Business Ethical Behavior

Yedmy Batista
Lehman College
Final Project: Business Ethics Research & Case Analysis Journal
Professor: Shirley Bishop
Class: MBS Seminar 796
August 06, 2018

TABLE OF CONTENS

Pages
I Executive Summary ------------------------------------------------------ 3

1
 Summary of the paper research (three researches),
II First research: Recent Journal Article
“Using Antitrust Law to Challenge Turing’s Daraprim Price Increase”. 4
Summary of the article ----------------------------------------------------
Ethical Dilemma, Impact on the business and Stakeholders ---------- 5
Society, Ethical Principles ------------------------------------------------- 6
Evaluations and Recommendations --------------------------------------- 7
III Second Research: Case of Study
Mitsubishi Motors Takes Nearly $48 Million Charge as Fuel-Economy Scandal
Spreads; Mitsubishi admits to falsifying data on 20 models sold over the past 10
years.
Summary of the article and Ethical Dilemma---------------------------------- 8
Impact on The Business, Stakeholders, Society and Ethical Principle ------ 9
Evaluations and Recommendations ---------------------------------------- 10
IV Third Research: Recent Press Release
EU Parliament Wants an End to Corruption Through In-Depth Reforms. 2015.
Summary of the Article ----------------------------------------------------- 11
Ethical Dilemma, Impact on The Business and Stakeholders -----------------12
Society and Ethical Principles ---------------------------------------------------- 13
Evaluations and Recommendations --------------------------------------------- 14
V Bibliography------------------------------------------------------------------------ 15

I-Executive Summary:

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 This research focuses in how business ethical behavior is a complex issue that can affect

the business, individuals, stakeholders and the society. We will pay attention to three important

companies that faced ethical dilemmas, and how their executives managed business operations.

All the companies presented misconduct in ethics a high level. Ethics is the value that a person

should have by understand what is wrong and what is right. This definition is related to business

as well. Businesses need to show certain values that guide organizations and employees.

Business ethic is a set of values of an organization that measure if the behaviors of its members

is appropriate or not. Organizations day by day face ethical issues, this cause that individuals to

commit unethical actions for personal or company benefits.

Moreover, this paper shows some principle of ethical theories such as Teleological

framework including ethical egoism and utilitarianism. Also, how individuals interpret the role

of moral and integrity in a workplace, and how people’s behaviors affect business reputation.

Further, some of the seven deadly sins are presented as well, one of them is Greed. This focuses

in the exaggerated wish to get wealth, power and status without mattering the way you get it. In

addition, individualist behaviors can be observed in this research, especially in the Daraprim

scandal in 2015.

Comprehensive model of top management fraud is observed in this paper because it is

related with the International Federation of Association (FIFA) and Mitsubishi Motor Company.

The first one hided information about the corruption of its executives, and the second falsified

data about cars’ mileages. The essence of this model is to try to understand why managers or top

executives make fraud by doing intentional incorrect financial statement.

II-A recent article published in 2015 from Academy Journal: “Using Antitrust Law to

Challenge Turing’s Daraprim Price Increase”.

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 This article refers how Martin Shkreli made unethical behaviors to monopolize the

pharmaceutical market of the pyrimethamine (Daraprim). Also, how he faced the federal court

for this wrong action. In September 2015, the CEO of Turing Pharmaceutical faced critics for

his unethical strategy used to raise the prices for the Daraprim medicine. The increase was from

$13.50 to $750 dollars per tablet. This means, that the pill increased around 5000% from the

regular price. Daraprim is used to treat the toxoplasmosis, some cancers and patients with

vulnerable immune system. Toxoplasmosis is a parasitic that cause an infection in the brain

affecting the babies’ birth.  The company Turing Pharmaceutical decided to hike

the Daraprim price because there is a small market that cover customer needs. This strategy

produced a change in the Daraprim distribution, generating that the CEO Martin Shkreli

controlled all system of distribution. Adding on, Turing company counted with a high volume of

this product to supply the market.

After implementing this strategy, the company started a monopoly the market. Also, it

allowed to the patients to buy Daraprim without limitations and prescriptions. This produced that

hospitals were not able to get the medicine from regular wholesalers. After that, Turing

Pharmaceutical presented a great increase in its profit, but this hiking price put many lives in risk

for lacking this medicine. However, criticisms raised causing several lawsuits. On August 7,

2017, Martin Shkreli had to face the federal court in Brooklyn, NY for security fraud, conspiracy

and piggy bank. As a result, the CEO Martin Shkreli was sentenced to 7 years of prison. The

judge imposed a penalty of $7.36 million in assets. In addition, this scandal was shown in the

United States Congress to discuss this problem and make some proposal to regulate the called

Daraprim Direct monopoly. Also, the candidate Hillary Clinton was facing the Turing company

creating that biotech stocks fell in the market value.

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 The ethical dilemma shown in this scandal is, the way in how CEO Martin Shkreli

increased the price of Daraprim medicine from $13.50 to $750 to get his own and stakeholders

personal benefits. Moreover, the creation of Daraprim Direct chains of distribution to monopoly

the Daraprim market. All these actions were made without respecting the pharmaceutical laws,

business ethics, and legal laws of the United States. This wrong behavior caused that the federal

government opened a lawsuit to Turing Pharmaceutical Company to know the root for this

action, and to compensate the people that were affected. Further, to take in jail people who were

involved in this scandal.

Turing pharmaceutical business suffered a significant damage in its reputation. Some

companies as PhRMA lobbying group broke its relationship with Martin Shkreli by twitter,

saying that Turing Pharmaceutical lacks the values and integrity to represent PhRMA group. In

addition, Martin Shkreli misconduct produced that the company’s stocks fell in the

pharmaceutical market. A well-known journalist, John Carroll related with the pharmaceutic

industry called to Shkreli stupid and enemy of the American people. Also, BBC company

qualified to Shkreli as the most hated person in the United States.

This unethical business behavior no only affected to the patients, it also impacted to the

stakeholders of the company. Martin Shkreli took 1million of dollar from the investors’ hedge

funds for personal benefit. In one day, NASDAQ biotech index fell 4% in the market, and the

next week fell 17% producing at large concern to the pharmaceutical Execs. To add on, the

biotech’s employees’ behavior and Martin Shkreli co-founded Retrophin were being inspected

from the government to obtain information that help to figure out the root of the fraud. On

another hand, between 2009 and 2014, Martin Shkreli was lying to his investors (MSMB Capital

and MSMB Healthcare companies). He told them that their funds were being well managed, and

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as the CEO of Retrophin, he was managing the pharmaceutical business as a bank to make

payments to the investors. Also, that this will overlay personal loans and debts of the investors.

The Biotech stocks plummeted because the stakeholders were afraid about the reactions of the

government.

The society had some significant reactions by Martin Shkreli actions. People made many

riots in New York City, and patients had to pay high amount of dollars in co-pays. In addition,

the treatment increased from $1,130 to $63,000 for some patients. For example, a victim of this

misconduct is Patrick Rice. His insurance did not want to cover his treatment of Lyme illness

because the cost was 30, 000 dollars. Some specialist in health such as, physicians are being

forced to use other options to do therapies to their patients. Specialists in infectious illness were

concerned about the price. They say that this medicine is in the market for more than 62 years,

and that it is an effective treatment for people with parasitic infections.

We can relate the Martin Shkreli’s scandal with the teleological framework Unitarianism.

This focuses in the belief that the actions of a person give the greatest good for large number of

individuals. This means that, Shkreli thought that if he maximized the revenues from the

stakeholders, they would feel satisfied with his job, no matter what kind of behavior he had used.

For example, John Carrol, executive of Fierce Biotech asked to Shkreli, which was the reason to

increase Daraprim prices? Ironically, he responded that he had made this decision to benefit the

stakeholders of the company. We can define this as Type O misbehavior because he supposedly

acted with unethical behavior for company benefits. However, he never mentioned if

stakeholders and employees agreed for doing that. Clearly, he behaved like a pure individualist.

In my evaluations from Turing Pharmaceutical ethical scandal, I believe that this

company lacked of integrity to handle in right way this scandal. On September 2015, Martin

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Shkreli told to Bloomer Tv about it defending the Daraprim price. He said that it does not make

sense because he had followed all the rules of pharmaceutical industry. Also, that increase the

Daraprim prices was not illegal action. The news made an excellent coverage due to the

controversy created by Martin Shkreli, he made many insulting comments in the news to defend

his actions. These comments generated that the social media was reporting constantly about it.

On September 21, 2015, the New York Times reported that Turing Pharmaceutical Company had

increased of Daraprim price by 5000%. The CEO Martin Shkreli hold an interview with ABC

News saying that he had increased the Daraprim prices to improve his company’s profit, and that

this change will be benefit for all. The company has not solved the problem yet because it still is

under scrutiny and its founder Martin Shkreli is in jail. Also, many insurance companies are in

the process to trust again in this company.

Turing company should fix this ethical behavior in order to continue running its business.

My recommendations are that, the company should reduce Daraprim prices to the regular price

$13.50. Also, working hard to rebuild the Turing’s reputation. In addition, to fix better access to

the insuranedces, and make accessible payment plans for customers. The advantages for these

are, that the company could recover the trust of the customers, and its reputation. However, this

company could face many challenges to implement these recommendations. For example, to

convey customer to buy its products could take long time. Also, the insurances could limit the

access to customers.

III-Case: Mitsubishi Motors Takes Nearly $480 Million Charge as Fuel-Economy Scandal

Spreads; Mitsubishi admits to falsifying data on 20 models sold over the past 10 years.

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 This case is talking about the ethical dilemma that Mitsubishi Motor faced by falsifying

fuel economy information of four model minicars. Also, the challenges that this company had to

face to fix this scandal. Two of those minicars were sold to Nissan Motor with 0.66-liter

engines. This misconduct was discovered when Nissan Motor Company was querying data of

two vehicles that Mitsubishi had supplied to them. However, the number of cars increased by

20 during a period of 10 years. This number continued to increase when the information was

exposed publicly. The last model of vehicles affected were Outlander, Pajero, and RVR SUV

cars. In April 2015, the president of Mitsubishi Company, Tetsuro Aikawa recognized that his

company had manipulated the fuel-economic data around 2.14 million cars sold in Japan.

Moreover, this case states how top executives, the president and the CEO of the company

had to resign of their positions due to their unethical behaviors. These resignations came from

the society’s pressure. They admitted improper conducts by mileage testing in the cars. In

addition, they accepted that Mitsubishi Motor had rigged the test for 25 years. Adding on, the

company expressed that will compensate the customers that had been affected from the Nissan

Motor. In addition, Mitsubishi Motor related that will pay $50 billion to the owners to repair the

damages caused.

The ethical dilemma presented in this case is, how Mitsubishi Motor company

manipulated fuel economics data to appear that the vehicles’ mileages were better than 20

models sold in Japan between 2006 and 2016. Nissan Motor Co. was the company more affected

by this because Mitsubishi supplied cars to them. This business conduct was not a mistake, it was

a deliberated act by Mitsubishi executives during almost three decades. They were motivated for

company’s profits.

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 This misbehavior impacted negatively the company, causing damages on its reputation.

The sales decreased, and the cost of practicing this strategy raised business liabilities. For

example, in the United Kingdom, Mitsubishi sold around one million of car a year, but the sale

fell 1% last year. Also, the company reported that will loss more than $479.5 million of dollars in

the current financial year, tripling of scandal’s cost. Mitsubishi has to recall millions of vehicles

and must save $6.7bn to cover the scandal’s cost.

Stakeholders were affected as well. They lost a lot money, approximately $3bn was

erased in the market value. In addition, its shares declined 15% in Tokyo. In order to see the

financial damages, Mitsubishi made a forecast about its loss, and the result presented that the

company could loss 145bn yen in 2016. Moreover, the Mitsubishi’s shares suffered a great loss

closed to 131 yen. This has been the worst loss in one day in the last 12 years. Further, this

scandal caused that the 50% of the shares fallen in the market affecting the stakeholders’

investment.

The Mitsubishi scandal impacted the Japan’s automobile industry and the international

auto market industry. The society was surprised when this scandal was made public. These

reactions caused that Mitsubishi faces serious scrutiny by customers, manufactures, suppliers,

allies, and the society in general. Also, the Japanese’s government said that, Mitsubishi had

violated Japanese regulations. The international scenario was involved, the U.S National

Highway Traffic Safety Administration asked to Mitsubishi Motor about information all the cars

that it had sold to the United States.

We can observe some ethical principles in this case. I could connect the Mitsubishi

ethical dilemma with a Greed, one of the seven deadly sins of ethical business behavior. This

states that companies or individuals have an undue desire of power, especially wealth and power.

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This company in order to earn more money was cheating customers for more than 25 years. This

means that all the actions were consciously accept for some top managers of the company. To

add on, executives that knew about it used one of the 5 barriers of ethical organization

Overvaluing Outcomes. This states that managers agree with unethical actions when the results

are positive or beneficial for them. In addition, Teleological framework as Ethical egoism is

shown as well because they acted for themselves interests.

By doing my evaluations in how was handled this ethical dilemma, I believe that,

Mitsubishi Motor acted as a wheeler-dealer. While it was obtaining benefits, it never mentions

nothing about irregularities, only when the scandal came out, the company confirmed it. After a

few years, on April 20, 2016, Mitsubishi informed to the press, that the company had falsified

the test for 25 years. The press reported that all top executives bowed as sending a sign of

apologize. However, this arrived late, the Mitsubishi’s integrity was severely affected. However,

Mitsubishi Motor is trying to fix the problem. For example, the company will make a contract

with Nissan Motor company giving to it the control of the 34% (2 billion) of the Mitsubishi’s

stakes. Also, this company is giving cash rebate to clients who had reported problem in the

mileage.

In order to fix its reputation in the automobile market, Mitsubishi should remove and

penalized all the managers involved in the scandal. Moreover, the company should set up another

board directors. Rebuild Mitsubishi’s code of ethics. Hiring managers with known business

integrity. In addition, continuing to get out all cars damages of the market, and to compensate the

customers. However, to implement all these strategies, Mitsubishi could spend too much time

and money to implement these strategies. The company will have to engage to the employees

and managers in the new code of ethics. In the process the company could face some challenges

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as employees’ resistance to the change. In addition, removing the damaged cars from the market

will cost billions to the company. The selection to new board directors will be a complex process

because the company will have that select people with high qualification in integrity and

honesty.

IV- Press release: FIFA Corruption Scandal: EU Parliament Wants an End to Corruption

Through In-Depth Reforms. 2015

The International Federation of Association Football (FIFA) is the international nonprofit

federation of football. This was founded in 1904, with 211 members. The goal of this

organization is to protect and improve of football sport. However, in this press release we can

observe that this federation is facing ethical scandals related to the corruption. This scandal

caused that 14 members were arrested, and its president Sepp Blatter resigned. The European

Parliament demanded to the FIFA for implementing a new transparency reform with the purpose

of secure the process of decision making. Sabine Verheyen the cover media and sport, spoke to

the press that the football is the most famous sport in the world, but the level the corruption

damaged the integrity of the federation. Also, in the end of 2016, European Football Association

(USFA) forced to the FIFA to make a reform for changing its bad reputation and credibility as

well.

The U.S Department of Justice charged with 47 charges this federation. Some of these are

laundering, conspiracies and fraud. Also, the U.S authorities says that around $150 million are

related with this scandal. In addition, the authorities observed that the FIFA had considerably

increased its expenses by $1.3 billion. On another hand, Ivo Belet MEP relates that professional

football sport has the right to lead its federation. However, he also argued that the federation

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should be responsible to guarantee ethical behavior around all the members. In addition, the

FIFA must reduce the committee member due to the high pressure of its sponsorships.

Ethical dilemmas were involved in this scandal, such as the not transparency of the

process of assign the world cup events, and how this federation managed the funds destined to

benefit the facilities of poor members of this federation. To addon, the way in how they elected

the FIFA’s president. All these ethical issues caused allegations of corruption, especially after

giving the 2022 World Cup to a small country in the Gulf State of Qatar, but with great wealthy

and highly influential. This scandal exploded in the month of May. After that, seven top

executive members were arrested in an expense hotel. In addition, the Federal Bureau of

Investigation (FBI) of the United States was investigating the FIFA to collect evidence of fraud.

They charged the rampant corruption to 14 members. In addition, in December, a chief executive

Ricardo Teixeira was impeached with criminal charges related with more of $200 million in

payoffs and inducements. The federation suspended indefinitely to the president of the FIFA

Sepp Blatter.

The scandal was terrible for the FIFA federation. Its integrity and reputation were

affected. Majors leagues suffered consequences for this scandal, they had to delay their

tournaments. For example, The Copa Americana had to postpone its games until June 11. The

British Prime Minister, David Cameron asked to the FIFA to change its governing body to

rebuild the FIFA federation. Adding on, Ali Bin Al Hussein said that, the football sport lacks of

leadership to drive this organization. Further, former players were attacking the FIFA’s

executives asking for a new president election. All these expressed that on May 27, 2015 FIFA

faced the most damage ever.

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 FIFA corruption not only affected the reputation of the federation. This also impacted to

club’s shareholders and sponsors who give their financial contribution for games. Sponsors such

as Coca Cola, Adidas, Visa, McDonald, and other were concerned about FIFA’s member

behaviors. They have made deals for several years to the federation. However, they feel cheated

because their contributions were used for the FIFA’s executive members to personal use.

Further, they made riches by taking the sponsors and shareholders’ money. This scandal could

cost $1bn to the sponsors and shareholders. Shareholders could demand to the FIFA if it decides

to maintain the brand’s sponsorship. Also, one the most important sponsors Adidas, notified that,

if the FIFA federation does not clean up, it could consider removing its sponsorship.

Reputation and integrity play an essential role in the perception of the society. The FIFA

federation generates a great amount of money around the world. This causes an important impact

in the society. For example, in those countries where the World Cup is set up create jobs,

increase the tourism, the government builds infrastructures to host players and visitors. However,

as result of this corruption, many people disagree about FIFIA’ corruption and decided not spend

money in this federation, and to watch the games by TV. This decision would affect the country

host because would not collect money from the tourism. On another hand, people will lose

opportunities of jobs that could dynamize the economy. How we behave will be the way how the

members of the society respect us.

Some ethical principles can be applied in the FIFA scandal corruption. We can connect it

with Descriptive Ethics because it related facts with ethical actions for people and organizations.

For example, the FIFA federation gave a small country of Gulf State of Qatar the world cup 2022

to get personal financial benefits. In addition, we can observe Teleological framework theory in

this unethical behavior, especially ethical egoism because the FIFA members acted only for their

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own interests without caring how it could affect the federation integrity. A next connection is the

Comprehensive Model of Top Management Fraud because this is directly associated with

corporate fraud. The model tries to understand the reasons why top executives of the

organizations give a false account about financial statements to the companies. Further, the

reasons that can influence people to do those actions. By doing managerial frauds, this effects

shareholders, society, communities, workers, and managers and business reputation. Clearly, the

FIFA federation made damages to all them.

In my evaluation in how this ethical issue was handled, I believe that the FIFA governing

body mishandled this ethical issue. Also, they tried to manipulate the press with false

information. I support this argument because this organization did not face quickly the

allegations of corruption publicly and lied to the people. Nevertheless, on November 12, 2014

the federation made a public report that explained that after an exhaustive internal investigation,

the federation found no evidence of any action that could compromise the FIFA’s integrity.

Although, they admitted that faced some obstacles. One of them was, the delegation of Russian

world cup 2018-2022 ruined computers with important information. The FIFA federation started

to solve this ethical issue forcing to resign to its president Sepp Blatter. Moreover, the federation

is trying to change its governance structure. For example, the company separated the roles of

chief executive and chair of the governing body. In addition, some executive members are trying

to figure out the root of the problem.

My recommendations to fix the FIFA ethical dilemmas are, create an independent

director that lead the organization with integrity and transparency. This will help the FIFA to

rebuild its reputation. Further, the federation should fix the relationship of its sponsors because

they are the most important financial resources. Also, FIFA federation should create a solid and

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positive ethical environment to strengthen employees’ ethical behaviors. This will decrease the

level of ambiguity of the workers’ conduct. However, all these could be hard to implement.

Hiring a qualify director could be a complex that will involve many process. Sponsors feel

deceived and rebuilding a new relationship will be a challenge to the FIFA.

V- Bibliography

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2018-3

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 8- BBC NEWS. Mitsubishi to Stop Selling Eight Models in Fuel Scandal. 30 August 2016.
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https://www.bbc.com/news/business-36089558

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to-sort-

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