Flashcards in Midterm Deck (32)
Be able to describe the Ford Pinto case. What key mistake made by business decision makers is this meant to illustrate? How did we correct the authors' interpretation of the mistake (connects to inherent normativity of business)?
They produced a car that resulted in many accidents and fires because they rushed production in order to compete. They knew of potential danger but produced anyway. The decision to proceed was based on cost benefit analysis and was a business decision, the executives didn't see it as an ethical dilemma. The problem was that they separated business and ethics rather than combining them.
They were also competing in a market with new competitors (namely, from Japan) where they were able to produce vehicles for cheaper and lighter which is why the cost benefit analysis to settle being cheaper being less than repairing was even more relevant in order to compete.
What are the five cognitive biases presented by the authors? What is confirmation bias? Describe your own business examples for each. How can each be remedied (using a nudge rather than a shove)?
1. Ill-conceived goals- May encourage negative behavior. Ex: Sears when they made a sales goal of $147/hour in order to speed up repairs, then they started to repair things that didn't need to be repaired.
2. Motivated Blindness- You see what you want to see, and you can just look right past issues. Ex- Barry bonds took steroids which increase his HR, which increased attendance to games, and the MLB ignored it because they were making more money.
3. Indirect blindness- Not holding corporations that are outsourced to ethical standards. Ex: Merck pharmaceutical firm sold a small drug that didn't make much revenue to Ovation which was a smaller firm, then it charged 1000% the price and the Merck was not looked at like they raised the price because they made a different firm do it.
4. Slippery Slope- Accepting minor infractions and letting them build up. Ex: accountant sees that a firm made a small mistake on their income and doesn't fix it because it wasn't big enough to make a difference, and then this happens the next 3 years and these little mistakes keep sliding by and don't become a big issue, when they actually should.
5. Overvaluing outcomes- Overvaluing a poor quality decision for the good result it produces. Ex: Doctor needs 4 more data results for a drug, and just makes them up, the item goes to market, there is no issue with the market.
What are some examples of nudges?
Writing "Each day, thousands of people who see this page register" on an organ donor program encouraging email.
What is predictable irrationality? How do the experiments in the video illustrate predictable irrationality?
Our brains behave irrationally in predictable patterns or ways. Just like how our eyes play tricks on us, our minds and judgment facilities do too. We think ripping a Band-Aid is less painful than slow - irrational. With an honor code/ ethical reminder people don't cheat - irrational. Taking 10 cents from a petty cash box vs a pencil from work.
If someone is wearing a GU sweatshirt and cheats, you are going to cheat also. If someone is wearing a UW sweatshirt and cheats, you are not going to cheat because you are better than they are.
What increases and decreases a person's fudge factor?
Decrease: reminder of morals (Bible, law), social norms/pressure (being around honest people)
Ex: if you get $1 from the professor for every math question you get right, the distance is close so you will be honest. If you get the money from a store down the street, the distance is further and you justify cheating.
Increase: increase space (exchange coins for money) which could be spatial or temporal, social norms of cheating
How does this video tie in with Ethical Breakdowns?
People cheating in the video and in the article did not see their decisions as unethical. They were distanced from the ethical dilemma through biases or actual distance. Both articles gave suggestions that can help reduce cheating or dishonesty. They both also demonstrated that unethical decisions are easily made by a lot of people whether they know it or not and they are often small rather than large.
How can lessons from this video be applied in a business setting?
We must check our intuitions and be aware of things that both increase and decrease ethical behaviors. If these reasons are understood, then unethical actions can be reduced.
What is a nudge? What is libertarian paternalism?
A simple way to encourage the adoption of new behaviors, without taking away their freedom of choice.
Why might a nudge be preferred to a shove (ie. increased security/punishment)?
Nudges still allow for freedom of decision but still push people in the desired direction. Shoves eliminate the freedom of decision and make people go in the desired direction whether they like it or not.
They are ethical because they preserve liberty.
They are inexpensive
Someone is much more likely to do something if they see it as their choice or decision as opposed to someone else's.
Nudgest don't cut off other opportunities, there's still liberty
(this is in the in-class set-up for Handy, not the text itself): What is an artifact? Name some examples of artifacts (and their purposes). Why does it make sense to think teleologically about artifacts? Why should we use a teleological approach when thinking about business?
An artifact is something non-natural which gets its purpose from its creator. An example of an artifact would be a movie, Gonzaga, and Starbucks. In class, a few purposes we discussed for movies were entertainment, relaxation, creativity, education, and delivering a message. For Gonzaga, a few purposes were education, growth, success, community, personal development, and Jesuit values. For Starbucks, purposes included consumption, community gathering place, energy, and caffeination. It makes sense to think teleologically (based on purpose) about artifacts because by definition, their purpose comes from their creators and therefore is easy to define and explain.
In what ways is business similar to a game? Be able to compare business to a game. What two factors (rules) does Handy argue are necessary for any game? Be able to describe why this is the case.
Games and business both have players with roles, winners & losers, strategy, rules, and competition.
In their rational self-interest because they have the opportunity to win, in business this means that they must be able to make a profit.
The two factors that Handy believes are necessary for any game are: trust and truth. It is worthwhile to participate in the game because business provides us with good, services, employment and the chance to better our communities.Need truth and trust to participate in the game
Trusting that your all following the same rules, trust does not mean that you are never dishonest (poker face)
Truth: The rules are there and they don't change, they are reasonable and everyone follows them.
What is (and what isn’t) the purpose of business? Why does Handy argue that considering making money to be the purpose of business is mistaking necessary and sufficient conditions? What is the difference between necessary & sufficient conditions?
The purpose of business (necessary) according to Handy is to make a profit so that the business can enhance the common good (sufficient).
He states that organizations should measure success in terms of outcomes for others as well as itself and that sustainability must extend to the human as well as the environment.
Necessary: Need food to live, business needs money to survive.
Sufficient: Live to eat food, a business' only goal is to make a profit.
The problem with confusing the two it that if a company moves from thinking of profit as a necessary step to enhancing the common good to thinking of profit as the only goal, they will lose sight of what is really important.
Describe the current business climate, according to Handy. What current “rules” of business does Handy criticize and why? What is good about business - even given Handy’s current concerns?
Handy describes the current business climate as one that is problematic. Employees are seen as costs rather than assets, companies are more than just ownership/properties today, and many companies see concepts of sustainability and social responsibility as too expensive and the business of business should remain the same.
Handy criticizes that the law recognizes shareholders, creditors and directors, none who are affiliated with the production of the company, while it fails to recognize the association of employees who contribute their skills.
What is good about business is that: 1. Creates new products. 2. Spreads technology. 3. Active agent of change. 4. Raises productivity. 5. Enhances quality and service.
How did the US Constitution framers feel about corporations? Why? Be specific about their concerns around corporations existing "in perpetuity".
The US founders didn't trust corporations, because of the corruption with the East India Trading Company and other English corporations being manipulative and taking advantage of consumers.
The US founders did not like the idea of corporations because they believed corporations would have too much power and decrease liberty
How did government and corporations view their roles for business and society?
Originally, the first businesses were infrastructure and public works departments because it encouraged investment with less liability and there was a clear purpose to the work with a specific end in sight. For example, once the construction of a railroad was complete, the people who constructed the railroad were no longer working together as a company.
What changes in the 1970s contributed to the shift in thinking about corporate responsibility? How does government/society treat corporations differently than earlier in the nation's founding?
Trickle down economics, the policy by Ronald Reagan was the biggest shift toward the idea that if you give money to the top, it will flow down through the economy to everyone else. Additionally, there was a lot of lack of trust in the government itself due to the involvement in the Vietnam war, which remains controversial, to the Watergate scandal with President Nixon. We also changed the way we invested in the stock market. As a result of both Reagan's economic theory and the lack of trust in the government, the idea came to light that we trusted each other as citizens more than the government to properly distribute wealth. Because of this, it makes sense logically to give a large quantity of wealth to shareholders at the top and trust them to do what's best.
Need 2nd question
Who was Milton Friedman? Why is he such an important economist? What “big shift” occurred due, in part, to Friedman’s NYT essay?
Milton Friedman was an American economist who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the complexity of stabilization policy
Milton helped create economic policies that mainly hit in the 80s
Was an advisor to Reagen
The creation of Trickle Down economics: give richer people tax breaks, they know how to re-invest money and lift up the rest of the economy
What is the agent/principal problem?
The principal-agent problem is a conflict in priorities between a person or group and the representative authorized to act on their behalf. An agent may act in a way that is contrary to the best interests of the principal.
The principal-agent problem is as varied as the possible roles of principal and agent. It can occur in any situation in which the ownership of an asset, or a principal, delegates direct control over that asset to another party, or agent.
What do shareholders own?
Own at least one share of a company's stock.
What is the Wrigley case about? (what is the Business Judgment Rule?)
Mr. Wrigley was a large shareholder in the corporation that owned Chicago cubs. Mr. Wrigley refused to install lights because he insisted baseball was a daytime sport. He wanted to maintain spirit of baseball and thus put the interest of the baseball corporation ahead of its shareholder.
Courts applied the Business Judgement Rule - you can do whatever you want as long as there is a small possibility this could help the company in the long run. As long as directors make case that a decision is best for the business then the court will rule in favor of the business over the shareholder.
Under what circumstance and for what reason is share price maximization a legal obligation? (what is the Revlon situation)?
Share Price Maximization: by maximizing SW you maximize efficiency, goal of SWM is to produce the maximal social welfare, which is same as
Revlon Case- when company is going from public to private, shareholders are being kicked out so uniquely vulnerable, need to disclose information to shareholders based off of knowledge for going private, being transparent
How does this video connect to Handy?
Both agree with SWM, but know its not the sole purpose of a company
Jesuit Business Education
How does this connect to Handy? Mackey?
• to fulfill human needs for goods and services.
• Provide important products, services needed by human kind
• Amplify the good of the business
• "purpose of business is to not make a profit, full stop. It is to make a profit so that the business can do something more or better. That 'something' becomes the real justification for the business."
o Profits are necessary but not sufficient
o Creating public good
What does it mean to say that business is a pivotal social institution?
• impact on many people
• Business drives the provision of goods and services affecting the standard of living world wide
• Impacting many stakeholders
What does it mean to claim business leadership is both charism and calling?
Jesuit tradition business leadership is a noble vocation. It sees leadership within this important societal institution both as charism (had help to get to where you are today) and a calling (vocation).
What is the difference between calling, job, and career?
job→ series of tasks
career→ series of positional moves and achievements
• more than a vocation, which is more than a job
• felt more deeply
have a duty to others
How is business a service to humankind? What responsibilities does this entail? Example(s)?
Business is a service to humankind because we engage in business in order to fulfill human needs for goods and services. The ensuing responsibilities are its impact on stakeholders, cultures, the environment and stewardship of God's resources and creation.
• Thinking about the lowest on the pyramid
• Figuring out human needs (more than wants)
• Innovating to improve the world
• Lifting those from the bottom up
Why should business be thought of as a contemporary community? What structures/behaviors does this require? Example(s)?
In both developed and developing economies, the contemporary business organization is the primary community for most individuals during working hours. therefore, they are challenged to develop healthy and just institutional cultures. Jesuit graduates must recognize the dignity of individuals in the workplace seeking to insure as much as is possible that no one is marginalized by the manner in which work is structured or by a lack of appropriate inclusion in organizational decision making.
• At minimum, ensure structures/processes don't marginalize people
o Example: How do custodians feel like part of a purpose? Mission?
• Help negatively impacted people
• Treating people better at work improves society
• Give employees a chance to better/improve themselves
o Example: Starbucks paying for college education
♣ Engaging in meaningful work
What obligations stem from the wealth-creating function of business? How should businesses balance profit?
• Wealth-creating function of business how wealth can..
o Serve the common good. Should be a constructive citizen in which it operates
♣ Pay fair share of taxes
♣ Treat employees well
♣ Invest in education (Starbucks)
o Use profit to better society