Businesses are compelled to obey the law. In some circumstances, they may be able to obey the law but engage in conduct that would be deemed by many to be unethical. Do businesses owe a duty to act ethically in the conduct of their business even though the law would permit this conduct?
Learning Objectives and Chapter Contents

1. Introduction to Ethics and the Social Responsibility of Business
   Ethics and the Law
2. 42.1Describe how law and ethics intertwine.
3. Case 42.1 U.S. SUPREME COURT CASE Wal-Mart Stores, Inc. v. Samara Brothers, Inc.
   Business Ethics
4. 42.2Describe and apply the moral theories of business ethics.
5. Ethics Whistle-blower Statute
6. Case 42.2 U.S. SUPREME COURT CASE POM Wonderful LLC v. Coca-Cola Company
7. Case 42.3 U.S. SUPREME COURT CASE Goodyear Tire & Rubber Company v. Haeger
   Social Responsibility of Business
8. 42.3Describe and apply the theories of the social responsibility of business.
9. Global Law Is the Outsourcing of U.S. Jobs Ethical?
10. Ethics Sarbanes-Oxley Act Requires Public Companies to Adopt Codes of Ethics
11. Global Law Conducting Business in Russia
    “Ethical considerations can no more be excluded from the administration of justice, which is the end and purpose of all civil laws, than one can exclude the vital air from his room and live.”
    —John F. Dillon
    Laws and Jurisprudence of England and America Lecture I (1894)
    Introduction to Ethics and Social Responsibility of Business
    Businesses organized in the United States are subject to its laws. They are also subject to the laws of other countries in which they operate. In addition, businesspersons owe a duty to act ethically in the conduct of their affairs, and businesses owe a social responsibility not to harm society.
    He who seeks equality must do equity.
    Joseph Story (1779–1845)
    Former justice of the U.S. Supreme Court
    Equity Jurisprudence (1836)
    Although most laws are based on ethical standards, not all ethical standards have been enacted as law. While the law establishes a minimum degree of conduct expected by persons and businesses in society, ethics demands more. This chapter discusses business ethics and the social responsibility of business.

Ethics and the Law

1. 42.1 Describe how law and ethics intertwine.
   Ethics and the law are intertwined. Sometimes the rule of law and the rule of ethicsdemand the same response by a person confronted with a problem.
   Example Federal and state laws make bribery unlawful. A person violates the law if he or she bribes a judge for a favorable decision in a case. Ethics would also prohibit this conduct.
   But sometimes the law demands certain conduct but a person’s ethical standards are contrary.
   Example Federal law prohibits employers from hiring certain illegal alien workers. Suppose an employer advertises the availability of a job and receives no response except from a person who cannot prove citizenship of this country or does not possess a required visa. The worker and the worker’s family are destitute. Should the employer violate the law and hire this person? The law says no, but ethics may say yes.
   However, in some situations, the law may permit an act that is ethically wrong.
   Example Occupational safety laws set minimum standards for emissions of dust from toxic chemicals in the workplace. Suppose a company can reduce the emission below the legal standard by spending additional money. The only benefit from the expenditure would be better employee health. Ethics would require the extra expenditure; the law would not (see Exhibit 42.1).
   Exhibit 42.1
   Law and Ethics

In the following U.S. Supreme Court case, the court examined the lawfulness of Wal-Mart knocking off another company’s product design.
Case 42.1 U.S. SUPREME COURT CASE Business Ethics
Wal-Mart Stores, Inc. v. Samara Brothers, Inc.
529 U.S. 205, 120 S.Ct. 1339, 2000 U.S. Lexis 2197 (2000)
Supreme Court of the United States
“Their suspicions aroused, however, Samara officials launched an investigation, which disclosed that Wal-Mart was selling the knockoffs of Samara’s outfits.”
—Justice Scalia
Facts
Samara Brothers, Inc. (Samara), is a designer and manufacturer of children’s clothing. Samara sold its clothing to retailers, which in turn sold the clothes to consumers. Wal-Mart Stores, Inc. operates a large chain of budget warehouse stores that sell thousands of items at very low prices. Wal-Mart contacted one of its suppliers, Judy-Philippine, Inc. (JPI), about the possibility of making a line of children’s clothes just like Samara’s successful line. Wal-Mart sent photographs of Samara’s children’s clothes to JPI (with the name “Samara” readily discernible on the labels of the garments) and directed JPI to produce children’s clothes exactly like those in the photographs. JPI produced a line of children’s clothes for Wal-Mart that copied the designs, colors, and patterns of Samara’s clothing. Wal-Mart then sold this line of children’s clothing in its stores.
Samara discovered that Wal-Mart was selling the knockoff clothes at a price that was lower than Samara’s retailers were paying Samara for its clothes. After sending unsuccessful cease-and-desist letters to Wal-Mart, Samara sued, alleging that Wal-Mart stole Samara’s trade dress in violation of Section 43(a) of the Lanham Act. The U.S. district court held in favor of Samara and awarded damages. The U.S. court of appeals affirmed the award to Samara. Wal-Mart appealed to the U.S. Supreme Court.
Issue
Must a product’s design have acquired a secondary meaning before it is protected as trade dress?
Language of the U.S. Supreme Court
Their suspicions aroused, however, Samara officials launched an investigation, which disclosed that Wal-Mart was selling the knockoffs of Samara’s outfits. The Lanham Act, in Section 43(a), requires that a producer show that the allegedly infringing feature is likely to cause confusion with the product for which protection is sought. In an action for infringement of unregistered trade dress a product’s design is protectable only upon a showing of secondary meaning.
Decision
The Supreme Court reversed the decision of the U.S. court of appeals and remanded the case for further proceedings consistent with its opinion.
Critical Legal Thinking Questions
Even though Wal-Mart was found not to have violated the law, was its conduct ethical? Did Wal-Mart’s conduct cause economic harm to Samara?

Business Ethics

1. 42.2 Describe and apply the moral theories of business ethics.
   How can ethics be measured? The answer is very personal: What one person considers ethical another may consider unethical. However, there do seem to be some universal rules about what conduct is ethical and what conduct is not. The following material discusses 5 major theories of ethics: (1) ethical fundamentalism, (2) utilitarianism, (3) Kantian ethics, (4) Rawls’s social justice theory, and (5) ethical relativism.
   Ethical Fundamentalism
   Under ethical fundamentalism, a person looks to an outside source for ethical rules or commands. This may be a book (e.g., the Bible, the Koran) or a person (e.g., Karl Marx). Critics argue that ethical fundamentalism does not permit people to determine right and wrong for themselves. Taken to an extreme, the result could be considered unethical under most other moral theories. For example, a literal interpretation of the maxim “an eye for an eye” would permit retaliation.
   The following ethics case discusses the incentives that employees have to report illegal activities of their employers in certain circumstances.
   Ethics
   Whistle-blower Statute
   “Bayer employees were to obey not only ‘the letter of the law but the spirit of the law as well.’”
   —Bayer Corporation’s Ethics Video
   The Bayer Corporation (Bayer) is a large pharmaceutical company that produces prescription drugs, including its patented antibiotic Cipro. Bayer sold Cipro to private health providers and hospitals, including Kaiser Permanente Medical Care Program, the largest health maintenance organization in the United States. Bayer also sold Cipro to the federal government’s Medicaid program, which provides medical insurance to the poor. Federal law contains a “best price” rule that prohibits a company that sells a drug to Medicaid from charging Medicaid a price higher than the lowest price for which it sells the drug to private purchasers.
   Bayer’s executives came up with a plan whereby Bayer would put a private label on its Cipro and not call it Cipro and sell the antibiotic to Kaiser at a 40 percent discount. Bayer continued to charge Medicaid the full price. One of Bayer’s executives who negotiated this deal with Kaiser was George Couto, a corporate account manager.
   Everything went well for Bayer until Couto attended a mandatory ethics training class at Bayer. Later that day, Couto attended a staff meeting at which it was disclosed that Bayer kept $97 million from Medicaid by using the discounted private labeling program for Kaiser and other health care companies.
   Couto contacted a lawyer and filed a qui tam lawsuit under the federal False Claims Act1—also known as the Whistle-blower Statute—which permits private parties to sue companies for fraud on behalf of the government. The whistle-blower can be awarded up to 25 percent of the amount recovered on behalf of the federal government, even if the informer has been a co-conspirator in perpetrating the fraud.
   After the case was filed, the U.S. Department of Justice took it over, as allowed by law, and filed criminal and civil charges against Bayer. Bayer pleaded guilty to 1 criminal felony and agreed to pay federal and state governments $257 million to settle the civil and criminal cases. Couto, age 39, died of pancreatic cancer 3 months prior to the settlement. He was awarded $34 million, which went to his 3 children. United States ex. rel. Estate of George Couto v. Bayer Corporation(United States District Court for the District of Massachusetts)
   Ethics Questions Did the managers at Bayer obey the letter of the law? Did the managers at Bayer obey the spirit of the law? Did Couto act ethically in this case? Should Couto have benefitted from his own alleged illegal conduct?

Utilitarianism
Utilitarianism is a moral theory with origins in the works of Jeremy Bentham (1748–1832) and John Stuart Mill (1806–1873). This moral theory dictates that people must choose the action or follow the rule that provides the greatest good to society. This does not mean the greatest good for the greatest number of people.
Example If an action would increase the good of 25 people by 1 unit each and an alternative action would increase the good of 1 person by 26 units, then, according to utilitarianism, the latter action should be taken.
Web Exercise
Visit the website about making changes at Wal-Mart at www.changewalmart.com. What is one of the issues currently being discussed on this site?
Utilitarianism has been criticized because it is difficult to estimate the “good” that will result from different actions, it is difficult to apply in an imperfect world, and it treats morality as if it were an impersonal mathematical calculation.
Example A company is trying to determine whether it should close an unprofitable plant located in a small community. Utilitarianism would require that the benefits to shareholders from closing the plant be compared with the benefits to employees, their families, and others in the community from keeping it open.

Kantian Ethics
Immanuel Kant (1724–1804) is the best-known proponent of Kantian ethics, also called duty ethics. Kant believed that people owe moral duties that are based on universal rules. Kant’s philosophy is based on the premise that people can use reasoning to reach ethical decisions. His ethical theory would have people behave according to the categorical imperative “Do unto others as you would have them do unto you.”

TIBET
This is a photograph of the Potala Palace in Tibet. A person’s culture helps shape his or her ethical values.
Example According to Kantian ethics, keeping a promise to abide by a contract is a moral duty even though that contract turns out to be detrimental to the obligated party.
The universal rules of Kantian ethics are based on two important principles: (1) consistency— that is, all cases are treated alike, with no exceptions—and (2) reversibility—that is, the actor must abide by the rule he or she uses to judge the morality of someone else’s conduct. Thus, if you are going to make an exception for yourself, that exception becomes a universal rule that applies to all others.
The notion that a business is clothed with a public interest and has been devoted to the public use is little more than a fiction intended to beautify what is disagreeable to the sufferers.
Dissent by Justice Oliver Wendell Holmes Jr.
Tyson & Bro-United Theatre Ticket Officers v. Banton
273 U.S. 418, 47 S.Ct. 426, 1927 U.S. Lexis 707 (1927)
Supreme Court of the United States
Example If you rationalize that it is acceptable for you to engage in deceptive practices, it is acceptable for competitors to do so also.
A criticism of Kantian ethics is that it is difficult to reach consensus on what the universal rules should be.
The following U.S. Supreme Court case involves the issue of ethics.
Case 42.2 U.S. SUPREME COURT CASE Moral Theory of Law and Ethics
POM Wonderful, LLC v. Coca-Cola Company
134 S.Ct. 2228, 2014 U.S. Lexis 4165 (2014)
Supreme Court of the United States
“Lanham Act suits provide incentives for manufacturers to behave well.”
—Kennedy, Justice
Facts
POM Wonderful, LLC (POM), is a grower of pomegranates, a fruit, and a maker and distributor of pomegranate juice and juice blends. POM produces and sells a pomegranate-blueberry juice blend that consists of 85% pomegranate and 15% blueberry juices.
The Coca-Cola Company’s Minute Maid Division makes a juice blend that contains 0.3% pomegranate, 0.2% blueberry juice, and 0.1% raspberry juice. The Coca-Cola pomegranate blueberry juice is actually made with 99.4% apple and grape juices.
Despite the minuscule amount of pomegranate and blueberry juices in the blend, the front label of the Coca-Cola product displays the words “POMEGRANATE” and “BLUEBERRY” in all capital letters on two separate lines. Below those words, Coca-Cola placed the phrase “flavored blend of 5 juices” in much smaller type. Coca-Cola’s front label also displays a vignette of blueberries, grapes, and raspberries in front of a halved pomegranate and a halved apple.
POM sued Coca-Cola under Section 43 of the federal Lanham Act, which allows one competitor to sue another to recover damages for unfair competition arising from false and misleading product descriptions. Coca-Cola tried to avoid POM’s lawsuit by asserting that the Federal Food, Drug, and Cosmetic Act (FDCA) did not require any different labeling. The U.S. district court and the U.S. court of appeals held in favor of Coca-Cola. POM appealed to the U.S. Supreme Court.
Issue
Can a private party bring an unfair competition lawsuit under the Lanham Act against a competitor that challenges the truthfulness of a food label?
Language of the U.S. Supreme Court
The Lanham Act creates a cause of action for unfair competition through misleading advertising and labeling. Coca-Cola is incorrect that the best way to harmonize the statutes is to bar POM’s Lanham Act claim. By serving a distinct compensatory function that may motivate injured persons to come forward, Lanham Act suits provide incentives for manufacturers to behave well.
Decision
The U.S. Supreme Court held that the POM may proceed with its Lanham Act unfair competition lawsuit against Coca-Cola and remanded the case for further proceedings. Eventually, a jury decided that Coca-Cola’s labelling did not deceive the public.
Critical Legal Thinking Questions
Do you think that Coca-Cola was trying to trick consumers into buying cheap apple-grape juice by labeling it pomegranate-blueberry juice? Do you think Coca-Cola acted ethically in this case?

Rawls’s Social Justice Theory
John Locke (1632–1704) and Jean-Jacques Rousseau (1712–1778) proposed a social contracttheory of morality. Under this theory, each person is presumed to have entered into a social contract with all others in society to obey moral rules that are necessary for people to live in peace and harmony. This implied contract states, “I will keep the rules if everyone else does.” These moral rules are then used to solve conflicting interests in society.
The leading proponent of the modern justice theory was John Rawls (1921–2002), a philosopher at Harvard University. Under Rawls’s social justice theory, fairness is considered the essence of justice. The principles of justice should be chosen by persons who do not yet know their station in society—thus, their “veil of ignorance” would permit the fairest possible principles to be selected.
Example Pursuant to Rawls’s social justice theory, the principle of equal opportunity in employment would be promulgated by people who would not yet know if they were in a favored class.
As a caveat, Rawls also proposed that the least advantaged in society must receive special assistance to realize their potential. Rawls’s theory of social justice is criticized for two reasons. First, establishing the blind “original position” for choosing moral principles is impossible in the real world. Second, many persons in society would choose not to maximize the benefit to the least advantaged persons in society.

Ethical Relativism
Ethical relativism holds that individuals must decide what is ethical based on their own feelings about what is right and wrong. Under this moral theory, if people meet their own moral standard in reaching a decision, no one can criticize them for it. Thus, there are no universal ethical rules to guide a person’s conduct. This theory has been criticized because action that is usually thought to be unethical (e.g., committing fraud) would not be unethical if the perpetrator thought it was in fact ethical. Few philosophers advocate ethical relativism as an acceptable moral theory.
The following case concerns the nondisclosure of evidence in a lawsuit.
Case 42.3 U.S. SUPREME COURT CASE Nondisclosure of Evidence
Goodyear Tire & Rubber Company v. Haeger
137 S.Ct. 1178, 2017 U.S. Lexis 2613 (2017)
Supreme Court of the United States
“The uncertainty points toward demanding a do-over”
—Kagan, Justice
Facts
Leroy, Donna, Barry, and Suzanne Haeger sued the Goodyear Tire & Rubber Company to recover monetary damages for injuries they suffered after the family’s motorhome swerved off the road and flipped over. The plaintiffs alleged that a Goodyear G159 tire on the vehicle caused the accident because the tire was not designed to withstand the level of heat generated when the tire was used on a motorhome at highway speeds. Discovery in the case lasted several years. The plaintiffs repeatedly demanded Goodyear to turn over internal test results for the G159, but the company’s responses were both slow and unrevealing in content. The parties finally settled the case for an undisclosed sum of money.
Later, the plaintiffs’ lawyer learned that Goodyear had disclosed a set of test results in another case that had not been disclosed to the plaintiffs that showed that the G159 tire got unusually hot at speeds between 55 and 65 miles per hour. The plaintiffs sued Goodyear to recover their entire lawyer’s fees of $2.7 million they expended on their case. The U.S. district court awarded the plaintiffs this amount of damages, and the U.S. court of appeals affirmed the judgment. Goodyear appealed to the U.S. Supreme Court, alleging that the award of lawyer’s fees should not be the entire amount expended by the plaintiffs, but should be limited to an amount determined to be related to Goodyear’s misconduct.
Issue
Should the plaintiffs recover their entire lawyer’s fees of $2.7 million?
Language of the U.S. Supreme Court
Goodyear, the U.S. district court found, had engaged in a years-long course of bad-faith behavior. Here, the conduct arose to a truly egregious level. Federal courts possess the ability to fashion an appropriate sanction for conduct which abuses the judicial process. A sanctioning court must determine which fees were incurred because of, and solely because of, the misconduct at issue. No such finding lies behind the $2.7 million award. The uncertainty points toward demanding a do-over.
Decision
The U.S. Supreme Court held that the plaintiffs cannot automatically recover the entire lawyer’s fees they spent on the case, but can recover the amount of lawyer’s fees caused by Goodyear’s withholding of evidence. The Supreme Court remanded the case for a determination of this amount.
Critical Legal Thinking Questions
Did Goodyear act ethically in this case? Should the plaintiffs be awarded the entire amount they spent on lawyer’s fees? Do you think the amount of damages that will be awarded will prevent similar conduct in the future?
Concept Summary
Theories of Ethics
Theory Description
Ethical fundamentalism Persons look to an outside source (e.g., the Bible, the Koran) or a central figure for ethical guidelines.
Utilitarianism Persons choose the alternative that would provide the greatest good to society.
Kantian ethics A set of universal rules that establish ethical duties.
The rules are based on reasoning and require (1) consistency in application and (2) reversibility.
Rawls’s social justice theory Moral duties are based on an implied social contract. Fairness is justice. The rules are established from an original position of a “veil of ignorance.”
Ethical relativism Individuals decide what is ethical, based on their own feelings as to what is right or wrong.

Social Responsibility of Business

1. 42.3 Describe and apply the theories of the social responsibility of business.
   Businesses do not operate in a vacuum. Decisions made by businesses have far-reaching effects on society. In the past, many business decisions were based solely on a cost–benefit analysis and how they affected the bottom line. Such decisions, however, may cause negative externalities for others.
   Example The dumping of hazardous wastes from a manufacturing plant into a river affects the homeowners, farmers, and others who use the river’s waters.
   Social responsibility requires corporations and businesses to act with awareness of the consequences and impact that their decisions will have on others. Thus, corporations and businesses are considered to have some degree of responsibility for their actions.
   Four theories of the social responsibility of business are discussed in the following paragraphs: (1) maximize profits, (2) moral minimum, (3) stakeholder interest, and (4) corporate citizenship.
   Maximize Profits
   The traditional view of the social responsibility of business is that business should maximize profits for shareholders. This view, which dominated business and the law during the nineteenth century, holds that the interests of other constituencies (e.g., employees, suppliers, residents of the communities in which businesses are located) are not important in and of themselves.
   Milton Friedman, who won the Nobel Prize in economics when he taught at the University of Chicago, advocated the theory of maximizing profits for shareholders. Friedman asserted that in a free society, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception and fraud.”2
   Web Exercise
   Visit the website of McDonald’s Corporation, at www.mcdonalds.com. Find and read the corporation’s code of ethics.
   The ethics of U.S. companies outsourcing jobs to workers in foreign countries is discussed in the following feature.
   Global Law
   Is the Outsourcing of U.S. Jobs to Foreign Countries Ethical?
   HUE, VIETNAM
   “Outsourcing” is one of the most despised words for workers in the United States who have lost their jobs to workers in foreign countries. Companies in the United States often outsource the production of many of the goods that are eventually sold in the United States (e.g., clothing, athletic shoes, toys, furniture, televisions and electronic products). The reason they do so is because they can produce the goods at a lower cost in foreign countries (because workers in many foreign countries are paid substantially less than workers in the United States) and then make higher profits when they sell the goods in the United States.
   But why are goods cheaper to make in many foreign countries? By having their goods made in foreign countries, companies avoid the expenses of complying with U.S. worker protection laws that would apply if the products were made in the United States. Some of these laws are occupational safety laws that require workplaces to be safe to work in; workers’ compensation laws that pay workers if they are injured on the job; fair labor standards laws that prevent child labor and require the payment of minimum wages and overtime wages; laws that allow workers to form and join unions; laws that require some employers to provide health insurance to employees; laws that require employers to pay Social Security taxes for employees to the U.S. government; laws that prohibit discrimination based on race, sex, disability, age, and other protected classes; and so on. Thus, to avoid compliance with and therefore the costs of these laws, U.S. companies outsource the production of their goods to workers in other countries that do not provide these worker protections and benefits.
   Is it ethical for U.S. companies to export the production of their goods to foreign workers who have few of the required worker protections and benefits of workers in the United States? Who benefits by having goods made in foreign countries?

Moral Minimum
Some proponents of corporate social responsibility argue that a corporation’s duty is to make a profit while avoiding causing harm to others. This theory of social responsibility is called the moral minimum. Under this theory, so long as business avoids or corrects the social injury it causes, it has met its duty of social responsibility.
Example A corporation that pollutes a body of water and then compensates those whom the pollution has injured has met its moral minimum duty of social responsibility.
The ultimate justification of the law is to be found, and can only be found, in moral considerations.
Lord MacMillan
Law and Other Things (1937)
The legislative and judicial branches of government have established laws that enforce the moral minimum of social responsibility for corporations.
Examples Occupational safety laws establish minimum safety standards for protecting employees from injuries in the workplace. Consumer protection laws establish safety requirements for products and make manufacturers and sellers liable for injuries caused by defective products.
The following feature discusses how the landmark Sarbanes-Oxley Act promotes ethics in business.
Ethics
Sarbanes-Oxley Act Requires Public Companies to Adopt Codes of Ethics
In the late 1990s and early 2000s, many large corporations in the United States were found to have engaged in massive financial frauds. Many of these frauds were perpetrated by the chief executive officers and other senior officers of the companies. Financial officers, such as chief financial officers and controllers, were also found to have been instrumental in committing these frauds. In response, Congress enacted the Sarbanes-Oxley Act of 2002, which makes certain conduct illegal and establishes criminal penalties for violations.3 In addition, the Sarbanes-Oxley Act prompts companies to encourage senior officers of public companies to act ethically in their dealings with shareholders, employees, and other constituents.
Section 406 of the Sarbanes-Oxley Act requires a public company to disclose whether it has adopted a code of ethics for senior financial officers, including its principal financial officer and principal accounting officer. In response, public companies have adopted codes of ethics for their senior financial officers. Many public companies have voluntarily included all officers and employees in the coverage of their codes of ethics.
Ethics Questions How effective will a code of ethics be in preventing unethical conduct? Can you recall any situation that you may have read about where officers of a public company acted unethically?
Stakeholder Interest
Businesses have relationships with all sorts of people besides their shareholders, including employees, suppliers, customers, creditors, and the local community. Under the stakeholder interest theory of social responsibility, a corporation must consider the effects its actions have on these other stakeholders. For example, a corporation would violate the stakeholder interest theory if it viewed employees solely as a means of maximizing shareholder wealth.
The stakeholder interest theory is criticized because it is difficult to harmonize the conflicting interests of stakeholders.
Example In deciding to close an unprofitable manufacturing plant, certain stakeholders would benefit (e.g., shareholders and creditors), whereas other stakeholders would not
Corporate Citizenship
The corporate citizenship theory of social responsibility argues that business has a responsibility to do well. That is, business is responsible for helping to solve social problems that it did little, if anything, to cause.
Example Under the corporate citizenship theory of social responsibility, corporations owe a duty to subsidize schools and help educate children.
This theory contends that corporations owe a duty to promote the same social goals as individual members of society. Proponents of this “do good” theory argue that corporations owe a debt to society to make it a better place and that this duty arises because of the social power bestowed on them. That is, this social power is a gift from society and should be used to good ends.
A major criticism of this theory is that the duty of a corporation to do good cannot be expanded beyond certain limits. There is always some social problem that needs to be addressed, and corporate funds are limited. Further, if this theory were taken to its maximum limit, potential shareholders might be reluctant to invest in corporations.
Concept Summary
Theories of Social Responsibility
Theory Social Responsibility
Maximize profits To maximize profits for stockholders
Moral minimum To avoid causing harm and to compensate for harm caused
Stakeholder interest To consider the interests of all stakeholders, including stockholders, employees, customers, suppliers, creditors, and the local community
Corporate citizenship To do well and solve social problems
(e.g., current employees and the local community).

Public Benefit Corporations
Most states have passed legislation creating a new form of corporation, called the public benefit corporation, often referred to as a benefit corporation or B corporation or B corp. A benefit corporation is a for-profit corporation, but with missions additional to the pure profit-motive. One purpose of a B corporation is to generate benefits for society. Unlike traditional corporations, where the shareholder is the main stakeholder, B corps by law allow directors and officers to consider other stakeholders in making corporate decisions. These include employees, customers, suppliers, and the community.
A B corporation’s stated purpose is to create general-public benefits. This includes considering social issues and protecting the environment. In addition, B corps can name specific public benefit purposes, such as reducing the company’s carbon footprint, engaging in sustainability efforts, giving 25 percent of its profits to charity, and the like. B corps are sometimes referred to as mission-driven businesses and social purpose corporations. Most states have enacted legislation that permits B corps. Companies such as Patagonia, Method, Ben and Jerry’s, Etsy, Kickstarter, AltSchool, and others have chosen to conduct business as B corporations.
The following feature discusses doing business in Russia.
Global Law
Conducting Business in Russia
ST. PETERSBURG, RUSSIA
Russia was once the leading country of the Union of Soviet Socialist Republics (USSR), also known as the Soviet Union. Russia was a socialist communist state until the collapse of the Soviet Union in 1989. Since then, it has followed a course of capitalism. However, Russia is ranked as one of the worst countries for corruption and bribery in the world. Therefore, foreign companies sometimes find it difficult to do business in Russia without violating ethical principles.

Key Terms and Concepts
• Code of ethics
• Corporate citizenship
• Ethical fundamentalism
• Ethical relativism
• Ethics
• Ethics and the law
• False Claims Act (Whistle-blower Statute)
• General-public benefits
• Kantian ethics (duty ethics)
• Law
• Maximize profits
• Moral minimum
• Public benefit corporation (benefit corporation or B corporation or B corp)
• Qui tam lawsuit
• Rawls’s social justice theory
• Sarbanes-Oxley Act
• Section 406 of the Sarbanes-Oxley Act
• Social responsibility of business
• Specific public benefit purposes
• Stakeholder interest
• Utilitarianism

Critical Legal Thinking Cases
MyLab Business Law
To complete the problems with the , go to Discussion in the MyLab.
42.1 False Advertising
Papa John’s International, Inc., is the third-largest pizza chain in the United States, with more than 2,050 locations. Papa John’s adopted a new slogan—“Better Ingredients. Better Pizza.”—and applied for and received a federal trademark for this slogan. Papa John’s spent over $300 million building customer recognition and goodwill for the slogan, which has appeared on millions of signs, shirts, menus, pizza boxes, napkins, and other items and has regularly appeared as the tagline at the end of Papa John’s radio and television advertisements.
Pizza Hut, Inc., is the largest pizza chain in the United States, with more than 7,000 restaurants. Pizza Hut launched a new advertising campaign in which it declared “war” on poor-quality pizza. The advertisements touted the “better taste” of Pizza Hut’s pizza and “dared” anyone to find a better pizza. Pizza Hut also filed a civil action in federal court, charging Papa John’s with false advertising in violation of Section 43(a) of the federal Lanham Act. What is false advertising? What is puffery? How do they differ from one another? Are consumers smart enough to see through companies’ puffery? Is the Papa John’s advertising slogan “Better Ingredients. Better Pizza” false advertising? Pizza Hut, Inc. v. Papa John’s International, Inc., 227 F.3d 489, 2000 U.S. App. Lexis 23444 (United States Court of Appeals for the Fifth Circuit)
42.2 Bribery
Sun-Diamond Growers of California is a trade association that engages in marketing and lobbying activities on behalf of its 5,000 member-growers of raisins, figs, walnuts, prunes, and hazelnuts. Sun-Diamond gave Michael Epsy, U.S. secretary of agriculture, tickets to sporting events (worth $2,295), luggage ($2,427), meals ($665), and a crystal bowl ($524) while two matters in which Sun-Diamond members had an interest were pending before the secretary of agriculture. The 2 matters were decided in Sun-Diamond’s favor. The United States sued Sun-Diamond criminally for making illegal gifts to a public official, in violation of the federal antibribery and gratuity statute [18 U.S.C. Sections 201(b) and 201(c)]. The United States sought to recover a monetary fine against Sun-Diamond. Was Sun-Diamond’s conduct ethical? Has Sun-Diamond violated the federal antibribery and gratuity statute by giving these items to the U.S. secretary of agriculture? United States v. Sun-Diamond Growers of California, 526 U.S. 398, 119 S.Ct. 1402, 1999 U.S. Lexis 3001 (Supreme Court of the United States)
42.3 Liability
Johns-Manville Corporation is a profitable company that makes a variety of building and other products. It was a major producer of asbestos, which was used for insulation in buildings and for a variety of other uses. It has been medically proven that excessive exposure to asbestos causes asbestosis, a fatal lung disease. Thousands of employees of the company and consumers who were exposed to asbestos and contracted this fatal disease sued the company for damages. Eventually, the lawsuits were being filed at a rate of more than 400 per week.
In response to the claims, Johns-Manville Corporation filed for reorganization bankruptcy. It argued that if it did not, an otherwise viable company that provided thousands of jobs and served a useful purpose in this country would be destroyed and that without the declaration of bankruptcy, a few of the plaintiffs who first filed their lawsuits would win awards of hundreds of millions of dollars, leaving nothing for the remainder of the plaintiffs. Under the bankruptcy court’s protection, the company was restructured to survive. As part of the release from bankruptcy, the company contributed money to a fund to pay current and future claimants. The fund was not large enough to pay all injured persons the full amounts of their claims. Is Johns-Manville liable for negligence? Is it ethical for Johns-Manville to declare bankruptcy? Has it met its duty of social responsibility in this case? In re Johns-Manville Corporation, 36 B.R. 727, 1984 Bankr. Lexis 6384 (United States Bankruptcy Court for the Southern District of New York)

Ethics Cases
42.4 Ethics Case
McDonald’s Corporation operates the largest fast-food restaurant chain in the United States and the world. It produces famous foods such as the Big Mac hamburger, Chicken McNuggets, the Egg McMuffin, french fries, shakes, and other foods. A McDonald’s survey showed that 22 percent of its customers are “Super Heavy Users,” meaning that they eat at McDonald’s 10 times or more a month. Super Heavy Users make up approximately 75 percent of McDonald’s sales. The survey also found that 72 percent of McDonald’s customers were “Heavy Users,” meaning they ate at McDonald’s at least once a week.
Jazlyn Bradley consumed McDonald’s foods her entire life during school lunch breaks and before and after school, approximately 5 times per week, ordering 2 meals per day. When Bradley was 19 years old, she sued McDonald’s Corporation for causing her obesity and health problems associated with obesity.
Plaintiff Bradley sued McDonald’s in U.S. district court for violating the New York Consumer Protection Act, which prohibits deceptive and unfair acts and practices. She alleged that McDonald’s misled her, through its advertising campaigns and other publicity, that its food products were nutritious, of a beneficial nutritional nature, and easily part of a healthy lifestyle if consumed on a daily basis. The plaintiff sued on behalf of herself and a class of minors residing in the state of New York who purchased and consumed McDonald’s products. McDonald’s filed a motion with the U.S. district court to dismiss the plaintiff’s complaint. Has the plaintiff stated a valid case against McDonald’s for deceptive and unfair acts and practices in violation of the New York Consumer Protection Act? Did McDonald’s act ethically in selling products that it knows cause obesity? Should McDonald’s disclose the information regarding heavy users? Bradley v. McDonald’s Corporation, 2003 U.S. Dist. Lexis 15202 (United States District Court for the Southern District of New York)
42.5 Ethics Case
Kaiser Aluminum & Chemical Corporation entered into a collective bargaining agreement with the United Steelworkers of America, a union that represented employees at Kaiser’s plants. The agreement contained an affirmative-action program to increase the representation of minorities in craft jobs. To enable plants to meet these goals, on-the-job training programs were established to teach unskilled production workers the skills necessary to become craft workers. Assignment to the training program was based on seniority, except that the plan reserved 50 percent of the openings for black employees.
Thirteen craft trainees were selected from Kaiser’s Gramercy plant for the training program. Of these, 7 were black and 6 white. The most senior black trainee selected had less seniority than several white production workers who had applied for the positions but were rejected. Brian Weber, one of the rejected white employees, instituted a class action lawsuit, alleging that the affirmative-action plan violated Title VII of the Civil Rights Act of 1964, which made it “unlawful to discriminate because of race” in hiring and selecting apprentices for training programs. The U.S. Supreme Court upheld the affirmative-action plan in this case. The decision stated:
We therefore hold that Title VII’s prohibition against racial discrimination does not condemn all private, voluntary, race-conscious affirmative action plans. At the same time, the plant does not unnecessarily trammel the interests of the white employees. Moreover, the plan is a temporary measure; it is not intended to maintain racial balance, but simply to eliminate a manifest racial imbalance.
Do companies owe a duty of social responsibility to provide affirmative-action programs? United Steelworkers of America v. Weber, 443 U.S. 193, 99 S.Ct. 2721, 1979 U.S. Lexis 40 (Supreme Court of the United States)
42.6 Ethics Case
Warner-Lambert Company has manufactured and distributed Listerine antiseptic mouthwash since 1879. Its formula has never changed. Since Listerine’s introduction, the company has represented the product as being beneficial in preventing and curing colds and sore throats. Direct advertising of these claims to consumers began in 1921. Warner-Lambert spent millions of dollars annually advertising these claims in print media and in television commercials.
After 100 years of Warner-Lambert’s making such claims, the Federal Trade Commission (FTC) filed a complaint against the company, alleging that it had engaged in false advertising, in violation of federal law. Four months of hearings were held before an administrative law judge that produced an evidentiary record of more than 4,000 pages of documents from 46 witnesses. After examining the evidence, the FTC issued an opinion which held that the company’s representations that Listerine prevented and cured colds and sore throats were false. The U.S. court of appeals affirmed. Is Warner-Lambert guilty of fraud? If so, what remedies should the court impose on the company? Has Warner-Lambert acted ethically in making its claims for Listerine? Warner-Lambert Company v. Federal Trade Commission, 562 F.2d 749, 1977 U.S. App. Lexis 11599 (United States Court of Appeals for the District of Columbia Circuit)

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