Business Mid-term Exam
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Mid-term Exam
Answer each question below and reference course materials to explain your answers. No independent research is expected or necessary. This exam requires 4-5 double spaced typed pages plus a cover page with your name, the date and BLE 215 and Section. Required font: Times New Roman 12 with one inch margins. Staple your pages together. You should avoid excess spacing. Folders or covers are not required. Bolding of course materials used is very helpful and recommended. Number each question using Roman Numerals and a) b), etc. for any sub-parts. There is no need to restate the questions.
When you refer to course materials, simply include the author’s name, if applicable, in parenthesis. A reference page is not required. When using Trevino, also give a page no. after her name. For example, (Trevino, p. 25). Use an assortment of text, articles, cases, films and ethics concepts to explain your answers. There are many course materials on BB that you can use in addition to the text, class notes and anything presented in class such as films. Also, you should reference your CSR team project. The questions are not cumulative, i.e. answer each one independently of the other. You may repeat class materials in each answer but also strive for some variety. You have many course resources available for use to help you answer the questions.
Question 1 (25 points)
Joseph Johnson argues in his article, Natural Law and the Fiduciary Duties of Business Managers that “simply put, stakeholder theory sounds good in social theory but will not work in practice.”
Explain his reasoning in terms of fiduciary duty, profits and stakeholders.
Do you agree or disagree?
Would Milton Friedman agree or disagree and why or why not? Would Edward Freeman agree or disagree and why or why not?
Does stakeholder theory and corporate social responsibility conflict with the fiduciary duties of management and the board of directors to maximize shareholder wealth?
Question 2 (25 points)
Steve Kelman provides a critique of the cost-benefit analysis and whether it leads to a “flawed ethical result.”
- Do you agree or disagree with his analysis?
- Is cost-benefit analysis sustainable?
- What other ethics concepts may yield more sustainable results?
- Which is most appropriate for business?
Question 3 (25 Points)
In regard to the Ford Pinto Case, apply the Hosmer Model of Moral Analysis and
assess the economic outcomes, legal requirements and ethical duties. Express the moral problem so that everyone involved will believe that their particular interests have been recognized and included.
Question 4 (25 points)
You have been hired by Multi-LimbTech, International, Inc.,(MLTI) a cutting edge designer and seller of artificial limbs. You are excited about this job since it not only pays well but the company also provides a valuable service to humanity that results in amazing scientific advances that enhance peoples’ lives. However, after several months, you discover that one of the top selling leg prosthesis has a design defect. You are told not to be concerned since the product is not regulated by the government. Another inquiry is met with no response. You learn that the company has donated $100,000 to a local medical board that endorses this product. In one country where this product is distributed, gifts are very common to secure business transactions. Use course materials as you answer the following questions:
- Can you identify conflicts and pressures?
- What kinds of questions should you ask?
- What are the various stakeholder interests?
- Is what is legal here also ethical?
- How can this company “do good and make a profit” (synergies of ethics and earnings)?
- Do ethical norms vary across cultures?
Note: This case is fictional and intended for classroom instruction only.
SAMPLE ANSWER
Business Mid-term Exam
Question 1
I disagree with Johnson’s argument. Stakeholder theory argues that the principle aim of a business/organization is to create optimum value for stakeholders. In order for a business/organization to be sustainable and successful, executives should uphold the interests of consumers, employees, suppliers, shareholders and communities aligned with and moving towards the same direction. In relation this, innovations to make these interests aligned is more significant than the simple approach of trading off stakeholders’ interests against each other[1]. Therefore, by focusing on the management of stakeholders, executives will manage to create optimum value for shareholders and other financiers[2]. For instance, an IT business may conduct a campaign against cybercrimes such hacking the business’ systems. When such a campaign succeeds by reducing the levels of cyber crimes, such a business shall have satisfied the interest of stakeholders such as policemen who are in charge of handling criminal issues.
In relation to the aspect of profits, upholding the interest of consumers by offering services or goods that meet their expectations can lead to the generation more customers. As a result, the business can generate more revenues, which in turn can increase its profit margins.
Fiduciary duty refers to a legal obligation to act solely in a given party’s interest. Since the stakeholder theory aims at satisfying the interests of stakeholders, this theory is in line with the fiduciary duty, which advocates for acting according to the interest of other parties. Thus, both the social corporate responsibility and stakeholder theory do not contravene the management and board of directors’ fiduciary duties to optimize shareholder’s wealth.
Milton Friedman would agree with this concept. Friedman advocated for free market. The aspect of free market implies that all players within the industry are at liberty to act according to their interests. As such, according to Friedman’s view upholding the interests of other parties or stakeholders denies a business the opportunity to act according to its interest, which is against the concept of free market that advocates for lack of interference in business activities[3]. In this scenario, stakeholders act as a hindrance to the business in terms of meeting its interests.
Edward Freeman would disagree with Johnson’s argument. Freeman was the founder of the stakeholder theory and believed that this theory could operate in social theory. Freeman believed that this concept could offer optimum value for stakeholders as it was aimed at upholding their interest.
Question 2
I agree with Steve Kelman’s assessment. Cost-benefits analysis argues that individuals should only adopt those measures whose benefits exceed their expenses/harms. In relation to this, the cost-benefit theory tends to monetize everything including human life, thereby leading to the incommensurability problem. Taking into consideration aspects of commensurability and comparability, Kelman’s critique/analysis can be considered appropriate. Kelman challenges the cost-benefit evaluation’s action of assigning or giving monetary values to commodities that are not marketable/non-marketed goods. This argument is right as issues such human life cannot be granted monetary values. The technique that is employed in surfacing the values that are assigned to nonmarketable commodities may not grasp the value that goods hold for individuals in an adequate manner.
According to Kelman, cost-benefit operates by creating equivalencies that exist between the items in questions, and the result is determined by mathematics/arithmetic. As such, the outcome obtained from such an operation may be surprising in case such outcomes are close calls or some of them are long division. Such an occurrence only serves to create confusion. The primary component of cost-benefit evaluation can be considered a consequentialist evaluation. In relation to this, cost-benefit analysis leads to a situation in which a judgment is assessment based on the benefits and costs that are associated with its consequences[4]. At the primary level, such an evaluation can include diverse goods that take into consideration human costs such as duties, rights and environmental costs. In this way, the cost-benefit analysis happens to be incompatible with the ethical frameworks as it can lead to flawed outcomes.
Cost-benefit analysis can be considered sustainable. This concept can inform opportunity cost in offers a systematic procedure for monetizing, calculating and comparing economic benefits and costs that are associated with certain processes, regulations and actions. Some other concepts that can be used as complements to cost-benefit analysis are opportunity cost, cost of intangible assets and cost of externalities. For businesses, opportunity cost happens to be the best concept.
Question 3
The Ford Pinto’s case, which involved the explosion of Ford Pinto as a result of a defective fuel system, can be addressed using the Hosmer Model/Framework for of moral assessment. In order for a party achieve an effective completion of a moral issue, such a party should ensure determine the economic consequences, legal requirements and ethical duties that are associated with a given action[5]. Taking into consideration the aspect of economic consequences, the action of Ford’s management resulted into economic gains to the company. The firm’s management acted in accordance to the principle of cost-benefit analysis in that it focused on an action whose economic gains exceeded its costs. By moving ahead to manufacture Ford Pinto vehicles, the company generated more revenues. On the other hand, the company could have not realized these economic gains in it had heeded to the engineers’ advice. Heeding to such advice meant that the company was to spend more on improving the Ford Pinto’s gas tank[6]. Such an undertaking could have led to more costs than benefits, thereby disobeying the principle of cost-benefit analysis. Ford’s management failed to adhere to the legal requirement that all vehicles that were manufactured by then (1972) to meet the 20mph test, so that by 1973 all vehicles could meet 30mph[7]. Despite the Ford Pinto failing to meet this requirement, the company’s management went ahead to manufacture these vehicles, thereby contravening he law. Ethical duty is an obligation that is owed by a party to another party within the same society. In relation to this, the Ford Company owned members of the public a duty to ensure their safety when using the company’s vehicles. The company should have ensured that their vehicles are fitted with proper gas tanks that cannot expose individuals to risks such as fire or explosions. Despite the organization’s management being notified by the firm’s engineers about the default associated with Ford Pinto, the management went ahead to the production of those cars for next six years[8]. In this manner, the company’s management failed to act in accordance to their ethical obligation.
Question 4
In this case, there are several pressures and conflicts. The first conflict involves me and the Multi-Limb Tech. In case I decide to make the public aware of the defects associated with the company’s top selling product, I risk losing my job. Besides, my action can lead to the company losing its revenues. The second conflict involves the company and the local medicinal board that endorses its products. Multi-Limb Tech is pressured to cooperate with the board or risk being defamed[9]. As such, the company has to engage in corruptive measure such as issuing bribes, which are disguised as donation to the company. The third conflict involves Multi-Limb Tech and the public. It is the ethical duty of the company to protect its patients/clients. The last conflict is between the local medicinal board and public. It is the ethical duty of this board to ensure that manufacturers deliver safe products to the public.
I would ask myself the following questions: Have I identified the issue correctly? How would I have defined the problem if I were on the other side of the fence? What is my intention in making my decision? How does my intention compare with the possible results? Whom could my judgment injure?[10]
The legal issue in this case is not ethical. The endorsement of Multi-Limb Tech’s product by the local medicinal board has a superficial appearance of being legal. However, this action is illegal as the board is aware of the default in Multi-Limb Tech’s product.
The company can act rightly and continue to make earning by informing the public about the benefits and harms of its product. In this manner, the company shall have created awareness about this product’s default[11]. Being that this product attracts many buyers, consumers that will purchase it will have acted according to their interests. Therefore, the company will not be blamed for any harm associated with its product.
[1] Carroll, Archie. “Ethical Challenges for Business in the New Millennium: Corporate Social Responsibility and Models Management Morality.” Business Ethics Quarterly 10, no.1 (2000): 34-42.
[2] Freeman, Edward. “The Politics of Stakeholder Theory: Some Future Directions.” Business Ethics Quarterly 4, no.4 (1994): 410-421.
[3] Carroll, Archie & Shabana, Kareem. “The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice.” International Journal of Management Review, (2010): 105
[4] Donaldson, Thomas, & Dunfee, Thomas. “When Ethics Travel: The Promise and Peril of Global Business Ethics.” California Management Review 41, no.4 (1999): 45-63
[5] Donaldson, Thomas. “Values in Tension: Ethics Away from Home.” Harvard Business Review, 4-12
[6] Danley, John. “Polishing Up the Pinto: Legal Liability, Moral Blame, and Risk.” Business Ethics Quarterly 15, no.2 (2005): 205-236.
[7] Becker, Paul & Bruce, Alan. “The Pinto Legacy: The Community as an Indirect Victim of Corporate Deviance.” Justice professional 12, no.3 (2000): 305
[8] Jones, Kristen & Geller, David. “Beyond the Business Case: An Ethical Perspective of Diversity Training.”Human Resource Management 52, no.1 (2013):55-74
[9] Porter, Michael & Kramer, Mark. “How to Reinvent Capitalism-and Unleash a Wave of Innovation and Grow.” Harvard Business Review, (2009): 63-79
[10] City of San Diego Office of Ethics and Integrity. “ Nash’s 12 Questions.”
[11]Porter, Michael & Kramer, Mark. “How to Reinvent Capitalism-and Unleash a Wave of Innovation and Grow.” Harvard Business Review, (2009): 63-79
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