CHAPTER 4: ETHICS AND BUSINESS DECISION MAKING
III. COMPANIES THAT DEFY THE RULES
Managers took advantage of accounting standards to overestimate future earnings, which resulted in in-flated reports of current earnings. To maintain these exaggerations, the company created subsidiaries towhich it could shift unreported losses and assets with inflated values. Many of these shifts occurredoutside the U.S. to avoid federal income taxes. When questioned, management refused to investigateand reveal financial improprieties.
The unethical conduct resulted in the single largest bankruptcy of a U.S. business firm. This misconductaffected the firm’s managers, employees, suppliers, and shareholders, and the community and society ingeneral.
The Food and Drug Administration (FDA) gave Vioxx an abbreviated review before allowing Merck tomarket the drug. Within a few years, studies revealed that the drug was riskier than was previously believed, and Merck voluntarily recalled the product.
Apparently, the FDA and others had alerted Merck Vioxx’s possibly dangerous side effects long beforethe company undertook serious studies of the drug and eventually recalled it. The FDA required Merckto send letters to physicians to correct false or misleading impressions and information.
Merck generally continued to maintain that Vioxx as safe until proved otherwise. Company share-holders lost billions in the value of their stock after the product was recalled. Merck lost its first lawsuitas many other claims were filed in state and federal courts against the company.
At what point does a company have an ethical duty to act when presented with evidence that its productmay be harmful?
IV. BUSINESS ETHICS AND THE LAW
The minimal acceptable standard for ethical business behavior is compliance with the law. Ethical standards,such as those in a company’s policies or codes of ethics, must also guide decisions.
Because there are many laws regulating business, it is possible to violate one without realizing it. Igno-rance of the law is no excuse.
There are many “gray areas” in which it is difficult to predict how a court will rule. For example, if aconsumer’s misuse of a product harms the consumer, should the manufacturer bear the responsibility?Also, how laws apply in the context of cyberspace is not certain. The best course is to act responsibly andin good faith.
V. APPROACHES TO ETHICAL REASONING
Ethical reasoning is the process by which an individual examines a situation according to his or her moralconvictions or ethical standards. Fundamental ethical reasoning approaches include the following.