consumers realise that the lives and health of child
labourers are at risk in the production of toys they buy for their own children, they
will not buy them.
There are grounds for this belief, as successful campaigns against Nestl and Shell
have shown. Nike offers another example of a high-profile corporation successfully
targeted in campaigns by human rights organisations.
CASE 11.2: Nike sweatshop allegations

According to a 1997 report, girls were subjected to abuse by Vietnamese factories
supplying footwear to Nike. Supervisors humiliate women, force them to kneel,
to stand in the hot sun, treating them like recruits in boot camp, Thuyen Nguyen,
spokesman for Vietnamese Labor Watch, said after a sixteen-day inspection of four
factories supplying Nike. Nguyen, an investment banker from New Jersey, issued
a report detailing abuses such as twelve-hour working days in overheated and
noisy conditions; all-up labour costs of less than US$2 for items retailing for as
much as US$149; wages of US$1.60 for eight hours work; and workers being
allowed only one toilet break and two drinks of water in an eight-hour shift. At
one subcontracting factory, the Taiwanese-owned Pou Chen Vietnam Enterprise, a
manager forced fifty-six women to run in the hot sun as punishment for not wearing
regulation shoes. Twelve women were hospitalised as a consequence. Nike later
instituted an inquiry and suspended the manager. But Nguyen alleged that Nike
clearly is not controlling its contractors, and the company has known about this for
a long time.28 Nike denied this but was clearly spurred into damage control. The
markets for its products are highly competitive and sensitive to the tarnishing of a
clean, healthy, sporting image.
In Australia, too, this image has come under attack. Community Aid Abroad
released its own report, Sweating for Nike, to coincide with that of Vietnam
Labor Watch in launching a campaign for Australian consumers to boycott Nike
products.29 This was followed by a report by Perth academic, Peter Hancock, called
Nikes Satanic factories in West Java. Hancock spent eight months in Indonesia
documenting sweatshop conditions, which mirrored those in Vietnam. Employees
worked an average of 11.5 hours a day, and 80 per cent of them were forced to
work seven days a week; girls as young as 11 years old were employed; workers
were sacked on the spot for taking sick leave; verbal abuse of female workers was
endemic; and most workers earned the legal minimum wage of about $2.50 per day
and some overtime. According to Hancock, this contrasted with the better conditions
of Nikes competitors, such as Reebok. Nikes response to such allegations was
to deny control, and therefore responsibility, over its suppliers. Hancock rejected
this defence. He claimed to have observed two American representatives of Nike
working on the factory floor.30
The responsibilities of boards of directors and senior managers for offshore

operations cannot be evaded by claims that cultural differences preclude intervention
or that subcontractors are beyond their reach. Why, for example, do they deliberately
locate in countries where unions are illegal? As the Bhopal disaster showed, it is easier
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to export the plant than responsibility. In the cases cited above, there was not even an
attempt to assume a proper responsibility for work practices abroad until they were
exposed. The light of day test (as set out in the discussion of various decision-making
models in Appendix 1) dictated a response from Nike: if the publicity did not subside,
it could be forced to change its contracting terms to relieve public pressure. President
Clinton introduced a code of practice for corporations operating overseas; while this
did not eliminate sweatshopsand might even have given a facade of respectability
to some companies that use themit was a necessary first step in mobilising public
opinion against oppressive labour conditions.31

In 1993, representatives of Asian governments met in Bangkok prior to the Vienna
conference on human rights. In a joint declaration they claimed that, While human
rights are universal in nature, they must be considered in the context of a dynamic
and evolving process of international norm-setting, bearing in mind the significance
of national and regional peculiarities and various historical, cultural and religious
backgrounds.32 Chris Patten, last British governor of Hong Kong, read this equivocal
endorsement of human rights as a camouflaged attack on their universality. Specifically, he argued that the rhetoric hid a belief that human rights hamper economic
development: they are bad for business.33
Yet Hong Kong exemplifies, he maintains, the constructive role of the rule of
law and a proper regard for human rights in the creation of prosperity. He takes
the Hong Kong experience to be living proof that human rights are as relevant to
Asia as they are to the West. They are not some colonial relic or a new imperialism.
Patten believes that if the critics had had their way, Hong Kong should have reached
a certain undefined level of affluence before starting to take human rights seriously.
Otherwise rights might have got in the way of economic progress, much as the
Bangkok delegates implied.
Pattens polemic is a welcome change from the weasel words of conditional
supporters of human rights, even though there is no more evidence for his claims
than there is for the belief that ethical business people will prosper. Moreover, his
position seems to suggest that human rights are cost free. Human rights that mean
anything in practice are not without costs.34 At the very least they require the removal
of negative externalities, and sometimes considerably more. Rights that rely on noninterference and governmental forbearance (often called negative rights) seem to
be what Patten had in mind. The protection of negative rights is not free, but is less
costly than protecting positive rights, which entail the allocation or redistribution
of resources. Acknowledging such costs up front, even though this might seem to
subject rights to an affordability test, is important if the role of business in human

rights protection is to be serious. We discuss this further in connection with South
Africa and arguments about affordability below.
Patten is on firmer ground in demanding evidence to support the view that human
rights retard the material development of peoples. This demand does not address
the question of whether material prosperity should be pursued at the expense of
human rightsa question that the Bangkok conference probably had on its mind.
It is a question that is much on the minds of businesspeople in the West as well:
it would be wrong to suggest that Australia has problems of business ethics and
less developed countries have problems of human rights. Economic justifications
for ignoring human rights problems in the conduct of business are as familiar in
Australia as anywhere around the globe. The labour conditions of outworkers in
the clothing industry in this country are as much a human rights matter as those
in China or India. Confronted with the need to rectify abuses in the outworker system
in the garment industry, the president of the Council of Textile and Fashion Industries
of Australia, Tim Todhunter, remarked, I dont know anyone in the industry who has
the capacity to absorb significant increases in costs. Some garments will go back
into factory situations. Some garments will still be made at home but with award
rates [paid] Some garments will go offshore and jobs will be lost.35 Of course,
Todhunter was rightgarment manufacturing has all but totally moved offshore
but his argument cannot be used as a counter to human rights, particularly as
Australia and the West have made inroads into rectifying exploitation in Asia. Still,
Todhunters remarks should not be dismissed: the rigours of competition can make
ethical considerations seem unattainable. If offshore competitors have lower labour
costs, Australian producers are in a difficult position and the use of outworker labour
can assume the colour of necessity, as the case of Pacific Brands showed in 2009.
Pacific argued that Australians just did not buy their products, the implication being
that Australian-made underwear and footwear could not be competitive against
Asian imports.36
The problem with responses like Todhunters is that they open the door to compromise on rights if advantagesAustralian advantagesare at stake. There is a
role for leadership in this area and Australia will not be giving it if the history of the
past three decades is any indication. In 1996, for example, Don Mercer, then chief
executive of the ANZ Banking Group, addressed the AustralianBritish Chamber of
Commerce on a number of topics, including the issue of human rights and trade.
Mercer found recent moves to link environmental issues, labour standards and
human rights to international trade disturbing.37 In the same month, government
minister John Moore abolished the Outworker Project, aimed at identifying exploitative employers of outworkers, in order to save $400,000. While it is easy to be glib
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about government docility, this does seem to have been a genuine failure on the
part of the Australian government in an area where setting a good example is part
of setting the agenda for reform in other countries in our region.38
Later that year, the Deputy Prime Minister, Tim Fischer, ruled out sanctions against
Burma on the grounds that they would be ineffective and therefore do nothing for
human rights. Despite calls from the Burmese democracy leader, Aung San Suu
Kyi, for economic sanctions against the military dictatorship, Fischer rejected such
a course: They are not practical with regard to the Burma situation. It is, therefore,
the view of Australia that they are not practical. The United States and the European
Union had threatened to impose trade and investment sanctions if political repression worsened. Fischers response provided a telling contrast: Ive been to Burma
many times, including Mandalay and elsewhere. Its, err, Im watching developments
very closely.39 Business leaders have been too ready to treat questions of human
rights in host countries as internal matters that have nothing to do with them, even
when their operations and investments are enmeshed with rights issues. Political
leaders have shown a similar reluctance to confront rights abuses squarely when
trade might be jeopardised by such action. The only reasonable conclusion that may
be drawn is that human rights are taken to be less important than profits.
In a series of influential works, Thomas Donaldson has argued that multinational
corporations ought not to deprive workers in host countries of their rights and should
even assist in protecting some rightsminimal education and subsistencebut that
they have no duty to provide direct aid to those whose rights have been abridged.40
The reason is that such direct aid would be unfair [to the] profit-making corporation
[which] is designed to achieve an economic mission and as a moral actor possesses
an exceedingly narrow personality.41 The economic mission of the business corporation makes it a poor substitute for a government in dispensing welfare. It is neither
a real (moral) person nor a democratic institution and has no mandate to render
more than minimal assistance except in unusual circumstances (Donaldson gives
the example of an earthquake). It is not within the moral capacity of a corporation
to rectify deficiencies in human rights, such as minimal education and subsistence,
even if it is notionally within its resource capacity. Quite simply, argues Donaldson,
the languages of personal morality, of virtue and vice, of personal perfection and
the maximisation of human welfare are inappropriate to considerations of corporate
responsibility. The business corporation is a very restricted, artificial person, and
only restricted moral responses may be expected of it. These are not responses that
presuppose a human psychology, but those that relate to legal and contractual duties
and rights, responsibilities and benefits.42
The application of such reasoning to concrete cases can be complicated, as the
following case study shows.
CASE 11.3: Shell and Nigeria

Geraldine Brooks, a journalist on the Wall Street Journal, was arrested by the
Nigerian Security Service for delving too deeply into the fate of the Ogoni people,
among whom she found conditions far worse than she expected:
I suppose that 10 years of working on a conservative pro-business paper had
taught me that self-interest, if nothing else, usually prompts corporations to
behave with a measure of decency. Oil companies, dogged by poor records in
developing nations, have tried in recent years to better their image.
But three days in Nigerias Ogoniland had quickly revealed a picture much
grimmer than anything the Ogoni leader, Sari Wewa, had described. Since Shell
struck oil there in 1958, an estimated US$30 billion worth had been extracted
and sold. Yet the poverty of the 500,000 Ogoni remained desperate, even by the
harsh yardstick of the poor world.
As subsistence farmers dug for yams with sticks, their naked children drank
from streams polluted by the toxic chemicals of neglected oil spills. Oil pipelines
snaked hard up against the farmers mud brick huts, even though current industry
practice is to site them far from human habitation. I spoke to a woman burned in
one of the inevitable oil fires that had resulted from this perilous practice. Still
in pain almost three months later, she lay on the earthen floor of a traditional
healers hut, her burns wrapped in poultices of leaves. When I asked a Shell
spokesman about her, he said the company was hazy on the details of the
case
questions
accident, and couldnt investigate because of tensions in the area.43
1 Is it inappropriate to make an adverse moral judgment about a company such

as Shell, which has had an appalling environmental record in Nigeria and a
disastrous effect on the Ogoni people?
2 Can a multinational be an innocent bystander when it operates in a country
ranked next-to-last (132nd) on Transparency Internationals 2003 Corruption
Perception Index?44
3 And what is Shells position when that oppressive regime executes dissenters
such as Ogoni leader Ken Sari Wewa?
A supporter of Donaldsons view might argue that Shell is responsible for the evils
it causes, but should not be expected to become involved in supplying remedies for
rights violations for which it is not responsible. To impose such obligations would
not only mistake the purpose of corporations and their restricted moral personality,
but also commit the additional error of believing that they were fitted for such a role.
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On Donaldsons analysis of corporate duties, it would seem that Shell should assist
the Ogoni people in overcoming the hardship inflicted upon them from oil drilling,
but should avoid the political questions arising from protests against drilling on their
land. But such a position, while plausible on paper, would be absurd in practice. Shell
is producing oil with government approval but without the consent of the Ogoni. The
political question is inseparable from the business issue, just as the economic and
political issues in slavery were entwined. Moreover, the hardships of these people
are not exceptional: they are an everyday occurrence; they are normal. And Shell,
by taking the posture of innocent bystander, helped to normalise them.
To argue otherwise would be to partition one kind of public institution in one
sector of social lifethe business corporation in the economyfrom the kinds of
burdens and costs that have to be carried by others. Whatever the limitations on
the corporate personality, it cannot be suggested that it is incapable of conferring
and enjoying political benefits, of being criminal or of behaving justly. Ultimately it
is reductionist to hold that, because the business corporation has limited purposes,
its moral accountability can be described only in terms of these purposes; that it is
such a restricted vehicle for economic advantage that it cannot be responsible for
matters that are not its legal or causal responsibility; and that deviations from such
conceptions of the business corporation are warranted only in exceptional circumstances, such as natural disasters. Corporations do not behave according to such a
limited conception of their (moral) capabilities, and the public clearly expects more
than a minimal standard of conduct from business in circumstances less unusual
than an earthquake. As Kevin Jackson has remarked, given the widespread nature
of poverty and disease in less developed countries where multinationals operate
profitably, The Donaldsonian exception ought to be the rule.45 Specifying the
extent of the moral obligation is not easy, but that does not amount to an objection
in principle. Shells conduct subsequent to the Ogoni disasters, which included the
execution of prominent dissidents by the government, shows that corporations are
not immune from moral responsibility. As noted in chapter 8, Shell took seriously
the impact of its actions on the peoples and environments in which it operated and
adopted corporate social responsibility, winning a British Social Reporting Award
for its 1999 Report in 2001.
The test of business probity is not only observance of procedure in the matter of
basic rights (such as the law), but also respect for human goods more generally. In
the words of George Brenkert, morally significant human rights [cannot be obtained]
by appealing to utterly minimal duties.46 Some conception of the goods necessary
to human flourishing is also required, and no society, government or business is
entitled to trade them for more general benefits, as some forms of utilitarianism
would allow. It took decades of argument and hard campaigning to get rid of slavery,
to secure fair wages and conditions for workers, and to abolish child labour. These
are matters that, at one time or another, were opposed on the grounds that they were
unaffordablethat is, on grounds that claimed exemption from moral appraisal. An
unwillingness among those who benefit from the exploitation of others to recognise
their moral responsibilities is not a sufficient ground on which to pronounce an issue
non-moral. Such an unwillingness betrays a move from the view that the corporation
has severely limited moral capacities to the view that those who benefit from the
corporation have similarly limited moral responsibilities. The thin moral personality
of the corporation can be a very thick barrier between its beneficiaries and the
moral problems encountered in producing earnings.
It will be difficult for those businesses that differ with the hostile policies of
host governments to stand up for human rights, and the decisions will be made
on a case-by-case basis. Each case has to be argued, not merely proclaimed. This
is a large demand to place on human rights activists: moral argument is difficult
enough in a community that seems to accept cultural relativism and moral pluralism
unreflectively. But moral argument of various kinds does go on. The case of BHPs
mining activities in Ok Tedi was argued by that company and its critics, and was
resolved when BHP acknowledged its responsibilities in a fashion too rarely seen
among transnational corporations. The questions it faced were not simple. The case
was not only about investment and tailings in a river. It was also one of the different
aspirations of the peoples who work in that region; of just compensation for losses;
of the costs and benefits, the losers and beneficiaries from mining. The BHP decision
to compensate says something about the moral community in which the companys
owners live, and may signal the effect of ethical investment and moral suasion on
such global businesses.
Ethical questions such as those surrounding the involvement of BHP in Ok Tedi
are difficult: they require argument about the issues mentioned above. Whether
companies should cooperate with evil is one of the most significant and common
questions faced by businesses based in countries that claim to uphold human rights.
If business is to further human rights, mere withdrawal from the site of conflict might
not always be the ethical thing to do. It might be better to leave, as Levis did in
China (see Case 11.4 on p. 285); on the other hand, it may be better to stay and
prevent things from becoming worse for the host population. Such decisions, like
Oskar Schindlers reversal of support for the German cause when he witnessed
atrocities in Nazi-occupied Cracow, are not made because of slogans, but by uniting
an appreciation of context with principle.
Realistically, business will not lead the way on human rights. Indeed, it would be
enough if business were to follow in the wake of human rights activism and support
its advances. At the very least, business may be forced to protect its interests (that
is, its reputation) in the face of pressure from ethical investment organisations 47 and
public interest groups. This is the argument from self-interest.48 It is not to be despised,
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particularly if it assists the recognition of human rights in practice. Ultimately

the argument for international business ethics must be in terms of humanity, not
commercial advantage, but at a less sublime level, self-interest is an aspect of the
work of organisations dedicated to ethical standards in global business, such as
Transparency International and the Caux Round Table (see pp. 2926).
Affordability
According to Donaldson, one of the three conditions for a human right is that the
obligations or burdens imposed by the right must satisfy a fairnessaffordability
test.49 This is simply the familiar moral requirement that agents must be capable of
realising or preventing an action for which they are to be held responsible. If they
were not in a position to act, then they could not be held accountable. So, too, with
rights: corporations that are not able to prevent breaches of human rights are not to
be blamed. And, because of their limited moral personalities, business corporations
are less able to give effect to rights claims than real persons, governments or aid
organisations. Donaldson does not adequately distinguish between the possession
of a right and the blame attributable to those who do not, or cannot, recognise it.
That is what the affordability condition is really about: blameworthiness in cases
where rights are not observed, not the possession of a right.50 Even if corporations
cannot afford to act positively in defence of rights in a particular context, and so
cannot reasonably be blamed for this, it does not follow that the people making the
rights claims do not have a legitimate case.
The failure to make this distinction clearly could have unfortunate consequences
for the defence of human rights. It also underlines the importance of giving an
unambiguous sense to fairness and affordability in this context. The danger is
that ethics might be seen as tradeable, something that Donaldson does not endorse.
Nevertheless, moral rights will appear to be expensive and perhaps unaffordable
in situations where rights are regarded as having equal standing with economic
development, profits, property and the exploitation of a resource. Objections to
mining, bridge-building, forest-felling, tourism development, child labour, less regulated labour markets, self-regulation of occupational health and safety, and so on
could well be met with the response that choices that protect human rights are too
costly, that they destroy competitive advantage, and that they will cause the loss of
jobs or the flight of capital.
Questions of economic benefits should take into account who is being asked
to bear the costs. For whom is the business activity affordable? Are social costs
being fairly compensated? In concrete terms, this means questions such as these:
what if the Ogoni told Shell that they could not afford to have petroleum drilling
in their midst? What if the people of Ok Tedi told BHP that they could not afford
mining because it increased effluent in their river? What if outworkers were to ask
Tim Todhunter why he thought we could afford the current system and why we
could not afford fair wages for all workers in the garment industry? What if the same
questions were put to Don Mercer?
The notion of affordability suggests that we can decide when and where human
rights will have currency, rather than determining the answer to the different question
of whether particular rights claims can be met. The notion that, in argument, morals
are trumps implies that other factors should carry less weight in governing action. If
that is so, then decisions about what can be afforded by a businessas distinct from a
societyhave already shifted ground to the detriment of human rights. If affordability
is an issue for a corporation, it might have to forgo operations in a particular country.
It is not entitled to evade human rights to prevent this outcome. There is a maxim
in ethics that ought implies canthat is, that we should only ask someone to do
something if they are able to do it. In the case of business, as with individuals, this
meansamong other thingsthat some ethical actions are subject to an affordability
criterion. But affordability is a slippery notion, which can easily slide over into suggesting that human rights are conditional on profitabilitythat we can decide when
and where human rights will operate or, worse still, that we can decide when and
where human rights exist at all. Peter Drucker has expressed the matter soundly:
An organization has full responsibility for its impact on community and society It
is irresponsible of an organisation to accept, let alone to pursue, responsibilities that
would seriously impede its capacity to perform its main task and mission. And where it
has no competence it has no responsibility Butand it is a big butorganizations
have a responsibility to try to find an approach to basic social problems which fits
their competence and which, indeed, makes the social problem into an opportunity
for the organisation.51
There are, however, many instances of businesses refusing to compromise ethically

and prospering nonetheless, as the following cases show.
CASE 11.4: Levi Strauss leaves China

Because of systematic human rights violations in Myanmar and China, Levis pulled
out of these countries. The decision to leave China has been described as one of the
most difficult for Levis to make because it meant sacrificing large market opportunities. Explaining the decision, Levis communications manager, Linda Butler, said,
Last year we issued our global sourcing guidelines, which help us make decisions
about what countries we should be in and what business partners we should be
doing business with. There is a provision in those guidelines concerning human
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rights violations, and in light of that and in light of the current human rights
situation in China, we have decided that we will not pursue a direct investment
at this time and that we will begin a phased withdrawal of our contract sewing
and finishing work in China.52
Despite the potential costs, Levi Strauss CEO, Bob Hass, said that never has
an action by the company been met with such immediate, spontaneous, large and
mainly supportive reaction from people all over the world.53
Another MNC that has moved beyond an ethics of minimal duty to take a more
proactive role in securing the goods necessary to human developmentoften
called corporate citizenshipis Grand Metropolitan, a leader in the international
consumer goods market.
CASE 11.5: Grand Met and corporate citizenship

Grand Met has taken an expansive view of affordability because It shows that the
company is not content just to comply with high standards of behaviour; we also
want to contribute actively to the community. This proactive approach to corporate
citizenship sees (it) as a two-way street where value flows to the company as
well as from it.54
A stakeholder approach, similar to that advocated by the Caux Round Table (see
pp. 2924), underlies Grand Mets model of corporate relationships.55 In India, for
example, Grand Mets managers were faced with the problem of being accepted in
a host society, not just in a legal sense but also in a social sense.
They wanted Grand Met to be clearly seen to be adding value to Indian society and
to be setting an example to other firms, both foreign and Indian. More specifically,
they wanted to be in tune with the transcendent Indian goal of sarbodaya (moral
and material well-being) and were keen to focus mainly on the needs of the most
disadvantaged members of Indian society.56
Accordingly, they sponsored community-development programs that could
become self-sustaining.
Although Grand Met describes such activities in terms of charity or philanthropy,
leading advocates of corporate citizenship, such as Chris Marsden, relate them to
self-interest. Marsden, like many of those who are impressed by Milton Friedmans
argument that managers have no business giving their owners money to worthy
causes,57 sees so-called corporate philanthropy as strategic. So Grand Mets
corporate citizenship in India could, in Marsdens terms, be described as earning its licence to operate. It is a strategic move by a business that benefits
its operating environment, but also, and intentionally, benefits other stakeholders
in that environment.58 It goes beyond ethics, in the minimalist sense of avoiding
wrongdoing, and attempts to do good. But this is not the disinterested good of the
philanthropist. In the words of Julius Tahija, Promoting goodwill in a host country is
critical to a transnationals survival. But for corporate development programs to be
more than stopgap measures, transnational managers must make a serious commitment to the more ambitious long-term goal of transferring business, technical,
and social competencies to people in the developing world.59
Caltex Pacific Indonesia is another example of active international corporate

citizenship.
CASE 11.6: Caltex Pacific Indonesia

Caltex Pacific Indonesia spent thirty years repairing damage done during drilling
in the Indonesian province of Riau in Sumatra. But, in building infrastructure, they
went beyond the expected minimum. They built bridges that could also be used by
local people; drained swampy land, which then became available for agriculture;
promoted local businesses so that Caltex could be supplied by the people among
whom it operated; avoided environmental destruction at monetary cost but a gain
in good will; and provided a relatively high standard of living to Indonesian workers
so that they would not feel uncomfortable working beside better favoured American
expatriates.60
The decisions to provide benefits to local stakeholder groups must have been
taken not only in the light of ethics, but also with some visionperhaps the belief
that such actions would enhance Caltexs long-term fortunes in Indonesia, that these
decisions were affordable in terms of investment.
A double standard?
Richard De George has argued persuasively that the same standards are not always
applicable to small entrepreneurs and MNCs in international business.61 His argument is based on a fundamental principle of moral philosophy: we are morally
responsible only if we are able to act (once again, the moral ought implies the
practical can). If, for example, you say that I ought to pay my debt to you now,
I must have the money to do so. It makes no sense to impose a duty on a person
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who is unable to undertake it for reasons beyond their control. De George argues
that this consideration applies to relative assessments of multinational and domestic
business operations.
De George argues that context changes the application of ethical principles. In
the case of apartheid, the Sullivan Code (see pp. 28990) was an effective brake on
United States companies using a structurally unjust political system to their commercial advantage. International outrage at the appalling racism of South Africa at
least restricted the exploitation of Blacks by MNCs. But what of the case of a White
South African businessperson employing Blacks: is that person guilty of exploitation in a similar manner to the multinational that takes advantage of cheap labour?
De George regards placing the local enterprise and the MNC on the same level as
both logically necessary and too strong.62 Any Whites who wished to remain ethical would be precluded from engaging in business. Paradoxically this would mean
that Blacks could only work for Whites who were unethical. Even living in such an
unjust environment would make one a party to the unjust systema participant in
Black exploitation. Hence the position of the White in South Africa seems to have
been necessarily unethical: But any doctrine that says that people are necessarily
unethical is too strong because one can only be held responsible for doing what it
is possible for them to do.63
Bribery poses another challenge to De Georges position. There seems to be a clear
distinction between the obligations of international businesses and those of local
business operations. In many countriessuch as Indonesia, Russia and Thailand
bribes, favours, gifts or secret commissions are commonplace. There is no question
that each individual payment of this kind reinforces the corruption of the system and
introduces injustice at personal, market, administrative and political levels. But the
system is not primarily the individuals responsibility. Systemic corruption is a collective responsibility, and the individual can only be asked to do so much to remove
it.64 While multinationals have the option of resisting demands for bribes and even of
moving their operations elsewhere, local entrepreneurs might have no real choice. If
a local business refuses to comply with corrupt practices, it might go out of business.
Then the field will be left to those who do not mind paying bribes, and the chances of
reform will be lessened. If a local business pays bribes, it is complicitous in corruption,
but De George argues that this is the lesser of two evils. At least the ethically disposed
local business can try to change the system; something not to be expected of businesses that do not even recognise that bribery is a problem.65
In the cases of both apartheid and bribery, the contexts of operation for local and
multinational operators differ, even in the same country. Both practices are wrong, but
responsibility differs for the local and the multinational company. The local operator
has limited resources and nowhere else to go; the multinational has extensive
resources and other locations. The multinational couldlike Levischallenge

corruption in a host country; the local company would be unlikely to succeed and
is therefore unlikely to try. It is true that some local entrepreneurs are condemned in
their own countries as exploiters, but can this judgment be generalised in countries
where corruption is systemic? De George argues that it cannot. While a multinational
might be embarrassed about offering bribes in a country notorious for this form of
corruption, the same judgment would probably not apply to the local owner of a small
transport company or retail outlet or factory. While rejecting relativism, he argues with
some force that the same judgments cannot be applied to both types of business.
Of course it would be better to change the system and to make it fair and just. But
if ought implies can, then the small entrepreneurs, just as the individual workers,
may plead that they cannot change the system. The conclusion that it is better for
them to suffer injustice than to try to improve their lot, if this means engaging in the
system, is a harsh doctrine indeed.66
Too often, campaigns against business decisions are driven by external interests.
This typecasts business as reactive rather than responsive. Initiatives such as the
Sullivan Code, the Caux Round Table and Transparency International (see below)
are important because they model a more engaged and responsive form of business
conduct. Sometimes businesses can surprise themselves by taking the initiative on
issues such as the environment.67
Institutional support for the ethical conduct of international business is important
in both the domestic and international arenas. Most of that support is not in a legal
form, although important legislation such as the Foreign Corrupt Practices Act 1977
obliges United States multinationals to avoid corruption. Support for ethics is more visible in the institution of international business, fragmented as it is, and in civil society
organisations born of a growing need for international standards of ethical business.
The Sullivan Code, The Caux Round Table and Transparency International all illustrate the work of international business to support ethical international transactions.
The Global Sullivan Principles

In 1977 the Rev. Leon Sullivan, an African-American minister from Philadelphia and
a board member of General Motors, drafted a set of principles for investment and
operation in South Africa by United States companies, which came to be known as
the Sullivan Code. The code was an attack on apartheid through the morality of
American investors, corporate directors and managers. It aimed to get corporations
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BUSINESS ETHICS
operating in South Africa to defy apartheid by rejecting its operation in the workplace
and, to some extent, beyond it. According to the code, Black workers should receive
equal pay, opportunity, facilities and respect. Unions should be recognised and living
conditions improved. The stability of the South African government, the cheapness
of Black labour, the natural resources of the country and the expanding market
for American products in a nation of 28 million people were powerful incentives
for over 300 United States companies to operate there. Perhaps surprisingly, many
United States firmsincluding General Motors, IBM, Mobil, 3M and International
Harvestervoluntarily adopted the Sullivan Code, thereby lessening their profits
but keeping their investors happy and their image at home clean. Critics argued that
the code allowed apartheid to continue with sanitised American support. Eventually,
Sullivan agreed with the critics and set a deadline of 1987 for the removal of apartheid,
just a few years before Nelson Mandelas release from prison. When that deadline
passed, he vigorously opposed investment in South Africa, and many American
firms either pulled out or sold off their interests to South African concerns. Products
no longer available from American sources were replaced from other countries,
but, even so, there were important moral victories as a result of the code. Some
firms, like Kodak, not only pulled out of South Africa but also refused to sell any
of their products there. Hindsight has shown the Sullivan Code to have been more
constructive as a challenge to injustice than its critics believed. Although limited, it
added to the accumulation of world opinion and translated that opinion into action.
Considering the way sanctions against Rhodesia were evaded, the Sullivan Code was
a strategy that immediately did away with bottom-line justifications for breaches. The
code required companies to take a cut in profits in South Africa. That was up-front.
Sullivans success became the springboard for the development of his original
principles into a set of aspirational principles with a global reach. These principles
support justice, advocate recognition of human rights and encourage corporate social
responsibility through business collaborating with host communities.68 The Global
Sullivan Principles was launched by the Rev. Sullivan and thenUN Secretary-General,
Kofi Annan, in 1999. By signing on to the principles, corporations commit themselves to implementation in their global operations, but the principles are avowedly
collaborative, flexible and sensitive to the difficulties of particular environments. The
aspiration of the Principles is to have companies and organizations of all sizes, in
widely disparate industries and cultures, working towards the common goals of human
rights, social justice, protection of the environment and economic opportunity.69 The
website of the Global Sullivan Principles lists actions taken by corporations such as
General Motors and Procter and Gamble to give effect to the principles.70 Corporations
that sign up to the Principles commit to more than the following propositions, but they
indicate the scope and depth of the demands on signatories.
The Principles71
As a company that endorses the Global Sullivan Principles we will respect the law, and
as a responsible member of society we will apply these Principles with integrity consistent with the legitimate role of business. We will develop and implement company
policies, procedures, training and internal reporting structures to ensure commitment
to these Principles throughout our organization. We believe the application of these
Principles will achieve greater tolerance and better understanding among peoples,
and advance the culture of peace.
Accordingly, we will
7h Express our support for universal human rights and, particularly, those of our
7h
7h
7h
7h
7h
7h
7h
employees, the communities within which we operate and parties with whom
we do business.
Promote equal opportunity for our employees at all levels of the company with
respect to issues such as color, race, gender, age, ethnicity or religious beliefs,
and operate without unacceptable worker treatment such as the exploitation
of children, physical punishment, female abuse, involuntary servitude or other
forms of abuse.
Respect our employees voluntary freedom of association.
Compensate our employees to enable them to meet at least their basic needs and
provide the opportunity to improve their skill and capability in order to raise their
social and economic opportunities.
Provide a safe and healthy workplace; protect human health and the environment; and promote sustainable development.
Promote fair competition including respect for intellectual and other property
rights, and not offer, pay or accept bribes.
Work with governments and communities in which we do business to improve the
quality of life in those communitiestheir educational, cultural, economic and
social well-beingand seek to provide training and opportunities for workers
from disadvantaged backgrounds.
Promote the application of these Principles by those with whom we do business.
We will be transparent in our implementation of these Principles and provide

information which demonstrates publicly our commitment to them.
The UN Global Compact

In 2000, the UNor rather, the Secretary-General of the time, Kofi Annanbegan a
Global Compact initiative. The Global Compact is supported by businesses around
the world rather than governments. It states that it seeks to combine the best
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properties of the UN, such as moral authority and convening power, with the private
sectors solution-finding strengths, and the expertise and capacities of a range of key
stakeholders.72 It does this through the usual methods: production of literature, hosting conferences and developing tool kits for corporate decision-makers. Although
the Global Compact has attracted support and membership from over 4000 corporations, its impact is yet to be felt, and its aim of shaping business practices according
to its ten principles seems to duplicate other initiativesnotably the Global Sullivan
Principlesand thereby to lessen their force. Indeed, the ten principles, whose
values are derived from United Nations declarations and conventions, have the
obviousness of motherhood statements about them. Principles 1 and 2 state that
businesses should support human rights and ensure that they do not collude in
human rights abuses. Principle 3 recognises the right to bargain collectively, 4 and
5 oppose forced labour and child labour, and Principle 6 calls for the elimination
of discrimination in employment. Principles 7, 8 and 9 recommend adoption of the
precautionary principle, and encourage greater environmental responsibility and
the development of environmentally friendly technology. Principle 10 helpfully suggests Businesses should work against corruption in all its forms, including extortion
and bribery.73
Signing up to the principles could probably enhance reputation, but some members of the Global Compact have not been ethically pristine. The danger in such
well-meaning programs is that they can disguise problems rather than doing something about them, allowing businesseven if dubiousto continue as usual.
The principles of the Caux Round Table

The Caux Round Table (CRT) evolved from a meeting of Japanese, American and
European business leaders in the Swiss mountain retreat of Caux in 1986.74 The
meeting had been called by Frederik Philips, the Dutchman who rebuilt Philips
Electrical Industries after the Second World War. Philips had had extensive contacts
with Japan since 1950, and was concerned about growing anti-Japanese sentiment in
the light of successful Japanese car and electronics exports to Europe and the United
States. Japans high-quality and low-priced exports had placed enormous pressure
on European and American industries, and now the Japanese were accused of using
protectionism, dumping, theft and blackmail to expand their international market
share. Philips was concerned that these accusations would lead to trade wars or
worse, and contacted his Japanese friends to propose a meeting at Caux.
The first meeting was marked by frankness and openness, and these became
the founding principles for the continuing forum. Jean-Loup Dherse, chair of the
CRT steering committee, compares its meetings to chemical reactions in which
the experience of being honest over real conflicting situations has allowed trust
to develop to such an extent that there now is a common philosophy.75 From
this beginning, an informal institution emerged. The informality arose from the
friendships among the members of the group, who were senior executives from
such major MNCs as Philips, Canon, Matsushita, Chase Manhattan Bank, Prudential
Insurance, Mitsubishi, Toshiba, Proctor and Gamble, Nissan, Schock, Ambrosetti,
Medtronic and Royal Dutch Petroleum. These are not, however, just social gatherings.
The members meet twice yearly, once in Caux and once elsewhere, and sometimes
invite guests. These meetings seek to advance the aims of the CRT.
A basic aim of the CRT is to encourage business to contribute to global economic
and social development. The late Ryuzaburo Kaku, Chairman of Canon in the 1990s
and a founder of the CRT, focused the Round Tables attention on the global responsibilities of business to foster world peace and economic stability. Hence, the CRT
emphasises the development of continuing friendship, understanding and cooperation, based on a common respect for the highest moral values and on responsible
action by individuals in their own spheres of influence. Underlying this aspiration
are two basic ethical principles: kyosei, a Japanese term coined by Kaku meaning working together for the common good, and respect for human dignity in the
Kantian sense.
In 1994 the CRT published its Principles for Responsible Business as a world
standard against which business behaviour can be measured. This was, in effect,
the first international code of business ethics. The principles are not new, but the
attitude of the CRT is distinctive. While publishing principles that they believe have
global application, the members place their first emphasis on putting ones own
house in order, and on seeking to establish what is right rather than who is right. In
other words, they have emphasised leadership by good example and responsibility,
and have tried to avoid moralising. Corporations that want to grow ethically will put
their own houses in order according to kyosei, rather than waiting to be regulated.
(The Principles for Responsible Business, as slightly revised in 2009, are set out in
Appendix 3.)
The CRT identifies six sets of stakeholderscustomers, employees, owners or
investors, suppliers, competitors and communitiesbut seeks to move business
beyond even these towards a new international perspective. This is in keeping with
Kakus vision of kyosei and the fullest conception of stakeholder responsibility in a
global community. To respect these stakeholders and secure the place of business in
the global economy, the CRT enjoins business to observe the principles of business
ethics and to go well beyond the requirements of the law.76 The Caux principles set
out the basic requirements of fairness, integrity, social responsibility, obligations to
stakeholders, and observance of the law and human rights, which one would expect
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of a company operating under the rule of law in any country, and then applies them
internationally. There is no blueprint for the future in the CRT principles. Their
strength derives from the authority of those who devised and endorse them, and
from their appeal to the moral sense of ethical business leaders.
Transparency International
Transparency International (TI) was founded in 1993 and commenced its work
against international corruption in 1994. It has chapters all around the world, including an active Australian chapter, which convened TIs first Asian regional meeting in
1995. It is best known for its annual Corruption Perception Index (CPI), which scores
countries across a range of criteria. Based on a number of surveys, the CPI ranks
countries according to the propensity of public officials to accept bribes. Although
it has a strong focus on developing nations, TIs strongest criticisms are reserved
for multinational companies that indulge in corrupt practices, such as bribery, that
would be condemned at home. In the words of TIs founder, Peter Eigen, the index
is a measure of lost development opportunities as an empirical link has now been
established between the level of corruption and foreign direct investment. Every day
the poor scores in the CPI are not being dealt with means more impoverishment, less
education, less health care.77
TI-Australia began in March 1995 to assist in the exposure of, and fight against,
international business corruption in Australia. Among its corporate members are
BHP Billiton, Westpac, Shell and Telstra. TI-Australia also enjoys the support of the
accounting and legal professions, law enforcement agencies, academics, political
leaders, non-government organisations and concerned citizens. TI has convenors in
six states and territories. TI-Australia implements the mission statement of its parent
organisation to forge alliances against corruption and has participated in corruption
prevention ventures in Asia, Fiji, Papua New Guinea and New Zealand.
Since 1999, TI has also compiled a Bribe Payers Index (BPI). This is an index of
the propensity of businesses in developed countries to offer bribes in order to gain
or keep business in developing countries:
The [2008] BPI is a ranking of 22 of the worlds wealthiest and most economically
influential countries according to the likelihood of their firms to bribe abroad. It is
based on two questions asked of 2742 senior business executives from companies
in 26 countries. To assess the international supply side of bribery, senior business
executives were asked about the likelihood of foreign firms, from countries they have
business dealings with, to engage in bribery when doing business in their country. In
short, senior business executives provide their perception of the sources of foreign
bribery, and these views form the basis of the 2008 BPI.78
TABLE 11.1
Rank
Selected countries in Transparency Internationals Corruption Perception Index, 2008

Country
Score out of 10
Denmark, New Zealand, Sweden
9.3 (evaluated best in terms of its public officials

being unlikely to accept bribes)
Singapore
9.2
Finland, Switzerland
9.0
Iceland, Netherlands
8.9
Australia, Canada
8.7
12
Austria, Hong Kong
8.1
14
Germany, Norway
7.9
16
Ireland, United Kingdom
7.7
18
Japan, USA
7.3
33
Israel
6.0
39
Taiwan
5.7
55
Italy
4.8
57
Greece
4.7
65
Cuba
4.3
72
China
3.6
80
Saudi Arabia
3.5
109
Argentina
2.9
121
Nigeria
2.7
126
Indonesia
2.6
134
Pakistan
2.5
138
Tonga
2.4
141
Iran, Philippines
2.3
147
Bangladesh, Russia
2.1
158
Venezuela
1.9
173
Sudan
1.6
176
Afghanistan
1.5
178
Iraq
1.3
180
Somalia
1.0
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BUSINESS ETHICS
TABLE 11.2
Rank
Countries in Transparency Internationals Bribe Payers Index, 2008

Country
Score out of 10
Belgium, Canada
8.8 (evaluated as best in terms of businesses being

least likely to offer bribes)
Netherlands, Switzerland
8.7
Germany, Japan, United Kingdom
8.6
Australia
8.5
France, Singapore, USA
8.1
12
Spain
7.9
13
Hong Kong
7.6
14
South Africa, South Korea, Taiwan
7.5
17
Brazil, Italy
7.4
19
India
6.8
20
Mexico
6.6
21
China
6.5
22
Russia
5.9
Unlike the CPI, the BPI has not been published annually. It has been published
only four times. Australias position in the most recent BPI is noticeably lower than it
had been in the previous surveys: number 8 out of 22 in 2008, number 3 out of 30 in
2006, number 1 out of 22 in 2002, and number 2 out of 19 in 1999.
The mission of Transparency International is to forge coalitions internationally; to
combat corruption through law reform and anti-corruption policies; to build public
support for anti-corruption measures; to promote transparency and accountability
in public administration and international business; and to encourage all involved in
international business to adhere to high standards of ethics, such as those proclaimed
in TIs Standards of Conduct. The main instrument used to pursue this mission is the
global building of coalitions of like-minded individuals and organisations. TI was
heavily involved in the International Anti-corruption Conference in Lima, Peru, in
1997 (then-Chairman of TI, Peter Eigen, was secretary; New South Wales MP Peter
Nagle was chairman) and the Lima Declaration, which issued from it.79 TI sponsors
conferences and studies, and publishes information about the costs of corruption in
international business.
International norms of business conduct are very much like those that prevail
at the domestic level: many who know of them observe them in the breach, many
are cynical about the notion for self-interested reasons, and some have yet to make
their acquaintance. Efforts to build a global business culture have begun and have
the strong support of some of the largest MNCs, as well as a host of governments. But
all of these efforts must be based on sound reasoning about the issues. That is what
this chapter has tried to elicit.
REVIEW QUESTIONS
1 Is ethics a handicap to successful international business? Does the nature of
international business mean that it must be? Is this the right way to look at it?
2 Does the distinction between primary and secondary values itself have any practical
value in dealing with apparently different and conflicting ethical practices?
3 If we can speak of being tolerant and even accepting of some cultural and ethical
differences, can we also speak of a limit to such toleration and acceptance? Can
we identify criteria for determining whether and where such lines should be drawn?
4 In Transparency Internationals Corruption Perception Index of 180 countries,
roughly the bottom 50 per cent of the countries listed are poor countries. So, the
poor countries are those in which public officials are most likely to take bribes.
From this fact, should we conclude, Ethics is okay, but, really, it is a luxury that only
the wealthy can afford?
297
Introduction
Business as usual?
One of the most significant aspects of the global financial crisis of 200809 was
the attribution of moral failure as a cause. Greed was identified by presidents and
prime ministers as the root of the problem, and amid the wreckage of venerable
financial houses, such as Lehman Brothers and the Royal Bank of Scotland, this
seemed indisputable. Executives continued to either receive large salaries or to walk
away from failed companies with lavish payouts. Excess still seemed in fashion and
restraint a foreign concept to many business leaders. In the United States, Merrill
Lynch reported a fourth-quarter loss in 2008 of more than $15 billion. Somehow,
this loss did not seem to affect $3.6 billion in bonuses that Merrill Lynch paid to its
executives just before being rescued by Bank of Americawith direct government
assistance of $20 billion and a further guarantee of $100 billion to secure risky assets.
John Thain, the CEO who paid the bonuses, spent $1.2 million on renovating his
office, including $87,784 for a rug, $35,115 for a toilet and $1405 for a rubbish bin.
Thain promised to repay the money to Bank of America, which later dispensed with
his services.1 The New York Attorney-General was repelled enough to investigate
the bonuses.2 Citigroup lost $28.5 billion, but received $345 billion in government
funds and guarantees, so it decided to go ahead with the purchase of a new 12-seat
corporate jet for $50 million.3 At the same time as Royal Bank of Scotland losses
of $34.5 billion were announced, the pension package of its former boss, Sir Fred
Goodwin, was revealed as being 693,000 for life.4 In October 2008, the former
chairman and CEO of Lehman Brothers, Richard Fuld, took full responsibility for
the collapse of the merchant bank, while declaring that his decisions were both
prudent and appropriate. In January 2009, Fuld took another prudent decision: he
sold his half of the Florida family mansion (purchased in 2004 for US$13.75 million)
for US$10to his wife. Mr Fuld, it seems, wished to continue at least some business
as though times were not unusual.5
Who could fail to be shocked by the lack of shame exhibited by corporate chiefs
when hundreds of thousands of people were losing their jobs and their lifes savings?
Well, maybe the greed and excess of executives has something to do with the kind of
work they do; with the fact that investors dont like to see returns on their investments
xii
INTRODUCTION
reported in red ink. Consider the view of Michael Lewis, published four years before
the crash. Lewis suggests that a CEO might
genuinely want to make the world a better place. He may genuinely dislike his moral
climate. But the atmosphere created by investors for investors requires him continually
to mollify these awful, greedy little people who have done nothing but put up some
money and who care about nothing except next quarters earnings.6
Lewiss conclusion is not that corporate excesses are justified, but that responsibility is wider than the top levels of management. In the face of demands from
investors for robust returns, is it surprising that executives exhibit less-than-ideal
ethical standards? The pressure applied to people who run public corporations
almost requires them to forget how to be good.7 In the context of the global financial crisis four years later, this argument had resonance. Yes, corporations were
imprudent in their remuneration and spending, but perhaps that became the price
of giving investors what they wanted. At least Lewis moves us beyond the simplification that the greed of a bunch of jet-setting executives brought the world financial
system to its knees.
These responses to the financial meltdown tell us a number of things. First,
ethics matters to business. As we argue later in this chapter, business is not morally
neutralamoraland business people are no more ready to accept ethical
defeat than anyone else. Second, there is something to know about ethicsits
not intuitiveand that means there is something to teach and something to learn.
Learning something about ethics can assist you in the articulation of judgments and
give you a systematic approach to dealing with ethical issues in business. Finally,
ethics matters to everyoneto investors and governments as well as those who
run businesses. It happens that the moral judgments passed on many executives in
the 200809 financial crisis were justified, but sometimes media moralising clouds
the issues and subverts sound ethical appraisals. As Lewis reminds us, addressing
such moralising is more complex than learning the formalities of ethics, but such an
education is a very good place to start.
Why study business ethics?

Why should business students study ethics? What good might be expected to come
from such a study? Apart from the customary jokes about the brevity of a course on
business ethics and its oxymoronic nature, there are serious reasons to doubt the
benefits of such courses. For example, it is hardly the case that students in business
schools are being taught unethical practices. Now that such courses have been
running for many years, particularly in the United States, what difference can be
observed in the behaviour of business people? And, given that almost all of those
xiii
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BUSINESS ETHICS
undertaking business courses will not be in a position to shape the policies and
directions of corporations until they have gained substantial industry experience,
what use is it to them to learn about the ethics of Enron or James Hardie? There was
also some justified scepticism about using morality to make business look good
after the failures and excesses of the 1980s. Beyond these reservations, however,
there persists what might be called social discomfort about the public discussion
of ethical issues. After all, is not ethics a matter of personal belief, preference and
values? How could one talk of business ethics when there is so much disagreement
about ethics in general, let alone in one particular area? Are there reliable surveys
to tell us what most people want from business ethics? Why is it important to bring
up children properly if the morality they learn from their family, neighbours, school
and peers is not good enough to serve them in life? What will we have next: shopping
ethics, sports ethics, disco ethics?
These questions illustrate some of the most common kinds of objections faced
by business ethics, but none of them has slowed the development of the subject and
its incorporation into the curriculum of business courses. It is worth taking such
questions seriously not only because they remain current, but also because the
justification for business ethics provides a useful way of introducing the subject.
It is odd for teachers to argue that ethics education makes no difference to behaviour: one might as well argue that teaching organisational behaviour or marketing
will make no difference, or that any form of education is flawed if it does not turn out
pre-formed products. No one would seriously argue that books, films or television
programs that portray certain modes of behaviour never affect people or that they
do not give them cause to consider their own behaviour. As any student or educator
knows, education is more than reading and writing. To avoid explicit discussion of
ethical issues in a field of study is to send a message that ethics is dispensable. That
message is not one that responsible educators or business would want to risk sending today. People cannot be made good by telling them to do X or to avoid doing Y;
but standards of conduct and acceptable values can be entrenched in people and
in organisations, and people can be put in a position where they make informed
choices in the professions and occupations in which they work. This is the minimum
ethical education that a student of any practical course has a right to expect.
In this respect, business has for too long been short-changing itself in Australia.
While degrees for the professions have had requirements for ethics to be included in
their courses, business degrees have lagged. What has been regarded as standard in
medicine, law, social work, nursing, veterinary science, engineering and architecture
has, until recently, been seen as optional in commerce. If some in business think
that this is acceptable, they will quickly find that the public will not tolerate ethical
indifference. More than ever before, business is expected to be accountable, not
only to shareholders but also to society.
INTRODUCTION
The view that ethics is superfluous assumes that people will act as they must
and will leave the idealism to the classroom. Perhaps, but that implies that ethics
has nothing but idealism to offer. Sometimes, however, it is the case that people
of goodwill do not know what is the ethical thing to do in a complicated situation.
Particular ethical studies, whether in accounting or medicine, engineering or marketing, should at least offer some clarification and perhaps even some answers. An
important point here is that ethics should help a person in making a decision and,
further, ethics should help people live with themselves and their society even after a
tragic decision. Ethics is not a salve for the bruises of life, but it places in perspective
the moral problems, which, after all, affect only those who are already concerned
with this aspect of their conduct. Ethics will not make people good by some magic;
but what good reason could there be for keeping people in ignorance of the ethical
demands society makes of business, or, more adventurously, for keeping business
professionals from exploring the possibilities and problems that will confront them
at a time of great technological and social change? In short, why would business
practitioners not wish to advance the professional status of their occupation?
This reference to business as a profession is not casual; the term is not meant
as a synonym for occupation. The point about professions is that they serve and
are responsive not only to clients but also to other interested sections of society,
nowadays called stakeholders, which is the topic of chapter 3. Professions rely on
conceptual thinking and embody their distinctive ways of doing things in what are
called practices. It is common to hear talk of architectural practice, psychological practice, legal practice, engineering practice and so on. It is important to note
that this is not just a fancy way of describing what these professions do. Take, for
example, surgery. We do not say that surgery was practised on prisoners of war
who were subject to experiments, even though the operations were performed by
surgeons, sometimes with great skill. There is such a strong distinction between
treatment and experimentation that it can be difficult even for critically ill patients
to be treated with drugs that are still experimental. This distinction between experimentation and treatment is based upon the idea that the respect to which people are
entitled forbids their use as a means to some other good. People are goods in and
of themselves; they have value as people per se. Treatment is directed to securing
that good. To ensure that the paths to this good remain clear and unconfused by
ulterior and ignoble objectives, the medical profession has assumed and codified
a body of ethics. This code is a shorthand way of indicating a commitment to a
morality of practice. If a practice like surgery were simply the knowledge and skills
necessary to operate, then there would be little to distinguish the experimenter from
the surgeon. In fact, we do not recognise experiments on involuntary subjects, such
as prisoners of war, as medical practice because basic human values are attacked
and, in this particular case, because there is a failure to respect the value of humans
xv
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BUSINESS ETHICS
as such. There is a failure to regard the value of individual humans as other than
instrumental in the achievement of other values or goals. It is the ethical direction
of the accomplishments of a profession (particularly its regard for the individuals
who are subject to its activities) that entitles it to a certain status and power, such as
self-regulation, and other marks of social recognition. And that is why unprofessional
conduct usually refers not merely to competence, but to conduct and decorum in a
wider sensedoing the right thing with ones knowledge and skills and using them
to serve rather than to take advantage of people.
Practice, then, is a very useful notion, for at its heart is a conception of human
good that directs the application and use of the competencies that it embodies.
Central to a practice is an ethical commitment, not just a skilled way of doing a job,
and the practice of business is no different from the practice of other professions in
this respect.
Like the professions, business is conceptual, intellectual work. It is not simply a
matter of routine, repetitive tasks. It cannot be reduced to mere administration. The
signs of a successful business are keeping employees, customers and the tax man
happy and taking a profit at the end of the day; and making these very different
things happen is the real vocation in business. It takes skill, knowledge and practical
wisdom to secure the future of a business and make it grow. Successful business
does not happen by chance; it is the product of skill and intelligence.
One major implication of this view is that business needs a stock of concepts.
This stock embraces concepts from law, accounting, marketing, industrial relations
and many other areas, as well as concepts relating to the kind of industry with which
the business deals, such as medical supplies or software sales. All of these concern
human values. Business is about supplying the needs and desires of human society
and is therefore about human goods and the best means to provide them. And this
is where ethics comes in. Ethics is concerned with the identification of human goods
(ends) and their pursuit (means), including direction and constraints that might be
involved in their pursuit.
Whether or not ethics is explicitly considered in its various functions, it is
inescapably part of business. In dealing with ends and the means to those ends,
business is making ethical decisions, even if such decisions are not perceived by
managers and boards in this light. This book provides an ethical perspective on
the appraisal of means and ends in business life, and thereby enriches the stock
of concepts recognised as necessary to it. If there is no conception that a decision
entails ethical considerations, and if there is no adequate conceptual vocabulary to
make sense of ethical requirements, then reasonable ethical standards in business
become a matter of luck. In this respect, we claim to be contributing to the stock of
conceptual tools that are useful in doing business successfully.
INTRODUCTION
People do not have to do a moral philosophy course in order to be ethical. Ethics

is expressed in the lives of people who have never heard or uttered a philosophical
syllable in their lives. We do not always need to be acquainted with the theories
of academics in order to get on with life. This point has been well made by nonacademic critics of modernity and the domination of life by theory. One of the most
famous paintings of the great surrealist painter Ren Magritte, The Treachery of
Images, depicts a tobacco pipe, under which is the caption, Ceci nest pas une pipe
(this is not a pipe). This caption startles with its obviousness: we are so used to a
theoretical understanding of the world that we are apt to confuse the representation
of things with the things themselves. And so it is with theories of ethics. There is no
substitute for the practice of the thing itself. Conversely, just as Magrittes picture has
its own value, so does ethical theory.
Of course a strong objection to business ethics might be inferred from this line
of reasoning, and that is that most business has got by ethically for a long time without the help of jargon about concepts and, in general, without the analytic input of
academics. Why worry about formal business ethics and conceptual thinking? This
objection has truth but it is also partly false. It is false in that traditional business virtues and conventional ethical concepts hid a spectrum of injustice. For example, the
labour of women and children was, and in some cases still is, unjustly exploited, and
the rights of indigenous people were too often simply ignored in the pursuit of mining
and pastoral wealth. But the social environment has changed. Traditionally, people
were brought up in the family business and learned to be proficient by way of a kind
of apprenticeship. Few would find that satisfactory today. Now proficient business
requires the ability to deal conceptually with all aspects of the business environment,
and one aspect of that environment is ethics. The social context in which business
occurs today is one in which concern for ethics is not merely an option.
People may well display high levels of personal integrity but remain unaware of
the demands of institutional ethics. How would they deal with questions of social
responsibility, equity and accountability? Would they even be able to conceptualise
what the issues at stake are? The importance of such questions has been underlined
not only by the ethical failures of the 1980s, but also by the demands of the social
agenda. While the 1980s were not unique in raising critical ethical issues, they
provided a wealth of illustrations of the damage that ethical ignorance as well as
unethical behaviour can do. Unless managers are aware of ethical issues, know how
to think about them conceptually, and can devise justifiable solutions, they will fail
to institutionalise ethics in corporate life. Ignorance can be as pernicious as malice;
the dictum that greed is good goes hand in hand with the myth of amoral business,
as Richard De George calls it.8 Both slogans are excuses for unacceptable business
practices, but only the latter claims the dignity of ignorance.
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BUSINESS ETHICS
Bluntly, ethics is not an option. If a company or industry cares nothing for ethical
requirements, it may expect from government a policy and legislative response that
imposes standards and practices. This is already happening, and some of these
pressures are discussed in chapter 10.
Already this suggests a kind of negativity about ethics that can be distorting.
Just as fine cooking is not a response to fast food, so business ethics is not only a
response to ethical failure. There happens to be great scope for ethical repair work,
but if we take seriously the notion that business is conceptual work, there is greater
scope for using ethics to promote excellence in business. At its simplest, ethics is
a normal part of everyday conduct, a normal part of business. At its best, ethics
is about human excellence. An Australian Manufacturing Council study of best
practice compared high performing firms with less successful manufacturers. The
former had strong growth with fewer industrial disputes, greater investment in staff
training, better industrial safety records and more modern plants. The managers of
the successful firms tended to give greater priority to quality, while managers of the
poor performers tended to focus on cost.9 There is a clear relationship here between
excellent management inputs into companies and excellent outcomes. A concern for
ethics is part of this drive to excel. It should lead to a proactive stance by business on
ethical issues, and a greater preparedness for the crises that will inevitably emerge
in the business community, just as they did in the 1980s. Being well brought up is a
fortunate basis on which to build good ethical practice, but it is not the only way and
not a sufficient way of achieving this.
About this text

Most business ethics texts begin with a smorgasbord of ethical theories, followed by
topics and cases in specific areas. Readers are often invited to choose a theory to
apply to a topic in order to resolve an ethical problem. This can suggest a kind of off
the shelf approach to ethics, which we eschew. Certainly the philosophers who have
developed each of the major positions did not regard them as substitutable by rival
theories; they argued for them because they believed they were true or in some other
way preferable to other theories. So, while it is important to have some familiarity
with the main theories of morality, this is more in the interests of understanding the
conceptual language of contemporary ethics than to provide some kind of algorithm
for the solution of ethical dilemmas. Indeed, chapter 2 shows that often there are
no clean solutions; that no matter how well people try to act, they can still end up
with dirty hands.
Hence, in seeking to acquaint readers with widely used ethical vocabularies, we
are not suggesting that ethical solutions are simply about making the right choice
of theory and applying it to a problem. In order to avoid confusion and a false sense
INTRODUCTION
of choice in moral theory, we deal with this matter only in a summary fashion. We
do, however, set out a theory of reflective equilibrium, which we believe provides
conceptual tools for considering and resolving ethical problems. Further, it will be
clear from the Introduction that we believe that people espousing different moral
theories and religious views can exhibit the same virtues, can meaningfully and
fruitfully discuss ethical problems with each other and, indeed, can often agree on
practical solutions to moral problems. In this respect, we suggest in chapter 1 that
a commitment to moral pluralism or to relativism does not stand as a barrier to
fruitful ethical discussion.
Near the end of chapter 1 we say a word about the benefits of approaching
a study of business ethics through case studies. We note there that sometimes
our purpose is to call attention to something that has gone wrong (or right) and
sometimes it is to call attention to some ethically problematic aspect of behaviour
or organisational structure. Given that we are dealing with case studies, often having
the nature of vignettes only, we recognise a limitation, a constraint and a danger that
it is also important to signal. In telling the stories as illustrative of various themes
or problems, we are concerned to present salient features that are relevant to the
points we want to make. And, while we certainly do not wish to distort facts, and do
believe that we provide reasonable accounts, we do not provide full accounts of all
the cases. Further, we would allow the possibility of another side of the story. In this
respect we invite the reader to approach the cases as problematic in more ways than
one. Perhaps you know of or could imagine additional facts that would be relevant
to a moral appraisal of the situation, as well as to possible suggested solutions to
the ethical difficulties presented. That the context be seen as Australian and the
problems recognised as real and serious is important. Beyond that, whether or not
an illustrative example is itself factual is relatively unimportant. It is worth repeating,
however, that we do attempt to give factually correct accounts of the cases.
What this text is and what it is not

This text is not a catechism or a deuteronomy for business and professions. It is
not a handbook of exhaustive questions about, and definitive answers to, moral
problems that arise in those contexts. Sometimes issues are clear and sometimes
they are not. Sometimes there is a clear solution and sometimes there is not. The
most important aspect of the text is the sense that we can think through ethical
problems and ethical issues systematically, and that we can arrive at an answer or a
response that has integrity. There are conceptual tools to help us do this. A response
should be justifiable, and should not shy away from offering justification, even if it is
not the only justifiable response. Sometimes for reasons of dirty hands (see chapter
2), and sometimes for other reasons, the response is not something that can simply
xix
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BUSINESS ETHICS
be ticked off and from which we can move on. Ethical problems sometimes need to
be revisited and reconsidered. Ethical decision-making often lacks the certainty we
might desire. This does not make it wishy-washy, soft, unimportant or unsystematic.
Our aim is to make this clear in the chapters that follow.
An important consideration in a book such as this is to present an appropriate
balance between, on the one hand, theory, principles and conceptual tools, and,
on the other, practical examples and case studies. We do, in fact, make a comment about that near the end of chapter 1. One response to the first two editions
of the book was that a greatly expanded section on moral principles and moral
reasoning would be desirable. That was done in the third edition, and it has been
further expanded in this edition. We have also found in the Graduate Programs in
Professional Ethics, which we direct at the University of New South Wales, that the
most popular electives later in the programs are those that allow students to get a
better grounding in and to have the opportunity to think more precisely about the
area of theory, principles and conceptual tools. We have taken these as indications
not that a chapter in this book should include more about moral theory and moral
reasoning, but rather that a different bookconcerned only with those things
would be helpful. One of us, Stephen Cohen, has written such a book (also published
by Oxford University Press).10 People who are interested in further exploring ideas
about moral theories and, in particular, the structure and process of moral reasoning
might be interested in having a look at that book.
List of Cases
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.10
6.1
6.2
6.3
6.4
7.1
7.2
7.3
7.4
7.5
Smaller stakes, fewer rights?

An employeemanagement partnership: the rescue of SPC
Wanting your cake and eating it too? Union v. Dollar Sweets
Weyco: A healthy policy?
The Hewlett Packard case
The Mistral fan case
HIHA worthy cause?
David Tweed
Virgin Atlantic and British Airways
Tradestock
Lady Bountiful
Ernest Henry
Motherhood and spin
Free sunglasses
The Toyota case
Le Winters Radio Stores
Grace Brothers
Telstra v. Optus
School Sample Bag Company
Johnson & Johnson
Saturn cars
Coless branding
BHP and employment opportunities for women
Horne and McIntosh v. Press-Clough Joint Venture and MAWU
Good clean fun
The HIV-positive employee
Bruces dilemma
The fall of Andersens
A gift among friends
Succession planning?
Bankers Trust
78
79
80
82
87
93
101
105
109
110
111
113
119
122
129
135
135
136
137
138
140
141
148
150
156
157
163
165
181
184
185
ix
LIST OF CASES
7.6
7.7
8.1
8.2
8.3
8.4
8.5
9.1
9.2
9.3
9.4
9.5
9.6
9.7
10.1
11.1
11.2
11.3
11.4
11.5
11.6
An independent report?
Zanicum Metals
Carson and DDT
Shell and Greenpeace
Woolworths Super petrol
Alcoa emissions
BHP and Ok Tedi
Dan Applegate and Convair
Murder unseen?
Is this whistleblowing?
Alwyn Johnson and the banks
Jack Kings environmental protection reports
Caught in the middle
Orlando Helicopter Airways
Honeywellan ethical culture
Kader Industrial Toy Company factory fire
Nike sweatshop allegations
Shell and Nigeria
Levi Strauss leaves China
Grand Met and corporate citizenship
Caltex Pacific Indonesia
185
187
200
201
204
205
210
216
217
218
225
228
230
232
261
276
277
281
285
286
287
Notes
INTRODUCTION
1 Andrew Clark, Thain says sorry for $1.2m furniture bill, Guardian, 27 January 2009,
accessed 27 January 2009 at http://www.guardian.co.uk/business/2009/jan/27/merrilllynch-john-thain-citigroup.
2 Bank of America CEO subpoenaed over Merrill Lynch bonuses, Syracuse.com,
20 February 2009, accessed 20 February 2009 at http://www.syracuse.com/news/index.
ssf/2009/02/bank_of_america_ceo_subpoenaed.html.
3 Maureen Dowd, Wall Streets socialist jet-setters, New York Times, 27 January 2009,
p. A31.
4 Stand-off over Sir Freds pension, BBC News, 27 February 2009, accessed 29 February
2009 at http://news.bbc.co.uk/2/hi/uk_news/politics/7912651.stm.
5 Lehman boss sells mansion for just $15, Australian Financial Review, 28 January 2009,
p. 10.
6 Michael Lewis The irresponsible investor, New York Times, 6 June 2004, accessed
20 February 2009 at http://query.nytimes.com/gst/fullpage.html?res=9A01E1DA1431F93
5A35755C0A9629C8B63&scp=1&sq=The%20Irresponsible%20Investor&st=cse.
7 ibid.
8 Richard De George, Business Ethics, 6th edn (Upper Saddle River, NJ: Pearson Education,
2006), pp. 58.
9 Ross Gittens, The best practice is to accentuate the positive, Sydney Morning Herald,
25 April 1994, p. 21.
10 Stephen Cohen, Moral Reasoning: The Framework and Activities of Ethical Deliberation,
Argument and Decision-making (Melbourne: Oxford University Press, 2004).
CHAPTER 1
1 Aristotle, The Ethics of Aristotle, trans. J. A. K. Thomson et al. (Harmondsworth: Penguin
Books, 1976), pp. 645.
2 Merriam-Webster online dictionary defines sharp practice as the act of dealing in which
advantage is taken or sought unscrupulously.
3 James Rachels, The Elements of Moral Philosophy, 2nd edn (New York: McGraw-Hill,
1993), p. 13.
4 Lawrence M. Hinman, Ethics: A Pluralistic Approach to Moral Theory, 4th edn (Belmont,
California: Thomson Wadsworth, 2008), p. 4.
5 Peter Singer (ed.), Ethics (New York: Oxford University Press, 1994), pp. 4, 10.
6 Peter Singer, Practical Ethics, 2nd edn (New York: Cambridge University Press, 1993),
pp. 10, 12.
311
312
NOTES
7 David Elias, Tweed finds profit preying on old folk, Sydney Morning Herald, 30 December
2004: http://www.smh.com.au/news/Business/Tweed-finds-profit-preying-on-old-folk/
2004/12/29/1103996611426.html, accessed 1 October 2008.
8 New York Times, 23 September 1969, p. 34.
9 Tony Paterson, Josef Fritzl: The making of a monster, Independent, 3 May 2008: http://www.
independent.co.uk/news/world/europe/josef-fritzl-the-making-of-a-monster-820370.html,
accessed 27 September 2008.
10 Kate Connolly, Im no monster, says dungeon father in attack on biased media,
Guardian, 8 May 2008, accessed 27 September 2008 at http://www.guardian.co.uk/world/
2008/may/08/joseffritzl.austria.
11 Im no monster, says dungeon dad, Sydney Morning Herald, 8 May 2008, accessed
27 September 2008 at http://www.smh.com.au/articles/2008/05/08/1210131101774.html.
12 Albert Jonsen & Stephen Toulmin, The Abuse of Casuistry (Berkeley: University of
California Press, 1988).
13 John Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, 1971).
14 Roger P. Ebertz, Is reflective equilibrium a coherentist model?, Canadian Journal of
Philosophy, 23, 1993, p. 194.
15 J. S. Mill, Utilitarianism (Indianapolis: Bobbs-Merrill, 1957), p. 22.
16 Deontological theories of ethics have been invigorated in two very different theories by
philosophers John Rawls and Robert Nozick. Although they argue for radically differing
views concerning the role of government in a just society, both take a strong position
on respect for persons as a matter that is independent of concern for consequences.
See Rawlss A Theory of Justice and Nozicks Anarchy, State and Utopia (New York: Basic
Books, 1974).
17 Immanuel Kant, Foundations of the Metaphysics of Morals, trans. L. W. Beck (New York:
Macmillan, 1990).
18 ibid., p. 38.
19 ibid., p. 46.
20 Depending on how they are counted, Kant offers five or six formulations of the categorical
imperative.
21 Adam Smith, The Theory of Moral Sentiments (Indianapolis: Liberty Press, 1982). See also
E. W. Coker, Adam Smiths concept of the social system, Journal of Business Ethics, 9,
1990, pp. 13942.
22 William Frankena, Ethics, 2nd edn (Englewood Cliffs, NJ: Prentice-Hall, 1973), p. 47.
23 See Edmund L. Pincoffs, Quandaries and Virtues (Lawrence, Kansas: University of Kansas
Press, 1986).
24 Mill, p. 30.
25 This is discussed more in Stephen Cohen, The Nature of Moral Reasoning, pp. 847.
26 Cicero, De officiis, trans. Walter Miller (Cambridge, Mass. & London: Loeb edn, 1913),
vol. 3, pp. 99101.
27 For an accessible presentation of a variety of positions concerning relativism, see Social
Philosophy and Policy, 11, no. 1, 1994.
28 Marcus G. Singer, Generalization in Ethics (New York: Russell & Russell, 1971), pp. 32734;
John Finnis, Natural Law and Natural Rights (Oxford: Clarendon Press, 1980), pp. 815.
29 Although at this point a very important question can sometimes be asked concerning
whether and why such-and-such convention is itself worthy of respect. It is not worthy of
respect just because it is a groups convention.
NOTES
30 Walt W. Manley II & William A. Shrode, Critical Issues in Business Conduct (New York:
Quorum Books, 1990), ch. 14.
31 Famously, Immanuel Kant argued for this view in his nonconsequentialist position in
Foundations of the Metaphysics of Morals (1785). Recently, in Moral Animals (2004, ch. 3),
Catherine Wilson argued that this is the hallmark of an ethical consideration, whether
consequentialist or nonconsequentialist.
32 Ethical decision-making models are discussed at somewhat more length, and some
examples are offered in Appendix 1.
33 This point is discussed more fully in Stephen Cohen (2004), pp. 11318.
34 Here is an example of something quite like moral blindness. In a recent Clemenger BBDO
television advertisement for Hahn Premium Light beer, titled Sex Bomb, a woman sets
the relaxed, romantic mood, and begins to luxuriate in a serene bubble bath. A short
while after she has begun, her male partner enters and does a bomb into the bath, thus
destroying the mood. She is clearly annoyed by what has happened. As he then pops
the top on his Hahn Premium Light, he notices her expression, and, with a nonplussed
look on his face, says, whaaaat? He simply has no idea as to how what he has just done
could have been other than enjoyed. He just did not see it. We could even imagine that he
considered the mood, his partners enjoyment, and decided that this would be a good
thing to do. He was simply blind to the situation. It is not difficult to imagine that someone
behaves this way in the face ofand with some sort of recognition ofa serious moral
dimension to a situation. So, did you think about this?, this?, this? The answer is
yes, yes and yes; but they did not really see those things in any serious way.
35 Adam Smith, An Enquiry into the Nature and Causes of the Wealth of Nations (New York:
Modern Library, 1937). See, for example, p. 423.
36 Cicero, vol. 3, p. xiii.
37 Peter Drucker, What is business ethics?, Public Interest, 63, 1981, pp. 1836.
38 Milton Friedman, The social responsibility of business is to increase its profits, New York
Times Magazine, 13 September 1970, reprinted in T. Donaldson & P. Werhane (eds), Ethical
Issues in Business: A Philosophical Approach, 2nd edn (Englewood Cliffs, NJ: Prentice
Hall, 1983), pp. 23942.
39 Jonathan Dancy, Moral Reasons (Oxford: Blackwell, 1993), p. 211.
40 See, for instance, Lawrence Hinman, Ethics: A Pluralistic Approach to Moral Theory, 4th
edn (Belmont, California: Thomson Wadsworth, 2008). Hinman also maintains a website
that includes references to and discussions about moral pluralism: http://ethics.acusd.
edu/, and, in particular, http://ethics.acusd.edu/theories/Pluralism/index.html.
41 Geoffrey Barker, Ethics: the glove that tempers the iron fist, Australian Financial Review
Magazine, 7 July 1995, pp. 1420.
42 Much of the following discussion of good ethics is good business is revised from Stephen
Cohen, Good Ethics is Good BusinessRevisited, Business and Professional Ethics
Journal (18)2, (1999), pp. 5768.
43 Barker, particularly p. 20.
44 Paul Simons, former Chairman of Woolworths Ltd, was in this camp. See, for instance,
Paul Simons, Be interested in the people you serve and your life will be happy, Fourth
Annual Lecture, St James Ethics Centre, Sydney, November 1994.
45 We realise that, strictly speaking, an enhanced bottom line is not identical to, and is
sometimes not a good indicator of, enhanced self-interest. For convenience here, however,
we will use the expressions as though they are equivalent.
313
314
NOTES
46 Thomas Hobbes (15881679) argued in Leviathan (1651) that ethics is founded on selfinterest, which provides the sole motivation for behaving ethically.
47 Padraic P. McGuinness, former social commentator for (among other places) the
Australian Financial Review, held this view. See his Elusive ethics, Sydney Morning Herald,
17 November 1994, p. 20.
48 Kant argued in Foundations of the Metaphysics of Morals (1785) that the nature of ethics
is such that it necessarily involves a conflict with self-interest.
49 Simons, Be interested in the people you serve and your life will be happy.
50 In New South Wales, Australia, this statutory body extends over the public sector. The
authority of the ICAC in Hong Kong extends over the private sector, as well as the public
sector.
51 We will return to this example again, and in greater detail, in chapter 9.
52 The Body Shop is also a good example of how it is that when you trumpet your virtues,
you can get very severely criticised for not living up to them.
53 Australian Financial Review Magazine, 7 July 1995, p. 16.
54 This has also been discussed on pp. xvxvi and will be discussed again at pp. 679 under
the heading Good ethics is good businessagain.
55 St Thomas Aquinas (122474). Questions 9097 of his Summa Theologiae are referred to
as the Treatise on Law. In the Treatise on Law, Aquinas argues that, although one should
focus on advancing the common good for its own sake (an ethical requirement), it is
nevertheless the case that if one were trying to further ones own interest, the best way
to do it would be to focus on trying to advance the common good, rather than by trying
directly to advance ones own interest.
56 We have referred to these features more systematically earlier in this chapter, particularly
in the section entitled Defining ethics. There is nothing unusual or peculiar about nominating these features as formal characteristics of an ethical opinion. See, for example,
James Rachels, The Elements of Moral Philosophy, 2nd edn (New York: McGraw-Hill,
1993), p. 13; Lawrence M. Hinman, Ethics: A Pluralistic Approach to Moral Theory, 4th edn
(Belmont, California: Thomson Wadsworth, 2008), p. 4; Peter Singer (ed.), Ethics (New
York: Oxford University Press, 1994), pp. 4, 10; Peter Singer, Practical Ethics, 2nd edn
(New York: Cambridge University Press, 1993), pp. 10, 12.
57 Ethical egoism is a view according to which the proper gauge for judging an action to
be morally right is that it advances ones own interest: actions are right if they benefit
numero uno. Psychological egoism is a view about how people do, in fact, behave, and
what they take into account. According to psychological egoism people care most about
themselves. Ethical egoism, but not psychological egoism, is a normative view, a view
about how people should behave.
58 Milton Friedman offered this view in a number of publications, such as The social responsibility of business is to increase its profits, New York Times Magazine, 13 September 1970,
reprinted in T. Donaldson & P. Werhane (eds), Ethical Issues in Business: A Philosophical
Approach, 2nd edn (Englewood Cliffs, NJ: Prentice-Hall, 1983), pp. 23942; Capitalism
and Freedom (Chicago: University of Chicago Press, 1962).
59 For a brief and clear discussion of egoism and self-interest, see Rachels, chapters 5 and 6.
60 Carol Gilligan, In a Different Voice: Psychological Theory and Womens Development
(Cambridge, Mass.: Harvard University Press, 1982).
NOTES
CHAPTER 2
1 Albert Z. Carr, Is business bluffing ethical?, Harvard Business Review, JanuaryFebruary
1968.
2 Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962).
3 T. J. Peters & R. H. Waterman, In Search of Excellence (Sydney: Harper & Row, 1984).
4 ibid., p. 39.
5 John Ladd, Morality and the ideal of rationality in formal organisations, Monist, 54, 1970,
pp. 488516.
6 ibid., p. 50.
7 Peter Heckman, Business and games, Journal of Business Ethics, 11, 1992, pp. 9338.
8 As quoted in Timothy Blodgett, Showdown on business bluffing, Harvard Business
Review, MayJune 1968, pp. 16270.
9 ibid.
10 ibid.
11 Thomas Nagel, Ruthlessness in public life, in Stuart Hampshire (ed.), Public and Private
Morality (New York: Cambridge University Press, 1978), pp. 7592.
12 See Blodgett, pp. 16870.
13 ibid., p. 169.
14 Lord Patrick Devlin, Morals and the Criminal Law, originally published in 1959. The essay
has been reprinted in a number of places. We have cited it from Richard A. Wasserstrom,
Morality and the Criminal Law (Belmont, Calif.: Wadsworth, 1971), pp. 2448, at p. 46.
15 H. L. A. Hart, Immorality and treason, first presented as a British radio broadcast on
the BBC in 1959, then published in the Listener, 62, 30 July 1959, pp. 1623. Reprinted in
Wasserstrom, pp. 4954. Professor Hart explores this issue more fully in his book Law,
Liberty, and Morality (London: Oxford University Press, 1963).
16 Gerald Dworkin, Lord Devlin and the enforcement of morals, Yale Law Journal, 75, 1966,
pp. 9861005.
17 In this connection see the sensible and timely argument of Max Charlesworth, Ethical
reflection and business practice, in C. A. J. Coady & C. J. G. Sampford (eds), Business,
Ethics and the Law, (Sydney: Federation Press, 1993), pp. 187205.
18 Sir Adrian Cadbury, Ethical managers make their own rules, Harvard Business Review,
SeptemberOctober 1987, reprinted in E. K. Kellar (ed.), Ethical Insight, Ethical Action
(Washington: ICMA, 1988), pp. 518. Sir Adrians whole essay can be read as a discussion
of the problem of dirty hands.
19 Bernard Williams, Politics and moral character, in Stuart Hampshire (ed.), Public and
Private Morality (New York: Cambridge University Press, 1978), pp. 5574.
20 ibid., p. 63.
21 Thomas More, Utopia, ed. G. Logan & R. M. Adams (Cambridge: Cambridge University
Press, 1989), p. 36.
22 Raimond Gaita, Good and Evil: An Absolute Conception (London: Macmillan, 1991),
pp. 723.
23 See, for example, Williamss Politics and Moral Character in S. Hampshire (ed.) Public
and Private Morality (New York: Cambridge University Press, 1978) and also in the same
volume, Thomas Nagel, Ruthlessness in Public Life, pp. 7592. See also Alan Donagan,
The Theory of Morality (Chicago: University of Chicago Press, 1979), pp. 1808.
315
316
NOTES
24 This example is quite like one offered by Bernard Williams in presenting a critique
of utilitarianism: A critique of utilitarianism, in J. J. C. Smart & Bernard Williams,
Utilitarianism: For and Against (London: Cambridge University Press, 1973), pp. 989, but
that is not the point here.
25 See, for example, Julian Disney et al., Lawyers, 2nd edn (Sydney: Law Book Company,
1986), pp. 6605.
26 There have been recent changes to the specific requirements of this client privilege. For
the point here, however, it does not matter.
27 This is a case in which we are using ethical and moral to mean different things. Ethical
here has a narrow meaning, referring only to that which is required by the code of ethics
of the profession.
28 See, for example, Williams, Politics and moral character.
29 Mary Williams Walsh and Carl Hulse, AIG Bonuses of $50 Million Will Be Repaid, New
York Times, 23 March 2009, accessed 8 April 2009 at http://www.nytimes.com/2009/03/24/
business/24bonus.html?scp=26&sq=&st=nyt.
30 Albert Carr, Is Business Bluffing Ethical?, Harvard Business Review, 46, JanuaryFebruary,
1968, p. 145.
31 Harry R. Wrage, Manager of the Medinet Application Operation of the General Electric
Company, quoted by Timothy B. Blodgett, in Showdown on Business Bluffing, Harvard
Business Review, 46, MayJune, 1968, p. 164.
CHAPTER 3
1 Norman Bowie & Ronald Duska, Business Ethics, 2nd edn (Englewood Cliffs, NJ: Prentice
Hall, 1990), p. 40. For a history of the concept and its background, see R. Edward Freeman,
Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984), ch. 2.
2 Dennis Pratt, Aspiring to Greatness (Sydney: Business & Professional Publishing, 1994),
p. 58, and more generally, ch. 1.
3 Freeman, p. vi.
4 James E. Liebig, Business Ethics: Profiles in Civic Virtue (Golden, Colo.: Fulcrum, 1990),
p. 217.
5 Kenneth Goodpaster, Business ethics and stakeholder analysis, Business Ethics Quarterly,
1, 1991, pp. 5371.
6 Perhaps this is not a good thing to do. Perhaps it could never be justified. Nevertheless,
if it were the case, there would be no point in taking further account of the group whose
interests were to be sacrificed. Nothing more could be learned about that group.
7 Robert Nozick, Anarchy, State and Utopia (Oxford: Blackwell, 1974), ch. 7.
8 Richard Titmuss, Social Policy: An Introduction, Brian Abel-Smith & Kay Titmuss (eds)
(London: Allen & Unwin, 1974), pp. 137ff.
9 Information about this case is taken from Paul Barry, The Rise and Fall of Alan Bond
(Sydney: Bantam, 1990), ch. 15.
10 ibid., p. 171.
11 Brad Norrington, Unions against job-saving deal, Sydney Morning Herald, 12 December
1990, p. 3; SPC to go ahead with wage cutting plan at cannery, Australian Financial
Review, 14 December 1990, p. 5; Mark Davis, SPC row: workers paying for companys
strategy, Australian Financial Review, 17 December 1990, p. 5; Mark Davis, SPC meeting
NOTES
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
on wages, Australian Financial Review, 19 December 1990, p. 4; Mark Davis, Furphies ripe
for canning in SPC deal, Australian Financial Review, 29 December 1990, p. 11; Sue Neales,
High stakes as SPC treads in union preserve, Australian Financial Review, 2 January 1991,
p. 6; Mark Skulley, SPC agrees to compromise pay cut deal, Sydney Morning Herald,
3 January 1991, p. 4; Mark Davis, SPC deal cuts costs, leaves award intact, Australian
Financial Review, 3 January 1991, p. 1; Mark Davis, SPC workforce agrees, Australian
Financial Review, 4 January 1991, p. 5; Mark Davis, Enterprise bargaining masters at the
cannery, Australian Financial Review, 4 January 1991, p. 4.
Dollar Sweets Pty Ltd v. Federated Confectioners Association of Australia and Others
(1986), VR, 383.
ibid., Murphy J., at 3867 and 388.
Malcolm Brown, Study lists dangerous injuries, Sydney Morning Herald, 24 March 1993,
p. 4.
Andrew Buncombe, US firms war on workers: where theres smoking, theyre fired, The
Independent, 29 January 2005, accessed 10 February 2009 at http://www.independent.
co.uk/news/world/americas/us-firms-war-on-workers-where-theres-smoking-theyrefired-488757.html.
CNN transcript of Anderson Cooper, 360 Degrees, aired 7 December 2005, accessed
13 February 2009 at http://transcripts.cnn.com/TRANSCRIPTS/0512/07/acd.01.html.
Kris Maher, Companies are closing doors on job applicants who smoke, Wall Street
Journal, 21 December 2004, p. B6. See also Daniel Costello, Costs make employers see
smokers as a drag, Los Angeles Times, 28 January 2005, p. A-1, accessed 13 February 2009
at http://articles.latimes.com/2005/jan/28/health/he-nosmoke28.
Morley Safer, Whose Life is it Anyway?, CBS News, 16 July 2006, accessed 13 February
2009 at http://www.cbsnews.com/stories/2005/10/28/60minutes/main990617.shtml.
ibid.
Buncombe, US firms war on workers: where theres smoking, theyre fired.
FreshStart offers Weyco employees free access to online smoking cessation therapy,
accessed 27 February 2009 at http://209.85.173.132/search?q=cache:CrlmM4guE2IJ:
www.24-7pressrelease.com/pdf/2005/01/29/press_release_3050.pdf+Weyco+Godson&hl
=en&ct=clnk&cd=3&gl=au&client=firefox-a.
Anderson Cooper, 360 Degrees.
Safer, Whose life is it anyway?.
ibid.
For a list see 100% Smoke-Free Employers, accessed 13 February 2009 at http://
smokinghurts.com/Smoke-FreeEmployers.htm.
ibid.
Weekend Australian, 1213 March 1994, p. 58.
ibid.
Cited in Bowie & Duska, p. 90.
Rebecca Urban, Primelife battles through its Portergate scandal, The Age, 19 May
2006, accessed 20 February 2009 at http://www.theage.com.au/news/national/primelifebattles-through-its-portergate-scandal/2006/05/18/1147545456323.html.
317
318
NOTES
35 Rebecca Urban, Primelife pair lose case, Sydney Morning Herald, 29 November 2006,
accessed 20 February 2009 at http://www.smh.com.au/news/business/primelife-pairlose-case/2006/11/28/1164476206097.html.
36 Hannah Clark, Five WaysHow to (Legally) Spy on Employees, Forbes.com, 25 October
2006, accessed 27 February 2009 at http://www.forbes.com/2006/10/25/leadershiphewlett-packard-spying-lead-manage-cx_hc_1025fiveways.html.
37 SpectorSoft, accessed 27 February 2009 at http://www.spectorsoft.com/.
38 A useful summary of the case is David A. Kaplan, A Playbook for the HP Hearings,
Newsweek, 27 September 2006, accessed 20 February 2009 at http://www.newsweek.
com/id/37880/page/1.
39 Lorraine Woellert, HPs Hunsaker Papers, BusinessWeek, 4 October 2006, accessed
27 February 2009 at http://www.businessweek.com/technology/content/oct2006/
tc20061003_396787.htm?chan=top+news_top+news+index_businessweek+exclusives.
40 ibid.
41 Mark Trumbull, HP board flap raises wider privacy issues, Christian Science Monitor, 14
September 2006, accessed 27 February 2009 at http://www.csmonitor.com/2006/0914/
p01s03-usju.html?s=widep.
42 ibid.
43 Links to HP memos can be found in Woellert.
44 Woellert, HPs Hunsaker Papers.
46 Mark Trumbull, The changing rules of corporate spy games, Christian Science Monitor,
25 September 2006, accessed 27 February 2009 at http://www.csmonitor.com/2006/0925/
p02s01-usec.html,
48 ibid.
49 ibid.
50 Rob Kelley, Charges against HPs Dunn dropped, CNNMoney.com, 14 March 2007, accessed
28 February 2009 at http://money.cnn.com/2007/03/14/technology/hpq/index.htm.
51 Patricia Dunn: I am Innocent, Ousted Hewlett-Packard Chairwoman Talks to Lesley
Stahl, 60 Minutes, 8 October 2006, accessed 27 February 2009 at http://www.cbsnews.
com/stories/2006/10/05/60minutes/main2069430.shtml.
52 SOX first, accessed 27 February 2009 at http://www.soxfirst.com/50226711/patricia_dunn_
everybody_does_it.php; David H. Holtzman, Hubris at HPand Beyond BusinessWeek,
11 October 2006, accessed 20 February 2009 at http://www.businessweek.com/
technology/content/oct2006/tc20061011_581843.htm. The 60 Minutes website no longer
carries this passage.
53 Andrea James, Boeing Bosses Spy on Workers, seattlepi.com, 16 November 2007, accessed
20 February 2009 at http://seattlepi.nwsource.com/business/339881_boeingsurveillance16.
html.
54 Andrew Charlesworth, HP private eyes fined US$600,000, ITNews, 31 May 2008, accessed
27 February 2009 at http://mobile.itnews.com.au/Article.aspx?CIID=112791&type=News&
page= 0&showall=true.
55 David Lazarus, Lesson learned by lenient sentences for HP defendants, San Francisco
Chronicle, 16 March 2007, accessed 27 February 2009 at http://www.sfgate.com/cgi-bin/
article.cgi?f=/c/a/2007/03/16/BUG9OOM1FL1.DTL.
NOTES
56 David A. Kaplan, Suspicions and Spies in Silicon Valley, Newsweek, 18 September 2006,
accessed 19 February 2009 at http://www.newsweek.com/id/45548.
57 Gabriel Madway, Dunn: H-Ps Hurd tried to get Keyworth to admit leak, Marketwatch,
27 September 2006, accessed 28 February 2009 at http://www.marketwatch.com/
news/story/dunn-h-ps-hurd-tried-get/story.aspx?guid=%7B53A6C413-47D7-47D0-85835001AB57CD88%7D.
58 Civil liberties expert slams email spying plans, ABC News, 14 April 2008, accessed
27 February 2009 at http://www.abc.net.au/news/stories/2008/04/14/2216369.htm.
59 David Brown Maker of Vioxx Is Accused of Deception, Washington Post, 16 April 2008,
accessed 3 April 2009 at http://www.washingtonpost.com/wp-dyn/content/article/2008/
04/15/AR2008041502086.html.
60 Milanda Rout, Drug company drew up doctor hit list, Australian, 1 April 2009, pp. 12.
61 David Barboza, Death Sentences in Milk Cases, New York Times, 23 January 2009, p. A5.
62 Neil McDonald, 83,000 Ford Territorys recalled for faulty brakes across Australia,
Advertiser, 27 March 2009, accessed 2 April 2009 at http://www.news.com.au/adelaidenow/
story/0,22606,25250278-5006301,00.html.
63 The information for this case is drawn from Mistrals ill wind, Choice, April 1992, pp. 711.
CHAPTER 4
1 This distinction mirrors that made by Tnnies in 1887 between Gesellschaft and
Gemeinschaft; he said, The corporation or joint stock company which is liable only
for itself, represents, in its exclusive concentration on profit making, the perfect type
of all legal forms for an association based on rational will. This is because it is from
its very origin a relationship of Gesellschaft (i.e. an enterprise association), without any
admixture of elements of Gemeinschaft (community), and thus does not allow, as in other
cases, any misconception as to its real character. Ferdinand Tnnies, Community and
Association, trans. C. P. Loomis (London: Routledge and Kegan Paul, 1955), p. 227.
2 William S. Laufer, Integrity, diligence, and the limits of good corporate citizenship,
American Business Law Journal, 34, 2, Winter, 1996, pp. 15781.
3 See the United States Sentencing Commission website at http://www.ussc.gov/GUIDELIN.
HTM.
4 Denning LJ in H. L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd [1951] 1 Q.B.
159 at 172, quoted in Paul Redmond, Companies and Securities Law, 2nd edn (North Ryde:
The Law Book Company, 1992), p. 214.
5 Milton Friedman, The Social Responsibility of Business is to Increase its Profits, New York
Times Magazine, 13 September 1970.
6 Christine Parkers work, The Open Corporation (Cambridge: Cambridge University Press,
2002), shows why the assumption is simplistic and inaccurate.
7 Mark Lawson, Just dont invite the chief executive out to play golf, Australian Financial
Review, 5 December 2002.
8 Mark Lawson, The ethical dilemma of corporate generosity, Australian Financial Review,
5 December 2002.
9 Mel Wilson, Corporate Reputation and the Triple Bottom Line: The Social Responsibilities
of Business, Risky Business, Issue 2, 2001, http://www.pwc.com/extweb/manissue.nsf/
DocID/ C00115084F24343E852569E600656A08.
319
320
NOTES
10 Kate Legge, Humble hero of the operating theatre, Weekend Australian, 2324 June 2001,
p. 10.
11 Colleen Ryan, The hard yard, Australian Financial Review Magazine, July 2003,
pp. 1825.
12 ibid. p. 22.
13 ibid. p. 22.
14 Elaine Sternberg, Just Business (London: Warner Books, 1995), p. 42.
15 Elizabeth Vallance, Business Ethics at Work (Cambridge: Cambridge University Press,
1995), pp. 910.
16 Milton Friedman & Rose Friedman, Free to Choose (London: Secker & Warburg, 1980),
esp. ch. 4; and for a succinct rejoinder, Colin Grant, Friedman fallacies, Journal of
Business Ethics, 10, 1991, pp. 90714.
17 For a highly readable discussion of these issues see Thomas C. Schelling, Choice and
Consequence: Perspectives of an Errant Economist (Cambridge: Harvard University Press,
1984).
18 Cf. John Finnis, Natural Law and Natural Rights (Oxford: Clarendon Press, 1980),
pp. 1747.
19 See Edward Coker, Adam Smiths concept of the social system, Journal of Business Ethics,
9, 1990, pp. 13942.
20 Karl Marx, Capital, vol. 1 (New York: International Pubs, 1967, Foreign Languages
Publishing House, 1959), ch. 32.
21 Dwight Lemke & Marshall Schminke, Ethics in declining organizations, Business Ethics
Quarterly, 1, 1991, pp. 23548.
22 Peter Weekes, Not the full quid, Age, 13 September 2005, accessed 24 August 2008 at http://
www.theage.com.au/news/investment/not-the-full-quid/2005/09/12/1126377240826.html.
23 David Elias, Accidental hero defeats David Tweed, Sydney Morning Herald, 24 October
2003.
24 Peter Weekes, Not the full quid.
25 Business Review Weekly, 23, no. 4, 1993, p. 39.
26 In 1995, the Australian Securities Commission warned about approaches from Country
Estate to shareholders in Bridgestone Australia to buy their shares: The ASC is concerned
that the information set out by Country Estate & Agency could cause Bridgestone
shareholders to suffer substantial losses; Warning over Country Estate, Age, 17 June
1995, p. 17.
27 Federal Court of Australia, Australian Securities & Investments Commission v. National
Exchange Pty Ltd [2005] FCAFC 226 (25 November 2005) 33, 37, 43, accessed 10 February
2009 at http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCAFC/2005/226.html?
query=national%20exchange.
28 ASIC v. National Exchange, 43.
29 ASIC Media and information release 03165, National Exchange must declare market
price, 26 May 2003, accessed at http://www.asic.gov.au/asic/asic_pub.n.../03-165+
National+Exchange+must+declare+market+price?openDocumen.
30 Details of the legislation can be found on the Parliamentary Library website at http://
www.aph.gov.au/library/pubs/bd/2003-04/04bd039.htm.
31 ASIC v. National Exchange 24, 37, 38.
32 ibid. 42, 43, 44.
NOTES
33 08-130 David Tweed banningAAT decision, accessed 10 October 2008 at http://www.

fido.gov.au/asic/asic.nsf/byheadline/08-130+David+Tweed+banning+ -+AAT+decision+
?openDocument.
34 Blair Speedy AXA chief makes stand against scam, Australian, 18 January 2008, accessed
1 February 2009 at http://www.theaustralian.news.com.au/story/0,25197,23069026
643,00.html; Rebecca Urban Share predator Tweed still unhappy despite his AXA
share register win, Australian, 25 June 2008, accessed 1 February 2009 at http://www.
theaustralian.news.com.au/story/0,25197,23917523-5016575,00.html.
35 ibid.
36 See the statement issued by the NAB, NAB warns shareholders about unsolicited share
purchase offers, 20 August 2008, accessed 8 February 2009 at http://www.nab.com.au/
wps/wcm/connect/nab/nab/home/about_us/8/5/37/28.
37 ibid.
38 Anthony Hughes, Beware, a low offer for IAG, Sydney Morning Herald, 20 May 2002.
39 Important Notice to Coles Myer Shareholders, accessed 10 February 2009 at http://www.
colesgroup.com.au/library/investors/important_notice.pdf.
40 Accessed on 10 February 2009 at http://www.bhpbilliton.com.au/bbContentRepository/
letter091106.pdf.
41 Christine St Anne, Share predator targets Suncorp: Bank issues warning, InvestorDaily,
27 May 2008, accessed 28 June 2008 at http://www.investordaily.com.au/print/4415.
xml; Tim Boreham, David Tweed Index to trash and treasure, Australian, 10 December
2008, accessed 20 January 2009 at http://www.theaustralian.news.com.au/business/
story/0,,24756015-5001942,00.html.
42 ASX Announcement: Unsolicited Offer for Woodside Shares, accessed on 12 December
2008 at http://www.woodside.com.au/NR/rdonlyres/4F47735E-891A-4083-80EB10D1CB3FB797/0/UnsolicitedOffersforWoodsideShares.pdf.
43 Peter Weekes, Not the full quid.
44 Sydney Morning Herald, 13 November 1993, p. 33.
45 The relevant sections of the carefully worded minutes read as follows:
Meeting of 12 February, 1976. / Similar Transport Brokerage Agencies had appeared
in the industry at various times in the past and previous experience showed that it was
better for the Client and Operator to deal direct.
Meeting of 20 May, 1976./ Similar Transport Brokerage Agencies had appeared in
the industry at various times in the past and that experience showed that it was better
for the Client and Operator to deal direct.
Meeting of 4 August, 1976. / A letter from Tradestock Pty Ltd was tabled and noted.
The Meeting reaffirmed its opinion that it is in each Companys best interests to deal
directly with its own clients. TPC v. T.N.T. Management Pty Ltd & Ors (1985), ATFR,
paras 40512, at 46, 087, 46, 099100, 46, 105.
46 Before 1 July 1977, the relevant sections of the Trade Practices Act read as follows:
Section 45(2). A corporation shall not
(a) make a contract or arrangement, or enter into an understanding, in restraint of
trade or commerce
321
322
NOTES
(b) give effect to a contract, arrangement or understanding to the extent that it is in

restraint of trade or commerce, whether the contract or arrangement was made
or the understanding entered into before or after the commencement of this
subsection.
Section 45(4). A contract, arrangement or understanding is not in restraint of trade
or commerce for the purposes of this Act unless the restraint has or is likely to have
a significant effect on competition between the parties to the contract, arrangement
or understanding or on competition between those parties or any of them and other
persons.
47 C. Parker, P. Ainsworth & N. Stepanenko, The Impact of ACCC Enforcement Activity in

Cartel Cases, ACCC Enforcement and Compliance Project, ANU Centre for Competition
and Consumer Policy, 2004, p. 20.
48 Tim Treadgold, Lady Bountiful turns nasty, Business Review Weekly, 1 October 1993,
pp. 248.
49 Mark Lawson & Ian Howarth, WMC mauled in Savage engagement, Australian Financial
Review, 27 July 1993, p. 24.
50 M. Smith & I. Howarth, WMC cuts back power of managing director, Australian Financial
Review, 1 September 1993, p. 20.
51 M. Smith, Westerns code of conduct for its employees, Australian Financial Review,
10 November 1993, p. 21.
CHAPTER 5
1 See, for example, Robert Arrington, Advertising and behavior control, Journal of Business
Ethics, 1, no. 1, February 1982, pp. 312; and Alan Goldman, Ethical issues in advertising,
in Tom Regan (ed.), Just Business: New Introductory Essays in Business Ethics (New York:
Random House, 1984), pp. 23569.
2 Dave Thompson The big fat lie about battery life, Sydney Morning Herald, 6 February
2009, accessed 7 February 2009 at http://www.smh.com.au/news/digital-life/how-tos/
the-big-fat-lie-about-battery-life/2009/02/06/1233423460353.html.
3 Richard De George has also suggested that advertising can be considered as a transaction:
the transaction is fair if both parties have adequate, appropriate information about the
product, and if they enter into the transaction willingly and without coercion; Richard
De George, Business Ethics, 6th edn (Upper Saddle River, NJ: Pearson Education, 2006),
p. 336.
4 Julian Lee, Furore over Coke myth-busting ad, Sydney Morning Herald, 15 October 2008,
accessed 15 October 2008 at http://www.smh.com.au/news/health/coke-draws-the-fizzfor-mythbusting-ad/2008/10/14/1223750084672.html.
5 Julian Lee, Kerry Armstrong coke ad gets all-clear, Sydney Morning Herald, 27 November
2008, accessed 27 November 2008 at http://www.smh.com.au/news/national/kerryarmstrong-ad-gets-allclear/2008/11/27/1227491680882.html.
6 Julian Lee, Furore over Coke myth-busting ad.
7 Kelly Burke, Coca Cola busted for big fat rotten lies, Sydney Morning Herald, 2 April 2009,
accessed 2 April 2009 at http://www.smh.com.au/national/coca-cola-busted-for-big-fatrotten-lies-20090402-9kn6.html.
8 Richard De George, Business Ethics, 6th edn, p. 345.
NOTES
9 This was announced by a spokesperson for the US Department of Consumer Affairs.

Apparently over 60 per cent of email advertisements violate some law or other with
respect to untrue or fraudulent or insufficiently informative claims.
10 These were the Therapeutic Advertising Code, Alcoholic Beverages Advertising Code,
Cigarette Advertising Code and Slimming Advertising Code.
11 The fourteen constituent members of the Media Council were: The Federal Capital Press
of Australia, Eastern Suburbs Newspapers, Australian Accreditations Bureau, Australian
Consolidated Press, David Syme, News Limited, Regional Dailies of Australia, Country
Press Australia, Federation of Australian Commercial Television Stations, Federation
of Australian Radio Broadcasters, Outdoor Advertising Association of Australia, Perth
Newspapers Publishers Association, Sun Newspapers and The News (SA). Additionally,
there were six associate members: Australian Rural Publishers Association, Peter Isaacson
Group, Independent Magazine Publishers, Australian Cinema Advertising Council, I.M.
Publishing and Eastern Express.
12 Much of the dissatisfaction concerned matters not particularly related to the ASC, but
rather matters of fees to be paid and the control of the industry.
13 To pursue any further the rationale for the change of regulatory regimes in Australia here
would be beside the point.
14 From the Advertising Standards Bureau website: http://www.advertisingstandardsbureau.
com.au.
15 International Advertising Association, Advertising: It makes the difference, Sydney
Morning Herald, 5 June 1993, p. 13.
16 Bulletin, 3 August 1993, p. 72.
17 Bowie & Duska, p. 54.
18 Catharine Lumby, Sexist or sexy?, Independent Monthly, November 1993, p. 33.
19 Australian, 12 May 1993, pp. 12.
20 This description is taken from the Advertising Standards Councils seventeenth report,
1993, p. 48.
21 Advertising Standards Councils Seventeenth report, p. 49.
22 Lumby, p. 33.
23 Of course, such a view would also favour a much more liberal approach to what products
or services should be legally available.
24 Australian Business Monthly, June 1992, pp. 1034.
25 Australian, 16 April 1993, p. 20.
26 Sydney Morning Herald, 6 May 1993, p. 38.
27 This is taken from David Braybrooke, Ethics in the World of Business (Totowa, NJ: Rowman
& Allanheld, 1983), pp. 945.
28 Le Winters lost in the first instance, but the decision was reversed on appeal (Supreme
Court of New York, Appellate Division, Second Department, 1939).
29 Sydney Morning Herald, 14 June 1993, p. 1.
30 Optus bites into Telecom, results of TimeMorgan Poll on preferred telecommunications
carrier in coming ballot, Time Australia, 21 June 1993, p. 10.
33 John Millard (reporter), The Investigators, 2 March 1993, ABC Television.
34 Reported on the Saturn website, April, 2004: http://www.saturn.com/aboutus2/news/
a02press1.jsp]: In the history of the study, the only other brand that earned both top
323
324
NOTES
achievements simultaneously was Lexus in 1994. Reported on the Saturn website, April
2004: http://www.saturn.com/aboutus2/news/a02press3.jsp]. Further, the no-haggle,
no-hassle sales approach and respectful treatment of customers earned Saturn retailers
the top spot in J. D. Power and Associates sales satisfaction index for six of the past
seven years. Reported on the Saturn website, April 2004: http://www.saturn.com/
aboutus2/news/a01press4.jsp]. Note: although those websites are no longer current, there
are a number of sites (blogs and more) that discuss this history; for example: http://
thoughtindustry.blogspot.com/2008/05/saturns-cursed-brief-history.html (a blog by Craig
Daitch) and http://www.carforums.net/showthread.php?t=27094.
35 Kelly Burke, Home brand deception, Sydney Morning Herald, 1718 January 2009, pp. 12.
36 Heart Foundation, accessed on 28 January 2009 at http://www.heartfoundation.org.au/
Healthy_Living/Eating_and_Drinking/The_Tick/Pages/default.aspx and http://www.
heartfoundation.org.au/Healthy_Living/Eating_and_Drinking/The_Tick/Tick_FAQs/
Pages/default.aspx.
37 Kelly Burke, Home brand deception, p. 2.
CHAPTER 6
1 Bronwyn Young, Sex bias decision upheld, Australian Financial Review, 6 December
1989, p. 3.
2 Duncan Graham, $92,000 damages for porn in workplace harassment, Sydney Morning
Herald, 22 April 1994, p. 3.
3 ibid.; see also Mark Irving, Women in workplace porn case get $92,000, Australian,
22 April 1994, p. 3.
4 See, for example, Ian Palmer, Email Abuse & Misuse, Insight, accessed at http://www.
insight-mag.com/ insight/03/08/col-5-pt-1-WorkForce.asp; and the NSW Department of
Commerce, Office of Industrial Relations at http://www.industrialrelations.nsw.gov.au/
pubs/July2003/email.html.
5 Cathy Bolt, Pregnancy sacking damages $12,000, Australian Financial Review, August
1993, p. 6.
6 Lesley Alderman, When the Stork Carries a Pink Slip, New York Times, 27 March 2009,
accessed 15 April 2009 at http://www.nytimes.com/2009/03/28/health/28patient.
html?_r=1.
7 Paula McDonald, Kerriann Dear and Sandra Backstrom, Expecting the worst:
circumstances surrounding pregnancy discrimination at work and progress to formal
redress, Industrial Relations Journal, 39:3, 2008, p. 233.
8 ibid., p. 7.
9 Sydney Morning Herald, 9 September 1993, p. 34.
10 Patrick Kelly, Conducting a glass ceiling self-audit now, HR Magazine, October 1993,
p. 76.
11 ibid., pp. 778.
12 Leonie Still, Breaking the glass ceiling: another perspective, Women in Management
Series, Paper no. 15, Faculty of Commerce, University of Western Sydney, Nepean, July
1992.
13 Sydney Morning Herald, 14 September 1993, p. 9.
14 Australian Financial Review, 27 August 1993, p. 1.
NOTES
15 Louise Story, Reporting on the Aspirations of Young Women, New York Times, 23
September 2005, accessed 20 February 2009 at http://www.nytimes.com/2005/09/23/
national/23women-sidebar.html.
16 Louise Story, Many Women at Elite Colleges Set Career Path to Motherhood, New
York Times, 20 September 2005, accessed 20 February 2009 at http://www.nytimes.
com/2005/09/20/national/20women.html?_r=2.
17 Susan Pinker, The Sexual Paradox (London: Atlantic Books, 2008), p. 70.
18 ibid., pp. 1612, 1768.
19 Equal Opportunity for Women in the Workplace Agency, accessed 27.2.09 at http://www.
eowa.gov.au/Australian_Women_In_Leadership_Census/2008_Australian_Women_In_
Leadership_Census/Media_Kit/EOWA_Census_2008_Publication.pdf
20 Ewin Hannan, Apprentice wins sexual harassment case against male boss, Australian,
18 November 2008, accessed 15 April 2009 at http://www.theaustralian.news.com.au/
story/0,25197,24667263-5013404,00.html.
21 See, for example, the website of the Disability Service Reforms Branch at http://www.
facs.gov.au/internet/facsinternet.nsf/who/branches-disability_service_reforms.htm;
case-based funding for people with disabilities at http://www.facs.gov.au/internet/
facsinternet.nsf/aboutfacs/programs/disability-cbf_job_in_jeopardy.htm; and the provisions for disability employment in the 200304 budget at http://www.facs.gov.au/internet/
facsinternet.nsf/aboutfacs/budget/budget2003-wnwd_a.htm.
22 See the FaHCSIA website at http://www.fahcsia.gov.au/Pages/default.aspx.
23 The Victorian law provides that people with HIV must not be treated less favourably than
others. It does not oblige employers to treat people with HIV more favourably than other
people.
CHAPTER 7
1 As quoted in Elizabeth Wolgast, Ethics of an Artificial Person (Stanford, California: Stanford
University Press, 1992), p. 23.
2 Media research centre of Alaska, accessed 20 February 2009 at http://mediaresearchak.
org/gallup_poll.htm; Jack Flanagan, Values, codes of ethics and the law (Sydney: Institute
of Chartered Accountants in Australia, 2006), p. 24.
3 The CPA Letter, Gallup survey shows accountings image still rising, November 2005,
accessed 19 February 2009 at http://www.aicpa.org/pubs/cpaltr/nov2005/gallup.htm;
Flanagan, Values, codes of ethics and the law, p. 24.
4 Lydia Saad, Nurses shine, bankers slump in ethics ratings, Gallup, 24 November 2008,
accessed 20 February 2009 at http://www.gallup.com/poll/112264/Nurses-Shine-WhileBankers-Slump-Ethics-Ratings.aspx.
5 Gwendolen B. White & Michael J. White, Perceptions of accountants: What are they after
Enron and WorldCom?, Journal of College Teaching & Learning, November 2006.
6 Cited by Flanagan, Values, codes of ethics and the law, p. 24.
7 ibid. p. 25.
8 Philomena Leung & Barry Cooper, Professional Ethics: A Survey of Australian Accountants
(Melbourne: ASCPA, 1995), p. 10. The authors sent their survey to 7000 members and
obtained useable responses from 1500.
9 ibid., pp. 12, 18.
325
326
NOTES
10 Adapted from Leung & Cooper, p. 16.

11 R. L. Whitelaw, as quoted in Mike W. Martin & Roland Schinzinger, Ethics in Engineering,
2nd edn (New York: McGraw-Hill, 1989), p. 168.
12 ibid., pp. 1689.
13 As quoted in Jack Maurice, Accounting Ethics (London: Pitman Publishing, 1996), p. 30.
14 Adapted from the British Statement on the Ethical Responsibilities of Members in Business, as quoted in Maurice, p. 31.
15 OnlineNewshour, Enron: after the collapse, accessed 27 February 2009 at http://www.
pbs.org/newshour/bb/business/enron/player6.html.
16 See Barbara Ley Toffler with Jennifer Reingold, Final Accounting: Ambition, Greed and the
Fall of Arthur Andersen (Broadway Books, 2003).
17 Kurt Eichenwald, Ex-accounting chief at Enron is indicted on 6 felony charges, New York
Times, 23 January 2004, accessed 27 February 2009 at http://www.nytimes.com/2004/01/23/
business/23enron.html?ex= 1077339600&en=7bee0e9c177fec7a&ei=5070.
18 Kurt Eichenwald, Audacious Climb to Success Ended in a Dizzying Plunge, New York
Times, 13 January 2002, accessed 27 February 2009 at http://query.nytimes.com/gst/
fullpage.html?res=950CE4DD1738F930A25752C0A9649C8B63.
19 Frank Clarke and Graeme Dean, Corporate collapses analysed, Collapse Incorporated
(North Ryde: CCH, 2001), p. 86.
20 ibid. pp. 726.
21 Eichenwald, Ex-accounting chief at Enron is indicted; Kristen Hays, Causey may be
key in Enron prosecutions, Chicago Tribune, Online Edition, 24 January 2004, accessed at
http://www.chicagotribune.com/ business/sns-ap-enron-causey,1,7140173.story?coll=snsbusiness-headlines.
22 Joe Stinebaker, Former Enron exec Causey in prison, Chicago Tribune, 3 January
2007, accessed 27 February 2009 at http://www.chicagotribune.com/sns-ap-enroncausey,0,5477225.story.
23 Joseph Kahn, Californians call Enron documents the smoking gun, 8 May 2002.
24 See Summary of SEC Actions and SEC Related Provisions Pursuant to the Sarbanes-Oxley
Act of 2002, 30 July 2003, accessed at http://www.sec.gov/news/press/2003-89a.htm.
25 IFAC, Proposed revision to code of ethics for professional accountants, Exposure Draft,
2003, accessed at http://www.ifac.org/Guidance/EXD-Details.php?EDID= 0027.
26 Clarke and Dean, Corporate collapses analysed, Collapse Incorporated (North Ryde:
CCH, 2001), p. 86.
27 ibid. p. 91.
28 For a history of the development of the combined code, the creation of AESB and the new
Code, see Ethical framework, by Paul Meredith, Charter (November 2006), available at
http://www.charteredaccountants.com.au/A117835921.
29 For example, The Code of Ethics of the New Zealand Institute of Chartered Accountants
(Wellington: ICANZ, 2003) requires accountants to display integrity, objectivity and
independence, competence, quality performance and professional behaviour.
30 Michael Davis, Introduction, Conflict of Interest in the Professions (Oxford: Oxford
31 A suggestion of systematic conflicts within the scouts is made by Lewis Kamb Scouts who
wear two hats, Times Union, 2 February 2009, accessed 3 February 2009 at http://www.
timesunion.com/AspStories/story.asp?storyID=765958&category=REGION&TextPage=1.
NOTES
32 Gardiner Harris, Top psychiatrist didnt report drug makers pay, New York Times, 4
October 2008, accessed 13 October 2008 at http://www.nytimes.com/2008/10/04/health/
policy/04drug.html.
33 Judith Warner, Diagnosis: greed, New York Times, 9 October 2008, accessed 13 October
2008 at http://warner.blogs.nytimes.com/2008/10/09/diagnosis-greed/?th&emc=th.
34 Harris, Top psychiatrist didnt report drug makers pay.
35 ibid.
36 ibid.
37 ibid.
38 Merrill paying $1M fine in settlement with SEC, Washington Post, 30 January 2009, accessed
9 February 2009 at http://www.washingtonpost.com/wp-dyn/content/article/2009/01/30/
AR2009013003161.html.
39 Merrill Lynch to pay $1M settlement, The Business Journal, 2 February 2009, accessed
9 February 2009 at http://www.bizjournals.com/triad/stories/2009/02/02/daily5.html.
40 The comments of Merrill Lynch spokesman, Mark Herr, reported in Merrill paying $1M
fine in settlement with SEC.
41 Kim Khan, Merrill settles charges, CNN Money, 21 May 2002, accessed 7 February 2009
at http://money.cnn.com/2002/05/21/news/companies/merrill/.
42 McGeehan, $100 Million Fine For Merrill Lynch.
43 ibid.
44 Khan, Merrill settles charges.
45 Patrick McGeehan, $100 Million Fine For Merrill Lynch, New York Times, 22 May 2002,
accessed 7 February 2009 at http://query.nytimes.com/gst/fullpage.html?res=9904E7DC1
038F931A15756C0A9649C8B63&scp=1&sq=Merill%20Lynch%20Spitzer%20fine&st=cse.
46 Khan, Merrill settles charges.
47 Remarks by Chairman Alan Greenspan, Corporate governance, at the Stern School
of Business, New York University, New York, 26 March 2002, accessed at http://www.
federalreserve.gov/BoardDocs/Speeches/2002/200203262/default.htm.
48 To make the distinction clear, think of the rules of football. They are there to constitute
the game of football, not to regulate the conduct of people kicking a ball around a
paddock. Anyone can do the latter, but only those who know the rules of football can play
the game. Sprinting, handball and hockey are not football; each game is distinguished by
the rules that constitute it. It makes no sense to say that the rules of football or hockey are
oppressive or that the recipe for souffl is over-regulated. These rules are the conditions
that allow the activitybe it a game, cooking or professional activityto happen.
49 See the discussion of the spirit of a true and fair account in F. L. Clarke, G. W. Dean & K.
G. Oliver, Corporate Collapse (Cambridge: Cambridge University Press, 1997), pp. 2467.
50 ibid., p. 23.
51 See these discussions of this point: Frank Clarke and Graeme Dean, Legislators and
regulators have failed to get the principles right, Australian Financial Review, 7 November
2002, p. 71; Stephen Cohen, Ethics is judgement, not rules, Australian Financial Review,
26 November 2002, p. 71; Stephen Cohen, Regulations are not the answer, Australian
Financial Review, 15 January 2003.
52 In the Legislators and regulators have failed to get the principles right, Frank Clarke and
Graeme Dean make a point very similar to this one.
53 Michael West, BT sues auditors for $60m, Sydney Morning Herald, 31 January 1996,
p. 25.
327
328
NOTES
54 Mark Westfield, Longest running trial puts blowtorch on auditors, Australian, 9 September
1997, p. 25.
55 George Sutton, Accountability brings with it all sorts of limits, Australian, 9 December
1994, p. 22.
56 Peter Jubb, Confidentiality in a professional context with especial reference to the
accounting profession in Australia, in M. Hoffman, J. Brown Kamm, R. E. Frederick &
E. S. Petry (eds), The Ethics of Accounting and Finance (London: Quorum Books, 1996),
p. 77.
57 ibid.
58 Clarke, Dean & Oliver, p. 254.
59 Financial reports review program, Charter, February 1994, pp. 556.
60 ibid., p. 55.
61 For example, the journal of the Institute of Chartered Accountants, Charter, now includes
a regular ethical problem and articles on ethics. The same body has also launched
videos of ethical hypotheticals and founded the Academics Ethics Network, with its own
newsletter, Focus on Ethics.
CHAPTER 8
1 A brief history of the contamination is available from the National Toxics Network Inc.
website, accessed 15 April 2009 at http://ntn.org.au/index.php?option=content&task
=view&id=73. See also John Huxleys articles, Historic birth, modern death, Sydney
Morning Herald, 31 March 2005, accessed 15 April 2009 at http://www.smh.com.au/
news/National/Historic-birth-modern-death/2005/03/30/1111862458768.html; and Toxic
plumes spread to citys edge, Sydney Morning Herald, 31 March 2005, accessed 15
April 2009 at http://www.smh.com.au/news/National/Toxic-plumes-spread-to-citysedge/2005/03/30/1111862468318.html. This and the other chronic problem at the Orica
Botany site, the safe disposal of HCB, are covered in a special issue of the Journal of
Environmental Management, vol. 90, 4, April 2009.
2 See Damian Grace, Errant corporations, diffuse responsibilities, and the environment:
Ethical issues in the Orica case study, Journal of Environmental Management, vol. 90, 4,
April 2009: doi:10.1016/j.jenvman.2008.05.017.
3 Duty of Care, Ross Greenwood interviews Graham Leibelt, Business Sunday, Channel 9,
The corporate tightrope, duty of care, 5 March 2006, transcript accessed 15 April 2009 at
http://businesssunday.ninemsn.com.au/article.aspx?id=89562.
4 Naomi Klein, No Logo (Hammersmith, London: Flamingo, 2001).
5 Elizabeth Becker, Animal Fans Secret Recipe is to Boycott Restaurant, New York Times,
6 January 2003.
6 A fuller argument is developed in S. Cohen & D. Grace, Ethics and Sustainability: Looking
beyond basic legal requirements, Australian Master OHS and Environment Guide 2003
(Sydney: CCH, 2002).
7 Henry Bosch, Bosch on Business (Melbourne: Business Library, 1992), p. 14.
8 De George, Business Ethics, 6th edn (Upper Saddle River, NJ: Pearson, Prentice-Hall,
2006), p. 345.
9 The tragedy of the commons, Science, 162, December 1968, pp. 12348.
10 Manuel Velasquez, Business Ethics: Concepts and Cases, 6th edn (Upper Saddle River, NJ:
Pearson, Prentice-Hall, 2006), p. 226.
NOTES
11 Manuel Velasquez provides an excellent discussion of this point in Business Ethics:

Concepts and Cases, 6th edn, pp. 2314.
12 William T. Blackstone, Ethics and ecology, in William T. Blackstone (ed.), Philosophy and
the Environmental Crisis (Athens, Ga: University of Georgia Press, 1974).
13 Matt Chambers, Emissions trading scheme a job killer, say steel chiefs, Australian, 23
April 2009, accessed 23 April at http://www.theaustralian.news.com.au/business/story/
0,,25372083-36418,00.html; Emissions trading may cost Ford millions, ABC News, 21 April
2009, accessed 27 April 2009 at http://www.abc.net.au/news/stories/2009/04/21/2548227.
htm; Alexandra Kirk & Emma Griffiths, CSIRO scientist describes ETS Russian roulette,
ABC News, 15 April 2009, accessed 15 April 209 at http://www.abc.net.au/news/
stories/2009/04/15/2542958.htm.
14 Greens meet Rudd halfway on carbon emissions, News.Com.Au, 4 May 2009, accessed
4 May 2009 at http://www.news.com.au/story/0,27574,25425382-29277,00.html.
15 Michael Hoffman, Business and environmental ethics, Business Ethics Quarterly, 1, no. 2,
1991, pp. 16984.
16 Peter Singer, Animal Liberation, 2nd edn (New York: Thorsons, 1991), p. 6.
17 More, p. 73.
18 See Raimond Gaitas excellent discussion in The Philosophers Dog (Melbourne: Text
Publishing, 2002).
19 Ted Trainer, for example, argues that economies based on ever-increasing consumption
are both unsustainable and irrational. There are alternative possible economies not based
on geometric consumption. For Trainer, affluence is the problem: Abandon Affluence
(London: Zed Books, 1985).
20 H. Daly & J. Cobb, For the Common Good (London: Greenprint, 1989), p. 450.
21 John Rawls, A Theory of Justice (Oxford: Clarendon Press, 1972), p. 289.
22 ibid., pp. 2859.
23 For a list of explicit principles that give effect to Rawlss point see Holmes Rolston III, Just
environmental business, in Tom Regan (ed.), Just Business (New York: Random House,
1984), ch. 11.
24 Christopher Pearson, Green errors began with DDT, Weekend Australian, 2425 January
2004, p. 16.
25 Michael Crichton, Remarks to the Commonwealth Club San Francisco, 15 September
2003, accessed at http://www.crichton-official.com/speeches/speeches_quote05.html.
26 This information may be accessed at http://www.shell.com/home/Framework?siteId=
royal-en&FC2=/royal-en/html/iwgen/environment_and_society/making_it_happen/
our_approach/zzz_lhn.html&FC3=/royal-en/html/iwgen/environment_and_society/
making_it_happen/ our_approach/our_approach.html.
27 Mel Wilson Corporate Reputation and the Triple Bottom Line: The Social Responsibilities
of Business, Risky Business, Issue 2, 2001, accessed at http://www.pwc.com/extweb/
manissue.nsf/DocID/ C00115084F24343E852569E600656A08.
28 Accessed at http://www.igc.apc.org/habitat/agenda21/rio-dec.html. See also the
Wingspread Statement, accessed at http://www.gdrc.org/u-gov/precaution-3.html.
29 Wingspread Statement, accessed at http://www.gdrc.org/u-gov/precaution-3.html.
30 ibid.
31 Frank Cross, Paradoxical Perils of the Precautionary Principle, Washington and Lee Law
Review, 53, 851 (1996).
32 Gerard Ryle, Industrial waste sold as fertilizer, Sydney Morning Herald, 6 May 2002, p. 1.
329
330
NOTES
33 Quoted by Duff Wilson, Fear in the FieldsHow Hazardous Wastes Become Fertilizer
Spreading Heavy Metals on Farmland is Perfectly Legal, But Little Research has been
Done to Find Out Whether its Safe, Seattle Times, 3 July 1997, accessed 4 May 2009 at
http://community.seattletimes.nwsource.com/archive/?date=19970704&slug=2547909.
The series of articles by Duff Wilson may be accessed at http://seattletimes.nwsource.
com/news/special/fear_fields.html.
34 M. Wade, Petrol importing fuels bitter debate over retail ethics, Sydney Morning Herald,
10 July 2002, p. 6.
35 Jan Mayman, The stink of uncle Al, Weekend Australian, 1112 May 2002, pp. 1922.
36 ibid. p. 19.
37 ibid.
38 For evidence presented at the inquiry see http://www.parliament.wa.gov.au/parliament/
commit.nsf/ (InqByName)/AEED11314738B6B148256B610023EA99?opendocument.
39 ibid.
40 Christine Parker, The Open Corporation (Melbourne: Cambridge University Press, 2000),
pp. 6883.
41 Parker, p. 77.
42 ISO statistics accessed at http://www.ecology.or.jp/isoworld/english/analy14k.htm.
43 See the SustainAbility website for more on Elkington at http://www.sustainability.com/
home.asp.
44 See http://www.globalreporting.org/about/brief.asp.
45 Information on the Valdez Principles is drawn from Rajib Sanyal & Joao Neves, The
Valdez Principles: implications for corporate social responsibility, Journal of Business
Ethics, 10, December 1991, pp. 88390.
46 A decade earlier, American business had responded to another challengeracial
discrimination in South Africawith the Sullivan Code. The Sullivan Code was initially
a voluntary code designed to prevent American firms from exploiting non-white South
Africans, and its success made it a model for the Valdez Principles.
47 R. Hawke, Our Country, Our Future (Canberra: AGPS, 1989).
48 World Commission on Environment and Development, Our Common Future (London:
Oxford University Press, 1987).
49 Ecologically Sustainable Development Working Group Chairs, Intersectoral Issues Report
(Canberra: AGPS, 1992), p. 2.
50 Ecologically Sustainable Development Working Group Chairs, p. 3.
51 ibid., p. 13.
52 John Davis, Paper price falls dents recyclers, Sydney Morning Herald, 25 June 1993, p. 3.
53 Rowan Callick, Green codes drawn up for doing business overseas, Australian Financial
Review, 2 November 1995.
54 Cameron Forbes & Matthew Stevens, BHP considers PNG mining solutions, Australian,
24 May 1994.
55 BHP and Ok Tedi, p. 8.
56 Cited in Geoffrey Barker, Dead fish, ethics and Ok Tedi, Australian Financial Review,
9 October 1995, p. 15. Barker also quotes BHPs then head of minerals, Jerry Ellis,
who rejects the proposition that his company has bullied rather than courted the PNG
government: When you are in competition, you do everything you possibly can to win
peoples hearts and minds, not to bully them. As soon as you become a bully, they look
elsewhere.
NOTES
57 ibid.
58 See BHP Billiton Health Safety Environment & Community Report, 2003 at http://www.
bhpbilliton.com/hsecReport/2003/home/home8.html.
CHAPTER 9
1 Norman Bowie & Ronald Duska, Business Ethics, 2nd edn (Englewood Cliffs, NJ: Prentice
Hall, 1990), p. 37.
2 Mike Martin & Roland Schinzinger, Ethics in Engineering, 2nd edn (New York: McGrawHill, 1989), pp. 434.
3 Martin Gansbergs article in the New York Times of 27 March 1964, Thirty-eight who saw
murder didnt call the police, is reprinted at http://www2.selu.edu/Academics/Faculty/
scraig/gansberg.html.
4 John McMillan, Legal protection of whistleblowers, in S. Prosser, R. Wear & J. Nethercote
(eds), Corruption and Reform (St Lucia, Qld: University of Queensland Press, 1990), p. 210.
5 See Roger Boisjolys first-hand account of the decision to launch Challenger in the face of
indications of high risk, in The Challenger disaster; moral responsibility and the working
engineer, in Deborah G. Johnson, Ethical Issues in Engineering (Englewood Cliffs, NJ:
Prentice-Hall, 1991), pp. 614.
6 Persons of the Year, Time, 30 December6 January 2003, pp. 3457.
7 ibid. p. 57.
8 Quentin Dempster, Whistleblowers (Sydney: ABC Books, 1997), p. 3.
9 See Howard Whitton, Ethics and principled dissent in the Queensland public sector:
A response to the Queensland whistleblower study, Australian Journal of Public
Administration, 54, 1995, pp. 45561.
10 Sissela Bok, Blowing the whistle, in J. Fleishman et al. (eds), Public Duties: The Moral
Obligations of Government Officials (Cambridge: Cambridge University Press, 1982),
pp. 2089.
11 De George, Business Ethics, 6th edn, pp. 30012.
12 See, for example, Bowie, pp. 13849; and Bowie & Duska, pp. 727.
13 Ross Webber, Whistleblowing, Executive Excellence, July 1990; see Westins Conclusion,
in Allen Westin (ed.), Whistleblowing: Loyalty and Dissent in the Corporation (New York:
McGraw-Hill, 1981), pp. 1603.
15 A. Gorta & S. Forell, Corruption: consensus, cognisance or confusion?, paper presented
to the 9th Annual Conference of the Australian and New Zealand Society of Criminology,
Sydney, SeptemberOctober 1993.
16 Michael Keeley & Jill Graham, Exit, voice and ethics, Journal of Business Ethics, 10, 1991,
pp. 3501.
17 Bok, pp. 21517.
18 Westin, pp. 15160, makes some suggestions about such protections that partly apply in
Australia through industrial legislationfor example, laws against unfair dismissals.
19 Sharon Beder, Engineers, ethics and etiquette, New Scientist, 25 September 1993,
pp. 3641.
20 NSW Ombudsman, The Adequacy of the Protected Disclosures Act to Achieve its Objectives,
Sydney, April 2004, p. 14.
21 Ibid. p. 48.
331
332
NOTES
22 Colleen Ryan, Whistleblower is out in the cold, Sydney Morning Herald, 20 March 1993,
p. 33.
23 ibid.
24 ibid.
25 The Martin Committee had much to say about the supervisory role of the Reserve Bank,
not just in relation to private banks but also state banks. See section III, recommendations
2230 of House of Representatives Standing Committee on Finance and Public Administration, A Pocket Full of Change: Banking and Deregulation (Canberra: AGPS, 1991).
26 ibid., recommendation 62, p. 351.
27 Information for this case is taken from Ryan, Whistleblower is out in the cold, and Bill
Mellor, Integrity and ruined lives, Time Australia, 21 October 1991, pp. 4651.
28 Useful information on Arantz can be found on the website of Brian Martin at http://www.
uow.edu.au/arts/sts/bmartin/dissent/contacts/au_wba/whistle199805.html#Heading2;
Evan Whitton, Allan, Norman Thomas William (19091977), Australian Dictionary of
Biography, accessed 6 April 2009 at http://www.adb.online.anu.edu.au/biogs/A130034b.
htm.
29 The information in this case comes from Julian Cribb, Committed to truth, Australian,
8 September 1993, p. 8.
30 ibid.
31 Road to Wembley, reported by Ticky Fullerton, Four Corners, ABC Television, broadcast
5 September 2005. Edited transcripts of Four Corners interviews can be found at http://
www.abc.net.au/4corners/content/2005/s1453614.htm. Background documents for the
Four Corners program can be found at http://www.abc.net.au/4corners/content/2005/
s1453513.htm.
32 Leonie Wood, Whistleblowers face a conundrum, Age, 6 April 2009, accessed 6 April 2009
at http://business.theage.com.au/business/whistleblowers-face-a-conundrum-200904059tce.html.
33 Kate Askew, Multiplexs Wembley own goal, Age, 5 September 2005, accessed 6 April
2009 at http://www.theage.com.au/news/business/multiplexs-wembley-own-goal/2005/
09/04/1125772409175.html.
34 ibid.
35 ASIC, 06-443 ASIC accepts an enforceable undertaking from the Multiplex Group,
accessed 6 April 2009 at http://www.asic.gov.au/asic/asic.nsf/byheadline/06-443+ASIC
+accepts+an+enforceable+undertaking+from+the+Multiplex+Group?openDocument.
36 Leonie Wood, Trials, tribulations of a whistleblower, Sydney Morning Herald, 6 April
2009, accessed 6 April 2009 at http://business.smh.com.au/business/trials-tribulationsof-a-whistleblower-20090405-9taq.html?page= -1.
37 Wood, Whistleblowers face a conundrum.
38 Wood, Trials, tribulations of a whistleblower.
39 Maurice Blackburn, Multiplex Class Action, accessed 6 April 2009 at http://www.
mauriceblackburn.com.au/areas/class_actions/current/multiplex.asp.
40 Wood, Trials, tribulations of a whistleblower.
41 Federal Court judgment of July 2008, quoted in Leonie Wood, Trials, tribulations of a
whistleblower, Sydney Morning Herald, 6 April 2009, accessed 6 April 2009 at http://
business.smh.com.au/business/trials-tribulations-of-a-whistleblower-20090405-9taq.html.
42 Fred P. Clark, Unfounded whistle blower suit can kill a small defense company, Aviation
Week and Space Technology, 2 March 1992, pp. 656.
NOTES
43 See, for example, William De Maria, Quarantining dissent: The Queensland public
sector ethics movement, Australian Journal of Public Administration, 54, 1995, pp. 44354.
Although De Marias critique is directed to the public sector, it could equally be directed to
the private sector. De Marias article is rebutted by Howard Whitton, Ethics and principled
dissent in the Queensland public sector: A response to the Queensland whistleblower
study; compare Noel Preston, Public sector ethics in Australia: A review, Australian
Journal of Public Administration, 54, 1995, pp. 46270.
CHAPTER 10
1 For an illuminating discussion of the supposed differences among types of codes, see
Conal Condren, Code types: Functions and failings and organizational diversity, Business
and Professional Ethics Journal, 14, no. 4, 1995, pp. 6990.
2 Isabelle de Pommereau, Are towns really safer without traffic lights? The Christian Science
Monitor, 12 September 2008, accessed 26 September 2008 at http://www.csmonitor.
com/2008/0912/p07s03-woeu.html.
3 ibid.
5 Adrian Lynch, Get integrity back into management, Rydges, December 1985, p. 49.
6 For a fuller discussion of this general topic and of the role of a responsibility regime in
promoting a culture of ethical excellence, see S. Cohen, Promoting Ethical Judgment
in an Organisation Context, forthcoming in the Australian Journal of Professional and
Applied Ethics.
7 Aristotle, Nicomachean Ethics, Book V, ch. 10.
8 Analogously, it is sometimes argued that this has been exactly the case with IQ testing.
This was initially developed (in 1905, and revised in 1908, 1911 and 1916) in order to
identify those who are intellectually challenged, indicated by falling below a certain
number on the IQ scale. However, it is, after all, a scale with high numbers as well as low
numbers. So, the test began to be used as a way of discriminating at the higher levels as
well. It was not designed to do this; and, so the argument goes, it does not do this at all
well. It is not, in fact, a tool for this job. This is exactly the issue of concept validity.
9 Onora ONeill, A Question of Trust (Cambridge: Cambridge University Press, 2002),
particularly chs 3 and 4.
10 See Amanda Sinclair, Codes in the workplace: Organisational versus professional codes,
in Margaret Coady & Sidney Bloch (eds), Codes of Ethics and the Professions (Melbourne:
Melbourne University Press, 1996), for a comparison of professional and organisational
codes that take up some of the issues mentioned here.
11 Some qualification is required here. For example, chartered accountants advertise in
terms of their profession as being better able to do a number of things (for example,
income tax returns), perhaps, impliedly, not merely because of their expertise but also
because of their commitment to a code of conduct. There are other examples as well;
but as a general point, it does seem correct to say that the profession operates as a
monopoly, and so would usually have no reason to offer the presence of a code of ethics
as competitive advertising.
12 Robert Howard, Values make the company, Harvard Business Review, September
October 1990, pp. 13344.
13 Alan Farnham, State your values, hold the hot air, Fortune, 19 April 1993, p. 54.
333
334
NOTES
14 ibid., p. 54.
15 On enforcement of codes, see Ian Freckelton, Enforcement of ethics in Coady & Bloch,
pp. 13065.
16 Norman Bowie, Business codes of ethics: window dressing or legitimate alternative to
government regulation?, in Tom L. Beauchamp & Norman E. Bowie (eds), Ethical Theory
and Business (Englewood Cliffs, NJ: Prentice-Hall, 1979), pp. 2349.
17 Interesting research in this area has been, and is currently being, undertaken by Lorraine
Carey: Profits and principles: the operationalisation of corporate ethics in Australian
enterprises (unpublished PhD thesis, University of Canberra, 2007).
18 This is available at the ASX website: http://www.asx.com.au/about/CorporateGovernance_
AA2.shtm.
19 Office of Regulation Review, Recent developments in regulation and its review,
Information Paper, Canberra, November 1993, p. 35.
20 Walter W. Manley II, Handbook of Good Business Practice (London: Routledge, 1992),
pp. 413. According to Manleys research, the British managers found that codes help
establish the ethical tone of the organisation, state its values and facilitate the imparting
of these values to employees; give a commonly accepted basis to a companys policies
and employee understandings of them; underpin a companys strategic direction; prepare
staff for external scrutiny and help avoid intrusive attention from interest groups and the
media; set clear standards for dealings with other businesses and third parties; clarify
the rights and responsibilities of the company, its management and its employees;
respond to government pressure for greater external regulation; improve a companys
image and public confidence in it; reduce exposure to law suits; improve performance
and profits; enhance corporate pride; build excellence across the companys operations;
set benchmarks for performance; reassure shareholders as to the companys integrity;
sustain public confidence in the market system; foster a business culture of openness and
free communication; facilitate the integration of the cultures of merged companies; and
deter unethical behaviour throughout a company.
21 James A. Waters, Catch 20.5: corporate morality as an organizational phenomenon, in
A. P. Iannone (ed.), Contemporary Moral Controversies (New York: Oxford University
Press, 1989), p. 152.
22 For an interesting and readable discussion of this point, see C. A. J. Coady, Ethos and
ethics in business, in Coady & Sampford, pp. 14971.
23 Honeywell, Code of Ethics and Business Conduct (Minneapolis: Honeywell, 1995), p. 4.
24 The Guidelines require that (i) a code of ethics and organisational standards be developed;
(ii) responsibility for ethics programs should be vested in a senior executive; (iii) persons
with a record of sharp practice or misconduct be excluded from positions of authority;
(iv) employees are properly informed about the code of ethics and organisational
standards; (v) monitoring, auditing and safe reporting mechanisms be instituted; (vi) fair
and firm disciplinary measures be taken against misconduct; and (vii) measures be taken
to prevent recurrences of misconduct.
25 The issue of conformism to external pressures is a serious objection to organisational
ethics programs. For a discussion of the problem, see C. A. J. Coady, On regulating ethics,
in Coady & Bloch, pp. 26987.
26 Ronald R. Sims, The institutionalization of organizational ethics, Journal of Business
Ethics, 10, 1991, p. 504.
27 ibid., passim; and Waters, pp. 15961.
NOTES
28 Amanda Sinclair has argued that ethical cultures can be established through treating an
organisation as a single culture or as a number of co-existing sub-cultures, but we believe
that ethical failure is more likely to result from fragmentation. See Sinclairs Improving
ethics through organisational culture: a comparison of two approaches, in Coady &
Sampford, pp. 12848.
CHAPTER 11
1 In a famous passage, Hobbes characterised such a life as solitary, poor, nasty, brutish,
and short; Leviathan (1651), part I, ch. 13.
2 Campbell writes, Now in every human being there is a built-in human instinct system,
without which we should not even come to birth. But each of us has also been educated
to a specific local culture system; Reflections on the Art of Living: A Joseph Campbell
Companion, selected and edited by Diane K. Osbon (New York: Harper Perennial, 1991),
p. 126.
3 Here we follow John Kekes, The Morality of Pluralism (Princeton, NJ: Princeton University
Press, 1993), pp. 3844.
4 Robert Armstrong et al., Business Ethics, in Anthony Milner & Mary Quilty (eds), Australia
in Asia: Comparing Cultures (Melbourne: Oxford University Press, 1996), p. 24.
5 ibid., p. 26. In a brief but pointed way, Armstrong et al. set out some of the core values of
Japanese, Chinese, Thai, Indonesian and Korean cultures.
6 Reported in Excerpts from the International Press, TI Newsletter, accessed at http://www.
transparency.de/ newsletter/ March 1997.
7 Johann Lambsdorff, The question of responsibility, 26 September 1997, accessed at
http://gwdu19.gwdg.de/ %7Ejlambsd/bribery/ node4.htm.
8 Louise Williams, Bre-X scam sparks attacks on foreigners, Sydney Morning Herald, 6 May
1997, p. 28.
9 Nicholas Cumming-Bruce, Chief of State-owned firm in $62m graft case, Sydney Morning
Herald, 25 January 1997, p. 22.
10 Amartya Sen, Does business ethics make economic sense?, Business Ethics Quarterly, 3,
1993, p. 50.
11 Robert Garran, Nomura president falls on his sword, Weekend Australian, 1516 March
1997, p. 53; Nomura bosses resign en masse, Australian, 23 April 1997, p. 23. When the rest
of the senior management of Nomura resigned in April 1997, they retained their rights as
advisers, with the power to continue to do business in the companys name. In this way,
public honour is saved, but Nomura did not face a sudden loss of corporate knowledge
and the individuals did not have to pay the full price of resignation.
12 For details of the Lockheed scandal, see Velasquez, pp. 2078; Martin & Schinzinger,
pp. 2612.
13 Sydney Morning Herald, 18 November 1996, p. 38.
14 Robert W. Armstrong, An empirical investigation of international marketing ethics: problems encountered by Australian firms, Journal of Business Ethics, 11, 1992, pp. 16171.
15 The Asian Intelligence Report, cited in Indonesia most corrupt, business survey, Sydney
Morning Herald, 31 March 1997, p. 7.
16 Hanbo, one of Koreas largest steel makers and US$6 billion in debt, allegedly obtained
loans it would not otherwise have gotten from government-controlled banks at the
behest of the ruling New Korea Party. Hanbo chairman, Chung Tae-soo, has a history of
335
336
NOTES
17
18
19
20
21
22
23
24
25
bribing government officials. He was convicted of paying former President Roh Tae-woo
US$23 million in bribes during his 198892 term.
Dud loans dog Vietnams banks, Sydney Morning Herald, 24 March 1997, p. 38.
Managing in Asia: ethics and other issues, Far Eastern Economic Review, 16 September
1993, pp. 3353.
On 7 March 1997, the Australian Financial Review reported on its front page that the east
coast criminal milieu had assumed all the trappings of legitimate business in order to
pursue criminal activitiessuch as money launderingmore efficiently. In the United
States, the Mob has infiltrated the securities industry; Mob muscles into brokers offices,
Sydney Morning Herald, 24 March 1997, p. 38.
S. J. Vitell, S. L. Nwachukwu & J. H. Barnes, The effects of culture on ethical decisionmaking: an application of Hofstedes typology, Journal of Business Ethics, 12, 1993,
pp. 75360. They distinguish two types of culture: individualist and collectivist. In
individualist cultures, it is acceptable to give primacy to the interests of individuals, their
families and connections. In collectivist cultures, the individuals identity is determined
by a group of some kind, and the interests of the group are accorded primacy. Collectivist
societies emphasise loyalty more than individualist ones. The authors suggest that in
collectivist societies (they cite Japan), individuals are more likely to be guided by the
norms and values of their industrial, business or professional group. In contrast with
this alignment, the individual in an individualist society (they cite the United States) will
be less influenced by organisational norms, even when formally stated, as in codes of
ethics. Moreover, they suggest that business practitioners in individualistic societies are
more likely than those in collectivist societies to consider themselves as more important
stakeholders than other employees or the owners (pp. 7546).
Alois A. Nugroho, The myth of immoral business: a specific challenge of business ethics
in Indonesia, International Society of Business, Economics and Ethics Papers, Tokyo 1996,
accessed at http://www.nd.edu/~isbee/p_nugroh.htm, 15 September 1997.
Julius Tahija, Swapping business skills for oil, Harvard Business Review, September
October 1993, p. 113.
All employees are expected to comply with antitrust/competition laws throughout the
world, i.e., no price fixing, bid rigging, criminal collusion. Marketing and selling efforts
must conform to highest ethical standards It is Honeywells policy to comply with
FCPA laws which prohibit the bribery of foreign government or political officials and
establish mandatory internal record keeping standards No employee will provide
or accept kickbacks No employee will give, offer or promise to give, or ask for or
accept anything of value to or from an employee or other representative of any current
or potential customer, supplier, or regulatory authority, in exchange for assistance or
influence in a transaction; Honeywell, Code of Ethics and Business Conduct (Honeywell:
Minnesota, 1995), pp. 12.
Richard De George, Competing with Integrity in International Business (New York: Oxford
ibid, pp. 4656. De George also offers ten strategies or counsels of perfection for dealing
with corruption in international business. The first and probably hardest is to remain
ethical, even if competitors do not. The others include using an imaginative response to
ethical difficulty; avoidance of over-reaction and maintenance of a sense of proportion;
development of background legal institutions at home and abroad; exposure of unethical
practices in the media where possible; combining with other parties to reform social,
NOTES
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
legal and political institutions; and requiring strict accountability of MNCs and those who
work within them. See also pp. 11420.
ibid., p. 112.
Adapted from Herberts report, reprinted in K. Woldring (ed.), Business Ethics in Australia
and New Zealand (Melbourne: Nelson, 1996), pp. 1912.
Verena Dobnik, Nike accused of allowing boot camp factories, Sydney Morning Herald,
29 March 1997, p. 17.
Brad Norington, Nike protests urged over appalling work conditions, Sydney Morning
Peter Hancock, Women workers in Nike factories in West Java (Fitzroy: Community Aid
Abroad, 1997)
Brad Norington, The shoe fits here as well, Sydney Morning Herald, 18 April 1997, p. 15.
Chris Patten, Synergy of robust rights and robust development, Sydney Morning Herald,
24 November 1993, p. 15.
This and other aspects of economic development and liberty are elaborated in Chris
Patten, East and West: The Last Governor of Hong Kong on Power Freedom and the Future
(London: Pan Macmillan, 1998).
Although the costs can be overstated: see the argument that ethical knowledge is an
asset in Norman E. Bowie & Paul Vaaler, Some arguments for universal moral standards,
International Society of Business, Economics and Ethics Papers, Tokyo, 1996, accessed at
http:// www.nd.edu/~isbee/ p_bowie.htm, 28 August 1997.
Diane Stott & Helen Greenwood, Shoppers must wear outworker reforms, Sydney
Morning Herald, 15 April 1996, p. 6. It is worth noting that, in the same article, Senator Sid
Spindler reported a visit to a Brookvale manufacturer who paid up to 40 per cent above
award rates and was still profitable.
Ben Schneiders, Ari Sharp and Katharine Murphy, Work heads offshore as Pacific Brands
axes jobs, Age, 26 February 2009, accessed 30 April 2009 at http://www.theage.com.au/
national/work-heads-offshore-as-pacific-brands-axes-jobs-20090225-8hxk.html.
James Kirby, ANZ rules out merger changes, Australian, 4 April 1996, p. 27.
ABC TV news report for 5 April 1996. The glibness takes the form of simple blame attribution. For example, although Country Road has asked its suppliers not to use outworkers,
this request is difficult to enforce. In April 1996, the Senates inquiry into outworkers in the
garment industry was told that some outworkers could receive as little as $1 for work on
a garment retailing for $500.
Mark Baker, Fischer rules out sanctions on Burma, Sydney Morning Herald, 4 November
1996, p. 11.
Thomas Donaldson, Multinational decision-making: reconciling international norms, in
Anthony Ellis (ed.), Ethics and International Relations (Manchester: Manchester University
Press, 1986), pp. 12740; The Ethics of International Business (New York: Oxford University
Press, 1989), ch. 5; and The language of international corporate ethics, Business Ethics
Quarterly, 2, 1992, pp. 27181.
Donaldson, The Ethics of International Business, p. 84. Compare Donaldsons The perils
of multinationals largess, Business Ethics Quarterly, 4, 1994, pp. 36771.
As Donaldson puts it, the corporation, if indeed it is a moral agent at all, has limited moral
capacities and a decidedly non-human psychology. It is often taller and richer than most
of us: but it is morally peculiar. It strives for nothing except economic objectives, or, if it
[does strive for other objectives] its striving has none of the psychological characteristics
337
338
NOTES
43
44
45
46
47
48
49
50
51
52
53
54
of human moral striving. It does not weep at funerals, struggle with its appetite, or enjoy
wedding parties; The language of international corporate ethics, Business Ethics
Quarterly, 2, 1992, pp. 2756. Compare, for example, Robert Ewin, The moral status of
the corporation, Journal of Business Ethics, 10, 1991, p. 755: Because they are artificial
people and not natural people, corporations lack the emotional makeup necessary to
the possession of virtues and vices. Their moral personality is exhausted by their legal
personality.
Geraldine Brooks, They hang writers dont they?, Weekend Australian, 3031 December
1995, features, p. 5.
Found at http://www.transparency.org/surveys/index.html.
Kevin Jackson, Global distributive justice and the corporate duty to aid, Journal of
Business Ethics, 12, 1993, p. 550. See Donaldsons reply in The perils of multinationals
largess.
George C. Brenkert, Can we afford international human rights?, Journal of Business
Ethics, 11, 1992, pp. 517.
These have been growing in number internationally. For Australian ethical investment
services, see Ross Knowles (ed.), Ethical Investment (Sydney: Choice Books, 1997); and
the websites of ethical investment advisers Terry Pinnell: http:// www.peg. apc.org/~dei;
Australian Ethical Investment Ltd: http://www.austethical.com.au; and Ecobusiness
Consultants Pty Ltd: http://www.ecobusiness. com.au.
For an elaboration of the argument from self-interest, see Bowie & Vaaler.
The Ethics of International Business, p. 75. Donaldson nominates ten fundamental human
rights: the right to freedom of physical movement; the right to ownership of property; the
right to freedom from torture; the right to a fair trial; the right to non-discriminatory treatment; the right to physical security; the right to freedom of speech and association; the right
to minimal education; the right to political participation; and the right to subsistence.
This criticism is discussed at length in Brenkert, pp. 51521.
Peter Drucker, Post-Capitalist Society (New York: Harper Business, 1993), p. 102.
As quoted in Sam North, Human rights concerns pull Levis out of China, Sydney Morning
Herald, 8 May 1993, p. 15.
Robert Waterman, Frontiers of Excellence (Sydney: Allen & Unwin, 1994), pp. 1667. For
a discussion of the Levis Aspiration Statement, its emphasis on ethics and its attempt
to globalise its values, see ch. 7 of Waterman, as well as Rhymer Rigby, Jeans genius,
Management Today, November 1996, pp. 5660. Rigbys article shows just how tough, in
a business sense, Levis is, but also just how seriously it takes ethics. In Bangladesh and
Turkey, Levis pays contractors to keep their children in school until they are 14 years old.
This ensures that those who are potentially the main income-earners for families, children
in sweatshops, are instead given an education and, of course, that Levis is not open to
charges of using child labour. According to Rigby, this is an expensive option for Levis,
but the company takes a long-term view and believes in adhering to its published ethical
stance. Elaine Sternberg argues that Levis can do these things legitimately because it is
not in the position of a listed company, which must increase shareholder value and would
not be at liberty to disperse profits in this manner. This point is a fair one, but overlooks
the fact that Levis shareholders choose to set an example through their corporation to
shareholders in public companies.
Grand Metropolitan, Report on Corporate Citizenship 1997 (London: Grand Metropolitan,
1997), p. 15.
NOTES
55 Grand Mets model is based on corporate relationships with employees, government,

investors, brand consumers, business partners and communities.
56 Grand Metropolitan, pp. 1920.
57 Friedman, The social responsibility of business is to increase its profits.
58 Chris Marsden, Corporate citizenship, unpublished discussion paper, BP Corporate
Citizenship Unit, Business School, University of Warwick, 1997, p. 15.
59 Tahija, p. 5.
60 Tahija, pp. 59.
61 Richard De George, Entrepreneurs, multinationals, and business ethics, paper given at
the International Society of Business, Economics and Ethics, Tokyo, 1996.
62 ibid., p. 2.
63 ibid., p. 2.
64 Systems do not absolve individuals of personal responsibility for acting ethically. But
not all corruption is of equal seriousness, and individuals cannot be required to display
ethical behaviour out of proportion to the likely benefits. Although this cannot be
required, it might still be freely given (for instance, by whistleblowers) and exact our
moral admiration and gratitude.
65 De George also argues that bribes harm those paying them: they suffer the injustice, but
[do] not impose it on others (Entrepreneurs, multinationals, and business ethics, p. 5). This
is not strictly true: bribes impose a direct cost on customers and on those who must bear the
costs of policing corruption. Bribery distorts markets, disadvantages competitors and tends
to drive up prices. This is not always the case, particularly in maturing economies, where,
as Michael Backman argues, corruption can enable bad government to be frustrated, and
incompetent or slothful bureaucracies can be cut through. This does not answer the ethical
objections, but as De George shows, even this requires discrimination; Backman, Putting
a kick back into business, Australian Financial Review, 27 October 1997, p. 15.
66 ibid., p. 4.
67 In 1996, in a first for Australia, WMC produced the report of an audit of the companys
environmental performance. The audit identified problems and potential savings of which
the company was previously unawarefor example, in water consumption. The CEO of
WMC, Hugh Morgan, said the company had a very strong self-interest in getting it right.
I try to make it clear that this environmental activity is not a function of something imposed
from outside. This is very much in our own self-interest; Mark Davis, WMC compiles its
own green report card, Business Review Weekly, 10 June 1996, pp. 202.
68 Global Sullivan Principles, History & Evolution, accessed 20 February 2009 at http://
www.thesullivanfoundation.org/gsp/endorsement/history/default.asp.
69 ibid.
70 GSP in Action, accessed on 20 February 2009 at http://www.thesullivanfoundation.org/
gsp/inAction/default.asp.
71 Global Sullivan Principles, accessed 20 February 2009 at http://www.thesullivanfoundation.
org/gsp/principles/gsp/default.asp
72 Overview of the UN Global Compact, accessed 20 February 2009 at http://www.
unglobalcompact.org/AboutTheGC/index.html.
73 The Ten Principles of the UN Global Compact, accessed 20 February 2009 at http://www.
unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html.
74 The background history of the CRT is to be found at Caux Round Table: History and
Meetings, at http://www.cauxroundtable.org/History.htm, 2 November 1997, extracted
339
340
NOTES
75
76
77
78
79
in part from Michael Henderson, The Forgiveness Factor: Stories of Hope in a World of
Conflict (Salem, Oreg.: Grosvenor Books, 1996), pp. 18193.
ibid.
Charles M. Denny, one of the authors of the Caux Principles, as quoted in Henderson.
J. Lambsdorff, TI Newsletter, accessed at http://www.transparency.de/newsletter/997
index.html, September 1997.
See Transparency International website: http://www.transparency.org/policy_research/
surveys_indices/bpi/bpi_2008#faq.
Lima Convention, accessed at http://www.transparency.de/iace/council.html, 2 November
1997.
APPENDICES
1 William W. May (ed.), Ethics in the Accounting Curriculum: Cases and Readings (Sarasota,
Florida: American Accounting Association, 1990). This model was adapted by the
AAA from an eight-step model suggested by H. Q. Langenderfer and J. W. Rockness,
Integrating ethics into the accounting curriculum: Issues, problems and solutions, Issues
in Accounting Education, 4, 1989, pp. 5869.
2 Laura Nash, Ethics without the sermon, Harvard Business Review, 59, November
December 1981, pp. 7990.
3 Michael Rion, The Responsible Manager: Practical Strategies for Ethical Decision Making
(San Francisco: Harper & Row, 1990), pp. 1314, and then applied throughout the book.
4 Mary Guy, Ethical Decision Making in Everyday Work Situations (New York: Quorum
Books, 1990), pp. 1419, 2830.
5 Kent Hodgson, A Rock and a Hard Place: How to Make Ethical Business Decisions When
the Choices are Tough (New York: American Management Association, 1992), pp. 934,
979, 1034, 12930.
6 Philip G. Cottell Jr. & Terry M. Perlin, Accounting Ethics: A Practical Guide for Professionals
(New York: Quorum Books, 1990), pp. 10, 1213.
7 David Mathison, Business ethics cases and decision models: A call for relevancy in the
classroom, Journal of Business Ethics, 7, 1988, p. 780.
8 Anthony M. Pagano, Criteria for ethical decision making in managerial situations,
Proceedings of the National Academy of Management, New Orleans, 1987, pp. 112.
9 This material is available from Australian Association of National Advertisers, Suite 2,
Level 5, 99 Elizabeth Street, Sydney, NSW, 2000. It is also available on the internet at http://
www.advertisingstandardsbureau.com.au/industry/aana_code_ethics.html.
10 The CRT Principles may be found at http://www.cauxroundtable.org/index.cfm?
&menuid=8. They are largely based on principles developed by the Minnesota Center for
Corporate Responsibility.
Appendix 1: Ethical
Decision-making Models
An ethical decision-making model is a suggested device for use in working through
ethical problems and reaching a decision about a course of action in a structured and
systematic way. In recent years, a great number of ethical decision-making models
have been proposed, and various models have been officially adopted or endorsed
by several professional and business organisations. A number of decision-making
models are reproduced here for your consideration. These models are not provided
as the only ways to go about dealing with ethical issues. Indeed, some people have
expressed concern about the wisdom of using decision-making models at all. The
concern has largely been that decision-making models can give the impression that
ethical decision-making is an algorithmic and mechanical process when, in fact, it is
usually much more complex and subtle than that. In addition, the fact of there being
so many different decision-making models can give the impression that just any
old decision procedure, involving any considerations, will do, as long as it can be
represented as steps that can be followed in reaching a decision. Ethical decisionmaking models do, however, have the important characteristic of representing
ethical deliberation as a systematic process, rather than simply as a touchy-feely
experience or as a matter of ones gut reaction to a situation. Ethical decision-making
models emphasise that there is, in fact, deliberation associated with making ethical
decisionsthere is something to deliberate about, and the various contributing
factors can be articulated and dealt with.
In considering the following proposed ethical decision-making models, you
should give some thought to the appearance of common elements in some or most
of them (for instance, they almost all include a light of day test, a suggestion that
you imagine how you would feel if the proposed action came to be widely known).
You should also give some thought to whether any of the steps or elements in these
models seem to be particularly insightful, potentially fruitful or helpful in dealing
with ethical matters systematically. You will notice that all the models allow for what
was earlier referred to as ethical pluralism; none of them is couched in terms of a
purported correct moral theory.
298
E THICAL DECISION - MAKING MODELS
1 The American Accounting Association model: seven steps

In 1990, the American Accounting Association (AAA) published a casebook, Ethics
in the Accounting Curriculum: Cases and Readings. These cases illustrate ethical
issues that accountants may encounter in the context of their professional activities.
Each case is analysed using a seven-step decision-making model.1
1 Determine the factsWhat, who, where, when, how.
What do we know or need to know, if possible, that will help define the problem?
2 Define the ethical issue.
a List the significant stakeholders.
b Define the ethical issues.
Make sure you know precisely what the ethical issue isfor example, conflict
involving rights, question over limits of an obligation, etc.
3 Identify major principles, rules, valuesfor example, integrity, quality, respect for
persons, profit.
4 Specify the alternatives.
List the major alternative courses of action, including those that represent some
form of compromise or point between simply doing or not doing something.
5 Compare values and alternatives. See if a clear decision is evident.
Determine if there is one principle or value, or combination, which is so compelling that the proper alternative is clearfor example, correcting a defect that
is almost certain to cause loss of life.
6 Assess the consequences.
Identify short and long, positive and negative consequences for the major alternatives. The common short run focus on gain or loss needs to be measured against
long run considerations. This step will often reveal an unanticipated result of
major importance.
7 Make your decision.
Balance the consequences against your primary principles or values and select
the alternative that best fits.
2 The Laura Nash model: twelve questions2

Nash wants to make decision-making more practical, rather than relying on abstract
philosophical concepts.
1 Have you defined the problem accurately?
Gain precise facts and many of them.
2 How would you define the problem if you stood on the other side of the fence?
Consider how others perceive it; alternatives?
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APPENDIX 1
3 How did this situation occur in the first place?

Consider the history, problem or symptoms.
4 To whom and what do you give your loyalties as a person and as a member of the
corporation?
Private duty v corporate policy or norms.
5 What is your intention in making this decision?
Can you take pride in your action?
6 How does this intention compare with the likely results?
Are results harmful even with good intentions?
7 Whom could your decision or action injure?
A good thing resulting in a bad end? Wanted A; got B.
8 Can you engage the affected parties in a discussion of the problem before you
make your decision?
Example: talk to workers before closing the plant.
9 Are you confident that your position will be valid over a long period of time as it
seems now?
Look at long-term consequences.
10 Could you disclose without qualm your decision or action to your boss, your
CEO, the board of directors, your family or society as a whole?
Would you feel comfortable with this on TV?
11 What is the symbolic potential of your action if understood? If misunderstood?
Sincerity and the perceptions of others.
12 Under what conditions would you allow exceptions to your stand?
Speeding to a hospital with a heart attack victim.
3 The Michael Rion model: six questions3

1 Why is this bothering me?
Is it really an issue? Am I genuinely perplexed, or am I afraid to do what I know
is right?
2 Who else matters?
Who are the stakeholders who may be affected by my decisions?
3 Is it my problem?
Have I caused the problem or has someone else? How far should I go in resolving
the issue?
4 What is the ethical concern?
Legal obligation, fairness, promise-keeping, honesty, doing good, avoiding harm?
5 What do others think?
Can I learn from those who disagree with my judgment?
6 Am I being true to myself?

What kind of person or company would do what I am contemplating? Could I
share my decision in good conscience with my family? With colleagues? With
public officials?
4 Mary Guy: values, rules and a decision-making model4

Before offering a decision-making model, Guy suggests that one might keep ten
core values in mind: By evaluating how these values relate to an issue under consideration, and by analyzing who the stakeholders are in the decision, the ethical
implications of an action become clearer.
7h Caringtreating people as ends in themselves, not as means to ends. This means
7h
7h
7h
7h
7h
7h
7h
having compassion, treating people courteously and with dignity, helping those
in need, and avoiding harm to others.
Honesty being truthful and not deceiving or distorting. One by one, deceptions
undermine the capacity for open exchange and erode credibility.
Accountabilityaccepting the consequences of ones actions and accepting the
responsibility for ones decisions and their consequences. This means setting an
example for others and avoiding even the appearance of impropriety. Asking
such questions as How would this be interpreted if it appeared in the newspaper? or What sort of person would do such a thing? brings accountability
dilemmas into focus.
Promise keeping keeping ones commitments. The obligation to keep promises
is among the most important of generally accepted obligations. To be worthy of
trust, one must keep ones promises and fulfil ones commitments.
Pursuit of excellence striving to be as good as one can be. It means being diligent,
industrious, and committed; and becoming well informed and well prepared.
Results are important, but so is the manner and the method of achievement.
Loyalty being faithful and loyal to those with whom one has dealings. This
involves safeguarding the ability to make independent professional judgments by
scrupulously avoiding undue influence and conflicts of interest.
Fairness being open-minded, willing to admit error, and not overreaching or
taking undue advantage of anothers adversities. Avoiding arbitrary or capricious
favouritism; treating people equally and making decisions based on notions
of justice.
Integrityusing independent judgment and avoiding conflicts of interest, restraining
from self-aggrandisement, and resisting economic pressure; being faithful to ones
deepest beliefs, acting on ones conviction, and not adopting an end-justifies-themeans philosophy that ignores principle.
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APPENDIX 1
7h Respect for others recognising each persons right to privacy and self-
determination and having respect for human dignity. This involves being
courteous, prompt, and decent, and providing others with information that they
need to make informed decisions.
7h Responsible citizenship having ones actions in accord with societal values.
Appropriate standards for the exercise of discretion must be practiced.
Guy also suggests five rules, which integrate these values, and which might be of
assistance in codifying ones ethical decision-making:
7h Rule 1Consider the well-being of others, including nonparticipants. This rule
7h
7h
7h
7h
emphasises caring and respect for others.

Rule 2Think as a member of the community, not as an isolated individual. This
emphasises loyalty, integrity, respect for others, and responsible citizenship.
Rule 3 Obey, but do not depend solely on the law. This emphasises integrity and
responsible citizenship.
Rule 4 Ask, What sort of person would do such a thing? This emphasises all
the values by calling each into question.
Rule 5 Respect the customs of others, but not at the expense of your own ethics.
This emphasises accountability, fairness, integrity, and respect for others.
Guys decision-making model:
1 Define the problem.

Isolate the key factors in question and diagnose the situation to define the basic
problem and to identify the limits of the situation. This step is critical, because it
prevents solving the wrong problem.
2 Identify the goal to be achieved.
If you do not know where you are going, you will never know when you get there.
For this reason, it is essential that a goal is clearly declared.
3 List all possible solutions to the problem.
All alternatives that will address the problem and achieve the goal are placed
under consideration.
4 Evaluate each alternative to determine which one best meets the requirements of
the situation.
This requires a thorough analysis of each alternative. The analysis involves
measuring the benefits, costs, and risks of each, as well as identifying the likely
intended and unintended consequences of each. This step provides information about the utility of each alternative in terms of the efficiency with which it
maximises desired values and still achieves the goal.
5 Identify the one course of action that is most likely to produce the desired
consequences within the constraints of the situation.
This requires selecting the alternative that maximises the most important values
and holds the most promise of achieving the goal, while solving the problem as
effectively as possible.
6 Make a commitment to the choice and implement it.
This requires converting the decision into action.
Guy further suggests that a slightly larger, ten-step, model is more appropriate for
complex problems:
1
2
3
4
5
6
7
8
9
10
Define the problem.

Identify the goal to be achieved.
Specify all dimensions of the problem.
List all possible solutions to each dimension.
Evaluate alternative solutions to each dimension regarding the likelihood of
each to maximise the important values at stake.
Eliminate alternatives that are too costly, not feasible, or maximise the wrong
values when combined with solutions to other dimensions.
Rank the alternatives to each dimension according to which are most likely to
maximise the most important values.
Select the alternative to each dimension that is most likely to work in the context
of the problem while maximising the important values at stake.
Combine the top ranking alternatives for each dimension of the problem in
order to develop a solution to the problem as a whole.
Make a commitment to the choice and implement it.
5 The Kent Hodgson model: the three-step process5

1 Examine the situation.
7h Get the critical facts. What does the situation look like? What has happened?
What are the circumstances involved?
7h Identify the key stakeholders. Who are the significant players? Include all the
key stakeholders significantly affected by the situation and by any decisions
you might make.
7h Identify each stakeholders options (what each stakeholder wants done). State
the options for action that represent each stakeholders interest. Put yourself
in the stakeholders shoes and think from their point of view. This is not the
time to make final judgments or slant stakeholder options from your own
perspective.
2 Establish the dilemma.
7h Identify the working principles and norms that drive each option (why each
stakeholder wants it done). Pinpoint, as best you can, the business reasons
303
304
APPENDIX 1
for each option. Why is this stakeholder in favour of this option for action? The
answers show you what the stakeholders value and the working principles
that flow from those values.
7h Project the possible outcomes (consequences) of each stakeholder option.
Do any violate your principles, or those of your organisation? What will each
stakeholder option cause to happen? You are trying to discover what the
stakeholder wants to have happen in this situation. Then ask, Do any of the
outcomes resulting from these options violate my principles, or those of my
organisation?
7h Determine the actions (means) necessary to produce each outcome. Do any
violate your principles, or those of your organisation? What will stakeholders
have to do to get the result they want? What steps will they take to make their
desired options happen? Then ask, Do any of the actions they will take to
make their options happen (means to the end) violate my principles, or those
of my organisation?
7h State the dilemma. Through the activities completed, you know the stakeholders, the options they represent, the validity of the working principles
behind their options, and the validity of the means to implement their options.
You are now in a position to decide if what you are facing is a true dilemma
(balanced opposite interests). You are now able to state, even write down,
the dilemma exactly.
3 Evaluate the options.
7h Identify the General Principle(s) behind each stakeholder option. Is the option
driven primarily by dignity of human life, autonomy, honesty, loyalty, fairness,
humaneness, or the common good (the magnificent seven)? The answer
is not automatic or expedient; rather, it is a matter of honest judgment on
your part.
7h Compare the General Principle(s) behind each option. Which is the most
responsible General Principle(s) in this situation? In your mind, in this
situation, which of the magnificent seven holds top priority as an ethical
reason for this or that option? The object is to choose an option for action
that represents the most responsible General Principle (or Principles) for you,
now, in this situation.
7h The option with the most responsible General Principle(s) is your choice for
action. Your decision is not a guess, a choice from ignorance, or a choice from
expediency. It is choice for action derived from principles. And it is a decision
that is defensible on the grounds of principle and an attitude of cooperative
responsibility.
6 The Cottell and Perlin model: five steps6

1 Describe all the relevant facts in the case. Be certain to note any assumptions not
directly presented in the case.
2 Describe the ethical and legal perspectives and responsibilities of the parties. Try
to distinguish between legal and ethical responsibilities. Take note of potential
value conflicts among participants in the case.
3 State the principal value conflicts in the case.
4 Determine possible courses of action. Note both short- and long-term consequences. Describe the principles affirmed or abridged in projected courses of
action. Distinguish utilitarian (consequences) from deontological (principles)
justifications in each case. Would ethical realism as it exists in the accounting
profession assist in resolving the dilemma?
[Ethical realism is an important notion for Cottell and Perlin. Basically, it
means trying to consider what the leaders in the profession would think is right
or wrong. This relies on the premise that the leadership has an ethical insight.
By leaders, they mean the intellectual authorities the big guns. Each of us
can name the national leaders in the profession. They are the managing partners
of large firms, the heads of professional bodies, the members of standard-setting
boards. In short, they are the men and women who have risen up through the
ranks to positions of respect.]
5 Choose and defend a decision. State why one value (or set of values) was chosen
over another in the case. Discuss the result of such a choice for participants in
the case, for the accounting profession, and for society in general.
7 David Mathison: the synthesis model7

First, understand three foundational concepts:
7h Obligations restrictions on behaviour, things one must do or must avoid; for
example, business relationships, fidelity in contracts, gratitude, justice.

7h Ideals notions of excellence, the goal of which is to bring greater harmony to
self and others; for example, concepts as profit, productivity, quality, stability,
tolerance, and compassion all fit here.
7h Effects the intended or unintended consequences of a decision; for example,
oil rigs on the high seas, a spillage.
This requires a three-step process:
1 Identify the important issues involved in the case using obligations, ideals, or
effects as a starting point. The goal here is to expand ones view.
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306
APPENDIX 1
2 Decide where the main emphasis or focus should lie among the five or so issues
generated in Step 1. Which is the major thrust of the case? Is it a certain obligation,
ideal, or effect? For example, it may be a choice of remaining silent about a wing
design defect with the effect of people dying in a plane accident versus going to
the media with the effect of damaging a plane manufacturers credibility on a
personal hunch.
3 With the well-focused issue worked out in Step 1, now you apply the Basic
Decision Rules:
a When two or more obligations conflict, choose the more important one.
b When two or more ideals conflict, or when ideals conflict with obligations,
choose the action which honours the higher ideal.
c When the effects are mixed, choose the action which produces the greatest
good or lesser harm. For example, in the case of the questioning engineer,
clearly saving human lives is the greater good over saving a manufacturers
image.
8 Anthony M. Pagano: six tests8

Pagano proposes six tests, rather than outlining a particular approach or model. His
idea is that these tests can provide useful insights into the ethical perspective of a
proposed action:
1 Is it legal?
This is the core starting point.
2 The benefitcost test.
This is the utilitarian perspective.
3 The generalisation test.
Do you want this action to be a universal standard? If its good for the goose, its
good for the gander.
4 The light of day test.
What if it appeared on TV? Would you be proud?
5 Do unto othersThe Golden Rule test.
Do you want the same thing to happen to you?
6 Ventilation test.
Get a second opinion from a wise friend with no investment in the outcome.
Appendix 2: Australian
Association of National
Advertisers(AANA)
This Code has been adopted by AANA to be applied as a means of advertising selfregulation in Australia and is intended to be applied to advertisements as defined
in this code.
The object of this Code is to ensure that advertisements are legal, decent, honest
and truthful and that they have been prepared with a sense of obligation to the
consumer and society and fair sense of responsibility to competitors.
In this Code, the term advertisement shall mean matter which is published or
broadcast, other than via internet, direct mail, point of sale or direct distribution to
individuals, in all of Australia or in a substantial section of Australia for payment
or other valuable consideration and which draws the attention of the public, or
a segment of it, to a product, service, person, organisation or line of conduct in a
manner calculated to promote or oppose directly or indirectly that project, service,
person, organisation or line of conduct.
1. Section 1
1.1 Advertisements shall comply with Commonwealth law and the law of the
relevant State or Territory.
1.2 Advertisements shall not be misleading or deceptive or be likely to mislead or
deceive.
1.3 Advertisements shall not contain a misrepresentation that is likely to cause
damage to the business or goodwill of a competitor.
1.4 Advertisements shall not exploit community concerns in relation to protecting
the environment by presenting or portraying distinctions in products or services
advertised in a misleading way or in a way that implies a benefit to the environment that the product or services do not have.
307
308
APPENDIX 2
1.5 Advertisements shall not make claims about the Australian origin or content of
products advertised in a manner that is misleading.
2. Section 2
2.1 Advertisements shall not portray people in a way that discriminates against
or vilifies a person or section of the community on account of race, ethnicity,
nationality, sex, age, sexual preference, religion, disability or political belief.
2.2 Advertisements shall not present or portray violence unless it is justifiable in the
context of the product or service advertised.
2.3 Advertisements shall treat sex, sexuality and nudity with sensitivity to the
relevant audience and, where appropriate, the relevant program time zone.
2.4 Advertisements which, having regard to the theme, visuals and language used,
are directed primarily to children aged 14 years or younger and are for goods,
services and facilities which are targeted toward and have principal appeal
to children, shall comply with the AANAs Code of Advertising to Children and
section 2.6 of this Code shall not apply to advertisements to which AANAs Code
of Advertising to Children applies.
2.5 Advertisements shall only use language that is appropriate in the circumstances
and strong or obscene language shall be avoided.
2.6 Advertisements shall not depict material contrary to prevailing community
standards on health and safety.
2.7 Advertisements for motor vehicles shall comply with the Federal Chamber
of Automotive Industries Code of Practice relating to Advertising for Motor
Vehicles and section 2.6 of this Code shall not apply to advertisements to which
the Federal Chamber of Automotive Industries Code of Practice applies.
Appendix 3: The Caux

Round Table Principles for
Responsible Business
10
Principle 1: Respect stakeholders beyond shareholders

A responsible business
7h acknowledges its duty to contribute value to society through the wealth and
employment it creates and the products and services it provides to consumers.
7h maintains its economic health and viability not just for shareholders, but also for
other stakeholders.
7h respects the interests of, and acts with honesty and fairness towards, its customers,
employees, suppliers, competitors, and the broader community.
Principle 2: Contribute to economic, social and environmental

development
7h recognizes that business cannot sustainably prosper in societies that are failing
or lacking in economic development.
7h therefore contributes to the economic, social, and environmental development of
the communities in which it operates, in order to sustain its essential operating
capital financial, social, environmental, and all forms of goodwill.
7h enhances society through effective and prudent use of resources, free and fair
competition, and innovation in technology and business practices.
Principle 3: Respect the letter and the spirit of the law

7h recognizes that some business behaviors, although legal, can nevertheless have
adverse consequences for stakeholders.
309
310
APPENDIX 3
7h therefore adheres to the spirit and intent behind the law, as well as the letter of the
law, which requires conduct that goes beyond minimum legal obligations.
7h always operates with candor, truthfulness, and transparency, and keeps its
promises.
Principle 4: Respect rules and conventions

7h respects the local cultures and traditions in the communities in which it operates,
consistent with fundamental principles of fairness and equality.
7h everywhere it operates, respects all applicable national and international laws,
regulations and conventions, while trading fairly and competitively.
Principle 5: Support responsible globalisation

7h as a participant in the global marketplace, supports open and fair multilateral
trade.
7h supports reform of domestic rules and regulations where they unreasonably
hinder global commerce.
Principle 6: Respect the environment

7h protects and, where possible, improves the environment, and avoids wasteful
use of resources.
7h ensures that its operations comply with best environmental management practices consistent with meeting the needs of today without compromising the needs
of future generations.
Principle 7: Avoid illicit activities

7h does not participate in, or condone, corrupt practices, bribery, money laundering,
or other illicit activities.
7h does not participate in or facilitate transactions linked to or supporting terrorist
activities, drug trafficking or any other illicit activity.
7h actively supports the reduction and prevention of all such illegal and illicit
activities.
Acknowledgments
We wish to express our gratitude to a number of people who assisted in the completion of this work. We thank Kaz Kazim, John Cheong Seong Lee, Shirley Cohen
and Greg Goodman for their assistance and advice. Karen Hildebrandt of OUP
provided good counsel for this edition; as did the editorial wisdom and meticulous
care of Tim Fullerton, who greatly assisted us in improving the text.
We wish to thank the following colleagues, who made comments on the earlier
editions and suggestions for improvement: Andrew Brian, Pam Byde, Ted Cohen,
Conal Condren, Glyn Hardingham, Kathleen MacDonald, Bryan Maher, Ian Marsh,
Michaelis Michael, Noel Preston and members of our classes in the Graduate
Programs in Professional Ethics at the University of New South Wales.
Thanks are also due to Saatchi and Saatchi, Toyota Australia, Fairfax Media,
Style Counsel, Chrysler Corporation, Bozell Worldwide Inc. and Behrens Brown for
supplying material and allowing its reproduction.
A number of the analyses, arguments, explanations and modes of presentation
here have benefited from presentation at academic and industry forums. In particular,
the Roads and Traffic Authority of New South Wales (RTA) has encouraged us and
provided invaluable feedback through its various ethics workshops and seminars.
We especially thank Peter Houston and Rob McCarthy from the RTA.
Damian Grace and Stephen Cohen
xi
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INDEX
Index Terms
Links
A
Abbott Laboratories
237
ability
148
Aboriginal culture
268
155
see also cultural relativism

academic medicine, conflicts of
interest
1779
accountability
33
48
55
24853
accounting, ethics of
16189
accounting education
183
accounting profession
16089
187
academic medicine, conflicts of

interest
1779
codes of practice
16971
conflicts of interest
17281
consecutive and regulative rules
1814
litigation and auditing
1849
Merrill Lynch
17981
accounting standards
168
3078
advertising
11643
bait
1345
formal regulation in Australia
1235
moral problem
1312
placements and endorsements

the story of
1324
12531
This page has been reformatted by Knovel to provide easier navigation.
182
186
Index Terms
Links
Advertising Standards Council

affirmative action
affordability and business ethics
117
123
132
137
144
145
1545
255
130
153
2847
AIDS
129
Alcoa
193
2056
16
53
61
19
144
145
146
149
154
275
288
altruism
259
American Accounting Association
(AAA)
299
amoral business
xvii
anti-discrimination
158
apartheid
34
28990
Apline, Graham
138
Applegate, Dan
216
applied theory view
21
Aquinas, Thomas
40
126
228
229
21
249
57
255
283
Arantz, Philip
Aristotle
aspirations
Astbury, John
225
auditing
1849
augmentation
378
Australian Association of National

Advertisers (AANA)
3078
Australian Chamber of Commerce and

Industry
85
Australian Conservation Foundation
134
Index Terms
Links
Australian Council of Trade Unions

(ACTU)
150
Australian Institute of Purchasing and

Materials Management
Australian Manufacturing Council
Australian Paper Mills
99
xviii
209
Australian Securities and Investment

Commission (ASIC)
107
230
Australian Securities Commission

(ASC)
185
Australian Steel Mill Services

Australian Wheat Board (AWB)
204
26
B
Bankers Trust
185
banking industry code of practice
25960
Barker, Geoffrey
34
Barry, Paul
78
Basham, Brian
109
Bay Area Rapid Transit System
92
Beaurepairs Tyres
152
Bell, Book and Candle
263
Beneficial Finance
186
benevolence
Benetton
Bentham, Jeremy
99102
129
1516
Berardino, Joe
166
Berlie underwear
128
Bernstein, Carl
220
best practice study

Bhopal
131
xviii
277
241
259
Index Terms
Links
BHP
39
74
1489
204
21014
283
108
204
210
214
294
284
BHP Billiton
biosphere
207
Blackstone, William
196
Body Shop
37
Boer War
57
Boisjoly, Roger
49
Bok, Sissela
220
Bond, Alan
43
Bonfire of the Vanities (film)
42
Booth, John
78
Bosch, Henry
1934
bottom-up reasoning
1011
193
Bowie, Norman
258
brand names
133
Branson, Richard
109
Brenkhert, George
282
Brent Spar oil rig
201
202
Bribe Payers Index (BPI)
294
296
54
270
2712
274
288
292
294
310
bribery
British Airways
109
British Social Reporting Award
201
193
282
British Statement on the Ethical

Responsibilities of Members of
Business
164
Broadcasting Act 1942 (Cwlth)
123
Brooks, Geraldine
281
124
214
Index Terms
Links
Brutland Report
bullying
208
209
86
149
151
155
Burgess, Ian
114
Burma
280
business
314
accountability
33
global responsibilities of business
2768
and human rights
27884
and public office
539
and relativism
256
business codes of ethics

Business Council of Australia
business ethics
business ethics, international
affordability
2545
154
209
28
3443
50
679
2545
26597
2847
business and human rights
27884
Caux Round Table (CRT)
2924
competition or trust
2656
corruption in foreign business

cultures
26971
cultural difference
26676
cultural relativism
2716
double standards
2879
2768
Global Sullivan Principles

supportive institutions
28992
289
Transparency International (TI)
2947
UN Global Compact
2912
Butler, Linda
55
285
Index Terms
Links
C
Cadbury, Adrian
578
274
Cambodia
270
Campbell, Joseph
267
Campbells Soup
133
Canary Wharf
166
Canon
293
287
care
467
1029
Carr, Albert Z.
537
97
Carson, Rachel
2001
case studies
4950
Alcoa emissions
Alwyn Johnson and the banks
Bankers Trust
205
2257
185
BHP and employment opportunities for

women
1489
BHP and Ok Tedi
21012
Bruces dilemma
163
287
Carson and DDT
2001
caught in the middle
2301
Coless branding
1413
Dan Applegate and Convair

Ernest Henry
216
11315
fall of Andersens
Ford Pinto
165
39
free sunglasses
1223
gift among friends
181
good clean fun
156
Grace Brothers
1356
104
Index Terms
Links
case studies (Cont.)

Gran Met and corporate
citizenship
2867
Hewlett Packard
8791
HIH
101
HIV-positive employee
1578
Honeywell (ethical culture)
2613
Horne and McIntosh v. Press-Clough Joint

Venture and MAWU
150
an independent report?
185
Jack Kings environmental reports
2289
Johnson & Johnson
1389
Kader Industrial Toy Company factory

fire
276
Lady Bountiful
11112
Le Winters Radio Stores

Levi Strauss
135
2856
Mistral
935
motherhood and spin
11921
murder unseen?
217
Nike sweatshop allegations
277
232
the rescue of SPC
7980
Saturn cars
1401
1378
Shell and Greenpeace
201
Shell and Nigeria
281
smaller stakes, fewer rights

succession planning?
Telstra v. Optus
78
184
1367
Toyota
Tradestock
129
11011
Index Terms
Links
case studies (Cont.)

union v. Dollar Sweets
Virgin Atlantic and British Airways
Western Mining
Weyco Inc.
801
109
11115
824
is this whistleblowing?
21819
Woolworths super petrol
2045
Zanicum Metals
1878
Causey, Richard
167
Caux Round Table (CRT)
284
286
2924
30910
289
Chandler and Macleod
227
chemicals
191
195
203
205
206
281
19
276
282
284
292
196
199
267
269
272
279
283
2856
295
18
19
31
44
578
62
63
72
37
1401
child labour
China
296
choice
Chrysler Motors
Cicero
Clark, Fred P.
231
Clarke, Frank
166
168
186
187
Clinton, Bill
278
clothing industry
279
Coalition for Environmentally Responsible

Economies (CERES)
2078
182
Index Terms
Links
Code of Hammurabi
codes of conduct
234
2428
codes of ethics
accountability and responsibility

banking industry
business
23463
24853
3078
25960
2545
and competence
256
content of
2559
and environment
2578
general statement of values and guiding

principles
2556
and industry
25960
interpretation, enforcement and

sanctions
2589
personal behaviour
professional
257
2545
professional behaviour
257
professional standards
256
social responsibility
2578
code of practice
banking industry
25960
professional
16971
Community Aid Abroad
277
community standards
124
191
Companies Auditors and Liquidators

Disciplinary Board (CALDB)
compassion
185
9
1034
164
301
108
Index Terms
Links
competence
competition
xvi
30
43
46
165
169
1701
175
184
185
186
255
256
285
77
104
108
109
111
115
120
126
133
153
254
279
291
and trust
2656
Competitiveness and Corporate Accountability

Act 2002
259
compulsion
238
conceptual thinking
xv
xvii
confidentiality
46
478
645
162
165
169
170
171
174
22
255
conflicts of interest (accounting profession)
academic medicine
1779
Merrill Lynch
17981
consequentialism
1517
19
23
24
Consolidated Exploration Ltd

consumer protection
Convair
11112
926
216
Cooper, Cynthia
21819
Corboy, John
79
corporate citizenship
corporate gifts
192
2867
99102
corporate relationships
286
Index Terms
Links
corporate responsibility
corporate surveillance
100
280
8692
corruption in foreign business

cultures
26971
Corruption Perception Index (CPI)
272
294
Cottell and Perlin ethical decision-making

model
305
Council of Textile and Fashion Industries of

Australia
279
Country Estate and Agency
105
CPA Australia (CPA)
169
Crazy People
127
Credo Challenge Meetings (Johnson &

Johnson)
139
Crichton, Michael
200
cruelty to animals
198
CSIRO
196
Cullen, Mark
205
201
228
cultural difference and business

ethics
26676
cultural relativism
2716
Cummins, Kevin
93
Cummins, Stewart
229
2301
D
Daiwa
270
Dale, Vadim
129
Dancy, Jonathan
33
David Mathison ethical decision-making

model
3056
Davies, Justice
134
Davis, John
209
295
Index Terms
Links
DC-10
DDT
De George, Richard
216
218
223
2001
202
203
xvii
121
160
194
221
275
166
168
83
186
187
53
55
62
126
1278
167
28
29
30
36
48
60
64
66
71
73
77
98
103
125
161
175
194
210
223
2478
263
278
298306
2879
Dean, Graeme
deception
204
decision-making
Deep Throat
220
Dempster, Quentin
220
Denmark
295
deontological theory
descriptive ethics
17
19
22
24
46
305
263
267
78
Devlin, Patrick
57
Dherse, Jean-Loup
292
dialectical process
13
diligence
171
disability
1568
discrimination
employment
14655
general comments
1469
Index Terms
Links
discrimination (Cont.)
pregnancy
1523
workplace
14952
dishonesty
32
179
274
77
801
2802
284
Drucker, Peter
32
285
Duncan, David
166
DuPont
195
Dollar Sweets
Donaldson, Thomas
Duracell
114
11718
Duska, Ronald
duty
Dworking, Gerald
216
222
17
19
20
24
31
323
445
47
63
645
73
87
171
174
177
193
2213
280
286
287
57
E
Eagle Bitter
132
Ebertz, Roger
13
Edelstein, Lee
256
ecologically sustainable
development
2089
214
Eigen, Peter
294
296
Elkington, John
207
employees
occupational health and safety
rights
8192
151
291
Index Terms
Links
employees (Cont.)
and SPC
7980
empowerment
48
2478
250
126
1334
141
142
209
278
253
employment discrimination
endorsements
Energizer batteries
14655
11718
energy conservation
134
Enron
xiv
68
98
161
1659
182
219
234
259
192
207
208
210
212
213
environment
191214
Australian standards and

principles
20814
CERES principles
2078
and code of ethics
2578
and growth
199
humanistic argument
intergenerational issues
1956
199202
naturalistic argument
1969
precautionary principle
2023
protection
2289
voluntary action
2067
waste or fertiliser
2046
environmental restoration
208
equal opportunity
144
145
149
150
151
152
153
1545
158
255
291
Index Terms
Links
equality
1445
148
240
274
Ernest Henry
11315
Esso
ethical behaviour
117
128
21
28
348
40
42
67
99
169
170
236
239
261
263
ethical commitment
ethical considerations
ethical decision-making
xvi
258
2730
29
30
36
248
250
xviixviii
151
168
171
176
181
183
189
192
249
262
2478
models
298306
ethical defeat
1112
ethical dilemmas
67
ethical empowerment
247
253
ethical failure
ethical infrastructure
ethical opinions
273
5
ethical realism
305
ethical reasoning
89
and business
50
top-down and bottom-up

approaches
1011
ethical relativism
ethical treatment of animals

ethical values
193
3
103
245
Index Terms
Links
ethics
business
cultural difference
David Tweed
28
50
679
3443
26676
1058
definition
26
descriptive
78
good ethics is good business
27
679
197
23463
2613
organisational
98
172
261
personal
98
70
160
33
75
1036
108
115
145
148
157
161
164
175
182
255
institutional
and philosophers
56
prescriptive
78
professional
439
3442
170
virtue
214
see also business ethics, international;

codes of ethics
Eveready batteries
11718
Exxon
193
Exxon Valdez
207
F
fair dealing
1029
Fairfax and Roberts

fairness
130
Index Terms
Links
fairness (Cont.)
284
293
309
310
Fastow, Andrew
1667
FBI
219
Federal Sentencing Guidelines for

Organizations
98
259
Federated Confectioners Association of

Australia (FCA)
80
Federation of Australian Radio Broadcasters

(FARB)
123
Few Good Men, A
61
91
Field, Michael
225
227
Financial Services Reform Act 2003
106
Finnis, John
25
Fischer, Tim
280
Fly River
210
Ford Explorer
92
Ford Pinto case
39
211
213
Foreign Corrupt Practices Act 1977

(US)
26
289
Frankena, William
20
215
Fraser, Bernie
2257
free market economy
16
77
free markets
31
108
142
196
free-riding
freedom
18
freedom of information
2256
freedom of speech
134
Freeman, Edward
71
74
77
Friedman, Milton
323
41
53
734
97
1012
1923
214
286
Index Terms
Links
Fritzl, Elizabeth
1112
G
Gaita, Raymond
61
gamesmanship
53
General Outdoor Advertising
126
Generally Accepted Accounting Principles

(GAAP)
166
gift-giving
26
Gilligan, Carol
467
glass ceilings, glass walls
1535
GlaxoSmithKline
178
Global Reporting Initiative (GRI)
207
2768
Global Sullivan Principles

Godfather, The (film)
good ethics is good business
28992
23
9
27
679
197
3442
Goodpaster, Kenneth
72
goodwill
xv
78
223
259
287
307
103
137
309
government regulation
67
260
Goward, Russell
185
Grace Brothers
1356
Gran Met and corporate citizenship
2867
Grant Samuel
185
Green Challenge
206
Greenpeace
201
Guy, Mary
3013
Index Terms
Links
H
Hahn beer
128
Halfpenny, John
80
Hall, Jeff
185
Hancock, Peter
277
Harcourt, Colin
130
Hardin, Garrett
194
Harper, Andrew
206
Hart, H.L.A.
57
Harvard Business Review
53
Harvard Business School
49
Hasker, John
93
Hass, Bob
286
Hawking, Stephen
145
heavy metals
204
Heckman, Peter
55
Hegel, Friedrich
Henley, Kate
132
Herbert, Bob
276
HIH Insurance
98
101
Hobbes, Thomas
39
266
Hodgson, Kent
165
3034
Hoffman, Michael
197
Hogan, Michael
149
honesty
78
22
23
36
38
86
103
108
161
164
165
179
182
186
218
222
2436
254
267
274
Index Terms
Links
Honeywell (ethical culture)

Hong Kong
honour
2613
272
273
295
296
10
238
278
270
306
Horne and McIntosh v. Press-Clough Joint
Venture and MAWU
Horne, Heather
150
149
horse racing and ethical behaviour

human nuture
150
578
11
human rights and business
27884
Hunter Resources Ltd
11314
I
IBM
74
ICI
83
290
1912
idealism
xv
ignorance
xv
xvii
94
192
204
262
174
immorality
57
impartiality
40
173
175
177
Independent Commission Against Corruption

(ICAC)
37
India
279
2867
85
148
267
269
272
2734
277
287
288
295
industry codes
254
25960
inequality
144
212
information disclosure
221
indirect discrimination
Indonesia
296
Index Terms
Links
Institute of Chartered Accountants in

Australia (ICAA)
institutional ethics
169
23463
institutionalising ethics
integrity
2613
2613
23
33
36
38
43
49
98
115
162
165
168
16970
1756
189
224
238
240
244
253
267
291
293
299
301
18
61
76
119
128
139
148
167
168
183
214
287
302
intention
300
intergenerational issues
199202
international business ethics see business

ethics, international
International Organisation of
Standardisation
206
invisible hand
104
Izui, Junichiro
271
J
Jackson, Kevin
282
Jacobs, Samuel
226
Index Terms
Links
Japan
54
62
206
267
2701
273
292
293
295
224
2257
229
83
1389
178
193
258
296
Johnson, Alwyn
Johnson & Johnson
Jonsen, Albert
12
just savings principle

justice
justifiability
199
209
1035
108
40
66
K
Kader Industrial Toy Company
276
Kaku, Ryuzaburo
293
Kant, Immanuel
1719
Keeling, Brad
98
Kemp, Paul
2257
Kent Hodgson ethical decision-making

model
3034
Kentucky Fried Chicken (KFC)
193
Keys, Tony
228
Kia Ora Gold
185
King, Jack
2289
King, Lord
109
King William Sound, Alaska
207
L
Ladd, John
545
Lady Bountiful
11112
Lambsdorff, Johann
269
115
Index Terms
Links
lateral thinking
378
Laura Nash ethical decision-making

model
299300
law and ethics
41
99
Laws, John
134
192
Lay, Kenneth
219
legal ethics
64
legal reasoning
Lemke, Dwight
137
Levi Strauss and Co
255
258
liberalism
16
liberty
45
131
263
271
298
306
light of day test

Lima Declaration
2856
278
296
liquor burner incinerator
2056
litigation and auditing
1849
Lloyd, W.F.
194
Lockheed
270
Lohsoonthorn, Pairoj
269
Longstaff, Simon
212
loyalty
Lucian
49
52
54
62
164
171
177
218
2223
267
301
302
304
126
M
McCarthy Watson and Spencer
McConnell, Douglas
McDonalds
182
153
55
193
Index Terms
Links
McDonnell-Douglas
216
McIntosh, Gail
149
McMillan, John
150
21718
Machiavelli
52
54
60
236
Mafia
23
Malaysia
269
Mallesons Stephen Jaques
112
Maltby, Lewis
83
management commitment
208
Manley, Walter
260
marketing ethics
273
Marsden, Chris
2867
Marshall, Colin
109
273
85
Mary Guy ethical decision-making

model
3013
maternity leave
1523
Mathison, David
3056
ME International
256
Media Council of Australia
123
medical ethics
xv
Mercer, Don
279
Merrill Lynch
285
17981
Michael Rion ethical decision-making

model
Mill, John Stuart
mission statements
3001
1516
21
Mistral fan case
935
Mitsubishi Oil
271
Moffit, Richard
185
Moore, Dudley
127
Moore, Demi
129
294
59
Index Terms
Moore, John
moral blindness
moral competence
moral concerns
Links
279
2930
30
8
moral facts
13
moral negligence
28
29
30
moral obligations
56
145
222
25
3443
10
1213
15
19
21
28
467
50
56
72
77
moral recklessness
289
30
moral relativism
246
34
moral opinions
moral pie
moral pluralism
12
283
moral reasoning
moral theory
moral thinking
moral values
morality
personal
4950
67
24
26
63
66
254
293
98
163
108
267
4
59
280
private
5967
public
5967
social
104
morals
and advertising
and ethics
and marketing
and markets
1312
11
1368
68
Index Terms
Links
morals (Cont.)
as science
18
More, Thomas
60
Morgan, Hugh
114
Mortein
134
MTBE in petrol
2045
Mueller, Robert
219
multinational corporations
265
Murphys Romance
133
Mutsch, Lesley
152
Myers, David
219
275
280
59
61
208
290
56
67
N
N.H. Cole and Associates
112
Nader, Ralph
92
Nagel, Thomas
56
Nash, Laura
299300
National Disability Recruitment

Coordinator
157
National Exchange
1058
National Freight Forwarders Association

(NFFA)
110
National Heart Foundation
134
National Womens Consultative Council
132
natural resources
19
Nazi Germany
222
necessity
54
Nelson Wheeler
185
Nestle
39
New South Wales Equal Opportunity

Tribunal
149
Newland Mines
85
Index Terms
Links
Newton, Helmut
130
Nguyen, Thuyen
277
Nicomachean Ethics
Nigeria
281
295
Nike
193
276
277
278
Nissan
237
Nixon, Richard
220
No Logo (Klein)
192
Nomura Securities
270
nonconsequentialism
1720
normative fallacy
25
Nozick, Robert
75
NRMA
293
23
105
237
O
OShane, Pat
128
Oertel, John
256
occupational health and safety

Ogoni people
8192
281
282
39
21012
213
214
283
284
183
186
187
98
172
261
Orica
191
192
210
232
Outworker Project
279
Ok Tedi
Oliver, K.G.
OneTel
98
opinions
Optus
1367
Ord Minnett
11112
organisational ethics
overridingness
40
Index Terms
Links
Owen, Justice
101
P
Pagano, Anthony M.
Papua New Guinea
306
39
210
212
33
170
98
163
117
201
2045
209
284
294
Paramount Pictures
133
Parker, Christine
206
Patten, Chris
2789
Peacock, Patsy
153
Peck, Polly
166
People for the Ethical Treatment of

Animals
193
Perlin, Terry M.
305
personal behaviour
147
personal ethics
98
personal integrity
xvii
267
personal morality
59
280
persuasion
126
Peters, T.J.
54
petrol
Philips, Frederick
292
Philips Electrical Industries
292
philosophers and ethics
56
Pilmer, Angus
185
Plato
Political and Economic Risk Consultancy Ltd

(PERC)
272
Port Pirie lead smelter
228
Index Terms
Links
Potter, Alan
55
Potter, Stephen
53
power
71
73
91
98
127
1445
151
155
161
163
164
212
204
292
47
63
85
86
91
126
1324
2445
precautionary principle
2023
pregnancy discrimination
1523
Pirce Waterhouse
186
prescriptive ethics
78
private morality
5967
privacy
product placement
product safety
924
productivity
professional codes
of practice
54
82
104
203
205
250
45
46
236
184
188
170
255
16971
professional ethos
183
professional independence
162
189
professional liability
186
professional privilege
64
169
2567
professional values
46
164
170
promises
10
53
63
301
310
proportionality
223
public infrastructure
199
Index Terms
Links
public interest
public morality
43
45
95
120
134
162
164
169
170
171
218
2214
2267
2289
231
233
244
283
32
56
57
58
187
194
227
266
274
70
160
44
45
89
218
237
241
246
253
88
101
5967
public policy
pregnancy discrimination
product safety
1523
926
professional behaviour
professional codes of ethics
professional codes of practice
professional ethics
257
2545
16971
439
170
professional judgement
489
256
public office and business

public trust
publicity of ethical behaviour
539
141
Q
Qantas
133
133
Index Terms
Links
R
racism
19
26
197
54
73
288
Raid insecticide
134
Rain Man
133
random drug testing

rationality
85
1718
Rawls, John
13
real estate agents
237
recycling
20910
reflective equilibrium
Regulus
1215
23
Reid, Nick
100
relativism
247
Reserve Bank of Australia
2257
respect
xvxvi
1819
256
46
65
1023
118
121
145
151
1968
254
2678
271
273
275
291
293
302
30910
48
24853
323
71
72
92
100
102
192
207
255
2578
282
290
223
227
responsibility
social
293
retribution
220
228
Reynolds, Margaret
129
Index Terms
Links
Rich, Jodee
98
Rion, Michael
3001
Rise and Fall of Alan Bond
78
risk
16
20
36
56
723
757
916
100
104
168
172
186
203
2223
266
207
208
reduction
Rosenfeld, Jeffrey
1001
Rowley, Coleen
218
219
rules
23
12
25
278
46
556
97
99
104
147
2357
23940
2489
3012
310
182
186
accounting
constitutive and regulative
ethical
1814
29
regulatory disclosure
179
university
178
Ryan, Mrs Philip D.
55
S
Saatchi and Saatchi
safe products
129
132
58
Sakamaki, Hideo
270
Sarbanes-Oxley Corporate Reform Act of

2002
168
Sari Wewa, Ken
281
Saturn cars (Chrysler)
37
1401
Index Terms
Links
Savage Resources
11315
scepticism
xiv
55
236
270
Schindler, Oskar
283
Schminke, Marshall
137

secret commissions
Securities Exchange Commission (SEC)
192
1378
256
67
288
88
166
167
36
38
179
self-interest
35
423
self-preservation
367
September
sex and advertising
sexism
11
219
125
12831
19
128
132
130
149
1556
20
26
33
58
60
67
92
101
1023
1058
155
165
177
180
182
185
186
1923
225
231
237
309
151
sexual harrassment
shareholders
Sharp, Harold
101
Shell
193
201
214
276
2812
284
294
silence
32
Silent Spring
200
Simons, Paul
36
223
Index Terms
Links
Singer, Marcus
25
Singer, Peter
197
198
Singleton, John
1312
133
Skilling, Jeffrey
98
Smith, Adam
19
104
105
108
Smith, Dave
101
social Darwinism
266
South Korea
272
273
296
323
71
72
92
100
102
192
207
255
2578
282
290
279
288
28990
296
social responsibility
293
South Afria
South Australian Government
space shuttle Challenger
186
49
92
218
SPC
77
speciesism
7980
197
stakeholders
33
problem with the notion of
737
usefulness of the concept of
7781
State Bank of South Australia

Sternberg, Elaine
7096
226
1012
Still, Leonie
154
Sullivan, Rev Leon
28990
Sullivan, Scott
21819
Sullivan Code
288
Sunbeam
165
Sustainability Reporting Guidelines
207
28990
189
Index Terms
Links
Sutton, George
186
Suu Kyi, Aung San
280
T
Tahija, Julius
Telstra
274
287
1367
294
Ten Commandments
234
Thailand
267
268
276
222
292
288
theft
86
theory
chaos
104
classical economic
20
ethical
xvii
19
34
moral
xix
15
21
34
4950
298
political
52
54
stakeholder
75
77
utilitarian
17
Thermos
129
Thompson Douglas and Co
185
Titmuss, Richard
76
tobacco marketing
58
Todhunter, Tim
279
Toffler, Barbara
165
Tooheys brewing
78
top-down reasoning
Toulmin, Stephen
285
1011
12
Trdae Practices Act 1974

Trade Practices Commission
Tradestock
102
111
123
185
32
111
116
137
260
11011
Index Terms
Links
transparency
168
173
177
186
229
230
246
252
Transparency International (TI)
284
289
2947
tripple bottom line reporting
201
207
214
43
47
48
53
68
86
912
164
177
1801
193
222
248
2524
2656
267
268
45
237
trust
public
241
246
Tweed, David
11
Tyquin, Chris
126
1058
U
UN Global Compact
Union Carbide
USA
utilitarian principle
2912
193
267
10
14
19
234
65
74
19
21
2734
275
282
utilitarianism
1517
V
Valdez Principles
207
values
consumer
131
cultural
271
Index Terms
Links
values (Cont.)
ethical
family
34
456
50
54
56
60
103
1401
164
2612
2678
161
general statement of
2556
human
236
moral
24
26
29
30
33
63
66
254
293
237
23847
2535
organisational
257
primary
268
professional
164
secondary
268
Vienna conference on human rights
278
Vietnam
267
16970
26970
277
Vietnamese Labor Watch
277
Virgin Atlantic
108
virtue ethics
109
214
W
Wagerup, WA
Wall Street (film)
Warhol, Andy
205
206
42
133
waste
chemical
195
dumping
195
or fertiliser
204
minimisation
104
198
272
Index Terms
Links
waste (Cont.)
oil
201
production of
200
214
recycling
20910
reduction
207
208
nuclear
195
198
regulations
192
Watergate
220
Waterman, R.H.
54
Waters, James
261
Watkins, Sherron
218
Webber, Ross
221
welfare
Western Mining Corporation
10
20
223
601
65
66
723
76
157
209
11115
Westin, Alan
221
Western United
185
Westmex Ltd
185
Weyco Inc.
219
824
When in Rome
24
whistleblowing
21533
Australia
22433
internal and external
21824
Wilhelm, Georg
White Australia Policy
Williams, Bernard
267
59
61
Williams, Ray
101
209
Wingspread Statement
202
Wingti, Pais
211
womens rights
25
656
Index Terms
Links
Woodward, Bob
220
Woolworths super petrol
204
working hours
220
workplace discrimination
work-related injuries
273
14952
81
World Commission on Environment and

Development
WorldCom
208
165
21819
Wrage, Harry R.
55
workplace discrimination
14952
Z
Zanicum Metals (fictional case)
Zehnder, Egon
1878
238
166
168

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BUSINESS ETHICS

DAMIAN GRACE & STEPHEN COHEN

.ORMANBY2OAD 3OUTH-ELBOURNE 6ICTORIA !USTRALIA

For constant love and support over all the years,

1 Ethical Reasoning in Business

4 Ethics in the Marketplace: Generosity, Competition and Fairness

5 Marketing and Advertising Ethics

6 Equal Opportunity, Discrimination and Affirmative Action

7 The Ethics of Accounting: The Case of a Profession in Business

10 Codes of Ethics and Institutional Ethics

11 International Business Ethics

Appendix 1: Ethical Decision-making Models

Ethical reasoning, according to Aristotle, is not a matter of applying the appropriate

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

It is then arguable whether perhaps something more must also be involved in a

Elements in moral thinkingbroad strokes

More, for example:

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

I give (a professional requirement)?

Descriptive and prescriptive ethics

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

Top-down and bottom-up approaches

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

FIGURE 1.3 Reaching a reflective equilibrium

FIGURE 1.4 Elements in reflective equilibrium

P1, P2, P3,

(b) Reflective equilibrium among principles

(c) Reflective equilibrium among judgments

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

various principles to which I subscribe. If I offer apparently inconsistent judgments

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

Modern utilitarianism no longer deals in the somewhat crude measures of

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

Thinking about What should I do?

Avoidance of moral negligence

Avoidance of moral recklessness

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

Avoidance of moral blindness

Cultivation and exhibition of moral competence

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

Good ethics is good business

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

1. Straightforward or simple coincidence

2. Self-preservation via socially created, institutional coincidence

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

4. Lateral thinking or augmentation

5. Good for the practice

CHAPTER 1 E THICAL RE ASONING IN BUSINESS

6. Not good at all

.ORMANBY2OAD3OUTH-ELBOURNE6ICTORIA!USTRALIA