Ethics Ethics is the study of how people ought to act.

maintain an apartment building for low-income Chicagoans. In exchange, the

government guaranteed a steady stream of rent. But now the contract on Rienzi

Plaza is set to expire. Baskin could make a larger profit on the building by either

sellingit~converting it to-condominiums, or renting to unsubsidized tenants who

couid pay more. What does Baskin owe to his investors?

The Rienzi tenants and community groups have begun looking for a white

knight-someone who could buy the building and preserve its low-income

housing-but so far no luck. Meanwhile, Baskin asked government officials how

much more rent they would pay ifhe extended his contract for five years. Officials

said they would have to hire an outside consultant to do a market study, a task

that would take months-long past the deadline by which federal regulations

require Baskin to announce his decision. 1

Business is an enormously powerful tool that corporate managers can use to accomplish many goals. They may wish to earn a good living, even to become wealthy, but they can also use their business skills to cure the ill, feed the hungry, entertain the bored, and in many other ways affect their community, their country, and their world.

This book is primarily about the impact oflaw on business. But law is only one set of rules that governs business; ethics is another. Ethics is the study of how people ought to act. Law and ethics are often in harmony. Most reasonable people agree that murder should be prohibited. But law and ethics are not always compatible. In some cases, it might be ethical to commit an illegal act; in others, it might be unethical to be legal Here are two examples in which law and ethics might conflict: A 75-year-old man confined to a wheelchair robbed a bank in San Diego of $70 so that he could buy heart medicine. That was illegal-was it unethical?

Or what about Martin Luther King, Jr., who was arrested in Birmingham, Alabama, in 1963, for leading illegal sit-ins and marches to protest laws that discriminated against African f\mericans. When eight local clergymen criticized his activities, King offered this defense:

[W]hen you suddenly find your tongue twisted as you seek to explain to your six-year-old daughter why she can’t go to the public amusement park that has just been advertised on television, and see tears welling up when she is told that Funtown is closed to colored chil- dren …. [W]hen you take a cross-country drive and find it necessary to sleep night after night in the uncomfortable corners of your automobile because no motel will accept you …. How can [we] advocate breaking some laws and obeying others? I agree with St. Augustine that “an unjust law is not law at all.”2

1 Based on Jonathan Eig, “Landlord’s Dilemma: Help Poor Tenants or Seek More Profits,” Wall Street journal, July 17,2001, p. 1. 2 Martin Luther King, Jr., “Letter from Birmingham Jail,” The Christian Century, June 12,1963. Copyright© 1963 Dr. Martin Luther King, Jr.; Copyright© renewed 1991 Coretta Scott King. Reprinted by arrangement with The Heirs to the Estate of Martin Luther King Jr., do Writers House as agent for the proprietor, New York, NY.

–,,,”” The other chapters of this book focus on legal issues, but this chapter concentrates on ethics.

In all of the examples in this chapter, the activiti~s are legal, but are they ethical?


Business schools teach students how to maximize the profitability of an enterprise, large or small. Some people argue that, in the long run, ethical behavior does indeed pay. But they must mean the very long run, because to date there is little evidence that ethical behavior necessarily pays financially, either in the short or the long run.

For instance, when a fire destroyed the Malden Mills factory in Lawrence, Massachusetts, its 70-year-old owner, Aaron Feuerstein, could have shut down the business, collected the insurance money, and sailed off into retirement. But a layoff of the factory’s 3,000 employees would have been a major economic blow to the region. So instead Feuerstein kept the workers on the payroll, making the company’s patented Polartec fabric, while he rebuilt the factory. However, five years after the fire, Malden Mills filed bankruptcy papers. The company was not able to pay off the loans it had incurred to keep the business going.

In contrast, unethical behavior is no bar to financial success. The first antitrust laws in America were designed, at least in part, to restrain John D. Rockefeller’s unethical activities. Yet,four gen- erations later, his name is still synonymous with wealth and his numerous heirs can live comfort- ably on their inheritance from him.

If ethical behavior does not necessarily pay and unethical behavior sometimes does, why bother with ethics?


John Akers, the former chairman ofiBM, argues that without ethical behavior, a society cannot be economically competitive. He puts it this way:

Ethics and competitiveness are inseparable. No society anywhere will compete very long or successfully with people stabbing each other in the back; with people trying to steal from each other; with everything requiring notarized confin:rlation because you can’t trust the other fellow; with every little squabble ending in litigation; and with government writing reams of regulatory legislation, tying business hand and foot to keep it honest. There is no escaping this fact: the greater the measure of mutual trust and confidence in the ethics of a society, the greater its economic strength. 3


Researchers who study happiness find that people expect material goods to make them happier than they actually do. Sure, you enjoy driving that snappy new car home from the dealership, but afterwards your happiness quickly returns to its natural base level. People find themselves on the so-called “hedonic treadmill” -struggling to buy more and more things so they can get that buyer’s high, only to discover that they can never buy enough to maintain the thrill. Almost no matter how much people earn, they feel they would be happier if their income were just a little bit

3 David Grier, “Confronting Ethical Dilemmas,” unpublished manuscript of remarks at the Royal Bank of Canada, Sept. 19, 1989.

higher. So what does make people happy in the long run? Good relationships, satisfYing work, ties to the community-all available at no additional cost.


Every businessperson has many opportunities to be dishonest. Consider how one person felt when he resisted temptation:

Occasionally a customer forgot to send a bill for materials shipped to us for processing …. It would have been so easy to rationalize remaining silent. After all, didn’t they deserve to lose because of their inefficiency? However, upon instructing our staff to inform the parties of their errors, I found them eager to do so. Our honesty was beneficial in subtle ways. The “inefficient” customer remained loyal for years …. [O]ur highly moral policy had a marvel- ously beneficial effect on our employees. Through the years, many an employee visited my office to let me know that they liked working for a “straight” company. 4

Profitability is generally not what motivates managers to care about ethics. Managers want to feel good about themselves and the decisions they have made; they want to sleep at night. Their decisions-to lay off employees, install safety devices in cars, burn a cleaner fuel-affect people’s lives.


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