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Description

Answer the following case study question from the textbook

– Case study 2 (Sony’s Response to North Korea’s Cyberattack) on page #126

under the Cases section.

Assignment requirements:

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Has Separate cover page.

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Cover page includes group names, students’ ID, course code and name, semester 461, and title:

Assignment 1: Case Study 2.

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Is typed in 12” font size.

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Your answer does not exceed ten pages excluding the cover page.

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Your assignment will be marked as late after the deadline, and may loss marks.

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Your assignment will be scored 0 (zero) if it violates plagiarism or cheating policy (15% is the

maximum allowed quotation)

ETHICS IN INFORMATION
TECHNOLOGY
Sixth Edition

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ETHICS IN INFORMATION
TECHNOLOGY
Sixth Edition

George W. Reynolds

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Ethics in Information Technology,
Sixth Edition
George W. Reynolds

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BRIEF CONTENTS
Preface
Chapter

An Overview of Ethics

xiii
1

Chapter

Ethics for IT Workers and IT Users

Chapter

Cyberattacks and Cybersecurity

Chapter

Privacy

133

Chapter

Freedom of Expression

185

Chapter

Intellectual Property

221

Chapter

Ethical Decisions in Software Development

263

Chapter

The Impact of Information Technology on Society

299

Chapter

Social Media

329

Chapter 10

Ethics of IT Organizations

357

Appendix A

A Brief Introduction to Morality

397

Glossary

413

Index

427

TABLE OF CONTENTS
Preface
Chapter 1 An Overview of Ethics
Organizations Behaving Badly
What Is Ethics?
The Importance of Integrity
The Difference Between Morals, Ethics, and Laws
Ethics in the Business World
Corporate Social Responsibility
Why Fostering Corporate Social Responsibility and Good Business Ethics Is Important?
Gaining the Goodwill of the Community
Creating an Organization That Operates Consistently
Fostering Good Business Practices
Protecting the Organization and Its Employees from Legal Action
Avoiding Unfavorable Publicity
How Organizations Can Improve Their Ethics
Appoint a Corporate Ethics Officer
Require the Board of Directors to Set and Model High Ethical Standards
Establish a Corporate Code of Ethics
Conduct Social Audits
Require Employees to Take Ethics Training
Include Ethical Criteria in Employee Appraisals
Create an Ethical Work Environment
Including Ethical Considerations in Decision Making
Develop Problem Statement
Identify Alternatives
Choose Alternative
Implement the Decision
Evaluate the Results
Ethics in Information Technology
Summary
Key Terms
Self-Assessment Questions
Self-Assessment Answers
Discussion Questions
What Would You Do?
Cases
End Notes

xiii
1
1
3
5
5
7
10
13
13
14
15
15
16
17
18
19
20
21
22
22
23
24
24
25
26
26
26
27
29
30
30
32
33
33
34
39

Chapter 2 Ethics for IT Workers and IT Users

Organizations Behaving Badly
IT Worker Relationships That Must Be Managed

43
44

Relationships Between IT Workers and Employers
Relationships Between IT Workers and Clients
Relationships Between IT Workers and Suppliers
Relationships Between IT Workers and Other Professionals
Relationships Between IT Workers and IT Users
Relationships Between IT Workers and Society
Encouraging the Professionalism of IT Workers
Professional Codes of Ethics
Professional Organizations
Certification
Licensing of IT Professionals
What Can Be Done to Encourage the Ethical Use of IT Resources Among Users?
Common Ethical Issues for IT Users
Supporting the Ethical Practices of IT Users
Summary
Key Terms
Self-Assessment Questions
Self-Assessment Answers
Discussion Questions
What Would You Do?
Cases
End Notes

Chapter 3 Cyberattacks and Cybersecurity
Organizations Behaving Badly
The Threat Landscape
Why Computer Incidents Are So Prevalent?
Types of Exploits
Federal Laws for Prosecuting Computer Attacks
The CIA Security Triad
Implementing CIA at the Organization Level
Implementing CIA at the Network Level
Implementing CIA at the Application Level
Implementing CIA at the End-User Level
Response to Cyberattack
Incident Notification
Protection of Evidence and Activity Logs
Incident Containment
Eradication
Incident Follow-Up
Using an MSSP
Computer Forensics
Summary
Key Terms
Self-Assessment Questions
Self-Assessment Answers

viii

44
47
50
54
55
55
56
56
57
59
60
64
64
66
70
72
72
74
74
75
76
80

83
83
85
86
88
99
100
101
107
111
112
114
114
115
115
115
115
116
117
119
120
121
123

Table of Contents

Discussion Questions
What Would You Do?
Cases
End Notes

Chapter 4 Privacy
Organizations Behaving Badly
Privacy Protection and the Law
Information Privacy
Privacy Laws, Applications, and Court Rulings
Key Privacy and Anonymity Issues
Consumer Profiling
Electronic Discovery
Workplace Monitoring
Advanced Surveillance Technology
Summary
Key Terms
Self-Assessment Questions
Self-Assessment Answers
Discussion Questions
What Would You Do?
Cases
End Notes

Chapter 5 Freedom of Expression
Organizations Behaving Badly
First Amendment Rights
Obscene Speech
Defamation
Freedom of Expression: Key Issues
Controlling Access to Information on the Internet
Internet Censorship
Strategic Lawsuit Against Public Participation
Anonymity on the Internet
John Doe Lawsuits
Hate Speech
Pornography on the Internet
Fake News
Summary
Key Terms
Self-Assessment Questions
Self-Assessment Answers
Discussion Questions
What Would You Do?
Cases
End Notes

123
124
125
129

133
133
135
138
138
157
157
161
162
164
167
170
171
173
173
174
175
179

185
185
187
188
189
189
190
195
196
197
199
201
202
205
208
210
210
211
211
213
214
217

Table of Contents

Chapter 6 Intellectual Property
Organizations Behaving Badly
What Is Intellectual Property?
Copyrights
Patents
Trade Secrets
Current Intellectual Property Issues
Plagiarism
Reverse Engineering
Open Source Code
Competitive Intelligence
Trademark Infringement
Cybersquatting
Summary
Key Terms
Self-Assessment Questions
Self-Assessment Answers
Discussion Questions
What Would You Do?
Cases
End Notes

Chapter 7 Ethical Decisions in Software Development
Organizations Behaving Badly
Software Quality and Why It Is Important
The Importance of Software Quality
Software Product Liability
Strategies for Developing Quality Software
Software Development Methodologies
Capability Maturity Model Integration
Developing Safety-Critical Systems
Risk Management
Quality Management Standards
Summary
Key Terms
Self-Assessment Questions
Self-Assessment Answers
Discussion Questions
What Would You Do?
Cases
End Notes

Chapter 8 The Impact of Information Technology on Society
Organizations Behaving Badly
The Impact of IT on the Standard of Living and Worker Productivity
IT Investment and Productivity
IT and Workplace Automation
Artificial Intelligence

221
221
224
225
231
235
239
239
241
242
244
246
247
249
252
252
253
254
254
255
259

263
263
265
268
269
271
271
276
278
280
282
286
288
289
291
291
292
293
297

299
299
302
302
305
306

Table of Contents

The Impact of IT on Health Care
Computerized Patient Records
Clinical Decision Support
Computerized Provider Order Entry
Telehealth
Summary
Key Terms
Self-Assessment Questions
Self-Assessment Answers
Discussion Questions
What Would You Do?
Cases
End Notes

Chapter 9 Social Media
Organizations Behaving Badly
What Is Social Media?
Social Networking Platforms
Business Applications of Social Media
Social Media Marketing
Social Media in the Hiring Process
Improving Customer Service Using Social Media
Social Shopping Platforms
Social Networking Ethical Issues
Cyberabuse, Cyberharassment, and Cyberstalking
Encounters with Sexual Predators
Uploading of Inappropriate Material
Employee Participation on Social Media Networks
Miscellaneous Social Media Issues
Summary
Key Terms
Self-Assessment Questions
Self-Assessment Answers
Discussion Questions
What Would You Do?
Cases
End Notes

Chapter 10 Ethics of IT Organizations
Organizations Behaving Badly
Use of Contingent Workers
The Gig Economy
Independent Contractors
Advantages of Using Contingent Workers
Disadvantages of Using Contingent Workers
Deciding When to Use Contingent Workers
H-1B Workers
Using H-1B Workers Instead of U.S. Workers

309
311
313
313
313
317
319
319
321
321
322
323
326

329
329
330
331
333
334
336
336
337
338
338
341
343
343
344
346
348
348
350
350
351
351
354

357
357
359
360
361
362
363
363
365
366

Table of Contents

Gaming the H-1B Visa Program
The Need for H-1B Workers
Outsourcing
Offshore Outsourcing
Pros and Cons of Offshore Outsourcing
Strategies for Successful Offshore Outsourcing
Whistle-Blowing
Protection for Whistle-Blowers
Whistle-Blowing Protection for Private-Sector Workers
Dealing with a Whistle-Blowing Situation
Green Computing
Summary
Key Terms
Self-Assessment Questions
Self-Assessment Answers
Discussion Questions
What Would You Do?
Cases
End Notes

Appendix A A Brief Introduction to Morality
Introduction
The Knotty Question of Goodness
Relativism: Why “Common Sense” Won’t Work
Egoism versus Altruism
Deontology, or the Ethics of Logical Consistency and Duty
Happy Consequences, or Utilitarianism
Promises and Contracts
A Return to the Greeks: The Good Life of Virtue
Feminism and the Ethics of Care
Pluralism
Summary

xii

367
368
371
371
372
374
375
375
377
377
380
383
385
385
388
388
389
390
394

397
397
398
399
401
402
404
406
407
409
410
411

Glossary

413

Index

427

Table of Contents

PREFACE
We are excited to publish the sixth edition of Ethics in Information Technology. This new
edition builds on the success of the previous editions and meets the need for a resource
that helps readers understand many of the legal, ethical, and societal issues associated
with information technology. We have responded to the feedback from our previous
edition adopters, students, and other reviewers to create an improved text. We think you
will be pleased with the results.
Ethics in Information Technology, Sixth Edition, fills a void of practical business
information for business managers and IT professionals. The typical introductory
information systems book devotes one chapter to ethics and IT, which cannot possibly
cover the full scope of ethical issues related to IT. Such limited coverage does not meet
the needs of business managers and IT professionals—the people primarily responsible
for addressing ethical issues in the workplace. What is missing is an examination of the
different ethical situations that arise in IT as well as practical advice for addressing
these issues.
Ethics in Information Technology, Sixth Edition, has enough substance for an
instructor to use it in a full-semester course in computer ethics. Instructors can also
use the book as a reading supplement for such courses as Introduction to Management
Information Systems, Principles of Information Technology, Managerial Perspective of
Information Technology, Computer Security, E-Commerce, and so on.

WHAT’S NEW
Ethics in Information Technology, Sixth Edition, has been updated and revised to
incorporate the many new developments and ethical issues that are affecting IT professionals
and influencing professional ethics, such as state licensing of IT professionals;
cyberterrorism and hacktivism; the erosion of privacy due to electronic surveillance;
the positive and negative impacts of social networking; the design and implementation
of safety-critical systems; and the impact of IT on the standard of living, worker
productivity, and health care.
Each chapter opens with a new “Organizations Behaving Badly” real-world scenario
that highlights key issues from the chapter and raises thought-provoking questions.
Critical thinking exercises, also a new feature, are strategically placed at the end of each
major chapter section to encourage the reader to pause, consider, and apply what they’ve
just read. Each chapter ends with a list of key terms and a set of self-assessment questions
that students can use to check their grasp of key points from the chapter. New—and more
varied—end-of-chapter exercises have been added to encourage critical application of
chapter concepts. Students can practice principles they’ve learned with revised Discussion
Questions, and What Would You Do? exercises, as well as all new Cases. Instructors of

online courses can use this wealth of material as the basis for discussion forums that allow
their online students to share a variety of perspectives and experiences and to create a
learning community. Such discussions provide students the opportunity to more deeply
understand the material while challenging their critical thinking skills. We think you will
like these changes and additions.

ORGANIZATION
Each of the 10 chapters in this book addresses a different aspect of ethics in information
technology:
•

•

xiv

Chapter 1, “An Overview of Ethics,” introduces ethics, ethics in business,
and the importance of ethics in IT. The distinction between morals, ethics,
and laws is defined. The trends that have increased the likelihood of
unethical behavior are identified. The concept of corporate social responsibility
is defined and discussed. The chapter presents reasons why practicing good
business ethics is important in business. A model for improving corporate ethics
is provided. The most commonly observed types of misconduct in the workplace
are identified. The need for an organizational code of ethics is discussed. Key
steps in establishing a sound ethics program are outlined. The role of the chief
ethics officer and board of directors in establishing a strong organizational ethics
program is examined. A useful model for ethical decision making is provided.
The chapter ends with a discussion of the role of ethics in IT.
Chapter 2, “Ethics for IT Workers and IT Users,” explains the importance
of ethics in the business relationships of IT professionals, including those
between IT workers and employers, clients, suppliers, other professionals,
IT users, and society. The chapter provides suggestions for what can be
done to encourage the professionalism of IT workers by emphasizing the
significance of IT professional organizations and their codes of ethics as
well as certification and licensing. Some ethical issues faced by IT users are
discussed, including software piracy, inappropriate use of computing
resources, and inappropriate sharing of information. Actions that can be
taken to encourage the ethical use of IT resources by end-users are outlined.
The chapter introduces the topic of internal control and compliance and the
role the audit committee and members of the internal audit team have in
ensuring that both the IT organization and IT users follow organizational
guidelines and policies, as well as various legal and regulatory practices.
Chapter 3, “Cyberattacks and Cybersecurity,” describes the types of ethical
decisions that IT professionals must make, as well as the business needs they
must balance when dealing with security issues. The chapter identifies the
most common computer-related security incidents and provides numerous
reasons why such incidents are increasing. This chapter includes information
on the use of cloud computing, virtualization software, and bring your own
device corporate business policies. It describes some of the more common
hacker attacks, including ransomware, viruses, worms, Trojan horses,
blended threats, distributed denial-of-service, rootkits, advanced persistent

Preface

•

threats, spam, phishing, spear-phishing, smishing, and vishing. Cyberespionage
and cyberterrorism are also covered including the roles of the United States
Computer Emergency Readiness Team (US-CERT) and the Department of
Homeland Security in defending against cyberterrorism. In addition to
providing a useful classification of computer crimes and their perpetrators,
the chapter summarizes the major federal laws that address computer
crime. The chapter introduces the concept of the CIA triad (confidentiality,
integrity, and availability) and outlines steps to implement this concept
throughout the organization at all levels. The chapter discusses the need
for a corporate security policy and offers both a process for establishing a
security policy and several security-related policy templates that can help
an organization to quickly develop effective security policies. A process
for performing an assessment of an organization’s IT resources from both
internal and external threats is presented. Useful guidelines are provided
on how to respond to specific security incidents to quickly resolve problems
and improve ongoing security measures.
Chapter 4, “Privacy,” explains how the use of IT affects privacy rights and
discusses several key pieces of legislation that have addressed privacy rights
over the years. The Fourth Amendment is explained, and laws designed to
protect personal financial and health data—as well as the privacy of
children—are discussed. Electronic surveillance is covered, along with many
laws associated with this activity, including Executive Order 12333, the
Foreign Intelligence Surveillance Act, and the USA PATRIOT Act including its
various amendments and extensions. Various regulations affecting the export
of personal data from one country to another are covered. The chapter
explains how the personal information businesses gather using IT can be used
to obtain or keep customers (or to monitor employees). It also discusses the
concerns of privacy advocates regarding how much information can be
gathered, with whom it can be shared, how the information is gathered in the
first place, and how it is used. These concerns also extend to the informationgathering practices of law enforcement and government. Identity theft and
data breaches are covered along with various tactics used by identity thieves;
the chapter also presents some safeguards that can thwart identity theft.
Guidelines and principles for treating consumer data responsibly are offered.
The pros and cons of consumer profiling as well as various tactics for
profiling are discussed. The expanding use of electronic discovery, workplace
monitoring, camera surveillance, vehicle data recorders, and stalking apps is
discussed.
Chapter 5, “Freedom of Expression,” addresses issues raised by the growing use
of the Internet as a means for freedom of expression, while also examining the
types of speech protected by the First Amendment of the U.S. Constitution.
The chapter covers the ways in which the ease and anonymity with which
Internet users can communicate may pose problems for people who might
be adversely affected by such communications. It describes attempts at
using legislation (such as the Communications Decency Act, the Children
Online Protection Act, and the Children’s Internet Protection Act) and
Preface

•

xvi

technology, such as Internet filtering, to control access to Internet content
that is unsuitable for children or unnecessary in a business environment.
The use of strategic lawsuits against public participation (SLAPP) lawsuits
is covered. The use of John Doe lawsuits to reveal the identities of
anonymous posters is discussed. Internet censorship, doxing, sexting,
fake news, defamation, hate speech, pornography on the Internet, and
spam are also covered.
Chapter 6, “Intellectual Property,” defines intellectual property and explains
the varying degrees of ownership protection offered by copyright, patent,
and trade secret laws. Copyright, patent, and trademark infringement are
examined, using many examples. Key U.S. and international rules aimed at
protecting intellectual property are discussed, including the Prioritizing
Resources and Organization for Intellectual Property Act, the General
Agreement on Tariffs and Trade, the World Trade Organization Agreement
on Trade-Related Aspects of Intellectual Property Rights, the World
Intellectual Property Organization Copyright Treaty, and the Digital
Millennium Copyright Act. The chapter explains software patents and
software licensing as well as the use of cross-licensing agreements. It also
addresses key intellectual property issues such as plagiarism, reverse
engineering, open source code, competitive intelligence, trademark
infringement, and cybersquatting. The use of nondisclosure agreements
and noncompete clauses in work contracts is also discussed. Finally, the
chapter addresses several key issues relevant to ethics in IT, including
plagiarism, reverse engineering of software, open source code, competitive
intelligence gathering, and cybersquatting.
Chapter 7, “Ethical Decisions in Software Development,” provides a thorough
discussion of the software development process and the importance of
software quality. It covers the ethical and economic issues that software
manufacturers must consider when deciding “how good is good enough?”
with regard to their software products—particularly when the software is
safety-critical and its failure can cause loss of human life. Topics include
software product liability, risk management, quality management, and quality
assurance. An overview of and the pros and cons of the waterfall and agile
software development approaches are presented. The chapter also examines
the Capability Maturity Model Integration (CMMI), the ISO 9000 family of
standards, and the Failure mode and effects analysis (FMEA) technique as
strategies for improving software quality.
Chapter 8, “The Impact of Information Technology on Society,” examines
the effect that IT investment has had on the standard of living and worker
productivity. Also covered are how advances in artificial intelligence, machine
learning, robotics, and natural language processing are fundamentally changing
the way work gets done and have the potential to affect the tasks, roles, and
responsibilities of most workers. The chapter looks at the impact of IT on
the delivery of health care and healthcare costs. Electronic medical records,
electronic health records, and health information exchanges are explained.
The issues with implementing a successful electronic health records system

Preface

•

are discussed. Telehealth and telemedicine are defined and how they help
deliver of health care are discussed.
Chapter 9, “Social Media,” discusses how people use social media, identifies
common business uses of social media, and examines many of the ethical
issues associated with the use of social media. The most popular social
networking platforms are identified. The business applications of social media
are covered, including the use of social networks to communicate and
promote the benefits of products and services, the use of social media in
the hiring process, improving customer service, and the creation of social
shopping platforms. Common ethical issues that arise for members of
social networking platforms including online abuse, harassment, stalking,
cyberbullying, encounters with sexual predators, the uploading of
inappropriate material, and the inappropriate participation of employees
in social networking are discussed. Other social networking issues
covered include the increased risk of accidents associated with social
media interaction while driving, the tendency of many social media
users to become narcissist in their postings, and the ability to perform self-image
manipulation.
Chapter 10, “Ethics of IT Organizations,” covers a range of ethical issues facing
IT organizations, including those associated with the use of nontraditional
workers, such as temporary workers, contractors, consulting firms, H-1B
workers, and the use of outsourcing and offshore outsourcing. Also raised is the
issue of discriminatory hiring practices at many large IT firms and the special
issues of independent contractors working in the gig economy. Factors that are
considered in classifying a worker as either an employee or an independent
contractor are provided. The chapter also discusses the risks, protections, and
ethical decisions related to whistle-blowing, and it presents a process for safely
and effectively handling a whistle-blowing situation. In addition to introducing
the concept of green computing, the chapter discusses the ethical issues that
both IT manufacturers and IT users face when a company is considering how
to transition to green computing—and at what cost. It discusses the use of the
Electronic Product Environment Assessment Tool to evaluate, compare, and
select electronic products based on a set of 51 environmental criteria.
Appendix A provides an in-depth discussion of how ethics and moral codes
developed over time.

PEDAGOGY
Ethics in Information Technology, Sixth Edition, employs a variety of pedagogical features
to enrich the learning experience and provide interest for the instructor and student:
•
•

Opening Quotation. Each chapter begins with a quotation to stimulate
interest in the chapter material.
Organizations Behaving Badly. At the beginning of each chapter, a brief
real-world scenario illustrates the issues to be discussed, and carefully
crafted focus questions pique the reader’s interest.
Preface

xvii

•

•
•

Learning Objectives. Learning Objectives appear at the start of each chapter.
They are presented in the form of questions for students to consider while
reading the chapter.
Critical Thinking Exercises. New, thought-provoking critical thinking
exercises are strategically placed at the end of each major chapter section
to encourage the reader to pause, consider, and apply what they’ve just read.
Key Terms. Key terms appear in bold in the text and are listed at the end
of the chapter. They are also defined in the glossary at the end of the book.
Manager’s Checklist. Chapters include a checklist that provides a practical
and useful list of questions to consider when making a business decision
involving the topics just covered.

End-of-Chapter Material
To help students retain key concepts and expand their understanding of important IT
concepts and relationships, the following features are included at the end of every
chapter:
•
•

•

Summary. Each chapter includes a summary of the key issues raised that
correlate to the Learning Objectives for each chapter.
Self-Assessment Questions. These questions help students review and test their
understanding of key chapter concepts. The answers to the Self-Assessment
Questions are provided at the end of each chapter.
Discussion Questions. These open-ended questions help instructors generate
class discussion to move students deeper into the concepts and help them
explore the numerous aspects of ethics in IT.
What Would You Do? These exercises present realistic dilemmas that
encourage students to think critically about the ethical principles presented
in the text.
Cases. In each chapter, two new real-world cases reinforce important ethical
principles and IT concepts, and show how real companies have addressed
ethical issues associated with IT. Questions after each case focus students on
its key issues and ask them to apply the concepts presented in the chapter.

ABOUT THE AUTHOR
George W. Reynolds brings a wealth of computer and industrial experience to this project,
with more than 30 years of experience in government, institutional, and commercial
IT organizations with NASA, the Jet Propulsion Laboratory, University of Cincinnati,
Procter & Gamble, and Atos. He has authored over two dozen texts and has taught at
the University of Cincinnati, Xavier University (Ohio), Miami University (Ohio), the
College of Mount St. Joseph, and Strayer University.

Teaching Tools
The following supplemental materials are available when this book is used in a classroom
setting. All Instructor Resources can be accessed online at www.cengage.com/login.
xviii

Preface

•

Instructor’s Manual. Includes additional instructional material to assist in
class preparation, including suggestions for lecture topics. It also includes
solutions to all end-of-chapter exercises.
Test Banks. Cengage Learning Testing powered by Cognero is a flexible,
online system that allows instructors to author, edit, and manage test bank
content from multiple Cengage Learning solutions and to create multiple
versions. It works on any operating system or browser with no special installs
or downloads needed, so tests can be created from anywhere with Internet
access.
PowerPoint Presentations. Lecture slides for each chapter can be included as
a teaching aid for classroom presentation, made available to students on the
network for chapter review, or printed for classroom distribution. The
slides are fully customizable. Instructors can either add their own slides for
additional topics they introduce to the class or delete slides they won’t be
covering.
Additional Cases. Find over 40 additional real-world cases to choose from to
reinforce important ethical principles and IT concepts, and show how real
companies have addressed ethical issues associated with IT. Questions after
each case focus students on its key issues and ask them to apply the concepts
presented in the chapter.

ACKNOWLEDGMENTS
I wish to express my appreciation to a number of people who helped greatly in the creation
of this text: Kristin McNary, Product Team Manager, for her belief in and encouragement
of this project; Michele Stulga, Content Project Manager, for guiding the book through the
production process; Kate Mason, Associate Product Manager, for overseeing and directing
this effort; Maria Garguilo, Associate Content Developer for her outstanding support in all
the many activities associated with a project of this scope; Mary Pat Shaffer, Development
Editor, for her tremendous support, many useful suggestions, and helpful edits; and the
many students and instructors who provided excellent ideas and constructive feedback on
the text. I also wish to thank Clancy Martin for writing Appendix A.
Last of all, thanks to my family for all their support, and for giving me the time to
write this text.
—George W. Reynolds

Preface

xix

CHAPTER

AN OVERVIEW OF ETHICS
QUOTE

Jacek Dudzinski/Shutterstock.com

This above all: to thine own self be true, and it must follow, as the night the day, thou
canst not then be false to any man.
—Polonius, a character in Hamlet, discussing the importance of integrity with
his son, Laertes

ORGANIZATIONS

BEHAVING

BADLY

Ever get upset trying to make sense of all the miscellaneous charges that appear each month
on your cell phone bill? Well, it turns out you—and millions of other consumers—may have cause
for concern.

In October 2014, the Federal Communications Commission (FCC) announced a $105 million

settlement with AT&T Mobility in a case related to the practice of “cramming,” in which unauthorized, recurring third-party charges are added to consumers’ cell phone bills for “premium” subscriptions such as ring tones, wallpaper, and horoscope text messaging services. Often, consumers
were duped into signing up for these services without understanding that they would result in ongoing charges, up to $9.99 per month. In addition to allowing third-party companies to place charges
on its customers’ accounts without their knowledge, AT&T Mobility lumped together several miscellaneous charges on its bills, making it difficult for customers to detect the unauthorized charges.
When customers complained, AT&T Mobility would typically only refund a portion of the cramming
charges.1
A year later, the FCC fined AT&T Mobility $100 million for misleading customers about
its “unlimited” mobile data plans. The FCC alleged that the carrier slowed down the data speeds
for customers with such plans after they had used a certain amount of data, a practice
called throttling, meaning that these customers were being billed for services they were not
receiving in full.2
AT&T Mobility is not the only mobile carrier to be fined by the FCC for issues related to their
billing practices. In late 2014, T-Mobile USA was fined $90 million for cramming customer phone bills
with unauthorized charges for years and then ignoring complaints and requests for refunds.3 The
FCC also fined Verizon $90 million and Sprint $68 million in 2015 for billing customers for third-party
texting services without their consent.4
The people who developed, implemented, and supported the practice of cramming customer
phone bills were once new hires—likely full of ambition and a desire to do well in their jobs. What

Chapter 1

might cause employees to support and implement a practice, such as cramming, that appears

unethical and possibly illegal? What happened to their desire to do well that they did not object to
and stop this unfair billing practice? Do you feel pressured to commit such practices in your current
place of employment?

LEARNING

OBJECTIVES

As you read this chapter, consider the following questions:
1. What is ethics?
2. What trends have increased the likelihood of an unethical behavior?
3. What is corporate social responsibility, and why is fostering good business ethics important?
4. What measures can organizations take to improve their business
ethics?
5. How can you include ethical considerations in your decision making?
6. What trends have increased the risk that information technology will be
used in an unethical manner?

WHAT IS ETHICS?
Ethics is a code of behavior that is defined by the group to which an individual belongs.
Ethical behavior conforms to generally accepted norms, which may change over time to
meet the evolving needs of the society or a group of people who share similar laws, traditions, and values that provide structure to enable them to live in an organized manner.
Ethics help members of a group understand their roles and responsibilities so they can
work together to achieve mutual benefits such as security, access to resources, and the
pursuit of life goals.
Morals are the personal principles upon which an individual bases his or her decisions about what is right and what is wrong. They are core beliefs formed and adhered to
by an individual. For example, many of us have a core belief that all people should be
treated with respect and this belief governs our actions toward others. Your moral principles are statements of what you believe to be rules of right conduct. As a child, you may
have been taught not to lie, cheat, or steal. As an adult facing more complex decisions,
you often reflect on your moral principles when you consider what to do in different
situations: Is it okay to lie to protect someone’s feelings? Should you intervene with a
coworker who seems to have a chemical dependency problem? Is it acceptable to exaggerate your work experience on a résumé? Can you cut corners on a project to meet a
tight deadline?

An Overview of Ethics

As children grow, they learn complicated tasks—such as walking, talking, swimming,
riding a bike, and writing the alphabet—that they perform out of habit for the rest of
their lives. People also develop habits that make it easier for them to choose between good
and bad. A virtue is a habit that inclines people to do what is acceptable, and a vice is a
habit of unacceptable behavior. Fairness, generosity, and loyalty are examples of virtues,
while vanity, greed, envy, and anger are considered vices. People’s virtues and vices
help define their personal value system—the complex scheme of moral values by which
they live.
Although nearly everyone would agree that certain behaviors—such as lying and
cheating—are wrong, opinions about what constitutes right and wrong behaviors can vary
dramatically. For example, attitudes toward software piracy—a form of copyright
infringement that involves making copies of software or enabling others to access software
to which they are not entitled—range from strong opposition to acceptance of the
practice as a standard approach to conducting business. According to the Business
Software Alliance (BSA), the global rate of software piracy stands at around 42 percent.
The piracy rate is nearly 80 percent across the continent of Africa, where many
consumers simply cannot afford software licenses and pirated copies are readily available
at cut-rate prices.5
Individual views of what behavior is moral may be impacted by a person’s age,
cultural group, ethnic background, religion, life experiences, education, and gender
along with many other factors. There is widespread agreement on the immorality of
murder, theft, and arson, but other behaviors that are accepted in one culture might
be unacceptable in another. Even within the same society, people can have strong disagreements over important moral issues. In the United States, for example, issues such
as abortion, stem cell research, the death penalty, same-sex marriage, marijuana
usage, and gun control are continuously debated, and people on both sides of these
debates feel that their arguments are on solid moral ground. The reality is that the
world has many systems of beliefs about what is right and wrong, each with many
proponents.
Life is complex, and on occasion, you will encounter a situation in which the ethics
of the group to which you belong are in conflict with your morals, as highlighted in the
following two examples:

•

The ethics of the law profession demand that defense attorneys defend an
accused client to the best of their ability, even if they know that the client
is guilty of the most heinous and morally objectionable crime one could
imagine.
The ethical standards of the medical profession do not allow a doctor to
euthanize a patient, even at the patient’s request. However, the doctor
may personally believe that the patient has a right, based on the doctor’s
own morals.

Figure 1-1 illustrates the relationship between ethics and morals and identifies some
of the many factors that help define them.

Chapter 1

Life experiences

Group code of ethics
Traditions
Morals – individual
beliefs of what is right
and wrong

Culture

Core
personal
beliefs

Education

Virtues

Beliefs

Vices

Age

Religion
Gender

FIGURE 1-1

The relationship between ethics and morals

The Importance of Integrity
A person who acts with integrity acts in accordance with a personal code of principles.
One approach to acting with integrity is to extend to all people the same respect and consideration that you expect to receive from them. Unfortunately, consistency can be difficult to achieve, particularly when you are in a situation that conflicts with your moral
standards. For example, you might believe it is important to do as your employer requests
while also believing that you should be fairly compensated for your work. Thus, if your
employer insists that, due to budget constraints, you do not report the overtime hours that
you have worked, a moral conflict arises. You can do as your employer requests or you
can insist on being fairly compensated, but you cannot do both. In this situation, you may
be forced to compromise one of your principles and act with an apparent lack of integrity.
Another form of inconsistency emerges if you apply moral standards differently
according to the situation or people involved. If you are consistent and act with integrity,
you apply the same moral standards in all situations. For example, you might consider it
morally acceptable to tell a little white lie to spare a friend some pain or embarrassment,
but would you lie to a work colleague or customer about a business issue to avoid
unpleasantness? Clearly, many ethical dilemmas are not as simple as right versus wrong
but involve choices between right versus right. As an example, for some people it is “right”
to protect the Alaskan wildlife from being spoiled and also “right” to find new sources of
oil to maintain U.S. oil reserves, but how do they balance these two concerns?

The Difference Between Morals, Ethics, and Laws
Law is a system of rules that tells us what we can and cannot do. Laws are enforced by a
set of institutions (the police, courts, law-making bodies). Violation of a law can result in

An Overview of Ethics

censure, fines, and/or imprisonment. Laws in the United States are made by the various
local, state, and federal legislatures. Sometimes the laws of these various jurisdictions
are in conflict, creating confusion and uncertainty. In addition, laws are not static; new
laws are constantly being introduced and existing laws repealed or modified. As a
result, the precise meaning of a particular law may be different in the future from what
it is today.
Legal acts are acts that conform to the law. Moral acts conform to what an individual
believes to be the right thing to do. Laws can proclaim an act as legal, although many people
may consider the act immoral—for example, abortion. Laws may also proclaim an act as
illegal, although many people may consider the act moral—for example, using marijuana to
relieve stress and nausea for people undergoing chemotherapy treatment for cancer.
Laws raise important and complex issues concerning equality, fairness, and justice,
but do not provide a complete guide to ethical behavior. Just because an activity is defined
as legal does not mean that it is ethical (see Figure 1-2). As a result, practitioners in many
professions subscribe to a code of ethics that states the principles and core values that are
essential to their work and, therefore, govern their behavior. The code can become a reference point for helping an individual determine what is legal and what is ethical; however, an individual will also be guided by his or her set of morals.

Ethical

Ethical
and
legal

Ethical
and
illegal

Illegal

Legal
Unethical
and
legal

Unethical
and
illegal

Unethical
FIGURE 1-2

Legal versus ethical

CRITICAL THINKING EXERCISE: LEGAL VERSUS
ETHICAL
Give an example of an action that fits in each of the four quadrants of the legal versus
ethical chart shown in Figure 1-2—ethical and legal, ethical and illegal, unethical and
illegal, and unethical and legal.

Chapter 1

The remainder of this chapter provides an introduction to ethics in the business
world. It discusses the importance of ethics in business, outlines what businesses can do
to improve their ethics, advises on creating an ethical work environment, and suggests a
model for ethical decision making. The chapter concludes with a discussion of ethics
as it relates to information technology (IT).

ETHICS IN THE BUSINESS WORLD
Ethics has risen to the top of the business agenda because the risks associated with inappropriate behavior have increased, both in their likelihood and in their potential negative
impact. We have seen the collapse and/or bailout of financial institutions such as Bank of
America, CitiGroup, Countrywide Financial, Fannie Mae, Freddie Mac, Lehman Brothers,
and American International Group (AIG) due to unwise and/or unethical decision making
regarding the approval of mortgages, loans, and lines of credit to unqualified individuals
and organizations. We have also witnessed numerous corporate officers and senior managers sentenced to prison terms for their unethical behavior, including former investment
broker Bernard Madoff, who bilked his clients out of an estimated $65 billion, and Stewart
Parnell, former CEO of Peanut Corporation of America, who was sentenced to 28 years in
prison for knowingly shipping contaminated food product, resulting in a salmonella outbreak that killed nine people and sickened more than 700.6,7 Clearly, unethical behavior
in the business world can lead to serious negative consequences for both organizations
and individuals.
Several trends have increased the likelihood of unethical behavior. First, for many
organizations, greater globalization has created a much more complex work environment
that spans diverse cultures and societies, making it more difficult to apply principles
and codes of ethics consistently. Numerous U.S. companies have moved operations to
developing countries, where employees or contractors work in conditions that would not
be acceptable in the most developed parts of the world. For example, it was reported in
2016 that employees of the Pegatron factory in China, where the Apple iPhone is produced, are often forced to work excessive amounts of overtime—up to 90 overtime hours
per month—while their overall wages have been cut from $1.85 to $1.60 per hour.8
Second, in today’s challenging and uncertain economic climate, many organizations
are finding it more difficult to maintain revenue and profits. Some organizations are sorely
tempted to resort to unethical behavior to maintain profits. Tesco, Britain’s largest supermarket chain, admitted its first half-year of profits for 2013 were overstated by $400 million.9 Fiat Chrysler Automobiles admitted its U.S. auto sales were overstated by hundreds
of cars each month starting as far back as 2011.10
Employees, shareholders, and regulatory agencies are increasingly sensitive to violations of accounting standards, failures to disclose substantial changes in business conditions, nonconformance with required health and safety practices, and production of
unsafe or substandard products. Such heightened vigilance raises the risk of financial loss
for businesses that do not foster ethical practices or that run afoul of required standards.
There is also a risk of criminal and civil lawsuits resulting in fines and/or incarceration
for individuals.
A classic example of the many risks associated with unethical decision making
can be found in the Enron accounting scandal. In 2000, Enron—a Texas-based energy
An Overview of Ethics

company—employed over 22,000 people, and it reported an annual revenue of
$101 billion. However, in 2001, it was revealed that much of Enron’s revenue was the
result of deals with limited partnerships, which it controlled. In addition, as a result of
actions taken contrary to generally accepted accounting practices (GAAP), many of
Enron’s debts and losses were not reported in its financial statements. As the accounting
scandal unfolded, Enron shares dropped from $90 per share to less than $1 per share, and
the company was forced to file for bankruptcy.11 The Enron case was notorious, but many
other corporate scandals have occurred in spite of safeguards enacted as a result of the
Enron debacle. Here are just a few examples of lapses in business ethics by employees in
IT organizations:

•

Volkswagen has admitted that 11 million of its vehicles were equipped with
software that was used to cheat on emissions tests. The company is now
contending with the fallout.
Toshiba, the Japanese industrial giant whose diversified products and services include information technology and communications equipment and
systems, disclosed that it overstated its earnings over a seven-year period by
more than $1.2 billion.
Amazon has the second highest employee turnover rate of companies in the
Fortune 500 and has been criticized by some for creating a high pressure
work environment in which bosses’ expectations were almost impossible to
satisfy and jobs were threatened if illness or other personal issues encroached
on work.12

It is not unusual for powerful, highly successful individuals to fail to act in morally
appropriate ways, as these examples illustrate. Such people are often aggressive in striving
for what they want and are used to having privileged access to information, people, and
other resources. Furthermore, their success often inflates their belief that they have the
ability and the right to manipulate the outcome of any situation. The moral corruption of
people in power, which is often facilitated by a tendency for people to look the other way
when their leaders act inappropriately has been given the name Bathsheba syndrome—a
reference to the biblical story of King David, who became corrupted by his power and
success.13 According to the story, David became obsessed with Bathsheba, the wife of one
of his generals, and eventually ordered her husband on a mission of certain death so that
he could marry Bathsheba.
Even lower-level employees and ordinary individuals can find themselves in the
middle of ethical dilemmas, as these examples illustrate:
•

Edward Snowden, working as a Dell contractor at the National Security
Agency (NSA), copied thousands of classified and unclassified documents that
revealed details about the capabilities and scope of operations of the NSA and
other foreign intelligence agencies. The documents were then handed over
to reporters who published many of the disclosures in the Guardian and
Washington Post newspapers. Snowden felt he acted as a patriot in exposing
the behavior of the NSA, which he thought was overreaching and counter to
the U.S. Constitution. Some consider him a whistle-blower and a hero, while
others see him as a traitor.

Chapter 1

•

Mark Lillie, a former Takata Corporation engineer, warned the company of
the potential deadly consequences of using the propellant ammonium nitrate
to inflate its airbags. The use of ammonium nitrate enabled Takata to earn a
greater profit than other designs, however, it also resulted in devices that can
deploy with too much force, causing them to rupture and shoot metal fragments at motorists. Unfortunately, Lillie was unable to convince management
at Takata to choose an alternative design. He eventually left the firm in disagreement over this fatal manufacturing decision. In the United States, at
least 10 deaths and more than 100 injuries have been attributed to the
flawed devices, and over 100 million cars with Takata inflators have been
recalled worldwide.14,15

This is just a small sample of the incidents that have led to an increased focus on
business ethics within many IT organizations. Table 1-1 identifies the most commonly
observed types of misconduct in the workplace.

TABLE 1-1

Most common forms of employee misconduct

Type of employee misconduct

Percentage of surveyed employees
observing this behavior in the workplace

Misuse of company time

Abusive behavior

Lying to employees

Company resource abuse

Violating company Internet use policies

Discrimination

Conflicts of interest

Inappropriate social networking

Health or safety violations

Lying to outside stakeholders

Stealing

Falsifying time reports or hours worked

Source: Ethics Resource Center, “2011 National Business Ethics Survey: Workplace Ethics in Transition,”
© 2011,
Transition.pdf.

According to the 2013 National Business Ethics Survey, it is managers—those
expected to act as role models and enforce discipline—who are responsible for 60 percent
of workplace misconduct, as shown in Figure 1-3.16

An Overview of Ethics

First-Line
manager
17%
Non-managers
40%

Middle manager
19%

Senior manager
24%

FIGURE 1-3

Who is responsible for instances of misconduct

Source: Ethics Resource Center, “2011 National Business Ethics Survey: Workplace Ethics in Transition,“ ©2011,
.amazonaws.com/berkley-center/120101NationalBusinessEthicsSurvey2011WorkplaceEthicsinTransition.pdf.

CRITICAL THINKING EXERCISE: CUT TESTING
SHORT
You are a new hire at a large software firm and have been working overtime for the last
two months trying to complete the final testing of a new software release for the firm’s
flagship product, which is used by thousands of organizations worldwide. Unfortunately,
the software has many bugs and testing has taken weeks longer than expected. This
afternoon your boss stopped by and asked you to “sign off” on the completion of your
portion of the testing. He explains that the project has gone over budget and is in danger
of missing the committed release date for customers. When you object because you feel
the software is still buggy, he says not to worry, whatever bugs remain will be fixed in the
next release of the software. What do you do?

CORPORATE SOCIAL RESPONSIBILITY
Corporate social responsibility (CSR) is the concept that an organization should act ethically by taking responsibility for the impact of its actions on its shareholders, consumers,
employees, community, environment, and suppliers (see Figure 1-4). An organization’s
approach to CSR can encompass a wide variety of tactics—from donating a portion of net
profit to charity to implementing more sustainable business operations or encouraging
employee education through tuition reimbursement. Setting CSR goals encourages an
organization to achieve higher moral and ethical standards.

Chapter 1

Shareholders

Suppliers

Consumers

Corporate
social
responsibility

Environment

Employees

Community

FIGURE 1-4

An organization’s program CSR affects its shareholders, consumers, employees,
community, environment, and suppliers

Supply chain sustainability is a component of CSR that focuses on developing and
maintaining a supply chain that meets the needs of the present without compromising the
ability of future generations to meet their needs. Supply chain sustainability takes into
account issues such as fair labor practices, energy and resource conservation, human
rights, and community responsibility. Many IT equipment manufacturers have made supply chain sustainability a priority, in part, because they must adhere to various European
Union directives and regulations—including the Restriction of Hazardous Substances
Directive, the Waste Electrical and Electronic Equipment Directive, and the Registration,
Evaluation, Authorization, and Restriction of Chemicals (REACH) Regulation—to be permitted to sell their products in the European Union countries. In many cases, meeting
supply chain sustainability goals can also lead to lower costs. For example, in fiscal year
2015, Dell launched its closed-loop plastics supply chain and by year end had recycled
2.2 million pounds of those plastics back into new Dell products. In addition, its global
takeback program has made Dell the world’s largest technology recycler, collecting more
than 1.4 billion pounds of e-waste since 2007.17
Each organization must decide if CSR is a priority and, if so, what its specific CSR goals
are. The pursuit of some CSR goals can lead to increased profits, making it easy for senior
company management and stakeholders to support the organization’s goals in this arena.
However, if striving to meet a specific CSR goal leads to a decrease in profits, senior

An Overview of Ethics

management may be challenged to modify or drop that CSR goal entirely. For example,
most U.S. auto manufacturers have introduced models that run on clean, renewable electric
power as part of a corporate responsibility goal of helping to end U.S. dependence on oil.
However, Americans have been slow to embrace electric cars, and many manufacturers
have had to offer low-interest financing, cash discounts, sales bonuses, and subsidized leases
to get the autos off the sales floor. Manufacturers and dealers are struggling to increase
profits on the sale of these electric cars, and senior management at the automakers must
consider how long they can continue with their current strategies.
Many organizations define a wide range of corporate responsibility areas that are important to them, their customers, and their community. In order for a CSR program to be effective, a senior executive should be placed in charge of corporate responsibility results for each
area, with strategic initiatives defined, staffed, and well-funded. Key indicators of progress in
these areas should be defined and the results tracked and reported to measure progress.
Table 1-2 shows a summary of the 2015 corporate responsibility report for Intel. An
example of one strategic initiative at Intel is its diversity and inclusion initiative launched
in early 2015 whose goal is to achieve full representation of women and underrepresented
minorities in Intel’s workforce by 2020.

TABLE 1-2

Intel Corporate Responsibility Report for 2015

Key performance area

Key performance indicator

2015 value

Financial results and
economic impact

Net revenue
Net income
Provision for taxes
Research and development spending
Capital investments
Customer survey “Delighted” score

$55.4B
$11.4B
$2.8B
$12.1B
$7.3B
87%

Environmental
sustainability

Greenhouse gas emissions (millions of metric tons of CO2)
Energy usage (billions of kWh)
Total water withdrawn (billions of gallons)
Hazardous waste generated (thousands of tons)/% to landfill
Nonhazardous waste generated (thousands of tons)/%
recycled

2.00
6.4
9.0
61.6/2
80.8/82

Our people

Employees at year end (thousands)
Women in global workforce (percent)
Women on our board of directors at year-end (percent)
Investment in training (millions of dollars)
Safety (recordable rate/days away case rate)
Organizational Health Survey scores—“Proud to Work for Intel”

107.3
25%
18%
$278
0.58/0.11
84% (2014)

Social impact

Employee volunteerism rate
Worldwide charitable giving (dollars in millions)
Charitable giving as a percentage of pre-tax net income

41%
$90.3
0.6%

Supply chain
responsibility

Supplier audits (third-party and Intel-led audits)

121

Source: “2015 Corporate Responsibility Report,” Intel, accessed August 10, 2016.

Chapter 1

CRITICAL THINKING EXERCISE: ORACLE CSR
PROGRAM

Oracle Corporation, a multinational computer technology company with headquarters in
Redwood City, California, offers a comprehensive and fully integrated set of cloud applications, platform services, and engineered systems. Oracle has 132,000 employees and
more than 420,000 customers, and its software is deployed in more than 145 countries.
For fiscal year 2016, the company’s total revenue was $37.0 billion, with net income of
$8.9 billion. Oracle has set corporate social responsibility goals in the areas of sustainability, education, giving, and volunteering. Develop two goals for each of these areas that
you feel would be reasonable for Oracle to achieve. Download the 2016 Oracle Corporate
Citizenship Report at After
reviewing the report, comment on the difference between the goals you identified and
Oracle’s actual programs.

WHY FOSTERING CORPORATE SOCIAL
RESPONSIBILITY AND GOOD BUSINESS
ETHICS IS IMPORTANT?
Organizations have at least five good reasons to pursue CSR goals and to promote a
work environment in which employees are encouraged to act ethically when making
business decisions:
•
•
•
•
•

Gaining the goodwill of the community
Creating an organization that operates consistently
Fostering good business practices
Protecting the organization and its employees from legal action
Avoiding unfavorable publicity

Gaining the Goodwill of the Community
Although organizations exist primarily to earn profits or provide services to
customers, they also have some fundamental responsibilities to society. As discussed
in the previous section, companies often declare these responsibilities in specific
CSR goals.
All successful organizations, including technology firms, recognize that they must
attract and maintain loyal customers. Philanthropy is one way in which an organization
can demonstrate its values in action and make a positive connection with its stakeholders.
(A stakeholder is someone who stands to gain or lose, depending on how a particular situation is resolved.) As a result, many organizations initiate or support socially responsible
activities, which may include making contributions to charitable organizations and nonprofit institutions, providing benefits for employees in excess of any legal requirements,
and devoting organizational resources to initiatives that are more socially desirable than

An Overview of Ethics

profitable. Here are a few examples of some of the CSR activities supported by major
IT organizations:

•

•
•

•

Dell Inc. has several initiatives aimed at reducing the amount of natural
resources it takes to create and ship its products, cutting the amount of
energy it takes its customers to use its products, and curbing the effects its
products have on people and the planet.18
Google agreed to invest more than $1.5 billion in renewable energy projects,
such as large-scale wind farms and rooftop solar panels.19
IBM created a program to train transitioning service members to become
certified as advanced data analysts. The company also launched the P-TECH
program to help students from low-income families finish high school and
obtain associate degrees. Several graduates of the program have taken entrylevel jobs at IBM while continuing to work toward a four-year degree.20
Microsoft made $922 million in technology donations to more than 120,000
nonprofit organizations globally, and its employees contributed $117 million
to 20,000 nonprofits through the company’s corporate giving program.21
Oracle delivered nearly $5 billion in resources (with a focus on computer
science education) to help 2.2 million students in 100 countries become
college-and-career ready.22
SAP pledged over $1 billion toward immediate relief efforts, long-term education, and integration projects to assist refugees, and it initiated a program to
provide internship opportunities for more than 100 refugees as well as
humanitarian assistance.23

The goodwill that CSR activities generate can make it easier for corporations to
conduct their business. For example, a company known for treating its employees well
will find it easier to compete for the top job candidates. On the other hand, businesses
that are not socially responsible run the risk of alienating their customer base. A recent
study of more than 10,000 shoppers in 10 different countries revealed that more than
90 percent are likely to switch to brands that support a socially responsible cause,
given similar price and quality. In addition, 90 percent of the shoppers surveyed would
boycott a company if they learned that the firm engaged in socially irresponsible
business practices. Indeed, 55 percent of the respondents had already done so in the
previous year.24

Creating an Organization That Operates Consistently
Organizations develop and abide by values to create an organizational culture and
to define a consistent approach for dealing with the needs of their stakeholders—
shareholders, employees, customers, suppliers, and the community. Such a consistency
ensures that employees know what is expected of them and can employ the organization’s
values to help them in their decision making. Consistency also means that shareholders,
customers, suppliers, and the community know what they can expect of the
organization—that it will behave in the future much as it has in the past. It is especially
important for multinational or global organizations to present a consistent face to their
shareholders, customers, and suppliers, no matter where those stakeholders live or

Chapter 1

operate their business. Although each company’s value system is different, many share the
following values:
•
•
•
•
•
•

Operate with honesty and integrity, staying true to organizational principles
Operate according to standards of ethical conduct, in words and action
Treat colleagues, customers, and consumers with respect
Strive to be the best at what matters most to the organization
Value diversity
Make decisions based on facts and principles

Fostering Good Business Practices
In many cases, good ethics can mean good business and improved profits. Companies that
produce safe and effective products avoid costly recalls and lawsuits. (The recall of the weight
loss drug Fen-Phen cost its maker, Wyeth-Ayerst Laboratories, almost $14 billion in awards to
victims, many of whom developed serious health problems as a result of taking the drug.25)
Companies that provide excellent service retain their customers instead of losing them to
competitors. Companies that develop and maintain strong employee relations enjoy lower
turnover rates and better employee morale. Suppliers and other business partners often place
a priority on working with companies that operate in a fair and ethical manner. All these
factors tend to increase revenue and profits while decreasing expenses. As a result, ethical
companies tend to be more profitable over the long term than unethical companies.
On the other hand, bad ethics can lead to bad business results. Bad ethics can have a
negative impact on employees, many of whom may develop negative attitudes if they perceive a difference between their own values and those stated or implied by an organization’s actions. In such an environment, employees may suppress their tendency to act in a
manner that seems ethical to them and instead act in a manner that will protect them
against anticipated punishment. When such a discrepancy between employee and organizational ethics occurs, it destroys employee commitment to organizational goals and
objectives, creates low morale, fosters poor performance, erodes employee involvement in
organizational improvement initiatives, and builds indifference to the organization’s needs.

Protecting the Organization and Its Employees from Legal Action
In a 1909 ruling (United States v. New York Central & Hudson River Railroad Co.), the
U.S. Supreme Court established that an employer can be held responsible for the acts of
its employees even if the employees act in a manner contrary to corporate policy and
their employer’s directions.26 The principle established is called respondeat superior, or
“let the master answer.”
When it was uncovered that employees of Wells Fargo Bank opened over 2 million
bogus credit card accounts not authorized by its customers, the bank was fined over
$185 million and ordered to pay customers full restitution for any fees or charges they
may have incurred. The practice began at least as early as 2011 and was an attempt by
thousands of bank employees to achieve their sales targets for cross-selling and be
rewarded with higher sales bonuses.27 Cross-selling is the practice of selling multiple products to the existing customers—savings account, checking account, auto loan, mortgage,
credit card, etc. Cross-selling to existing customers is cheaper than locating and selling to
brand new customers. It also tends to lock existing customers into your bank.
An Overview of Ethics

A coalition of several legal organizations, including the Association of Corporate
Counsel, the U.S. Chamber of Commerce, the National Association of Manufacturers, the
National Association of Criminal Defense Lawyers, and the New York State Association of
Criminal Defense Lawyers, argues that organizations should “be able to escape criminal
liability if they have acted as responsible corporate citizens, making strong efforts to
prevent and detect misconduct in the workplace.”28 One way to do this is to establish
effective ethics and compliance programs. However, some people argue that officers of
companies should not be given light sentences if their ethics programs fail to deter
criminal activity within their firms.

Avoiding Unfavorable Publicity
The public reputation of a company strongly influences the value of its stock, how consumers regard its products and services, the degree of oversight it receives from government
agencies, and the amount of support and cooperation it receives from its business partners. Thus, many organizations are motivated to build a strong ethics program to avoid
negative publicity. If an organization is perceived as operating ethically, customers, business partners, shareholders, consumer advocates, financial institutions, and regulatory
bodies will usually regard it more favorably.
Prominent ad buyers and marketers are angry with Facebook after finding out that the
world’s largest online social network service greatly exaggerated the average viewing time of
video ads on its platform. This is a key metric used by advertisers in deciding how much to spend
on Facebook video versus other video services such as YouTube, Twitter, and TV networks. It
turns out that Facebook was not including views of three seconds or less in calculating its average view time, resulting in overestimating viewing time by 60 to 80 percent.29 Some advertising
industry analysts believe that the new viewing time results and bad publicity associated with the
incident will be impactful in the future placement of tens of billions of advertising dollars.

CRITICAL THINKING EXERCISE: REGULATING
CSR SPENDING
Section 135 of the India Companies Act of 2013 requires companies with net worth,
revenue, or net profit above certain established thresholds to spend at least 2 percent of
their average net profit of the preceding three years on CSR activities. The act has had a
major impact in increasing spending on CSR activities in India. Four of the country’s top
IT service firms—Tata Consultancy Services Ltd., Wipro Ltd, Infosys Ltd., and Tech
Mahindra Ltd.—spent about $96 million on CSR activities within India during the first
year this rule was in effect. That is 4.7 times the amount they spent on CSR initiatives
the previous year, when the rule was not yet in effect. Collectively, these four firms
generate over $35 billion in annual revenue.
The companies’ CSR activities include efforts to eradicate hunger, poverty, and
disease; promote education, gender equality, and women’s empowerment; reduce child
mortality; improve healthcare and sanitation; and provide safe drinking water.30
Does mandated CSR spending by all organizations within a particular country or
market reduce the benefits an individual organization can expect to gain from its CSR
programs? Do you think the United States should pass a law similar to Section 135 of the
India Companies Act? Why or why not? If so, should the amount required for CSR
spending be higher than two percent of average net profit?
Chapter 1

HOW ORGANIZATIONS CAN IMPROVE
THEIR ETHICS

Research by the Ethics Resource Center (ERC) found that 86 percent of the employees in
companies with a well-implemented ethics and compliance program are likely to perceive
a strong ethical culture within the company, while less than 25 percent of employees in
companies with little to no program are likely to perceive a culture that promotes integrity in the workplace. A well-implemented ethics and compliance program and a strong
ethical culture can, in turn, lead to less pressure on employees to misbehave and a
decrease in observed misconduct. It also creates an environment in which employees are
more comfortable reporting instances of misconduct, partly because there is less fear of
potential retaliation by management against reporters (for example, reduced hours, transfer to less desirable jobs, and delays in promotions). See Figure 1-5.31
Driver 1
Well-implemented
program
Driver 2
Strong ethical
culture
Outcomes

Reduced
pressure for
misconduct

Decrease in
observed
misconduct

Increased
reporting of
misconduct

Reduced
retaliation for
reporting

Goal
Reduced ethics
risk
FIGURE 1-5

Reducing the risk of unethical behavior

Source: Ethics Resource Center, “2011 National Business Ethics Survey: Workplace Ethics in Transition,” © 2011,
.amazonaws.com/berkley-center/120101NationalBusinessEthicsSurvey2011WorkplaceEthicsinTransition.pdf.

The Ethics Resource Center has defined the following characteristics of a successful
ethics program:
•
•

Employees are willing to seek advice about ethics-related issues.
Employees feel prepared to handle situations that could lead to misconduct.
An Overview of Ethics

•
•

•

Employees are rewarded for ethical behavior.
The organization does not reward success obtained through questionable
means.
Employees feel positively about their company.

The 2013 National Business Ethics Survey found evidence of continuing improvement
in ethics in the workplace, as summarized in Table 1-3. The survey results indicate that
fewer employees witnessed misconduct on the job, but when they did, they were more
willing to report it. They also show that there is a decrease in the percentage of employees
who felt pressure to commit an unethical act and who feel their organization has a weak
ethics culture.
In addition to reporting on some positive trends in workplace ethics, however, the
TABLE 1-3

Conclusions from the 2013 National Business Ethics Survey
2007 Survey
results

2009 Survey
results

2011 Survey
results

2013 Survey
results

Percentage of employees who said
they witnessed a violation of the law
or ethics standards on the job

Percentage of employees who said
they reported misconduct when they
saw it

Percentage of employees who felt
pressure to commit an ethics
violation

Percentage of employees who say
their business has a weak ethics
culture

Finding

Source: Ethics and Compliance Initiative, “National Business Ethics Survey 2013,” www.ethics.org/eci/
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