KENTUCKY'S DISTILLERIES SUED OVER "BLACK GUNK" (2012)

Fungus Causing Chaos all Over the State of Kentucky

Frankfort, KY 2012

There are over fourteen distilleries in the state of Kentucky alone that have been producing bourbon for centuries. In the surrounding towns of these distilleries, you can find "a sooty-looking, black gunk, that has been there for as long as anyone can remember, creeping on the outside of homes, spreading over porch furniture, and blanketing car roofs" according the the New York Times. This "black gunk" has the scientific name of Baudoinia. The Frankfort KY State Journal states, "this whiskey fungus – known scientifically as Baudoinia Compniacensis — is created by a chemical reaction involving ethanol emissions, which are produced by liquor distillers when ethanol evaporates from the whiskey barrels during the aging process". June 2012, Kentucky home and business owners around Louisville filed a class-action lawsuit again five different distilleries "charging property damage and negligence" (NYT). James Scott, the University of Toronto mycologist, who help identify the name of Baudoinia states in the New York Times, "every distillery that we've tested has had it as far as I know". William McMurry, one of the attorneys working on this case, emphasizes in the Frankfort KY State Journal that "the suit is not an assault on the bourbon industry, but rather a way to help 'exasperated residents' who have no other option" (KYSJ).

The Distillers beg to differ. The New York Times states that the distilleries say "they are not liable for a natural growth, that not incidentally, has covered their own buildings for centuries. In the state of Kentucky, whiskey is a main economic engine as well as a tourism booster and a way of life" (NYT). Not all surrounding citizens feel the same way about this fungus, some think of it as a way of life. Some people say that the distilleries were here way before the subdivisions and big houses so "what's the big deal"? Another example would be, Kayleigh Count, a health aide from Frankfort, KY. She is one of the plaintiffs on this court case. She was "raised by the distilleries and bourbon industry. her father, uncle and two aunts worked in whiskey production. She states 'being a plaintiff in the suit is hard, it feels like you're going against something that the family's done all their lives" (NYT). The companies being sued said in a joint statement in the New York Times, "while we are sympathetic to the concerns to the plaintiffs, the blackening of some buildings and other structures is due to a naturally occurring common mold that is found widely throughout the environment, including in areas unrelated to the production of whiskey. The companies involved do not believe that they have caused any harm to the plaintiffs or their property" (NYT). The people of the surrounding areas of these popular distilleries are still not happy with the amount of black soot they have on their properties and feel as if they have to take responsibility for the damages that they have been causing for years.

Relation to Individualism

According to Salazar's powerpoint presentation on business economics making sense, individualism states "everyone has the right to do his own interests and should do so, but no one has the right to make other peoples choices about their pursuits for them, therefore we need to respect peoples rights to pursue their choices so we can all live the ways we want" (Salazar 11). Milton Friedman, famous economist of the 1900's has a slightly different definition of individualism. He states "the only goal of business is to profit, so the only obligation that the business person has is to maximize profit for the owner or stockholders" (Salazar 12).

The most popular distilleries in the Louisville area include, Jim Beam and Buffalo Trace. Both distilleries are not only well known, but very well liked by many people world wide. According to their website, Buffalo Trace is the most award winning distillery in the world, winning awards such as Whisky Magazine's "Visitor Attraction of the Year" (2010), and "Brand Innovator of the Year, also by Whisky Magazine (2011). These, and other distilleries in the area are well-known and well liked for their product services. The major problem is their customers that live in the surrounding areas that are being affected by the black fungus that comes from the aging of whiskey itself. From an individualists view the best thing for these distilleries to do would to be to continue making a profit. According to Friedman, he does not take into account the happiness of a business's customers. By looking at the entire customer base that is constantly buying and using these distillery's products, the people that are being affected by the fungus is a very small percentage. According to individualism, as long as the company is making a profit, the customer's happiness does not matter. As stated before everyone has a right to do their own interest, and in this case it is producing bourbon. Though the citizens of the area do have the argument that allowing the towns to be covered in black fungus is considered negligence, the company's have the argument that it is a naturally causing fungus that is let out into the air.

Relation to Utilitarianism

According to Salazar's powerpoint on Utilitarianism and Business Ethics, utilitarianism is defined as "bringing happiness and pleasure to all things capable of feeling it. The reasoning behind this is, if happiness is valuable, there is no difference, morally-speaking between my happiness and yours" (Salazar 6). In the business aspect of utilitarianism, making employees, customers, shareholders and anyone else affected by the business happy is the way to be successful. 

The distilleries that are involved in this case have many stakeholders. One example would be the customers world wide. These customers bring in the profits to all these distilleries by buying and becoming loyal customers to their bourbon/whiskey business. These customers do have some costs to making them happy. According to a utilitarian, the distilleries want to make sure that their products are made with care and to the best potential to the customer. In the long-run it would be best for the distilleries to continue producing their products and selling them to customers, creating a great customer base. Another group of stakeholders would include the citizens living around the distilleries. They are not happy that the aging of whiskey causes black fungus to form on their houses, cars, and properties. These people are also customers of their companies and purchase their products. Though the fungus is a nature caused problem, these distilleries need to make sure that these citizens are also happy according to the utilitarian view. To do so they could compensate and give money every couple to fix the damages caused by the fungus. The employees are also stakeholders to these distilleries. They are being well-treated, well-payed and not over worked. One cost to workers that are actually producing the alcohol, is the vapors it lets out into the air can be very flammable and because some of these older distillery factories are made of wood, it could cause a lot of problems. In the view of a utilitarian, it would be in the company's best interest to make sure that the workers are well protected when working with the actual alcohol and that the factories have good fire precautions just incase something were to ever happen, it would not harm the employees. The utilitarian view of how to run a business wants to make sure that all of it's stakeholders are happy at all costs.

Relation to Kantianism

According to Immanuel Kant, a German philosopher of the 1700's created a theory that focuses on the rights and wrongs of decision making and the consequences of those actions. According to Salazar's powerpoint, Kantian Business Ethics, the formula of humanity states, "'Act in such a way that you treat humanity, whether in your own person, or in the person of another, at the same time as an end and never simply as a means' (Kant, MM 429)" (Salazar 9). In other words, making decisions according to the Kantian view are in the best interest of the people's well-being, making sure they know all the consequences that come along with the decisions and the choices that they are making by respecting people's autonomy. 

Kant's primary principles include, "acting rationally, allowing and helping people to make rational decisions, respecting people, their autonomy and individual needs/differences, and finally being motivated by Good Will.

In the case of the Kentucky distilleries, they have not conformed to Kant's principles. It is in the people's well-being to stop the fungus from growing on their houses, cars and more. It damages their property which causes them to be frustrated with the distilleries as a whole. If the Kentucky distilleries conformed to Kant's principles, not only would they try to stop the over-production of this fungus, but they would have also informed the citizens living in the area, that before they built houses, or moved in there that there was a likelihood of fungus to form on their property. This way the citizens would be able to make their own decision to stay in the area or decide to move somewhere else. 

The distilleries are also not conforming to Kant's principles. They are not acting rationally; they are putting their profits first by continuing to produce whiskey without helping out of informing the citizens around them that are being affected by the black fungus. They are also not allowing people to help make rational decisions. These bourbon distilleries are not listening to the people in the surrounding towns that want compensation for the damages caused by the fungus. They do not want to harm their industry just want to solve the problem of the overproduction of the fungus. These are also the reasons the distilleries are not respecting people, their autonomy, and their individual needs and differences. They are not motivated by the Good Will of the people. If they were motivated by seeking what is right by doing what is right, they would have controlled the amount of fungus being produced from the distilleries, or even compensated by giving the people money to fix the damages caused by the fungus. If these distilleries in the state of Kentucky were to follow the Kantian view of running a company, they would compensate to the damages that the fungus has caused to the people in the surrounding area, and run their business by focusing on the rights and wrongs of decision-making.

Relation to the Virtue Theory

The virtue theory is based off of Aristotle's ethics, which states people must act rationally to function well in the business society. The first of the four primary virtues is courage. Courage is defined as " risk taking and willingness to take a stand for the right ideas and actions" (Salazar 6). The second virtue is honesty. Honesty is "in agreements, hiring and treatment of employees, customers and other companies" (Salazar 6). The third virtue is temperance which Salazar defines uses Soloman's definition, "reasonable expectations and desires" (Salazar 6). The final virtue is justice, which is "hard work, quality products, good ideas and fair practices" (Salazar 6).

The company decision makers at these distilleries do have some of these virtues. They do have courage. They take the risk of allowing the vapors that cause fungus to circulate through the air if that means they can still be producing bourbon. They are honest to their stakeholders, yet they do not feel as if they are responsible of the constant growth of fungus on people's property. They have temperance. The only thing these distilleries want to do is have a good customer base and produce the right products to keep them happy. The distilleries do lack justice due to the fact that they do not take the responsibility of the over growth of black fungus on people's property.

Sources:

Hallow, Lauren. "Suit Targets Distillers over 'whiskey Fungus'" The State Journal. The State Journal Frankfort, KY, 7 June 2012. Web. 15 Feb. 2014.

"Made in Kentucky, Enjoyed Worldwide." Buffalo Trace Distillery. N.p., 2014. Web. 15 Feb. 2014.

Ryzik, Melena. "Kentuckians Take Distilleries to Court Over Black Gunk."Www.nytimes.com. The New York Times, 29 Aug. 2012. Web. 15 Feb. 2014.

Salazar, Heather. Business Ethics Lectures. WNEU. Spring 2014.

Barclay's: Data Theft Scandal (February 2014)

Barclay's: Data Theft Scandal of February 2014

          Overview

          Barclay's most recent scandal was early February of 2014.  The company is under investigation for their customer's data that had been stolen and possibly sold to scammers for their own use.  The Daily Mail first issued the report claiming as many as 27,000 individual records could be at risk.  It was further discovered that 2,000 records were stolen including names, addresses, phone numbers, passport numbers, mortgage information, and savings information.  Many questions arise from information theft cases such as this one.  Customers especially question the protection systems in place and they want to know if police are going to pursue the hacker and hold someone responsible for their actions.  The initial investigation pinpoints the source of the information to be from the bank's financial planning business unit.  This unit closed down in 2011 and the data that was affected was likely to be from 2008 or earlier.  In addition to security, these types of scandals bring up another problem.  "We are learning not to trust our banks and that is a pretty sad thing" (Garside).  This information hacking is happening more and more and it makes the customers hesitant and worried about what will happen to their money and/or their information.  We are growing to be a fearful society.

          Individualism

          Individualism is defined as the belief that people must best serve the public by pursuing their own self-interest.  It entitles people to make business decisions that benefit themselves.  Friedman was one of the biggest believer and definder of this concept.  Milton Friedman's view states that the goal of a business is to profit and the only obligation is to "maximize profit for the owner or the stockholders" (Salazar).  This makes sense because the stockholders are the owners of the business.  If there are no stockholders or an owner the business does not really exist.  By maximizing the profit for stockholders, the owners will remain happy, company stock will remain in circulation, and the business would be making a substantial profit.  The business owes it to the stockholders for investing into the company, so it is only right that the stockholders will receive the maximum benefit.

          Before this incident, Barclay's is a very successful bank and had a very good reputation with other banks, investors, and customers.  Now their good reputation may be in jeopardy in everyone's eyes.  Now customers and investors are questioning how safe their private information actually is.  This society has become so distrusting of banks, so at the slightest sign of compromised information people go to extremes.  They withdraw all of their money from the bank and move it elsewhere.  For Barclay's to move in the right direction after this scandal, they need to inform and reassure their customers that the data theft is being investigated and remind them of the security procedures that are in place to keep their information safe.  A customer could also be investor in the company, so by informing all parties (i.e. customers, investors, and stockholders) of the situation exactly and the actions being taken to fix it, they can continue to maintain the relationships that have been built with these people.  They would be less likely to move to a different bank or invest somewhere else.  

          Utilitarianism

          Utilitarianism is defined in the book as "an ethical tradition that directs us to make decisions based on the overall consequences of our acts" (24).  In other words, rather than making decisions that would just benefit ourselves or just benefit everyone else, we try to make decisions that benefit everyone include yourself.  On the flip side, some decisions can have a negative affect and therefore everyone suffers the consequences including you.

          In this case, a utilitarian would agree that Barclay's failed to monitor their database of customer information.  They would recommend that Barclay's put a monitoring system in place even if it means spending more funds on protection.  The ending goal would be to save the face of the Barclay's institution therefore benefiting them and their employees and restoring trust in customers and investors.  In addition, if a similar instance were to occur again, the people watching the monitoring software would be able to tell when something is wrong and have those red flags pop up.  If customers and investors lost faith in Barclay's protection system, Barclay's would essentially loose their business.  With no protection or security, everyone looses.  If Barclay's were to fix and address this issue right away, customer's security could be restored and save the hassle of switching banks.  Barclay's would also get to keep their customers and investors keeping the company afloat.   

          Kantianism

          Kantianism came from German philospher Immanual Kant.  Kant explains that your most important duty is to only act in a way that the maxim (the intention behind actions) could be made a universal law.  In other words, people should act in a way that someone could make a proper law out of it and set an appropriate example for others. (DesJardins, 38).  The formula of humanity states that we should act in such a way that one would treat humanity whether it is ourselves personally or through another person.  In other words, our actions should be good and beneficial to all society.  The primary principles of Kant's theory include being honest with customers because it gains their trust and creates repeat business, because they like their customers, and because it is the right thing to do. 

          I believe that Barclay's did conform to these principles because in a statement the company released, they said "We will take all necessary steps to contact and advise those customers as soon as possible so that they can also ensure the safety of their personal data. This appears to be criminal action and we will cooperate with the authorities on pursuing the perpetrator (Yan)."  Barclay's realizes that informing customers and investors is the right thing to do for themselves and for the people affected.  The company is responsible for the security of their customer's information, but they were not the ones who willingly gave out the information.  Outsiders hacked into the system to take this information to sell it.  I think the the company responded appropriately with informing their customers and authorities to act on and investigate the situation immediately.

          Virtue Theory

          Virtue ethics focuses on one's character and the characteristics that allow us to function properly.  The four main virtues of character are courage, honesty, temperance/self-control, and justice/fairness.  I think that Barclay's decision makers have these characteristics because of how they responded to the situation.  They had released a statement (previously quoted) regarding contacting customers and authorities about what had happened and for further investigation.  Even though information security is Barclay's responsibility, it took courage to publicize the scandal because it would hurt their reputation.  In addition, by informing the public and reaching out to their customers and investors personally, they remain being honest and fair to all parties involved.  Self-control doesn't exactly apply in this particular situation necessarily, but Barclay's could improve their security to lessen the chances of this happening again.

References

 DesJardins, Joseph. An Intoduction to Business Ethics.

 Garside, Juliette. "Barclay's Blasted Over 'Catastrophic' Theft of Thousands of Customer Files." The Guardian. Guardian News and Media, Ltd., 9 Feb. 2014. Web. 13 Feb. 2014. <http://www.theguardian.com/business/2014/feb/09/barclays-catastrophic-theft-customer-files>.

 Salazar, Heather. Business Ethics, Economics, and Individualism. Powerpoint Slides.

 Salazar, Heather. Business Ethics and Virtue. Powerpoint Slides.

Salazar's Kantian Business Ethics, Chapter Published in Business in Ethical Focus, Ed. by Alhoff and Vaidya, Broadview Press, 2008.

 Yan, Sophia. "Barclay's Investigating Data Theft." CNNMoney. Cable News Network, 10 Feb. 2014. Web. 13 Feb. 2014. <http://money.cnn.com/2014/02/10/news/barclays-data-theft/index.html?iid=EL>.

   

NCAA Mocks Due-Process: Problematic Procedures (2011)

Controversy

NCAA logo

The NCAA (National Collegiate Athletic Association) is essentially a non for profit organization. However, the president of the NCAA, Mark Emmert, was credited with nearly $1.7 million in total compensation during the 2011 calendar year according to the associations new Federal Tax Return (USAToday). The NCAA's new tax return also provided an indication of the mounting legal pressure it has been facing. The association reported nearly $9.5 million in legal expenses during a fiscal year that ended Aug. 31, 2012 – more than what it reported for that spending category in its two previous fiscal years, combined. As a private, non-profit organization, the NCAA is not required to make public its employment contracts. The return showed two other executives with more than $500,000 in compensation in 2011 -- executive vice president Bernard Franklin and interim executive vice president Greg Shaheen, who received comparable amounts in 2010. Shaheen no longer works for the NCAA (USAToday).

For a nonprofit organization, the NCAA top executives bring home a pretty hefty salary. They also spend a substantial amount of money in legal expenses, so how does the NCAA get all this money? The answer is from all the colleges and universities that are NCAA members. In 2011, the NCAA revenues were about $845.9 million and staff salaries totaled about $30.6 million (Schlabach). So the label nonprofit organization does not mean that the staff of the organization work for free, in this case it’s quite the opposite. 

Dick Vitale tweet towards NCAA

Individualism

The NCAA actually falls directly under the economic theory of Milton Friedman. Friedman’s theory states that, “The only goal of business is to profit, so the only obligation that the business person has is to maximize profit for the owner.” The NCAA does not have an owner but one could assume that President Mark Emmert—judging on his compensation salary— is in favor of the NCAA’s revenues. In order to maximize profit, the NCAA has been known to cut corners and not follow the correct procedure of due-process in its investigations that are focused on enforcing its questionable rules. Some people believe that the NCAA executives are only out to prevent its labor force, the athletes of top Division I programs from making any money (Nocera). This illustrates a clear example of Individualism in that NCAA executive’s wants to keep the revenue money in their own best interest rather than compensate the society of athletes that indirectly sell the tickets and merchandise in which the NCAA gains most of its revenues. As one may presume, the members of NCAA sanctioned athletic programs are very controversial on this topic.

Kantianism
In recent years, the NCAA has been accused of many unethical procedures, all of which go directly against the principles of Kantianism. The basic rules of Kantianism are as follows: 1) Don’t act inconsistently and consider yourself exempt from the law. 2) Allow and help people to make rational decisions. 3) Respect people in their autonomy and individual needs. 4) Be motivated by good will. An good example of NCAA using unethical investigation procedures is in the 2011 case involving University of Miami and booster Nevin Shapiro. A quick recap of the case: Nevin Shapiro is in prison for running a Ponzi scheme. He claims to have given Miami Athletes cash, prostitutes and jewelry. This is a highly unethical engagement as NCAA collegiate athletes are not to receive any type of compensation for playing. However, the NCAA investigators had their own ethical blunder; they engaged one of Shapiro’s bankruptcy lawyers, Maria Elena Perez. This is certainly a conflict of interest, but it gets worse. NCAA investigators used Perez’s ability to conduct depositions in the Shapiro case to obtain information they could not otherwise acquire. Though Perez insists she is not to blame and did nothing wrong, this type of behavior could cost a lawyer their license (Nocera). Richard G. Johnson, a lawyer who has clashed with the NCAA on many occasions says, “This is not unusual. This is part and parcel of how the NCAA does business.” These actions are clearly unruly and dubious but that is not the only ethical blunder the NCAA faced in this investigation. In early November of 2013, the enforcement staff sent out letters to numerous players who refused to cooperate, as is their right. The letters stated that if the players refused to talk within a reasonable amount of time—a few days—the NCAA would assume that they were guilty of rules violations and punish their alma mater (Nocera). Richard Johnson also commented on this aspect, “The N.C.A.A. thinks it is the 51st state, its investigators regularly solicit the assistance of law enforcement officials, acting as if they have some kind of equal standing. But they don’t. The N.C.A.A. is not a regulatory body.” By conducting these atrocious procedures the NCAA violated three rules of Kantianism. The first is, don’t act inconsistently or consider yourself exempt from the law, which the NCAA seems to do quite often. As previously stated by Richard Johnson, the NCAA is not a regulatory body and they do not have equality with law enforcement officials. Next, is allow and help people to make rational decisions. The NCAA did not allow the Perez or the former players to make rational decisions instead they tried to scare them into confessing information. The third, be motivated by good will. It is uncertain what motivates the NCAA enforcement staff, but one could assume that it’s the rather large compensation, not good will. No matter what the motives are, the investigation conducted was still unethical.

Mark Emmert, President of the NCAA

While the NCAA was violating many principles of Kantianism, Maria Elena Perez contradicted Utilitarianism. Utilitarianism states that happiness and pleasure are the only things of intrinsic value and one should bring happiness to all beings capable of feeling it. However, there are some things we should do even if it doesn’t produce overall happiness. So, while Perez was trying to please and cooperate with the NCAA, she still acted unethically in a way that could have cost her, her lawyers license. In other words the ends don’t justify the means and Perez should have been coherent of her actions instead of ignorant in saying that she believes she did nothing wrong (Nocera).

Virtue Theory In the future Perez and the NCAA enforcement staff should consider aspects of Virtue Theory. Virtue Theory emphasizes virtue or moral character in contrast to the approach which emphasizes duties or rules. The rules amount to a decision procedure for determining the right action. Clearly the NCAA procedures are not always the right action but more the action they see as right.

References

Nocera, Joe. "The N.C.A.A's Ethics Problem." The New York Times. N.p., 25 Jan. 2013. Web. 13 Feb. 2014.

Berkowitz, Steve. "Emmert Made $1.7 Million, According to NCAA Tax Return." USA Today. Gannett, 14 July 2013. Web. 14 Feb. 2014.

Mark Schlabach. "NCAA: Where Does the Money go?" ESPN. ESPN Internet Ventures, 12 July 2011. Web. 13 Feb. 2014.

Nike's Sweatshops (2014)

Controversy

Nike logo

I'm sure almost everyone has heard of the brand Nike, seeing they are the dominant athletic brand around the world. However, the way these clothes and shoes are being produced are bringing up a great deal of controversy. Nike has offices around the world, but most of their factories that manufacture their products are located in Asia, more specifically, southeast Asia. Nike has numerous factories stationed in Indonesia with 171,000 Nike-affiliated workers and the third largest producer of Nike products. In Indonesia, the minimum wage was raised last year to the point where employees would be making $4 a day. Several Nike factories in the country have applied to be exempt from the new minimum wage law so they can continue to pay their workers a mere $3.70 per day. In attempts to stay exempt from this law, the company has hired high-ranking Indonesian military officers to force employees to sign a petition stating the company did not have to pay them the new wage.

Individualism
Milton Friedman was an Economist and Nobel Peace Prize winner who had the main focus on individualism. In his view "The only goal of business is to profit, so the only obligation that the business person has is to maximize profit for the owner or the stockholders."Under this particular view then Nike is being completely ethical and is doing the right thing. The less they can pay their employees, the more money the company can save, therefore the more cash into the pockets of the owners and stockholders. Imagine if Nike decided to shut down factories in Asia and started manufacturing products here in the United States with American workers, instead of paying employees $3.70 per day and all of a sudden paying employees the national minimum wage of $7.25 per hour. Even though the billion dollar company will have absolutely no problem staying profitable (very profitable) their profits would take a noticeable hit.

Utilitarianism

A Nike sweatshop in China, where workers are paid $4/hour

A man by the name of John Stuart Mill had a different approach called Utilitarianism. Under utilitarianism, the main focus is maximizing not profits, but overall happiness for as many people as possible. In this direct setting, this is the complete opposite of individualism in that Nike is being completely unethical. In this situation the easiest way to make everyone involved happy would be to raise the wages of their employees, actually even higher than the country mandated a minimum wage. Nike brought in over $25 billion in their last fiscal year if the company even raised the wages of their overseas employees to $5.00 per day who would really take a hit? I'm sure the executives and top investors for the company will still be able to afford their Bentleys, or buy a new mansion, and go on their numerous vacations, but perhaps their employees' lives might change more than they think. Maybe that extra $1.30 per day given to them will help in putting more food on the table of their families, or be able to buy new clothes or even start to put away and save some of their money. Raising the wages is the obvious choice to create the most overall happiness.

Kantianism
Immanuel Kant was a philosopher that developed the principles of Kantian Business ethics. Some of these principles include acting rationally, respect people, and be motivated by good will and doing what is right. Under these principles in this situation Kantianism goes along with Utilitarianism, or against individualism. One of the Kantianism principles states "don't act inconsistently in your own actions or consider yourself exempt from the rules" which is exactly what Nike is doing. Even though the country of Indonesia has raised the minimum wage where Nike would be forced to pay their employees $4.00 per day, for some reason they do not believe they should have to follow this law, and should be able to continue paying them less then what is required. Another principle states "respect people, their autonomy, and individual needs and differences" which is also not at all what Nike is trying to do. Minimum wage is not just a made up, random number, it is a calculated amount that the government feels is necessary for the employee to actually live on. Nike is trying to pay their employees less then this so how are they going to be able to pay for necessities? Obviously this is not at all doing what is right and I don't believe that Nike is "motivated by Good will" but more towards "motivated by their bank accounts".

Virtue Theory 

Propaganda image protesting Nike's sweatshop

The last theory discussed will be the Virtue theory. This theory is based on Aristotle's ethics, and focuses mainly on the character of the party and their decisions. The four main virtues of character are described as courage, honesty, temperance, and justice. Under this theory and this situation, the outcome is similar to the Kantian and Utilitarian theory's where Nike is in the complete wrong. Nike is showing absolutely no courage in standing for the right ideas and actions, actually their forcing the opposite, and honesty does not seem to apply to them either because their practices of hiring and treating employees is all wrong. Nike is boldly showing no self control in making it obvious all they care about is profits, they are being completely unfair to their employees. This situation shows a lot about the company and their character (or lack of character), Nike's overseas practices are completely unethical from every standpoint besides Friedman's individualism, which they are conducting perfectly.




References

Kavoussi, Bonnie. "Nike Factory In Indonesia Used Military To Intimidate Workers Into Giving Up Pay: Report." The Huffington Post. TheHuffingtonPost.com, 15 Jan. 2013. Web. 15 Feb. 2014. <http://www.huffingtonpost.com/2013/01/15/nike-indonesia_n_2481236.html>.

Marks, Kathy. "Nike supplier 'resisting pay rises' in Indonesia." The Independent. Independent Digital News and Media, n.d. Web. 15 Feb. 2014. <http://www.independent.co.uk/news/world/asia/nike-supplier-resisting-pay-rises-in-indonesia-8452946.html>.

Roberts, George. "Nike workers claim military paid to intimidate them." ABC News. N.p., n.d. Web. 15 Feb. 2014. <http://www.abc.net.au/news/2013-01-15/nike-accused-of-using-military-to-intimidate-factory-workers/4465058>.

Salazar, Heather. Business Ethics Lectures. WNEU. Spring 2014. "earnings." NIKE, Inc. -. N.p., n.d. Web. 15 Feb. 2014. <http://nikeinc.com/earnings>.

CVS Bans Tobacco Products (2014)

Controversy

CVS drugstore/pharmacy

CVS is an extremely well-known and one of the largest drugstore chairs in the United States. The popular and well-trusted company announced in early February 2014 that the drugstores would no longer carry any tobacco products, including cigarettes, by October 2014. This is a very brave move for the CVS stores.

It is reported that this ban of tobacco products would cause a two billion dollar loss in revenues a year for the company as a whole. One of the main reasons that the firm is doing this, is to show the public that it really does care about the health and well-being of its customers and the nation. This proves that the company cares more about improving the healthcare of customers than its potential profits. Hopefully, this new change will help to put people on a path to a more healthful future. CVS is growing into an even more reliable health care provider than it already is. The stores seemed to have changed into more of a retail business, instead of strictly health services, which was the purpose of the start of the company. The firm hopes to create more mini-clinics and strongly encourage and aid customers to visit the pharmacies. The hope is to put more emphasis on the pharmacy aspect of the drugstores, and less on the convenience store element. The entire checkout counter at most stores is covered with unhealthy snacks, gum, mints, and candies that are high in sugars and fats. Behind these junk food littered counters are mountains of cigarettes and other forms of harmful tobacco products. Some consumers have mentioned that it is unfair to ban tobacco products because they cause cancers and diseases, but not to ban the impulsive sugar rushes that can cause similar diseases. However, that would be extremely risky for CVS to get rid of tobacco products and all sweets that are available at the stores. The company will already be taking a significant revenue cut, and that would cause an even larger loss in revenues. The stockholders could lose a significant amount of money from this new change, and they would not be happy if they lost even more. The CEOs and managers of CVS had a huge decision to make could have upset a large number of customers and employees. The decision has already been made to eliminate tobacco, but the question is should more unhealthy options be banned too. This has been a very recent controversy that is spreading across the United States right now.

Individualism
Milton Friedman is a Nobel Prize-winning economist. He earned this prize for being the best-known defender of the economic model of corporate social responsibility. He is also known for the ideas of individualism. He mentions that there is only one single goal for businesses in the economy. This singular common goal is to make a profit for the business. Therefore, the only responsibility that the management or people involved in the business have, is to maximize profits. This means that the company will succeed, and therefore the owners and the stockholders each will be successful. Individualism is a principle of being independent and relying only on oneself. It favors freedom of action for separate individuals, rather than for a collective group of people. CVS has always been a company with a very successful financial position and a strong positive public opinion. It is a trusted company by many people in the United States. However, instead of following the theory of individualism and only focusing on maximizing profits for the company, it goes against the ideas. CVS is giving up two billion dollars in revenue from tobacco products to maintain a positive image in its customers' minds and to the public. However, when should the company stop? Some people think that it is unethical to ban tobacco, but not sodas, candies, and unhealthy snacks. These people think that CVS is being selfish by not considering these other dangerous products and leaving them in the stores still. CVS is using the ideas of individualism by keeping sugary treats in stores to keep a decent sales revenue for the company. CVS is partially avoiding individualism by trying to benefit society, but it is not using the ideas to the full extent that is possible. It seems as if this is the best possible thing for CVS to do though because this will help gain confidence and trust in the company, while also being able to fully function as a thriving company still. This seems to be the best possible option for the company's profitability and social ethical responsibilities. 

Overhead view of a CVS pharmacy pick-up & drop-off station

Utilitarianism

Utilitarianism is an important topic when it comes to business ethics. It is defined as "an ethical tradition that directs us to make decisions based on the overall consequences of our acts" (DesJardins 24). This basically means that it is an idea that is useful for the good for all people, instead of just an individual. It also means that there is a consideration for the right conduct that should be used while keeping all possible consequences in mind. It is used to chose the greatest amount of happiness for the largest number of people possible. There are some major costs and benefits that can be analyzed for the stakeholders of CVS. The managers and executives, who have a major input in how the company operates, would greatly benefit by removing tobacco products from all CVS stores in the United States. The general public would be impressed that they are focusing on people's overall well-being. Trust and confidence would be maintained and may even increase in the company. However, a major cost of this ban would be a large loss in revenues. This could mean a loss of some potential jobs and a decrease in salaries for the managers and executives. Some of the employees may be in danger of losing a job. The stockholders could be in danger of losing profits and shares of stock because of price decreases. These are all the possible costs of banning all tobacco products from CVS stores. However, the benefit that the company would receive of trust and confidence would be worth the risk of losing money. By removing all sweets from the stores as well, the company would have to reevaluate how the company is run and where their income is coming from. The company might not be able to survive, which would a worse outcome than a just comparatively minor loss in revenue. This would have a significant long-term negative effect on the company and it would not benefit the majority of people. Both customers and employees would lose. Even though it may not seem ethical to leave sweets in stores, the company is still promoting health by removing tobacco.

KantianismImmanuel Kant was a German philosopher who explained that a person's ethical duties are based on principles and duties, rather than determining consequences. According to Kant, a person's primary duty is to only act in the way the maxim of a person's actions could be made a universal law. A person is also required to treat other humans as subjects, rather than objects. This means that a person will perform an act, instead of having something acted on him or her. It also explains that a person should treat another person as an end, not as a means of getting to the end. The formula for humanity explains that people need to have an understanding of each other. It also explains that one person should not take advantage of another person or do something without the person's full comprehension and permission. A person needs someone's complete and rational consent for this to happen. Some people may argue that it was not ethical for CVS to sell tobacco products in stores because they are harmful to everyone's health. However, the people who bought them fully understood the products they were purchasing and they were aware of the health risks that are involved in using the products. On the other hand, some people may argue that everyone has the right to do whatever they chose. Another argument is that it is unethical for CVS to remove the tobacco products because the company should not be making it more difficult for someone to purchase these products. CVS would need to make sure that all of its customers feel welcome and important when in the stores, no matter what products are sold, to conform to the ideas of the Kantian theory. The company needs to focus on the customers themselves when they are in the stores, rather than how to get them into the store to make profits. CVS needs to put a center of attention on creating success for the company as a whole, rather than a small aspect of the company that is just a means of making profits to conform with the Kantian views.

Virtue Theory

Larry Merlot, CEO of CVS/pharmacy

The great Greek philosopher, Aristotle, had his own set of ethics and theories, such as the virtue theory. This explains that in order for an idea or thing to be successful, it has to be able to carry out its duties in a successful fashion. This means that both the theory and the ideas behind it need to thrive for any type of achievement. It also mentions that everyone has to behave rationally for this to happen. This is the only way for them to truly become happy. When it comes to the CVS case, the company was and is continuing to follow the virtue theory. The company has always functioned well with good ratings in customers service and with high-profit margins. Even with a ban on tobacco in the near future, the company is still one of the leading pharmacies in the United States. The managers and executives have a solid plan of how to operate the company and all of the stores. With a good grasp on operations, they are able to have a successful business. Since it is such a large company, this will be ongoing, even with a small portion of people against the stores, unless there is another major change to products in the near future. However, this change may not make everyone in society happy. A number of people believe that this ban is unfair and unethical, but most people at the company thought that it was the right move to make for the business. Because of this decision, the company will gain trust from its customers, which will result in a more successful firm, and overall will lead to most people being very happy with CVS. This virtue theory, along with Kantianism, utilitarianism, and individualism all help to explain the decision to ban tobacco products by CVS pharmacy stores.

References

Allhoff and Anand J. Vaidya (Broadview Press, 2008).

DesJardins, Joseph R. "Ethical Theory and Business."  An Introduction to Business

Ethics.  5th ed.  New York, NY:  McGraw-Hill/ Irwin, 2014. Print.

Hursthouse, Rosalind, "Virtue Ethics", The Stanford Encyclopedia of Philosophy (Fall 2013 Edition), Edward N. Zalta (ed.), URL = <http://plato.stanford.edu/archives/fall2013/entries/ethics-virtue/>.

Korn, Morgan. "CVS to Ban Sales of Cigarettes, Tobacco Products by Octobe." Yahoo Finance. The Daily Ticker, 05 Feb. 2014. Web. 12 Feb. 2014. <http://finance.yahoo.com/blogs/daily-ticker/cvs-to-ban-sales-of-cigarettes--tobacco-products-by-october-134325040.html>http://www.nytimes.com/2014/02/06/business/cvs-plans-to-end-sales-of-tobacco-products-by-october.html?_r=0

Salazar, Heather. “Kantian Business Ethics,” in Business in Ethical Focus, ed. Fritz

Salazar, Heather. Business Ethics, Economics, and Individualism. Powerpoint Slides

Sobey, Rick. "CVS Tobacco Ban Lauded." Sentinel & Enterprise. The Associated Press, 10 Feb. 2014. Web. 12 Feb. 2014. <http://www.sentinelandenterprise.com/news/ci_25102470/cvs-tobacco-ban-lauded>.

Tom Brokaw, . N.p.. Web. 12 Feb 2014. <http://www.nbcnews.com/news/us-news/bravo-cvs-banning-tobacco-products-n23906 >.http://www.bostonglobe.com/opinion/columns/2014/02/08/cvs-tobacco-ban-just-start-next-soda/6MUfQIsBuaS3dB77LGjqSJ/story.html

SAC Capital: Insider Trading Scandal (2014)

Controversy

SAC Captial Advisors logo

It is hard to escape that fact that in today’s society there is always scandals in business concerning ethics and morals within a company or a company with respect to their customers. Every year there is a handful of cases that are heard upon that call out some company’s or firms that make big news and big commotion. A big scandal concerning a firm called SAC Capital emerged in the past few years that was just settled in 2013. SAC Capital is a group hedge fund investors that was founded by Steven A. Cohen in 1992. Steven Cohen has a net worth of $9.4 billion dollars, which he used 20 million of his own capital to start the company.
A hedge fund is a limited partnership of investors that uses high risk methods, such as investing with borrowed money, in hopes of realizing large capital gains. The grounds for the scandal were due to insider trading. Insider trading is an illegal practice conducted on the stock exchange that gives a person an advantage through knowledge of private information. An example of this would be if someone is investing in a company and they find out by an inside source that the company is going to go bankrupt and they sell all their stocks before it is known to the public. This plays advantage to the person selling the stock since they are able to sell their stocks before they lose money. Before this scandal took place eight former workers for SAC Capital were criminally charged for insider trading. Six of those eight pleaded guilty. The prosecution led to SAC Capital pleading guilty to insider trading. This made SAC Capital the first large Wall Street firm to confess to criminal acts in this generation. SAC Capital paid a record large $1.2 billion in penalties and fines.

Individualism
There are a few ethical theories that can be applied and used to understand this case. Individualism (Friedman’s Economic Theory), Utilitarianism, Kantianism, and Virtue Theory are some ethical theories that can help explain or argue against the reasoning behind SAC Capital’s investors and their unethical behaviors. Individualism or Friedman’s Economic Theory only goal of a business is to maximize its profit for the owners and its stakeholders as long as everything it is not doing anything illegal (Salazar). In SAC Capital’s case the investors were trying to maximize profit for the owners and stakeholders however they were doing so illegally. Individualism states that as long as everything that is going on is legal it is okay. Doing things illegally does not help anyone or any company out in the long run. At some point when illegal behavior is going on, it is noticed and confronted immediately. When this occurs it takes away from customers, as well those customers may turn on the company and not have trust in the company anymore.

Utilitarianism

Steven Cohen of SAC Capital, the man behind the scandal

Utilitarianism applies the value of happiness in situations to the greatest amount of people. Also know as “an ethical tradition that directs us to make decisions based on the overall consequences of our acts" (Desjardins 24). In other words if the actions are for the greatest amount of peoples happiness then it would be considered ethical. In SAC Capital’s case a utilitarianism approach would not be an answer for the actions committed. SAC capitals investors were just thinking in themselves and their well being. It was known to some that Cohen made about $900 million annually. And for “In good times, the fund’s top talent earned as much as $100 million annually”, showing how that some of the workers would perform such illegally actions to make personal gains. In a competitive industry doing some illegal actions may be beneficial in a few eyes.

Kantianism
Another theory that could be compared to the SAC Capital scandal is Kantianism. Kantianism focuses on ethical behavior for the good of society with no personnel interest. This approach “emphasizes acting with respect toward all autonomous beings" (Salazar). Applying this to the case shows how self-interested and how egotistical was this firm with regards of making profits for themselves. The interest of the rest of the company including shareholders, other employees, and most importantly the customers were not taking into account. SAC Capital had history in insider trading and making profits for top executives disregarding others. In this case it led to a bad outcome as the firm had to admit to wrongdoings, which cost them a record amount of money. An outcome like this can affect a firm as a whole as they could have lost many customers and trust from their customers. Most unethical behavior leads to distrust causing turmoil with a company.

Virtue TheoryThe last theory is the virtue theory. This theory focuses on instilling and inspiring the right characteristics into people that would help them be ethical and act appropriately in society’s eyes. SAC Capital lack of compassion and duties to their customers and shareholders cost them in the long wrong. After this whole ordeal SAC agreed to a plea deal which cause them to “shut its doors to outside investors”, which was a big part of their company. Cohen and his advisors have to now open a new firm which is smaller and does not deal with many legal entities and will not be able to take money from external parties. The unethical practices by SAC Capital cost them millions not only from fines and penalties but by limiting their resources and abilities for the future. Unethical behavior has a lot more costs and downsides than just the money. Many other things like lost of trust and faith within a company will be lost, and in today’s society finding happy customers and returning customers is harder and harder to find. This brings up another interesting point that is, do these big firms really care if they are caught doing illegal and unethical things? These companies deal with so much money and so much profit that it does not matter if they gave up a few million or even $1.2 billion. Unethical practices occur all the time and it is becoming more and more part of today’s society unfortunately.


References

"After Scandal, SAC Capital Begins to Fade to Black." DealBook After Scandal SAC Capital Begins to Fade to Black Comments. N.p., n.d. Web. 15 Feb. 2014. <http://dealbook.nytimes.com/2014/02/02/after-scandal-sac-capital-begins-to-fade-to-black/?_php=true&_type=blogs&_r=0&module=ArrowsNav&contentCollection=Business%20Day&action=keypress®ion=FixedLeft&pgtype=Blogs>.

DesJardins, Joseph R. "Ethical Theory and Business." An Introduction to Business Ethics. 5th ed. New York, NY: McGraw-Hill/ Irwin, 2014. 23-37. Print.

"The Impact of the Settlement on SAC Capital and Cohen." DealBook The Impact of the Settlement on SAC Capital and Cohen Comments. N.p., n.d. Web. 15 Feb. 2014. <http://dealbook.nytimes.com/2013/11/04/what-the-settlement-means-for-sac-capital-and-cohen/>.

"SAC Capital Agrees to Plead Guilty to Insider Trading." DealBook SAC Capital Agrees to Plead Guilty to Insider Trading Comments. N.p., n.d. Web. 15 Feb. 2014. <http://dealbook.nytimes.com/2013/11/04/sac-capital-agrees-to-plead-guilty-to-insider-trading/>.

Salazar, Heather. Business Ethics Lectures. WNEU. Spring 2014.

Salazar, Heather. “Kantian Business Ethics,” in Business in Ethical Focus, ed. Fritz Allhoff and Anand J. Vaidya (Broadview Press, 2008).

"Steve Cohen." Forbes. Forbes Magazine, n.d. Web. 15 Feb. 2014. <http://www.forbes.com/profile/steve-cohen/>.

written by : Luis Agrait

GlaxoSmithKline: Bribery Scandal & Medication Inflation (2013)

Controversy

GSK corporate building & logo

Scandals seem to be a reoccurring theme in our capitalistic business system as of late. Revealing the unethical actions of these big corporations proves to be very telling when looking at the integrity of businesses. Analyzing these cases are crucial in order to gain perspective of what not to do, as well as offering insight into what really went wrong, and how a change in business ethics could benefit a company. The company under the microscope in 2013 was that of GlaxoSmithKline (or GSK). A United Kingdom based company, GSK is known for being “one of the world’s largest vaccine markers” and specials in pharmaceuticals (Inocencio). An employer of over 97,000 people, GSK’s work force is fairly strong and occupied in over 100 countries (Inocencio). Like many other companies, they were found guilty of bribery that “totaled nearly half a billion dollars” (Inocencio). The accusation proved true the moment “GSK executive Abbas Hussain admitted that some of the company's senior executives in China appeared to have violated the law” (Inocencio). The accused were 39 hospital workers, taking $450,000 kickbacks over the last three years; other executives of GSK were affected in part (Inocencio). In terms of latent effects of the scandal “Glaxo's weak China sales contrast[ed] poorly with those of its European rivals, Roche and Novartis” (CNBC). Not only are GSK and its stockholders affected by this sales decline (Figure 1), but patients themselves were subjected to “substantially inflated” medication costs (Inocencio). In response to the investigation, GSK offered that they “will cooperate fully with the Chinese authorities in the investigation of these new allegations” but claimed they had no knowledge of the briberies in China’s hospitals (GSK). Although handled fairly appropriately, it’s clear that an analysis of the ethics (or lack thereof) within the company is valuable. 

Graph detailing GSK shares durring the scandal

Individualism

As a primary theory that relates to my argument, defining Individualism (or The Economic Theory) can help observers of this scandal better identify the issue at hand. The theory states that, "everyone has the right to pursue his[/her] own interests and should do so, but no one has a right to make other people’s choices about their pursuits for them" (Salazar Week 2). Seemingly fair enough, Individualism essentially deploys the 'Golden Rule' we all know and love. GlaxoSmithKline beyond a doubt did not confirm to the premise of Individualism. Gaining revenue of around 500 billion dollars at the cost of inflated prices for the customers is certainly infringing on the medication rights that patients deserve. It's hard enough for some to pay for their medications on a baseline price, and it becomes even more difficult when a inner company bribery scandal causes horrible inflation for patients. Offering a ethical and law abiding solution, I conclude that in order to gain customers respect while gaining business they should compensate those affected by the inflation, seeing as they bare no control over the corruption within the company itself.
Utilitarianism
Moving to another important theory, one finds themselves face to face with John Mill and the ideology of Utilitarianism which states that, "we ought to bring about happiness and pleasure in all beings capable of feeling it (and do so impartially)" (Salazar Week 3). Applying this to business theory means maximizing the happiness within the company as well as in the customers and subsidiaries on the outside of the business. Bribery is an extremely one sided affair, and in this case, it was the company that was the sole beneficiary. Happiness, coming from the money [$450,00 per person] the 39 hospital workers received, did not transcend to the happiness of the patients or stock holders. Moving forward, it would seem most logical that GSK would be concerned less about the revenue of it's main manufacturers and employees, and focus equally on the customer satisfaction and compliance to lawful revenue management.

Kantianism

Andrew Witty, CEO of GSK

A third and defining theory that applies to the GSK bribery scandal is that of Kantianism (or Kant's Theory). The main principles of this theory include acting rationally, allowing others to react rationally, "respecting individual needs and differences", and being "motivated by Good Will" (Salazar Week 3). From even brief observation of the case it is clear that GlaxoSmithKline violated every principle of Kant Theory. Bribery in business by definition is illegal, and therefore irrational. Respect for the customer seemed to be of little importance to GSK seeing as their actions caused inflated medication prices. Good Will you ask? I see nothing honorable in bribery or inflation, "seeking to do what is right" was not of concern to GSK or more specifically the 39 accused. A section of Kant Theory that is very popular as of current is The Formula of Humanity which states that we should "'act in such a way that you treat humanity, whether in your own person or in the person of another, always at the same time as an end and never simply as a means' (Kant, MM 429)" (Salazar Week 3). GSK focused to critically on the means: the value being cold hard cash, and not enough on the ends: the satisfaction of the customer and the instantiation of a steady economy. Principally, GSK did not conform to Kant Theory, and will need to regain the trust of the public in order to be a respectful business once again.

Virtue Theory A final theory I propose connects to the GSK bribery scandal is that of Virtue Theory. Virtues by definition are "the characteristics that allow things to function properly" and depend greatly on function and circumstance (Salazar Week 4). Specific to business, there are four main virtues, courage: "risk-taking and willingness to take a stand for the right ideas and actions", honesty: truthful interaction " in agreements, hiring and treatment of employees, customers and other companies", temperance: reasonable desires, and justice: "hard work, quality products, good ideas, fair practices" (Salazar Week 4). Yes, GSK took risks, but not ethical ones, gaining based on bribery is not a courageous virtue. Honesty is out the window the second money is unaccounted for, if GSK had been honest, bribery wouldn't have occurred and we would not have a scandal to analyze. Temperance is debatable, they most likely had reasonable desires individually, but such widespread corruption affected the validity of these desires. Although, quality products are of safe mind within GSK, they did not participate in fair practices of business. Beyond an unspeakable doubt, GSK fails to meet the ethical and moral standards that a business of it's caliber should possess.

References

"GSK's China Sales Topple on Bribery Scandal." CNBC.com. N.p., n.d. Web. 14 Feb. 2014.

"GSK Response to China Investigation | 2013 | Press Releases | Media | GlaxoSmithKline."GSK Response to China Investigation | 2013 | Press Releases | Media | GlaxoSmithKline. N.p., n.d. Web. 14 Feb. 2014.

Inocencio, Ramy. "GlaxoSmithKline's China Network Caught in Massive Bribery Scandal."CNN. Cable News Network, 25 July 2013. Web. 14 Feb. 2014.

Salazar, Heather. PowerPoint Presentations Unit One - Four. 2013-14