Legalized Marijuana Use in Colorado – Does this pose an Ethical Challenge for the State and Federal Government?

Rocky Mountain High in Colorado – words from a song by John Denver – that I never expected that the late singer would think meant something entirely different today in 2012.

On election night, Amendment 64 — the measure seeking the legalization of marijuana for recreational use by adults — was passed by Colorado voters, making Colorado the first state to end marijuana prohibition in the United States.

Colorado Gov. John Hickenlooper, a vocal opponent to the measure, reacted to the passage of A64 in a statement late Tuesday night:

The voters have spoken and we have to respect their will. This will be a complicated process, but we intend to follow through. That said, federal law still says marijuana is an illegal drug so don’t break out the Cheetos or gold fish too quickly.

Although legalized in Colorado, it will take some time (perhaps up to a year) before adults can enjoy the legal sale of marijuana.

The Colorado Independent reported.

It’s a huge victory for the Campaign To Regulate Marijuana Like Alcohol, the pro-pot group behind Amendment 64. “Over the past eight years in Colorado, we have argued that it is irrational to punish adults for choosing to use a product that is far less harmful than alcohol,” Mason Tvert, co-director of the campaign, said in a statement. “Today, the voters agreed. Colorado will no longer have laws that steer people toward using alcohol, and adults will be free to use marijuana instead if that is what they prefer. And we will be better off as a society because of it.”

This is the second time Colorado voted on legal weed, in 2006 Coloradans voted the measure down, but not in 2012. Tvert told The Huffington Post in an August interview why he thought this year might be different:

The 2006 initiative would have simply removed the penalties for the possession of marijuana legal for individuals 21 years of age or older. The current initiative proposes a fully regulated system of cultivation and sales, which will eliminate the underground marijuana market and generate tens of millions of dollars per year in new revenue and criminal justice savings. It also directs the legislature to regulate the cultivation of industrial hemp, a versatile, popular, and environmentally friendly agricultural crop.More importantly, voters are more informed about marijuana than ever before. They have also experienced the emergence of a state-regulated medical marijuana system that has not produced any serious problems, but has provided a number of benefits. We now know that marijuana cultivation and sales can be regulated, and that medical marijuana businesses do not contribute to increased crime. We have also seen marijuana use among high school students decrease since the state began implementing regulations, whereas it has increased nationwide where there are no regulations. And, of course, localities and the state have seen how much revenue can be generated through the legal sale of marijuana that would have otherwise gone into the underground market. Voters in Colorado no longer need to imagine what a legal and regulated system of marijuana sales would look like; they have seen it.

It’s also worth noting that 2012 is a presidential election year, so we will benefit from increased voter turnout compared to an off-year election like 2006. Historically, the more people who vote, the more support marijuana reform initiatives receive.

In a related matter the State of Washington also passed a marijuana initiative – Initiative 52 – which regulates and taxes the sale of small amounts of marijuana for adults.   Under this approach  marijuana is taxed and regulated similar to alcohol and tobacco.  It is projected that the tax revenue could generated could be somewhere between $5 million and $22 million a year in the state.

“Today, the people of Colorado have rejected the failed policy of marijuana prohibition,” Brian Vicente, also a co-director of the Campaign to Regulate Marijuana, said in a statement. “Thanks to their votes, we will now reap the benefits of regulation. We will create new jobs, generation million of dollars in tax revenue, and allow law enforcement to focus on serious crimes. It would certainly be a travesty if the Obama administration used its power to impose marijuana prohibition upon a state whose people have declared, through the democratic process, that they want it to end.”

The question is will the federal government allow a regulated marijuana market to take shape. Attorney General Eric Holder, said he would “vigorously enforce” federal marijuana prohibition.

In a report published Sunday by NBC News, President Obama’s former senior drug policy advisor said that if the marijuana initiatives pass, a war will be incited between the federal government and the states that pass them. “Once these states actually try to implement these laws, we will see an effort by the feds to shut it down,” Sabet said.

QUESTION – What are your thoughts on the changing tides when it comes to the legal use of marijuana?


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Lockheed Martin’s President – Christopher Kubasik – Resigns over Ethical Violation — Business Ethics Speaker Chuck Gallagher Comments

What’s in the water?  Seems everywhere we turn these days we find someone resigning over an inappropriate relationship and a breach of ethics!  Every choice has a consequence and it is clear that no one is immune from the consequences of their misguided choices.

Lockheed Martin’s board of directors asked for and received the resignation of its president and future CEO, Christopher Kubasik over a relationship with a subordinate.

Scheduled to become the CEO in January, I suspect that Kubasik didn’t expect this to be the way his career with Lockheed Martin would end.

A USA Today article quotes the following:

Lockheed Martin says an ethics investigation confirmed that he had a close personal relationship with a subordinate employee. That violates the company’s code of ethics and business conduct.

“I regret that my conduct in this matter did not meet the standards to which I have always held myself,” Kubasik said in a statement.

What motivates a person to make such choices?  Some say for folks in elevated positions it is hubris.  Honestly I don’t know other than there was a perceived “Need” on Kubasik’s part or his unethical behavior would not have taken place.

“While I am deeply disappointed and saddened by Chris’ actions, which have been inconsistent with our values and standards, our swift response to his improper conduct demonstrates our unyielding commitment to holding every employee accountable for their actions,” Robert J. Stevens, chairman and CEO said in a statement.

Marillyn A. Hewson, 58, will be president, chief operating officer and a director. She takes over as CEO in January. Hewson joined the company in 1983.

WHAT NEXT?  It seems that company after company (including the government) is dealing with misguided and unethical choices.  The question is what do we do now and more importantly how can companies insulate themselves from the damage that an unethical choice can make?  Certainly no company wishes to find themselves in the headlines — not in this way!


  1. A comprehensive ethics training program is appropriate and (with all due respect) not just something provided by HR and Compliance – but rather something that opens the door to the “Human Side of Ethics”
  2. A consistent message communicated through various means – as a business ethics speaker, author and trainer, I do this typically through quarterly webinar.
  3. A review of the policies and procedures that are in place that are designed to keep employees honest and ethical in their dealings.
  4. Finally, a willingness to look at all levels of human interaction and take the steps necessary to promote an ethical environment.

It would appear that Lockheed-Martin has taken the bold move necessary to protect it’s reputation and provide a foundation for it’s ethical position.


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We Don’t Hire Convicted Felons! Really? Raising the HR Bar’s Blog my Change Your Mind!

A great blog came across my desk the other day and frankly it was worth a read and then a second read.  Here’s a link to the original blog – “Does Your Hiring Policy Exclude Ex-Con’s?  Watch Out!”

What caught my attention is the content related to new EEOC guidelines regarding the use of criminal background data in employment decisions.  This material is important and worth the time to read.  It is reprinted in it’s entirety below.

This is a guest post by Joseph H. Harris, Partner, White Harris PLLC.

The United States Equal Employment Opportunity Commission (EEOC) has issued a new set of guidelines concerning the use of criminal background information in employment decisions. The guidelines should serve as a reminder to employers, and their attorneys, that they cannot automatically exclude from consideration all job applicants with criminal records. That includes applicants with felony convictions.

To be clear, the EEOC does not require employers to ignore criminal background information. However, it does restrict the manner in which employers may use that information to exclude an individual from employment. Employers who fail to abide by the EEOC’s new guidelines could find themselves charged with disparate impact discrimination in violation of Title VII of the Civil Rights Act of 1964, even if the policy is applied uniformly to all applicants regardless of their race, age, gender, or other legally protected characteristic. One company recently settled a case with the EEOC for $31 million for its policy which automatically excluded anyone with a criminal record from employment. In addition, in its recently released Draft Strategic Enforcement Plan, the EEOC listed recruiting and hiring discrimination as its top priority.

  • Arrests. A prior arrest cannot, in and of itself, serve as the basis for excluding an individual from employment. Under the law, we are presumed innocent until proven guilty. However, employers may consider the underlying facts of the arrest. If those underlying facts bear directly on the job in question, then excluding the individual would be permissible.
  • Convictions. Employers may not maintain blanket policies making a prior conviction, even for a felony, the basis for automatically denying employment. Employers may, however, adopt narrowly tailored policies stating that certain specific jobs cannot be held by individuals with criminal convictions for particular offenses. For such a policy to be in keeping with the EEOC’s guidelines, it must be job-related and consistent with business necessity. In other words, there must be a link between the “specific criminal conduct, and its dangers, with the risks inherent in the duties of a particular position.” To meet that standard, employers have two options. They can use empirical data to establish that link (an expensive and time consuming task). Or, they can establish a targeted screen by considering the following three factors: the nature and gravity of the crime that would serve as the basis for exclusion, the amount of time that has passed since the crime was committed or the sentence completed, and the nature of the job at issue. In addition, employers are strongly encouraged to engage in an individualized assessment to determine whether the exclusionary policy should apply. As part of that assessment, the employer should notify the individual that he or she has been excluded because of a criminal conviction and give the individual an opportunity to demonstrate why the exclusionary policy should not apply due to the particular facts and circumstances of the case. The employer should then consider whether the information provided by the excluded person warrants an exception to the policy.

The EEOC has provided the following list of factors that employers should consider to ensure that their exclusionary policy and screening process is consistent with the new guidelines. “The facts or circumstances surrounding the offense or conduct; [t]he number of offenses for which the individual was convicted; [o]lder age at the time of conviction, or release from prison; [e]vidence that the individual performed the same type of work, post conviction, with the same or a different employer, with no known incidents of criminal conduct; [t]he length and consistency of employment history before and after the offense or conduct; [r]ehabilitation efforts, e.g., education/training; [e]mployment or character references and any other information regarding fitness for the particular position; and [w]hether the individual is bonded under a federal, state, or local bonding program.”

A word of caution for employers: It is the EEOC’s position that Title VII preempts state laws that require the automatic exclusion from employment of individuals convicted of certain offenses. This puts employers in a difficult position and may present them with an impossible choice: Abide by state law and exclude an applicant with a criminal record, but face the possibility of EEOC charge for violating federal anti-discrimination laws, or follow the EEOC’s guidelines, hire the individual because the targeted screen and individualized assessment does not warrant an automatic exclusion, and face liability for violating state laws.

About the author: White Harris PLLC practices exclusively in the area of labor and employment law, representing management. The firm counsels businesses on how to comply with local, state, and federal employment laws and represents them in court, before government agencies, and in alternative forums such as arbitration and mediation. For more information, visit

Mr. Harris is an alumnus of Oxford University and a graduate of Haverford College and the Benjamin N. Cardozo School of Law. He is admitted to practice in the state of New York and in the federal courts in the Southern and Eastern districts of New York. He is a member of the Labor and Employment Law Section of the New York State Bar Association and the Labor and Employment Law Committee of the New York City Bar Association.

WOW…at some level this is a game changer!  As a convicted felon, I understand the challenges that many face with seeking employment.  I have, in fact, been denied more than one job because of my criminal background (guilty of embezzlement and tax evasion for a crime in 1986/87).

Today I work with multinational companies primarily in ethics and fraud prevention, but it would appear that another prospective challenge might be how firms deal with this EEOC change.


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The Collapse of Ethics – David Petraeus resigns from CIA – Paula Broadwell Interviews Petraeus and more… – Part 3

If I were a Ph.D student I, too, would be interested in interviewing Gen. David Petraeus on his innovative leadership skills.  It appears that was the beginning of what has now become a major ethical scandal that has, at a minimum, cost former Director Petraeus his job at the CIA.

Every choice has a consequence – and I believe that the consequences have just begun.  But let’s look a bit at the history of these choices.  Anytime there is an ethical breech three components come together: Need, Opportunity and Rationalization.  The scope of this third part is to look at the Opportunity part of this lapse.

According to a CNN article:

Some of the interviews were done via e-mail. Others were conducted as Broadwell occasionally ran with the physically fit four-star, including one time with Petraeus and his team along the Potomac River in Washington.

Broadwell decided to turn that research into a book and go to Afghanistan after Petraeus was tapped in June 2010 to replace Gen. Stanley McChrystal as the top commander in the country.

“We had a relationship before I went there as far as this dissertation was concerned, so it just took it to another level,” Broadwell told CNN’s Brooke Baldwin in February.

The relationship between Petraeus and his biographer has become the subject of speculation since he admitted to having an extramarital affair and resigned Friday as CIA director.

Discovery…  As I have said, “Every Choice has a Consequence!”  And, another truth is – what is done in the dark generally is brought to the light.  So…it appears that Broadwell, a married mother of two, was a bit miffed as she was accused of sending harassing e-mails to another woman close to Petraeus.  Nothing like a woman scorned!

The FBI interviewed Petraeus in the course of its inquiry, said the official, who stressed that the CIA director was never the target of the investigation and his communications were never compromised. The official did not know whether Broadwell was interviewed.

Broadwell moved with her husband, Scott, to Charlotte, North Carolina, about three years ago, according to the Charlotte Observer.

Broadwell, who attended the U.S. Military Academy and served in the Army Reserves after active duty, quickly became a guest on TV news shows after her book, “All In: The Education of General David Petraeus,” was published earlier this year.

In several appearances on CNN, Broadwell — with her background in intelligence and counterterrorism — was asked about U.S. policy in Afghanistan, the Syrian civil war and Iran’s use of nuclear technology. She serves as a research associate at Harvard University’s Center for Public Leadership.

Choices and Consequences!  Petraeus has resigned and likely there will be significant ramifications or consequences for Broadwell.  Having recently posted a list of Petraeus’s 12 rules for living, it would seem one jumps out in this situation.

“We all will make mistakes,” read one rule. “The key is to recognize and admit them, to learn from them, and to take off the rear-view mirrors — drive on and avoid making them again.”

Having written the book – SECOND CHANCES – I know a thing or two about screwing up and then putting your life back together!  We do all make mistakes.  And it is true that we need to take accountability for our actions!  But, it’s not always that easy to just “drive on and avoid making them again.”  The choices we make have consequences and the kicker is that we must face, experience and learn from the consequences – however bad they may be.

Needless to say, Petraeus and Broadwell will both be dealing with the consequences of their actions for some time to come.


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The Collapse of Ethics – David Petraeus resigns from CIA – How Did this Begin? – Part 2

Every Choice has a Consequence!  Five powerful words…that have impacted so many.  Smart man, brilliant military career, powerful mover and shaker in Washington, yet, the human side of ethical choices dictates now that David Petraeus will, for the rest of his life, experience the consequences of his misguided and unethical choices.

Typically there are three components that come together when an otherwise intelligent and ethical person makes unethical choices: Need, Opportunity and Rationalization.  Below is a reprint of a Reuters story.  The copied portion is featured in BLUE and my comments that are interjected are in Black.

WASHINGTON (Reuters) – The FBI investigation that led to the discovery of CIA Director David Petraeus’ affair with author Paula Broadwell was sparked by “suspicious emails” that initially did not contain any connection to Petraeus, U.S. law enforcement and security officials told Reuters on Saturday.

Suspicious emails.  In today society we leave an electronic footprint almost everywhere we go.  As compared to the past, this electronic footprint now is the foundation of so many circumstances where what is done in the dark gets brought to the light.  Every Choice has a Consequence.  In this case what Petraeus might have rationalized would never come to light – did and in ways he likely never expected (although he headed the CIA and one would think in that position you’d figure everything can be found or discovered).

But the CIA director’s name unexpectedly turned up in the course of the investigation, two officials and two other sources briefed on the matter said.

It was “an issue with two women and they stumbled across the affair with Petraeus,” a U.S. government security source said.

The Washington Post reported on Saturday that the FBI probe was triggered when Broadwell sent threatening emails to an unidentified woman close to the CIA director.

The woman went to the FBI, which traced the threats to Broadwell and then uncovered explicit emails between Petraeus and Broadwell, the Post said.

Attempts by Reuters and other news media to reach Broadwell, an Army reserve offer and author of a biography of Petraeus, have not been successful.

The FBI and CIA declined comment on Saturday.

Many questions in the case remain unanswered publicly, including the identity of the second woman; the precise nature of the emails that launched the FBI investigation; and whether U.S. security was compromised in any way.

Nor is it clear why the FBI waited until Election Day to tell U.S. Director of National Intelligence James Clapper, who oversees the CIA and other intelligence agencies, about its investigation involving Petraeus.

The CIA director announced his resignation suddenly on Friday, acknowledging an extramarital affair and saying he showed “extremely poor judgment.

The developments likely ended the public career of one of the United States’ most highly regarded generals, who was credited with helping pull Iraq out of civil war and led U.S. and NATO troops in Afghanistan.

Choices and Consequences!  Most of us (and yes I have personally been there) don’t think about the possible ramifications of our decisions.  As an Ethics Speaker and Consultant, it is clear to me almost every day that intelligent people seem to lose their judgement when it comes to recognizing the potential consequences of their actions. 

Meanwhile, new details emerged on Saturday about developments in the final days leading to Petraeus’ departure from atop the CIA.

Clapper was notified by the FBI on Tuesday evening about 5 p.m. – just as returns in the U.S. presidential election were about to come in – about “the situation involving Director Petraeus,” a senior intelligence official said. Clapper and Petraeus then spoke that evening and the following morning.


“Director Clapper, as a friend and a colleague and a fellow general officer, advised Director Petraeus that he should do the right thing and he should step down,” the official said.

Clapper is a retired Air Force lieutenant general; Petraeus served nearly four decades in the U.S. Army.

On Wednesday, Clapper notified the National Security Council at the White House that Petraeus was considering resigning and President Barack Obama should be informed, the official said.

U.S. law enforcement and intelligence officials agreed to discuss the Petraeus matter only on condition of anonymity because of the issue’s sensitivity and because it is the subject of a law enforcement investigation.

Once Petraeus’ name turned up in the investigation, the importance of the FBI inquiry was immediately escalated, as investigators became concerned the CIA chief somehow might have been compromised, the law enforcement official said.

However, the official and two sources briefed on the matter said no evidence has turned up suggesting Petraeus had become vulnerable to espionage or blackmail. At this point, it appears unlikely that anyone will be charged with a crime as a result of the investigation, the official said.

The FBI investigation began fairly recently – months ago rather than years ago, when Petraeus would still have been in uniform as one of the U.S. Army’s top field commanders, the official said.

Representative Peter King, Republican chairman of the House of Representatives’ Homeland Security Committee, said in an interview on MSNBC the FBI was “investigating or monitoring … the director of the CIA for four or five months.”

Several officials briefed on the matter said senior officials at the Pentagon, CIA and Congress knew nothing of the FBI’s investigation of Petraeus until Thursday afternoon at the earliest, and some key officials were not briefed on the details until Friday.

There is no evidence at this time that anyone at the White House had knowledge of the situation involving Petraeus prior to the U.S. presidential election on Tuesday, which saw Obama elected to a second four-year term.

Another U.S. government security source said it was not until Friday afternoon that some members of the House and Senate intelligence oversight committees were notified about Petraeus’ resignation by Clapper’s office.

The congressional committees were told that it was a personal issue that Petraeus had to discuss with his wife. When pressed, a representative of the Office of the Director of National Intelligence said it involved another woman.

(Writing by Warren Strobel; Additional reporting by Doug Palmer and Matt Spetalnick; Editing by Todd Eastham)

This section on The Collapse of Ethics – David Petraeus resigns from CIA – shows the aftermath of what happens when unethical choices are made.  In subsequent segments we’ll look back and try to identify where the Need and Opportunity came into play.  Meanwhile…YOUR COMMENTS ARE WELCOME!

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The Collapse of Ethics – David Petraeus resigns from CIA for Poor Judgment (or unethical behavior) – Part 1

Ethics – making the right choices based on all the facts and circumstances!  At times there may be questions regarding ethical behavior, but marital fidelity doesn’t seem to be a grey area.  In the words of former CIA Director David Petraeus, “I showed extremely poor judgment by engaging in an extramarital affair.”

Every Choice Has A Consequence!  In this case the Collapse of Ethics has created a series of consequences that is yet to be determined.  The first of the consequences that now is coming to light is former Director Petraeus’ resignation.


Central Intelligence Agency

9 November 2012

Yesterday afternoon, I went to the White House and asked the President to be allowed, for personal reasons, to resign from my position as D/CIA. After being married for over 37 years, I showed extremely poor judgment by engaging in an extramarital affair. Such behavior is unacceptable, both as a husband and as the leader of an organization such as ours. This afternoon, the President graciously accepted my resignation.

As I depart Langley, I want you to know that it has been the greatest of privileges to have served with you, the officers of our Nation’s Silent Service, a work force that is truly exceptional in every regard. Indeed, you did extraordinary work on a host of critical missions during my time as director, and I am deeply grateful to you for that.

Teddy Roosevelt once observed that life’s greatest gift is the opportunity to work hard at work worth doing. I will always treasure my opportunity to have done that with you and I will always regret the circumstances that brought that work with you to an end.

Thank you for your extraordinary service to our country, and best wishes for continued success in the important endeavors that lie ahead for our country and our Agency.

With admiration and appreciation,

David H. Petraeus

What do you think motivated former Director Petraeus’ behavior?  We’ll explore this an more as the series – The Collapse of Ethics – David Petraeus resigns continues.


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Ex-con Patrick Kuhse talks business ethics at the Saunders Institute for Business Ethics and Social Responsibility


Former stockbroker talks about ‘slippery slope’ of fraud, greed and accountability

Smart people can make big mistakes and Patrick Kuhse was one of them. The successful stockbroker and entrepreneur began his descent into crime in 1989 when a business acquaintance invited him to join in a bond-trading scheme involving the state of Oklahoma. Kuhse became an international fugitive after being charged in 1994 with 32 counts of conspiracy, money laundering and bribing a public official—eventually turning himself in and serving four years in prison in Costa Rica and the U.S.

Banned from ever seeking employment in the securities industry again, Kuhse will share his journey as the E. Philip Saunders College of Business and the Institute for Business Ethics and Social Responsibility present “Prominence to Prison: Why Smart People Do Dumb Things.” The talk will be held from 4 to 5 p.m. Nov. 5 in Lowenthal Hall, room 3215.

Since his incarceration and court sentencing to more than 200 hours of community service, Kuhse has been on the lecture circuit speaking to audiences worldwide about the importance of ethical behavior.

For more information, contact Sandra Rothenberg, director of the Saunders Institute for Business Ethics and Social Responsibility, at 585-475-5989.

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Dale P. Jones Business Ethics Forum at Baylor University Announcement.

Having been honored to speak at the Dale P. Jones Business Ethics Forum at Baylor University in 2011, I am pleased to share the following announcement regarding the 2012 Business Ethics Forum.

WACO, Texas (Nov. 2, 2012) – The 2012 Dale P. Jones Business Ethics Forum will take place at Baylor University’s Hankamer School of Business Nov. 7-16. This year’s theme, “Starting with Integrity: Entrepreneurship and Ethics,” aims to help students understand the importance of ethics in experiential and interactive ways, and is sponsored by The Dale P. Jones Ethics Endowment, The Chavanne Chair of Christian Ethics in Business Endowment and BancVue.

The forum will bring together guest speakers from across the country and various industries. Several events are free and open to the public. Their details are as follows:

• A panel discussion will take place at 7 p.m. Nov. 7, in the Fifth Floor Banquet Room of the Cashion Academic Center, 1401 S. Fourth St. Featured panelists include David Busch, CEO of Hawaiian Falls; Chris Deleenher, CEO of Sunzer Consulting Group; Morgan Johnson, director of the Slum Empowerment Outreach, Come, Let’s Dance; and Gil Sheehan, founder and president of Barrington Gifts.

• Nancy Richards, founder and chairman of the First Preston HT, will speak at 7:30 p.m. Nov. 15, in the Fifth Floor Conference Room of the Cashion Academic Center. Richards also founded HomeTelos, a technology company specializing in online real estate sales and offer management with technology products generating 12 million hits per month. She was recognized as Ernst & Young’s 2004 Southwest “Entrepreneur of the Year” for Real Estate/Construction/Hospitality and won their prestigious “National Entrepreneur of the Year Award” in 2005.

• The forum will conclude with the panel discussion on “Entrepreneurial Ethics” at 1:45 p.m. Nov. 16, in the Fifth Floor Banquet Room of the Cashion Academic Center. The panel will include Kim Galvan from Bentwood Realty, David Hill from the Innovation Capital, Blake Mattson from Mattson Financial Services and Jake Roye from Chick-fil-A.

As part of the forum, students have the opportunity to participate in two competitions purposed to advance the development of ethical leaders. Details on the competition are as follows:

• The Hankamer Business Ethics Case Competition engages students, faculty, alumni and business leaders in discussions of major ethical issues facing the business world today. The competition will begin with an opening ceremony at 5:30 p.m. Nov. 7, in the Fifth Floor Conference Room in the Cashion Academic Center. Teams will present their recommendations for the case in a formal business presentation before judges at 9 a.m. Nov. 9, in the same location. The first place teams from each league will receive a $1,000 prize.

• MBA students from programs across the country will gather for the sixth annual MBA National Case Competition in Ethical Leadership Nov. 14-16. Student teams from Auburn University, Baylor University, Iowa State University, Pepperdine University, Texas A&M University, the University of Florida, the University of Illinois, the University of Iowa, the University of Minnesota, the University of Notre Dame, the University of Pittsburgh, and the University of Washington will compete. Winners will be announced Nov. 16, following the ethics panel. The grand prize winner will receive $5,000.

For more information on the Business Ethics Forum, visit

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Business Ethics Theories – Stockholder Theory – Part Two – Chuck Gallagher Business Ethics Speaker Comments

So when the question was asked, “Which theory of business ethics do you follow” I admit my response was unexpected and certainly not scholarly or academic.  My response?

“The theory that keeps you out of federal prison!”

As you might expect from reading the former article – see here – the conversation quickly turned in a different direction.  However, the original question was valid.  As there are three leading practical theories of business ethics – the Stockholder, the Stakeholder and the Social Contract Theories.

In Part Two – we’ll explore in layman’s terms the Stockholder Theory and look at how it might apply in business today!

If you spent some time reviewing business ethics history (something I am not real fond of – but perhaps a necessary evil), you will note that the Stockholder Theory is the oldest of perceptions or theories related to business ethics.  Today, well let’s say that it might be out of favor as this theory is one that would resonate with the 1% not the “Occupy Wall Street” crowd who seem to favor “social responsibility” over capitalism.

Let’s first start with why a business is formed…    Businesses (organizations) take many forms – for profit, not-for-profit, associations, education, government, etc.    As such the  business person’s responsibilities are to manage the business and use business resources to accomplish the businesses mission or purpose.  Example – Apple Computer (now the world’s most valuable company) has a mission statement as follows:

Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.

Ethically then the employees and management of Apple Computer are obliged to conduct themselves in a way that accomplishes Apple’s objective and business purpose.  Let’s see how the Stockholder Theory would apply as it relates to our example – Apple.


Businesses are created for a purpose and owned by individuals – stockholders (although the ownership form may vary – in other words this would apply to other forms of business ownership – partnership, LLC, etc.) and therefore, the responsibility of those who are hired to run the business are, in a sense, fiduciaries  of the owner’s interests.  Under this theory, the actions (ethical choices) of those empowered to run the business are limited to expending business resources in ways that meet the stockholders interests or are aligned with the stockholders interests.

If, for example, the stockholders have created the business that is designed to maximize profit for the stockholders – then one might assume that business choices will be focused on maximizing revenue and minimizing costs – even if that includes using cheap labor in a foreign country.  On the other hand, if a company is formed with stockholders directing that part of the company mission is to provide local jobs, then ethics would dictate that management choices would favor the objective over the cost minimization.  The significant issue under the Stockholder Theory is that the stockholders rule over any other “social responsibility” that might be perceived by outsiders.

Milton Friedman states, “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 or fraud.”

Friedman uses two words that seem to define the boundary of ethics in this stockholder theory – “deception or fraud”.   From a practical perspective, in the stockholder theory, management is obligated to advance the business purpose and increase the value of the business for the benefit of the stockholders by using any means short of “deception or fraud.”

A great example that has caught media attention (this is election season – November 2012) is the example of several business owners who are strongly encouraging their employees to be active in the election of the candidate that they feel will provide favorable business conditions for their business.  Emails stating attend the rally of a specific candidate “or less” or mandates that require phone calls to be made to encourage a “get out the vote” have come under media scrutiny.  The question is – are such actions “unethical”?  Using the stockholder theory – if they advance the objective of the stockholder (in this case the advancement of his/her business interests) and they are not deceptive or illegal (fraudulent) then one would conclude that they are ethical.

Keep in mind…this is just a THEORY!

The challenge with the Stockholder Theory is – it is based on the idea of true capitalism – a real free market economy.  Nice to write, but non-existent.  Today we live in a world where businesses are competing  by gaining government subsidies, tax breaks, having state-conferred monopoly status (cable TV franchises are an example) and an environment where governmental regulations dictate the form and format of business enterprise.  Management is no longer focused solely on the stockholder’s profit in the pure sense, but rather focused on how to maneuver through the entangled mess of governmental bureaucracy that we find so prevalent today.

Back to Apple.  Under the Stockholder Theory if Apple had only the bottom line to consider then hiring cheap labor in China would be ethical and no problem.  Yet, we know different.  Since there is a concept of social justice (fairly compensating someone for work performed in a humane way) when it comes to employees, Apple had to listen to concerns from the public (consumers) who complained that Apple’s bottom line was not enough.  Based on the Stockholder Theory, if enough people were concerned that Apple was not socially responsible, then enough people might elect not to buy Apple’s product, therefore it is in the best interest of the stockholders to add a bit of social responsibility into the mix to preserve and protect Apple’s financial interest from the ultimate power – the purchaser.

Ethics – making the right decision based on all the facts and circumstances – in the case of the Stockholder Theory – to satisfy the needs and demands of the stockholders from whom the business got it’s start and for whom the business ultimately serves.


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Business Ethics Theories – Stockholder, Stakeholder, and Social Contract Theories – Part One

Not long ago I was the dinner keynote speaker at an ethics conference in Canada and considering my entrance it was kept low key who the featured speaker was – in other words my physical identity was a mystery.  But, as there was dinner I was invited, just not acknowledged for my role.  So…I’m standing in the buffet line with several of the professors (them not knowing I was their featured business ethics speaker) and small talk began.

“What theory of ethics do you follow,” one of the professors uttered to me as we partook of the salad offering of the evening?

Now I must admit it caused me to pause…as I had not anticipated having an intellectual discussion on the theories of business ethics.  Quickly my mind responded.

“I subscribe to the theory that keeps you out of prison!”

Needless to say that seemed to stop the advance of the conversation.  Of course, later that evening as I was introduced – walking in decked in my orange jump suit with handcuffs he understood more clearly why I answered as I did.

With all that being said – perhaps now is the appropriate time to discuss several of the theories of business ethics as knowing more about the intellectual side of ethics may pave a way for those in Compliance – HR – and Chief Ethics Officers to create the fundamentals to guide employees in helping make ethical decisions naturally!

The problem with discussing this topic is that far to much has been written that is “heady” and far from an easy read.  To that end, I am sure that my lack of scholarly writing will be disliked by some, but hopefully in the end – this will be easy to understand and therefore practical to apply.  Fair enough?

A STARTING POINT – One of the most challenging issues in talking about ethics theories is the disconnect between the academic ethics theorist and the person running the business.  Business owners and manages are less concerned about academic theory than they are practical application of tools that get the job done.  If your firm is featured on the front page of the Wall Street Journal for an ethics lapse, the business owner could care less which academic theory failed, they are more concerned about the practical impact to their business.

ETHICS – HOW DO I APPLY THEM IN MY BUSINESS?  That is the question that my clients ask.  In fact, the reason that I am sought after as a business ethics speaker is my practical approach to why we do what we do and how we can provide leadership to guide our employees or members to ethical behavior.

The question arises, “What am I applying?  I just know the difference between right and wrong.  Isn’t that enough?”

I hear these questions or comments over and over again and it becomes necessary at times to step back and consider that ethics are not set in stone, rather ethical decisions are based on what is best at the time based on all the facts and circumstances.  The real question is through whose eyes are the ethical decisions being made?

There several normative theories that have been designed to fit the business environment.  These business ethics theories are designed as an attempt to focus exclusively on choices involving business relationships.

The three leading normative theories of business ethics are the stockholder, stakeholder, and social contract theories. Because these theories are different and apply as seen through different sets of eyes – most would say only one can be correct.

Over the course of this series of articles we will explore the Stockhold, Stakeholder and Social Contract theories.


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