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Instructor’s Manual, Chapter 4
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Business & Professional
Ethics for Directors,
Executives & Accountants, 5e,
Leonard J. Brooks and Paul Dunn
South-Western, Cengage Learning, Mason Ohio, 2010

Instructor’s Manual
Chapter 4

Practical Ethical Decision Making

Learning objectives ………………………………………………………2
Possible teaching approaches, using cases and readings…………………2
Answers to questions for discussion…………………………………….. 3
Case Notes………………………………………………………………..8
Multiple Choice Questions………………………………………………29
PowerPoints are in a separate file at www.cengage.com/accounting/brooks

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

Instructor’s Manual, Chapter 4
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COMMENTS ON CHAPTER 4:
APPROACHES TO ETHICAL DECISION MAKING
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Learning objectives
There are many problems which executives and professional accountants will face which will not
be covered explicitly in their company’s code, or in their profession’s code. Moreover, the
principles provided in those codes may not be helpful in protecting stakeholder interests or may
not lead to a comprehensively ethical decision. As a result, many problems will need to be
subjected to further analysis and data gathering for the most ethical solution to emerge. What to
consider, and how to put the data together to generate an ethical decision – and hopefully the
most ethical decision - is the purpose of Chapter 4. In particular, important points of learning
include:
a.
b.
c.
d.
e.
f.

why traditional philosophical approaches to ethical decision making are so useful,
why ethical actions need to take stakeholder interests into account,
what the fundamental interests of stakeholders are,
how to assess the impact of proposed actions on these interests,
how to make these assessments comprehensive,
how to use the approaches outlined and moral imagination to improve unethical
decisions, and
g. how to deal with problems of the commons.
Possible teaching approaches, using cases and readings
My PowerPoints are available on my website at www.cengage.com/accounting/brooks. They
will show the order that I use to develop the material in this chapter. Usually, I begin with a
simple case like Kardell Paper Co. or Ford/ Firestone Tire Recall or Betaseron to illustrate the
traditional philosophical approaches and the Modified 5-Question Approach to stakeholder
impact analysis, and follow on with a discussion of the chapter material. In the second class, I
deal with the Pinto Case and the Moral Standards and Pastin's approaches to stakeholder impact
analysis. The Vioxx Decisions case is a good one for the students to work with as an assignment.
The Kardell Paper Co. Case provides a good platform for introducing the concepts of
philosophical and stakeholder analysis. The stakeholders are easy to identify - for the most part and the class usually forgets to consider the unborn infants. The discussion of the harm to the
unborn tends to accentuate the need for proper stakeholder analysis so that all issues will be
included in the decision framework. The issue of proper treatment of the unborn also
underscores the need to rank the stakeholders as to their ability to withstand the impacts of the
proposed decision. The issue of whether to accord the environment a status on its own, or just
according to society's present needs is also a topic which gets the class involved.
Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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This case seems to fit the philosophical and the Modified 5-Question Approach quite well, but
leads easily to a discussion of the need to expand the approach to include cost-benefit analysis
instead of just profit, and social contract ethics to judge fairness.
Students also like the way this case exposes poorly constructed Boards of Directors, and the
related discussion of "due diligence" procedures which hooks back into the environmental
material in this and earlier chapters.
The prospect of whistle blowing is one I usually close with. In fact, that's what happened, and it
stresses the need to consider the potential whistleblowers as stakeholders right up front.
In a second session, I lead off with the Ford Pinto Case which illustrates how much our
perception of the value of life and health have changed, and how a properly crafted cost-benefit
analysis is need to keep corporations out of trouble. The need to bring future impacts into the
analysis is also critical and this case shows how this may be done. For the traditional bottomline manager, showing the short-term profit impacts and the longer-term impacts on others will
be revealing. No intelligent executive should be without this information and no decision based
solely on short-term profit is likely to be considered reasonable in the future. Future costs to
others are likely to impact upon the company's profits sometime, so including them in the
decision framework presents a complete picture.
Students may have heard of cost-benefit analysis before, and may think it to be too subjective to
be worthwhile. I can usually overcome this by illustrating with a few examples from the health
area (like the costs of an illness caused by work which results in time off, medical treatment,
drugs and hospital time). Also I observe that it is usually better to make decisions based on data
which is generally correct than precisely wrong.
From the Pinto Case it is relatively easy to extend to the Modified Moral Standards and
Modified Pastin's Approaches to ethical decision making. There is an overlap, but also some
add-ons. I stress the desirability of adding on what the decision calls for - what techniques are
needed to cover all the bases. This leads to a discussion of when one method is more applicable
than another. You will find that your class members will gravitate to one approach or another
depending on their personal preferences.
When combining the approaches, it is absolutely essential is that no approach to ethical decision
making is likely to be complete unless all four of the fundamental principles are present: welloffness, fairness, rights and virtues expected. You will find that your students often forget to
include all four when they are analyzing a problem and need to be reminded. Figure 4.5 presents
a useful overview of a sound iterative, comprehensive, ethical decision making process.
In addition, you should work with a short problem - perhaps one assigned as a hand-in - to show
the students how a solution can be improved on an iterative basis, with each iteration being
viewed as a new stakeholder impact analysis.

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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The chapter now has four illustrations of comprehensive ethical decision making that provide
very useful application guides related to: iPhone pricing policy, bribery and moral imagination
in China, aggressive accounting, and assessing proposed audit adjustments.
The Illustrative Case Application of Stakeholder Impact Analysis focuses on the Audit
Adjustment? Case and is offered in order to expose readers to the analytical approach I would
use on such matters. I would suggest that accounting students be directed to consider this
illustrative example carefully and be ready to respond or pose questions on it in class. A full
analysis is not possible on every dimension due to the lack of information, but indications are
given as to what information ought to be sought and what to do with it. In fact, the ranking of
stakeholders to give affect to their ability to withstand the impact of the proposed adjustment is
quite interesting, and goes beyond the levels suggested in the chapter.
The readings by Brooks (cost-benefit analysis) and Tucker (5-question approach) are specific to
the sessions and are assigned to add background understanding.
You will find that this sequence is very well received by your students who will consider the
prospect of using the suggested approaches far more realistic after, than before. Invariably, the
students begin to use them in other classes like finance, marketing and strategy. So be prepared
for your colleagues to drop in and see you for background material.
Do not overlook the important material on developing a more ethical action (moral imagination);
common ethical decision making pitfalls; and illustrations of the ethical decision making
approaches to topics of great interest to students and practitioners: When does aggressive
accounting become fraudulent? …and Bribery or Opportunity. I also regard the Smokers are
Good… Case as one that will excite some controversy. The ethics audit questionnaire is
provided to give a glimpse of what is in the future of the profession as assurance work broadens.
Answers to questions for discussion
1.

Why should directors, executives, and accountants understand consequentialism,
deontology, and virtue ethics?
Directors, executives and accountants frequently encounter problems requiring
decisions where the right action is not covered in law or a company’s code, or
where the code is being created or re-examined. In those instances, the traditional
philosophical approaches to ethical decision making can raise issues for
consideration and provide guidance for ethical decisions. Understanding why the
consequences of an act are importance, and how to assess them with regard to
expectations of duty, observance of rights and fairness, and of virtues to be
demonstrated, can provide important insights. In the future, decisions will be
increasingly scrutinized for their ethicality as well as their legality and
profitability, and must be, and be seen to be defensible according to traditional
considerations.

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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2.

Prior to the recent financial scandals and governance reforms, few corporate leaders were
selected for their “virtues” other than their ability to make profits. Has this changed, and
if so, why?
Yes. With the recent revision and stiffening of governance requirements, directors
are now expected to select and monitor senior executives (CEO and CFO at least)
based in part on their ethicality as evidenced by their contribution of a wholesome
“tone at the top”. Without proactive ethical leadership, a company’s ethics
program (see Figures 5.7, 5.8 and 5.9) will not succeed.

3.

Is it wise for a decision maker to take into account more than profit when making
decisions that have a significant social impact? Why?
Yes. An organization needs the support of its primary stakeholders to attain its
strategic objectives in the long run. It cannot afford to ignore the interests of
these stakeholders and those that they are influenced by. Profit is usually a shortterm concept that needs to be stretched into a multi-period framework by
considering more than just the next buck.

4.

If a framework for ethical decision making is to be employed, why is it essential to
incorporate all four considerations of well-offness, fairness, individual rights and duties,
and virtues expected?
It is possible for a set of stakeholders to be better off as a whole, but the proposed
action may be grossly unfair to one group (say, the children involved) or may
offend the rights of one or more groups (say, women or men) to a degree that may
cause the decision to be considered unethical. Moreover, failure to consider
expected duties and virtues will damage the corporation’s credibility and
reputation, thereby weakening the support of various stakeholder groups and the
organization’s ability to reach its strategic objectives.

5.

Is the modified 5-question approach to ethical decision making superior to the modified
moral standards or modified Pastin approach?
Not really. The superior approach for a specific problem depends on the nature of
the impacts involved. If future impacts of a subjective nature are involved, then
cost-benefit analysis should be employed. If the ground rules of a company are
expected to influence the implementation of a decision, then they should be
canvassed. If a commons is at stake, then employing that concept may help the
executives involved to analyze the proposed actions ethically. A particular
executive’s preference or style may also have to be taken into account. The
circumstances will dictate the approach which is most attractive/suitable.

6.

Under what circumstances would it be best to use each of the following frameworks: the
philosophical set of consequentialism, deontology, and virtue ethics; the modified 5question; the modified moral standards; and the modified Pastin approach?
The traditional philosophical approaches - consequentialism, deontology, and
virtue ethics – are time-honored approaches that have been refined into the
modified 5-question; the modified Moral Standards; and the modified Pastin
Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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approaches for convenient decision making in those instances noted below. The
philosophical approaches, taken as a set, can be applied to any problem rather
than a specific sub-set, and they would be superior where there are strong
expectations for the demonstration of duty and of virtues in the solution.
Given what has been said in response to the last question, the modified 5-question
approach seems best suited to short-term, profit-oriented problems that confront
the law and impact the environment or require a tailored specific 5th question.
The modified moral standards approach is suited to people-related or futureoriented problems where externalities are present that are not captured in the
profit measure. Modified Pastin's approach suits problems internal to an
organization. Each approach/or part thereof can be used on almost all problems.
7.

How would you convince a CEO not to treat the environment as a cost-free commons?
Depending on the person involved, they may be responsive to: altruism, the
avoidance of big fines (corporate & personal) or jail; or to arguments that underpricing the use of the environment can lead to resource allocations which will
look foolish in a few years because the cost structures will change, or that
opportunities for opening up new markets or competitive advantages will be lost,
or that whistle-blowing or activist groups will make things uncomfortable, etc. I
would show the CEO what a cost-benefit or risk benefit analysis would look like
that would bring such factors into the decision computation. The decision would
be up to the CEO, but at least all the factors would be on the table, not hidden or
forgotten.

8.

How can a decision to down-size be made as ethical as possible - by treating everyone
equally?
No. Equal treatment (laying off by seniority or age or?) may not be fair to those
who can least withstand it. I would advise building in an appeals mechanism to
any downsizing process to allow for such things as serious impacts on autistic
children, or the disabled, who would be displaced, etc. Each case would have to
be subject to the agreement of the unions involved, but I believe this approach
would be received well if broached in advance. Recent studies have developed a
concept of ethical renewal that involves a mechanism for fairly encouraging and
evaluating opportunities to make the organization better. Part of the process
involves developing trust among employees that they will be treated fairly and
will not suffer in the process of continuous improvement.

9.

From a virtue ethics perspective, why would it be logical to put in place a manufacturing
process beyond legal requirements?
Definitely. A manufacturing process that protected the environment or the
workers involved would engender the support of key stakeholder groups such as
environmentalists and workers, leading to cooperative government and media
relations and the higher commitment of current employees to do their best, and
future employees to join. Reputational factors are definitely sensitive to the
Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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demonstration of expected virtues.
10.

List the companies that have faced ethical tragedies due the following failings in their
ethical culture:
a. Lack of ethical leadership: Livent, Enron, WorldCom, Tyco, Adelphia, Siemens,
Parmalat, Goldman Sachs, Hollinger/Ravelston
b. Lack of clarity about important values: Arthur Andersen, KPMG, E & Y
(aggressive tax shelters), Ford, Firestone
c. Lack of ethical awareness and expectations by employees: Dow Corning, MCI
d. Lack of monitoring of ethicality of actions: Barings Bank, Société Générale
e. Unethical reward systems: Sears (auto centers), Banker’s Trust, Royal Ahold,
many brokers
f. Unreasonable pressures for unrealistic performance: MCI, HealthSouth

11.

Give an example of behavior that might be unethical even though ‘‘everyone is doing it’’.





Mechanics telling customers they need new tires before they really do.
Cell phone companies selling warrantee programs on the basis that they provide
for every eventuality, but require sending you phone away for repairs for 3-4
weeks each time, multiple times before they will give you a new phone.
Selling products through unwarranted flattery
Blaming others for your own shortcomings

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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CASE NOTES
CHAPTER 4
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VIOXX DECISIONS – WERE THEY ETHICAL?1
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What this case has to offer
This case offers the opportunity to apply ethical decision making approaches during their
examination of some of the potential ethical issues related to Vioxx’ approval, marketing, and the
decision to leave it on the market, as well as: How did Merck get into the dilemma? Could this
have been prevented if Merck had and followed a stringent Ethical Decision Making (EDM)
process? Did Merck drop the “ethical” ball?
Court cases are being currently being decided which offer a rich opportunity for students to
review the potential liability that can arise from hazardous products, particularly for
manufacturers of pharmaceuticals and other products that can have a significant impact on life or
health. It is interesting to speculate, as the students should, on whether there has been an
overall net benefit to society and to Merck from its action in regard to Vioxx.

Teaching suggestions
There are many examples of the dangers of ignoring evidence of hazardous products or processes
too long (Ford’s Pinto, Firestone tires, Union Carbide Bhopal, and Dow Corning’s silicone breast
implant, to name a few) and Vioxx may be another of these. Students need to understand the
dynamics facing management and directors during these decisions, and to learn from the
mistakes made earlier. Consequently, it is useful to get the students to role play (say 2-3 students
per side) a debate between Merck’s management and the representatives of patients who have
begun a class action. The instructor can ask what the Merck directors would have said about
issues debated when it has concluded. Following the debate, the analysis presented below can be
discussed with the class.
Alternatively, the two questions raised at the end of the case can be taken up using the analysis
presented below.
Discussion of ethical issues:
1. Utilizing the information provided and available from web sources, use the ethical
decision-making techniques discussed in the chapter to form an opinion about whether
Merck’s decisions regarding Vioxx were ethical. Show your analysis.
1

This case is based upon an assignment submitted by Rahbar Rahimpour, one of the author’s Executive MBA
students at the Rotman School of Management. He gave permission for this use.

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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I have reproduced below Rahbar Rahimpour’s instructive analysis of the Vioxx case issues in the
form of a response to Question 1.
Analysis of Some Ethical Issues:
Here we use a hybrid analysis of the Philosophical Approach and the Stakeholder Impact
Analysis to suggest that Merck’s decision to market Vioxx had both quantifiable and nonquantifiable negative impacts on many of the stakeholders of the company. Initially, it appears
that Merck may have neglected to ensure the fundamental interests of its stakeholders.
Identification and prioritization of the stakeholders, and their respective interests (well-offness,
rights, fairness), does not appear to have included patients and their respective families as top
priority. Merck’s decision making process appears to have been less than comprehensiveness.
Tunnel vision profit maximization may have led Merck to making a decision that has negatively
impacted the company for a long time. Merck’s decision to market and its subsequent decision to
withdraw Vioxx negatively affected: 1) Merck’s Stockholders and investors, 2) Merck’s
Management, 3) Merck’s employees, 4) physicians and patients, 5) general public, and 6) the
regulatory agencies (FDA and Health Canada) and others as shown in Exhibit 3. In November
2000, Merck’s own VIGOR studies indicated a significant increase in the risk heart attack and
stroke in patients taking Vioxx, in a 12-month period and as compared to those taking naproxen2.
Despite knowing about these results it took Merck more than two years to withdraw Vioxx from
the market. Were Merck’s decisions intended to benefit or harm any, or all, of the stakeholders?
Are there lessons to be learned from what a seemingly improper decision to rush a drug to
market only to withdraw later?
Consequentialism
Were the consequences of Merck’s decision beneficial to its stakeholders?
Consequentialism view holds that whether an act is morally right depends only on the
consequences of that act or of something related to that act. It is difficult to argue that any of
Merck’s stakeholders are better off and have benefited in the long term. In the short run, Vioxx’
sales helped increase Merck’s revenues, benefited stockholders and management, as well as
benefiting some patients. Through their short term vision, Merck’s management fell into ethical
decision making pitfalls. Had Merck taken Pastin’s approach to re-prioritize its stakeholders and
put patients first, and look at the long term consequences, the results may have been different.
Merck’s decision to keep Vioxx on the market and not to present all scientific date to the FDA
may seem unethical. However, Merck may argue that withholding scientific information from the
regulatory authorities and marketing of Vioxx was based on its commitment to delivering better
“Cardiovascular Events Associated with Rofecoxib in a Colorectal Adenoma Chemoprevention
Trial.” New England Journal of Medicine 352, no. 11 (March 17, 2005):1092-102. Epub
February 15, 2005.
2

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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medicines to patients in need and with no treatment alternative. That is the greater benefit to
patients was the ultimate desired consequence. Merck may also argue that Vioxx had a utilitarian
impact on society and delivered a substantial health benefit to many patients and therefore its
launch and marketing may be morally justified. However, the Company appears to have failed to
minimize the net negative impact and harm to all patients. Merck was successful in delivering a
high value medicine with tremendous utility to patients. But by apparent misrepresentation of
selective data to the FDA it seems to have crossed the moral line.
Furthermore, Merck had ample opportunity to withdraw Vioxx from the market (between 19992004). Merck’s decision to keep Vioxx on the market appears not to have been fair or right for
the stakeholders. Though the legality of Merck’s conduct will be decided in courts, it’s clear that
short term consequences (profits) blinded Merck’s management to many long term moral and
ethical issues.
Deontology
Were Merck’s decisions legal? Were Merck’s decisions fair, just, or right?
Merck’s VIGOR data (1, 2) showed that Vioxx could cause death in some patients. Should
Merck have withdrawn Vioxx from the market sooner that it did? If it is determined that Vioxx
directly contributed to any death, and that Merck knowingly omitted certain data from its
regulatory submissions or Merck held back information that could have prevented deaths,
consequences may be enormous.
Kant might argue that Merck’s omission of information would be deemed unfair, unjust, and
unethical. Merck’s actions suggest that the company did not respect the rights and autonomy of
individual patients. Merck might argue that staying in the market, for as long as they did might
have maximized social benefits. In reality, Merck appears not to have attempted to minimize
social injuries to those who did not benefit from Vioxx by issuing proper warnings about Vioxx.
Pastin might argue that Merck thereby demonstrated a lack of social contract ethics, and hence
was unfair. Transparency and information sharing of risks associated with Vioxx, would have
allowed the physicians and patients to make a rational and informed decision thus respecting the
autonomy of the patient. By Kant’s standards Merck used the patients to achieve an end (profits).
Company profits clearly benefited some of the stakeholders. But many others suffered. Merck
may contend that despite all transpired events the net benefit to society as a whole was worth the
risks. The fact that Vioxx had serious adverse effects might have come into the risk-benefit
analysis at Merck. As a result, some people were expected to develop complications or die.
However, by Kant’s measures, an ethical decision should include the full respect of the
individual’s right to choose, given all the information available. An increased level of
transparency with scientific and clinical data would have had a different outcome. Overall, one
may argue that the non-quantifiable impact of Merck’s decision has had a greater effect on the
Company than those resulting from the drop in its market cap.
Virtue Ethics

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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Did Merck’s decisions demonstrate expected virtues?
As a pharmaceutical company Merck’s reputation and public image had been built over many
years. This reputation entailed implicit virtues of reliability, trustworthiness, compassion, caring,
integrity, kindness, and responsibility. It does not appear that the decision to market Vioxx, or to
stay in the market for much longer than expected, was based on the consideration of any of these
expected virtues. In its attempt to satisfy the interests of a limited number of stakeholders, it
appears that Merck failed to comprehensively examine, and therefore anticipate, all possible
outcomes. Conversely, Merck might argue that its actions were the manifestation of its
compassion for patients in need. However, in the public eye, this argument may not hold. One
alternative option that would have resulted in securing Merck’s integrity might have been for
Merck to be more transparent with the scientific findings and also to present sufficient warnings
to the patients. Though Merck appears to have analyzed the profitability and legality of their
decision, it seems unlikely that the Company had considered its full duty to all stakeholders. Nor
did Merck consider the rights of patients to live without worry.
Summary:
In its decision making process, Merck failed to identify and prioritize all stakeholders, and to
address their respective interests and rights. By marketing Vioxx, not only did Merck appear to
have ignored the basic rights of many of its stakeholders but also to have eroded the virtues
expected from a pharmaceutical company. Merck’s focus on short-term financial gains created an
unhealthy ethical decision making environment. Consequently, its decision on Vioxx failed to
result in sustainable profits in the long run. Merck’s estimated cost of litigation has had a
negative impact on majority of its stakeholders, including: shareholders, management, and
employees.
We found the following text on Merck’s website. “We believe our emphasis on ethics benefits
our business. It motivates our people, and helps to inspire confidence and trust among doctors
who prescribe our medicines as well as regulators who approve them. We care deeply about the
results we achieve–the drugs we discover, our financial performance and our employees’
satisfaction–but we also care about how we achieve those results, both inside and outside the
walls of Merck. No matter how tough the business environment, our ethics and core values will
continue to guide our success.” However, it appears that the company continues to ignore its
most important stakeholder, the patient, as the word “patient” is not mentioned here.
Exhibit 2: Performance of Merck’s stock following withdrawal of Vioxx from the market

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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Exhibit 3: Merck’s stakeholders and their respective relationships

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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______________
In addition to Rahbar Rahimpour’s analysis, the students should appreciate the nature and
structure of the court decisions that are appearing. At this early stage (May 2006), several
decisions have appeared. On April 12, 2006, a jury in New Jersey awarded John McDarby, a 77year-old $4.5 million in compensatory damages and $9 million in punitive damages3 because
“Vioxx had been a significant contributing factor to his heart attack and that Merck failed to
warn adequately of the drug’s risks.”4 Punitive damage awards are capped at 5 times the
compensatory damages in New Jersey. One analyst opined that the legal costs facing Merck
might be “comparable to what Wyeth has faced with its withdrawn “fen-phen” diet drugs. Wyeth
has already taken some $21 billion in charges.”5
It should be noted that the second plaintiff (Tom Cona) in the McDarby case received virtually
no award. As at April 6th Merck had won two trials, and had been found liable in two others.
3

“Merck’s cost in Vioxx case increased to $13.5 million”, by Anna Driver, Toronto Star, April 12, 2006, E6
Ibid.
5
Ibid.
4

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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About 10,000 lawsuits were still to be decided.6
2. In order to protect the public more fully, what should the FDA do given the Vioxx lessons?
The FDA could consider:





Requiring immediate notification by manufacturers and/or researchers of serious side
effects
Immediate follow-up on such serious side effects
Immediate/very early public advisory about reports of and investigations of serious side
effects
Sanctions for corporations and senior executives that:
o delay in reporting serious side effects
o coerce researchers not to disclose serious side effects or edit or hold back data to
avoid clear disclosure of potential such effects.

Note that, although the case does not speak to the issue of suppressing information on serious
side effects, students will come across articles that allege such behavior.
June 2006

Update/Subsequent Events
Feb. 28, 2008 – In settlement of lawsuits in Federal, California, New Jersey and Texas courts,
Merck obligated to pay $4.85 billion to 44,000 eligible U.S. claimants,
see
http://www.officialvioxxsettlement.com/
For continuous company news releases, see http://www.merck.com/newsroom/vioxx/
For the Martin Report on the Conduct of Senior Management in the Development and Marketing
of Vioxx, see http://www.merck.com/newsroom/vioxx/martin_report.html
Case Updates Summary:
News - 2009: Merck, insurance plans settle Vioxx suits for $80M
News - May 14, 2009: Lawsuit Reveals Merck's Fake Vioxx Journals
6

“Merck stock tumbles after Vioxx verdict”, by Aaron Smith, CNNMoney.com, April 6, 2006, accessed on April 6,
2006. See also “Jury finds Merck didn’t warn of Vioxx heart risks”, John Curran, Associated Press, Toronto Star,
April 6, 2006, p. C7.

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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News - September 26, 2009: By the end of August, Merk has paid out 1.4billion from its
4.85billion settlement fund, and will pay most of the balance of the $4 billion fund to more than
20,000 claimants after Sept. 30
News - October 22, 2009: In 2010 the fight to get Canadians compensation has finally moved to
the next stage with certification finalized and directions for the class action coming now through
the Ontario Court; Merk & Co. lost a bid in the Canadian Supreme Court to put a Vioxx lawsuit
on hold in Ontario, while it won a ruling that prevents another case from moving forward as a
class action in Saskatchewan.
News - Feb, 2010: A lawsuit was filed by shareholders who argue that the company misled them
by downplaying data that suggested Vioxx raised the risk of heart attacks. Shareholders are
believed to have lost a combined $28 billion. Merck agreed to pay just over $12.1 million in
legal fees.
News- March 5, 2010: Merck Loses Australian Vioxx Lawsuit which open a gate for hundreds of
similar lawsuits
News Sources:
Merck, insurance plans settle Vioxx suits for $80M
http://inform.com/crime-and-law/merck-insurance-plans-settle-vioxx-suits-80m-618404a
Copyright 2009 AP Features
Lawsuit Reveals Merck's Fake Vioxx Journals
Posted by Jane Akre
Thursday, May 14, 2009 2:47 PM EST
http://www.injuryboard.com/national-news/lawsuit-reveals-merck39s-fake-vioxx-journals.aspx?
googleid=262948
Merck Paying More Than 3,100 Death Claims in Vioxx Settlement
http://www.bloomberg.com/apps/news?pid=20601110&sid=aGPA3PzDf1Rs
DCISION 2010: Canadian Vioxx Claims
http://www.adrworks.com/?gclid=CJ_W7vLGvaACFQtx5QodIhq1VQ
Canada Supreme Court Refuses Hearing on Vioxx Appeals
http://www.bloomberg.com/apps/news?pid=20601082&sid=a5k5qGMcf26c
By Joe Schneider
Supremes Will Hear Merck Appeal in Vioxx Shareholder Lawsuit
http://blogs.wsj.com/health/2009/05/27/supremes-will-hear-merck-appeal-in-vioxx-shareholderlawsuit/tab/article/
By Jacob Goldstein
News 3-2: Merck Vioxx Lawsuit
Thursday, 11. February 2010
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http://www.legalparamount.com/merck-vioxx-lawsuit/2010/02/
Merck Loses Australian Vioxx Lawsuit
Date Published: Friday, March 5th, 2010
http://www.newsinferno.com/archives/category/class-action-lawsuits
Australian ruling opens floodgates for Vioxx claims
Fri Mar 5, 12:59 AM
http://ca.news.yahoo.com/s/afp/100305/health/health_australia_us_treatment_vioxx

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JUST DO IT – MAKE THE NUMBERS
___________________________________________
What this case has to offer
This mini-case conveys the scenario that has been acted out in countless CFO or CEO offices. It
offers the opportunity to consider – while using an ethical decision making (EDM) framework –
the:
 pressures and motivations that can come to bear on the CEO and CFO,
 techniques that can be used to boost earnings and/or cash flow,
 flawed prospect that manipulations will be self-cancelling when prospects improve,
 consequences of manipulation on all the stakeholders,
 professional accounting stance on manipulations, and why,
 lessons learned from earlier manipulation cases, including: Enron, WorldCom, Waste
Management, Sunbeam, Adelphia, Tyco, Nortel, HealthSouth, Parmalat, & Royal Ahold.
A most interesting aspect of the EDM discussion is the opportunity to reveal the value of adding
deontological and virtue ethics perspectives to the basic consequential or utilitarian framework
that most business folk and accounting professionals naturally use. Clearly the deontological
issues of rights, fairness and justice are important for fiduciary, legal and reputational purposes,
and for professional accountants taking virtue expectations into account is critical. It is not
surprising that some corporations are thought to hire non-accounting professionals (MBAs) as
their CFOs, in order that they will not feel the professional ethical pressures that a CPA or CA or
CMA would.

Teaching suggestions
Although the case can be taken up by the instructor, it would be helpful for a group of students to
present their case solution to the class. The presentation could then be critiqued by other groups
of students who were allocated the roles or issues bulleted above, such as: shareholder and other
stakeholder impacts, possible techniques and the flawed assumption of self-rectification,
professional accounting concerns and expectations, appropriate use of EDM approaches, lessons
learned from earlier cases, and why are deontological and virtue ethics important.
Discussion of ethical issues
Question: What should Ron consider in making his decision?
Ron, the CFO, should employ a full EDM analysis before making his decision – but rarely would
there be enough time or the inclination for this in real life – so using this case in class will
Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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prepare the students for future challenges. This full EDM analysis could be similar in framework
to that used in the Illustrative Application of Stakeholder Analysis of a Proposed Audit
Adjustment included in Chapter 5 of the text. While the stakeholder impact analysis is necessary
and useful to make sure all issues are canvassed, I would suggest that the traditional ethical
approaches not be short-changed.
Here are some thoughts on the bulleted items listed above:








pressures and motivations that can come to bear on the CEO and CFO,
o incentives (greed), fear of losing one’s job, reputation erosion
o its how the game is played – normal business practice (Ken Lay style)
techniques that can be used to boost earnings and/or cash flow,
o capitalize and/or defer expenses, off-balance sheet transactions, misrepresentation
flawed prospect that manipulations will be self-cancelling when prospects improve,
o profits rarely rise as expected,
o inventory and/or other profit boosts do not automatically cancel the next year –
they are usually additive, and require higher levels of manipulation to hide.
consequences of manipulation on all the stakeholders,
o see Illustrative Case
professional accounting stance on manipulations, and why,
o code of conduct discussion, professionalism, reputation concern, lessons fro other
manipulation cases
lessons learned from earlier manipulation cases, including: Enron, WorldCom, Waste
Management, Sunbeam, Adelphia, Tyco, Nortel, HealthSouth, Parmalat, and Royal
Ahold.
o Enron – off-statement deals, sham transactions
o WorldCom – capitalization of line costs and other expenses
o Waste Management – capitalized and /or failed to record expenses, overstated
environmental revenue reserves, understated provisions for income tax, etc
o Sunbeam – channel stuffing, misrecording of fees, false sales, …
o Adelphia – misrepresentation of transactions
o Tyco – misuse of benefit plans, unauthorized bonuses and compensation,
improper credits
o Nortel – misrecording the timing of revenue and expense, soft reserves (cookie jar
accounting)
o HealthSouth – recording of imaginary revenues
o Parmalat – fake transactions
o Royal Ahold – recording of non-existent commissions from suppliers

I would conclude with a discussion of the importance of deontology (duty, respect for rights, and
fairness) and the demonstration of the virtue expected of senior company officials and the related
director oversight. While it is easy to argue that a utilitarian analysis may indicate no significant
Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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net harm from an action, an assessment of fair treatment among stakeholders is not included, nor
is a forward looking assessment of the expectations of stakeholders and what will happen if they
are not met. In this regard, it does not matter if those expectations are beyond what is currently
embedded in law, the future support of stakeholder groups is far more important to the success of
the corporation and the CEO and CFO themselves, not to mention the directors.
June 2006
SMOKERS ARE GOOD FOR THE ECONOMY – REALLY
___________________________________________________
What this case has to offer
The Smokers are Good case offers the opportunity for students to appreciate that:
 Cost-benefit analyses (CBA) are useful, but they are susceptible to many flaws:
 Prices/costs are hard to find exactly, and rarely are equivalent to he value of specific
items or impacts – consequently it is quite possible “to find the price of everything, but
the value of nothing”, and to be misled.
 Frequently, CBAs do not capture the impact of an action on all stakeholders, particularly
those on whom the impact is indirect.
 What is incorporated in a more fullsome ethical analysis.
Teaching suggestions
I would recommend getting the students involved in the case by asking:
 How many smoke now?
How many have recently quit?
Then, to get at the issues of the case:
 Why do people smoke?
Are these issues covered in the actuarial analysis (or
CBA)?
 What does a basic ethical analysis include?
 What else would be covered in a full ethical analysis as opposed to a CBA?
 What other issues beyond those in a full ethical analysis or a CBA should be continued?
 Taking everything into account, is smoking good?
Discussion of ethical issues
What does an ethical analysis include?
Using a stakeholder impact analysis framework, an ethical analysis:
 Identifies all the relevant stakeholder groups affected by the activity
 Identifies all significant impacts on these groups
 Prioritizes the impact on each stakeholder group
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 Asks all the questions per Chapter 4 of the text relevant to the nature of the problem/impact
so as to cover: rights, fairness and well-offness
Can an ethical analysis add to the actuarial analysis (or CBA)?
Yes. Viscusi’s analysis does not include the impact of smoking on all stakeholders affected, nor
does it include all types of impact. For example, Viscusi does not include the
impact on indirectly affected stakeholders such as families of losing a loved one,
who is possibly a bread-winner, and there is no cost included for the pain and
suffering of the family of the smoker. Nor is there a systematic and ranked
consideration of the issues of rights, fairness and well-offness of all stakeholders.
Nature of the product
In this case, the product (cigarettes and cigars) is abnormal in that the nicotine included in it
produces an addiction in the smoker, so it is difficult for a smoker to quit. Since
the level of addiction is different and unknown for each smoker, the product may
not be considered to represent a fair purchase and a continuing free choice even
though a disclaimer “…harmful to your health” is printed on each package.
What is the alternative?
Smokers smoke for relaxation and for satisfaction of their social or affinity needs.
Leaving aside the craving for nicotine, what would smokers do if smokes were not
available? Would they turn to drinking or drugs– with worse results? What would they
do if taxes on smokes were increased significantly? Would this deprive low income
families of money needed for sustenance? Is there really a good alternative to smoking?
If not, is smoking not OK if not good?

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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FORD PINTO
______________________________________________________
What this case has to offer
The Pinto Case has become an icon in business ethics. It affords the opportunity to stress the
importance of:
1.

Using a framework for decision making which considers both
financial and non-financial factors such as impacts on life and
health.

2.

Estimating and balancing future impacts with and against shortterm impacts, such as profit.

3.

Recognizing that the social consciousness of society and
executives has changed since the Pinto decision and will continue
to do so.

4.

Considering cost-benefit analysis to be a realistic and valuable
addendum to profit analysis.

Specifically, the case affords the opportunity to explore the following issues, among others, in a
business context:
Can/should a price be put on life?
Why was the cost-benefit analysis deficient?
Estimates of lawsuit settlements
Lost reputation - how to measure it
Discounting - why and how
Didn't bring the future to the present
When is product risk normal or abnormal, acceptable or not acceptable?
Was disclosure an option?
What is the general trend in social conscience over time?
Teaching suggestions
My approach to the Pinto Case depends on whether I use it to start a class on ethical decision
making (EDM) frameworks, or to cement the framework issues that I have taught at the
beginning of the class. Usually I use the Kardell Paper Case to introduce the "Five
Question/Box" Framework in the first class on EDM. I begin the second with a discussion on
Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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the Moral Standards Approach (MSA) and cost-benefit analysis (CBA) which I cement with the
Pinto Case. I then go on to deal with the variations in the MSA which are introduced in the
Pastin Approach.
Since the class has had a discussion on CBA, I launch right into the first question posed at the
end of the case. This doesn't take long because the decision, in hind-sight, is so offensive to
human life and health. Sometimes there is a bit of debate, but generally the class agrees and we
can shift to the second question about the CBA. Since Ford's CBA does not support the view
that the decision was unethical, it is natural to dismiss CBA as useless or to look hard to see why.
Therefore most of the class are relieved when the CBA is quickly shown to be flawed. During
the discussion about the flaws, I make a special point to underscore how a properly crafted CBA
would have most helpfully brought future cash flows into the EDM to allow a complete picture
to be assembled and a balanced decision to be made. Ignoring the future can be a perilous shortcoming. We finish with the last question which is designed to focus on the inappropriateness of
thinking that disclosure of abnormal risks is practical or likely to be effective. In total, it usually
takes about 30 minutes to deal with the case if it has been read in advance, which I require.

Discussion of ethical issues
Question 1:

Was the decision not to install the rubber bladder appropriate? Use the 5
question/box framework to support your analysis.

The five question framework suggests the identification and ranking of stakeholders and then
employs the following challenges to proposed actions - in this case with the results indicated:
Is the proposed action profitable?
According to Ford's CBA - Yes
Is the proposed action legal?
Yes. But it is interesting to note that the Ford engineers knew that the Pinto would not
pass 21 mph crash test which was expected to be introduced as the government's
mandatory safety standard - an introduction which was "delayed" until the late 1970's
after the bulk of the court work on this case was complete.
Is the proposed action fair?
No, certainly not to the people who died or were burned or to their families, provided it is
decided that the product carried inherent risks which were greater than was reasonable for
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the buying public to expect. This sets up an interesting discussion of normal and
abnormal product risk. Even baby's toys carry some risk to a user, but if there is a
design flaw or a manufacturing flaw which presents some extra risk of significant harm,
then that would be abnormal. Moreover, if this abnormal risk was known or should have
been known to the company, its Directors or management, and they did nothing about it,
then they can be considered negligent. In the Pinto case, the placement of the gas tank,
etc., is usually considered, in hindsight, to create an abnormal risk. Can the executives be
considered culpable? Most would say yes, but they forget that times were different when
the decision was made. Social consciences were not as developed and executives were
largely schooled to ignore personal matters in favor of financial ones. I usually play
devil's advocate on the matter of culpability and force the class to argue their way
through the normal/abnormal risk, cultural change issues. Sometimes this catches the
traditionalists who side with me only to suffer the attention of their classmates.
Is the proposed action right?
No. It clearly offends the right to life, and to health, particularly if the abnormal
risk/negligence argument goes against the Ford executives. Some people can't believe
that anyone could make the tradeoff of $11 for a life (actually I believe the real cost was
only $5.50 or so), but the fact that Lee Iacocca did it lends a strange credibility to the
case.
Is the proposed decision sustainable development or/?
In this case, the issue of sustainable development doesn't appear to be as important other
matters, and so can be ignored for the purposes of class discussion.
Overall, the proposed action is shown to be unethical based on two challenges at least, so the
power of an EDM framework is seen to be greater than the limited financial analysis that Ford
was doing. Of course, Ford's analysis was faulty which leads to a discussion of the next
question. The ranking of stakeholder's interests does not appear to be needed to reach the above
conclusion.

Question 2:

What faults can you identify in Ford's cost-benefit analysis?

The most frequent observations made in response to this question are: how can anyone put a
value on a human life, settlement costs look low, Ford's reputation suffered but this not valued,
and there is no discounting of future cash flows. Here are some comments on each.
Putting a value on human life and suffering: Gruesome though it may be, courts do it all the
time in damage cases, generally as a function of lost future earnings plus damages for pain and
Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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suffering discounted at a reasonable rate of interest. Consequently, it the EDM approach will be
complete only if we do the same. Unpalatable and inaccurate though it may be, it appears to be
useful for EDM purposes to use similar valuation techniques. After all, a perfectly safe car
would look like a tank and be more costly than most could afford, so tradeoffs will have to
continue to be made.
Cost estimates look to low: True, but with hindsight everything is clearer. In fact, the total
claims paid out ultimately was approx. $150 million. In the US judges are elected and, when the
public learned more about the case it became outraged at Ford's conduct and the settlements
skyrocketed. This is a pattern that has recurred since.
No surrogate is included for lost reputation: We can't measure the value of lost reputation
directly, but we can project the lost units of sales which might result from a poor decision.
Having this number for each a series of future periods out to a time horizon of say 10 years, we
can estimate the lost margin on each and discount the total for each year back to the date of our
analysis at a reasonable rate (say 10%). If for example, Ford was to lose 200,000 units of sales
for each of the 10 years, and each unit represented lost margin (sales price less variable
manufacturing and marketing costs) of $100, then the first year's cost would be the present value
of $20 million. Over the ten year time horizon, at a discount rate of 10%, the lost reputation
valued on this basis would amount to $$122.9 million (see below).
Discounting is not employed: Ask your class whether they would be more willing to take their
pay now or defer it for a year or two. Clearly, there is a time value of money which ought to be
reflected in a proper CBA by discounting both costs and benefits.
Correcting for these flaws, a recast CBA might look like that set out below:

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Cost-Benefit Analysis of not installing the gas tank gasket:
Benefits of:
Installation and material costs:
($137,500,000/2 since cost = approx. $5.50 not $11 ea.)
(Assume cost incurred evenly over 10 years)
(Present value of $6,375,000 annuity at 10%)........................$
Costs of :
Burn deaths, injuries, vehicles, and legal costs:
(Assume total payout is $150,000,000 over 10 years)
(Present value of $15, 000,000 annuity at 10%)......................
Lost reputation:
(Lost margin of $20,000,000 per year over 10 years)
(Present value of $20 million annuity at 10%).......................…
Total costs
Net benefits-costs

39.174 mil

92.175
122.900
215.075
($175.001)

Note: The income tax consequences of these cash flows have not be taken into account.
If this picture of reality had been available to Ford executives, the decision would quite likely
have been different.
Question 3:

Should Ford have given its Pinto customers the option to have the rubber
bladder installed during production for, say $20?

The impracticality of this suggestion is obvious, but it provides a jumping off point to discuss the
common misperception that disclosure will make an unethical action all right. Somehow, telling
a victim what is in store for him/her is expected to pass the from the manufacturer to the victim.
However, when such communication can be done without severe consequences for the
company's credibility, the victim can easily claim inability to understand, or not having the
freedom to chose another alternate - in which case the manufacturer will still be stuck with the
problem. Usually, asking the students how to compose the copy for the $20 option provides
some levity at the end of the case.
Once again, the students will find the case invigorating and instructive, and will marvel at the
changes in social conscience over time.
Useful Update Reference: http://en.wikipedia.org/wiki/Ford_Pinto
Case Updates Summary
On January 15, 1980, the Ford Motor Company went on trial on charges of reckless homicide in
the 1978 death of three Indiana teenagers who burned to death after their 1973 Fort Pinto was hit
Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010

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from behind by a van.
Indiana state prosecutors alleged that Ford knew Pinto gasoline tanks were prone to catch fire
during rear-end collisions but failed to warn the public or fix the problem out of concern for
profits.
The trial marked the first time that an American corporation was prosecuted on criminal charges
—in this case, reckless homicide.
Ford was acquitted in March; the case was too complex.
The Pinto was discontinued in fall 1980.
Case News Sources:
•
YouTube video: Carnage: Car Safety & Car Crashes: Pt 4: High Toll, Ralph Nader,
Corvair & Pinto http://www.youtube.com/watch?v=DLrMaFkLjlI&feature=related
•
Mark Dowie, "Pinto Madness," Mother Jones, September/October 1977,
http://www.motherjones.com/news/feature/1977/09/dowie.html
•
Birsch, D. (1994). Introduction: The Pinto Controversy. In D. Birsch & J.H. Fielder
(Eds.), The Ford Pinto Case: A Study in Applied Ethics, Business, and Technology (p. 3-14).
(1994). State University of New York Press.
•
Dowie, M. (1977). Pinto Madness. In D. Birsch & J.H. Fielder (Eds.), The Ford Pinto
Case: A Study in Applied Ethics, Business, and Technology (p. 15-36). (1994). State University
of New York Press.
•
http://en.wikipedia.org/wiki/Lee_Iacocca
•
www.autosafety.org/article.php?scid=96&did=522
http://www.biogs.com/famous/iacocca.html

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KARDELL PAPER CO.
______________________________________________________
What this case has to offer
The Kardell Paper Co. Case involves decisions around the necessity to introduce a very
expensive "closed loop" pollution control system in a pulp mill. This provides an excellent
opportunity to:
1.

Introduce and illustrate the stakeholder analysis approach as it deals with financial
and non-financial issues with impacts in both the long and short term.

2.

Get the students to grapple with the need for decisions based on partial or
uncertain information.

3.

Examine how a board of directors works in governing organizations, and how it
ought to be constituted or operated to insure that all stakeholder interests are
considered.

4.

Learn to anticipate functional fixation, conflicts of interest and other forms of bias
from lawyers and other advisors or decision makers.

5.

Appreciate what "due diligence" requirements decision makers must keep in mind
to minimize the impact of charges of negligence with regard to the treatment of
the environment and the handling of hazardous waste.

6.

Confront the downside (whistleblowing, fines, jail, closure) of suppressing
information or debate at the decision making levels (executive and board) of the
organization.

7.

Appreciate the capacity of the stakeholder analysis approach to be used to refine a
solution to produce a win/win, creative or better result.

Teaching suggestions
I use the Kardell Co. Case either after developing the 5-question/box Approach (5QA) with the
students, or after developing the Moral Standards Approach (MSA) and the Pastin Approach
(PA) as well. I start the discussion with a short scene-setting statement which raises the reality of
the case setting - actually it is an embellished real case with changed names, and with sonox
really being dioxin, a suspected carcinogen produces in the pulp making process. Then I ask the
following questions, in order:

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1.
2.
3.
4.
5.
6.
7.
8.
9.

Who are the stakeholders here and what are their interests?
What are the major issues and how are the interests of each stakeholder group affected by
them?
Which ethical decision making approach should be used: 5QA; MSA; PA? Why?
What are the major decisions to be made?
How should the stakeholder's interests be ranked? Why?
What facts and analyses would we like to have?
What decisions would the students make?
What was wrong with the quality of the debate at the board of directors?
What is the downside if the right decision is not made - consider economic factors and
also what Jack might do?

The discussion moves along quite quickly, taking 30-45 minutes. At the end of the case, students
feel quite good about the decision making approaches and their understanding of corporate
governance.
Discussion of ethical issues
Stakeholders and their interests: The discussion of stakeholders and their interests produces the
expected list except that usually neither Jack, the technician who discovered the potential
problem and who is most concerned with the impact of sonox, and the unborn, are mentioned. I
usually have to probe for these, and sometimes I let the discussion proceed until the quality of
debate at the board level comes up before asking who is going to raise their issues and argue for
their interests. A satisfactory decision is unlikely unless they are recognized as stakeholders and
their interests taken into account. You can delve into the issue of whether mothers can adequately
represent the unborn or not, but remember that mothers may suffer from conflicts of interest in
regard to the perceived short-term need for jobs for their families, etc.
Similarly, the issue of whether the environment should be accorded status as a stakeholder in its
own right, or simply as an extension of known human needs, is an interesting one. Pointing to
the recent movie "Medicine Man" in which Sean Connery was trying to find a cure for the cancer
in the Brazilian rain forest, but was prevented from doing so by efforts to clear for grazing cattle,
is helpful here.
Ranking the stakeholder's interests: The ranking of stakeholders interests can be done after or in
conjunction with the identification of the major decisions to be taken. Provided sonox is
considered a health risk, the usual ordering of concerns by the public would be: life, health,
quality of life, financial. I usually find that their is quite a debate in class over the primacy of
shareholders concerns (financial) vs. those related to life and health. In the end, it usually boils
down to how serious a health risk the student thinks that sonox is. This is an issue that is
unresolved in the case due to lack of information (the same as in real life - dioxins are very
harmful to monkeys, but science has not been able to make the same case for humans yet).

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Choosing an ethical decision making approach: Because the case involves the environment,
most students want to use the 5QA which features the sustainable development question. It also
appears to be the most simple and logical since the decisions appears to lies outside the confines
of the organization. However, the students should be reminded that the profit challenge in the
5QA it deficient because it is often short run in focus and fails to consider externalities like harm
to the environment. These issues call for the supplementation of the 5QA with cost-benefit
analysis as in the MSA. Also, the issues of discovering Kardell's internal ground rules and
employing social contract ethics may be helpful in shaping recommendations and encouraging
decision makers to consider the downside of the health concerns. Since numbers are not
available, augmenting the profit challenge with the concept of CBA usually proves to be
desirable and reinforces the idea of fashioning a hybrid system where advisable.
What decisions ought to be considered? What facts/analyses would we like to have?: Obviously
the decision of whether to shut down and install the closed loop system is before the board.
However, the class should realize that there are a number of variants which should be
investigated, time permitting, with the ultimate decision depending on more information. For
instance:







Is Sonox really a problem?
Are we polluting in sufficient quantities to cause a problem?
Are there alternative and less costly process modifications which would reduce, but not
eliminate, our Sonox discharge?
The closed loop shut down and costs appear high: are their less disruptive/costly
approaches?
What are the costs of delay?

As a result, an alternate decision would be to defer the closed loop decision and seek more info
on one or more of the above. In the interim, several decisions arise:




Should the community be informed of the possible health risks? When?
Should bottled water be brought in? When?
Should the other competitors be brought into the discussions?

Getting the class to make decisions: I usually force the class to vote on the closed loop decision
right after the choice of ethical decision making approach. They resist doing so, and I ask why then the other questions come out. I keep asking for a decision and this forces the group to think
through each stage of the process. Ultimately the class is usually split between those wanting to
take the ethical "high road" and install the loop right away, and those who what to move more
slowly.
What was wrong with the Board debate? At this point, it is easy to see that the board was not
sufficiently representative of the stakeholders to meaningfully present and understand the
important issues facing the company. Moreover, there was no one with sufficient technical
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expertise to appreciate the significance of the health issues or the biological impact on the
environment. The lawyer may have felt a conflict of interest, in that he was both a director and a
paid counsel. In any event, his view was limited to current and past legal precedent, not to the
future, or to non-legal perspectives. This is functional fixation which can mislead a corporation
into short-range thinking. The result of this analysis should be the realization that to properly
govern a company, the board should have effective representation from all important stakeholder
groups, and/or effective access to and information from representative groups or ethics experts.
This analysis will highlight the value in appointing "outside" directors (who don't rely on the
organization for their livelihood) and also women directors to insure that all aspects of an issues
will be understood and argued effectively.
What is the downside? Jack might blow the whistle if he thinks that the wrong decision is made
or if the process is suppressed or if too much delay is involved. This would (did) involve
regulatory sanction including fines, shut down, loss of market, loss of profit, and ultimately loss
of control to creditors. If Jack doesn't blow the whistle, costs of ultimate clean-up and new
process installation could rise.
If the decision by the board is just to wait and see what happens, they will not be able to argue
that they took "due diligence" measures to keep abreast of the health risk unless they initiate
some research into the sonox problem, even if it is a periodic literature search or a retainer
arrangement with a researcher to keep them advised. Similarly, they should continue to take
readings in the river to monitor their discharge and try to identify other polluters.
Creative solutions: I finish the case by asking whether the interests of certain stakeholders can
be examined to refine or produce better decision. Sometimes one of the more astute students
will speculate on the possibility of arranging with government for support as a test project for the
closed loop system, or to offset the cost of a shut down. Also, the approach to other competitors
on the river can be examined, since they are likely to be in the same boat...as it were.

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Multiple Choice Questions
______________________________
1) The first resource for guidance when a businessperson or a professional accountant faces an ethical
problem should be:
a.
b.
c.
d.
e.

Commonly accepted social norms
Corporate and professional codes of conduct
Ethical decision-making frameworks
Commonly accepted philosophical approaches
All of the above

ANSWER: b
2) The AACSB Ethics Education taskforce has called for business students to be familiar with the
following approaches to ethical decision making:
a.
b.
c.
d.
e.

Consequentialism, deontology, and virtue ethics
Consequentialism, deontology, and moral imagination
Distributive justice, deontology, and virtue ethics
Distributive justice, deontology, and moral imagination
Consequentialism, deontology, and distributive justice

ANSWER: a
3) These are character traits that dispose a person to act ethically and thereby make that person a morally
good human being:
a.
b.
c.
d.
e.

Norms
Moral judgements
Virtues
Values
Ethical judgements

ANSWER: c
4) From a stakeholder point of view, which of the following must be satisfied for a decision to
be considered ethical?
a. The decision should demonstrate virtues reasonabley expected
b. The decision should result in more benefits than costs
c. The decision should not offend the rights of any other stakeholders
d. The distribution of benefits and burdens should be fair
e. All of the above must be satisfied for a decision to be considered ethical
ANSWER: e
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5) The costs of environmental clean-ups absorbed by downstream individuals, companies, or
municipalities are referred to as:
a.
b.
c.
d.
e.

Surrogates
Externalities
Future impacts
Collateral damages
Ethical costs

ANSWER: b
6) These costs can be measured indirectly by using costs incurred in similar circumstances or mirror
image alternatives:
a.
b.
c.
d.
e.

Surrogates
Externalities
Future impacts
Collateral damages
Ethical costs

ANSWER: b
7) What is the most common measure of shareholder well-being:
a.
b.
c.
d.
e.

Profit or loss
Profit or loss plus externalities
Profit or loss plus cost-benefit analysis
Profit or loss plus risk-benefit analysis
All of the above

ANSWER: a
8) Which of the following is not a stakeholder right?
a. Life, heath and safety
b. To earn a reasonable return on an investment
c. Freedom of speech
d. Fair treatment before the law
e. All of the above are stakeholder rights
ANSWER: b
9) This approach incorporates the expected future impacts of a decision into the analysis:
a. Virtue ethics
b. Consequentialism
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c. Cost-benefit analysis
d. Risk-benefit analysis
e. All of the above

ANSWER: e (I do not understand the difference between Q8 and Q9; when are future impacts
not expected in an analysis? I think that Q8 should be deleted; I’ve added a replacement question
at the end.)
10) These values are the combinations of a value and the probability of its occurrence:
a.
b.
c.
d.
e.

Probable values
Common values
Present values
Expected values
Risk-adjusted values

ANSWER: d
11) Which of the following is not one of the 5 questions in Graham Tucker’s original approach to ethical
decision making?
a.
b.
c.
d.
e.

Is it profitable
Is it right?
Is it fair?
Is it legal?
Does it demonstrate the virtues expected?

ANSWER: e
12) The following three standards make up the moral standards approach:
a.
b.
c.
d.
e.

Utilitarian, Individual rights, and Justice
Utilitarian, Individual rights, and Fairness
Legal, Individual rights, and Justice
Utilitarian, Moral rights, and Justice
Legal, Moral rights, and Justice

ANSWER: a
13) Pastin’s approach adds the following concepts to stakeholder impact analysis:
a.
b.
c.
d.
e.

Rule ethics
Ground rule ethics
End-point ethics
Social contract ethics
All of the above
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ANSWER: e
14) The following approach does not specifically incorporate a thorough review of the motivation for the
decisions involved, or the virtues or character traits expected:
a.
b.
c.
d.
e.

5-question approach
Moral standards approach
Pastin’s approach
All of the above
(a) and (b) only

ANSWER: d
15) Lack of awareness of the following problem results in executives not attributing enough value to the
use of an environmental resource:
a.
b.
c.
d.
e.

Commons problem
Ethics problem
Value problem
Risk-assessment problem
Moral problem

ANSWER: a
16) If a decision is expected to be unfair to a particular stakeholder group, the decision may be improved
by:
a.
b.
c.
d.
e.

Using stakeholder analysis
Using a decision making approach
Increasing the compensation to that stakeholder group
Increasing the compensation to all stakeholder groups
All of the above

ANSWER: c
17) Which of the following is not an example of a common ethical decision-making pitfall?
a.
b.
c.
d.
e.

Conforming to an unethical corporate culture
Focusing only on legalities
Conflicts of interests
Failure to identify all stakeholder groups
None of the above

ANSWER: e

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18) Failure to identify all relevant stakeholder groups for a proper stakeholder impact analysis may be the
result of:
a.
b.
c.
d.
e.

Bias
Conforming to an unethical corporate culture
Conflicts of interests
Failure to consider the motivation for the decision
All of the above

ANSWER: e
19) Completing the following steps in this order provides a sound basis for challenging a proposed
decision:
a. Identify facts and stakeholders, rank stakeholders and their interests, and assess the impact of
the proposed action
b. Identify a proper ethical decision framework, rank stakeholders and their interests, and assess
the impact of the proposed action
c. Rank stakeholders and their interests, identify facts and stakeholders, and assess the impact of
the proposed action
d. Identify a proper ethical decision framework, identify facts and stakeholders, and assess the
impact of the proposed action
e. Rank stakeholders and their interests, identify a proper ethical decision framework, and
assess the impact of the proposed action

ANSWER: a
20) Frequently, decision makers have been subject to unreasonable expectations and unrealistic deadlines,
this is an example of:
a.
b.
c.
d.
e.

Conforming to an unethical corporate culture
Focusing only on legalities
Conflicts of interests
Failure to identify all stakeholder groups
Failure to rank stakeholder interests

ANSWER: a

Business & Professional Ethics for Directors, Executives & Accountants, 5e,
L.J. Brooks & P. Dunn, Cengage Learning, 2010