# Recognizing and Respecting the Rights of All

## Accommodating Different Abilities and Faiths

### Learning Objectives

By the end of this section, you will be able to:
1. Identify workplace accommodations often provided for persons with differing abilities
2. Describe workplace accommodations made for religious reasons
The traditional definition of diversity is broad, encompassing not only race, ethnicity, and gender but also religious beliefs, national origin, and cognitive and physical abilities as well as sexual preference or orientation. This section examines two of these categories, religion and ability, looking at how an ethical manager handles them as part of an overall diversity policy. In both cases, the concept of reasonable accommodation means an employer must try to allow for differences among the workforce.

### Protections for People with Disabilities

In the United States, the Americans with Disabilities Act (ADA), passed in 1990, stipulates that a person has a disability if he or she has a physical or mental impairment that reduces participation in “a major life activity,” such as work. An employer may not discriminate in offering employment to an individual who is diagnosed as having such a disability. Furthermore, if employment is offered, the employer is obliged to make reasonable accommodations to enable him or her to carry out normal job tasks. Making reasonable accommodations may include altering the physical workplace so it is readily accessible, restructuring a job, providing or modifying equipment or devices, or offering part-time or modified work schedules. Other accommodations could include providing readers, interpreters, or other necessary forms of assistance such as an assistive animal (). The ADA also prohibits discriminating against individuals with disabilities in providing access to government services, public accommodations, transportation, telecommunications, and other essential services.
Access and accommodation for employees with physical or mental disabilities are good for business because they expand the potential pool of good workers. It is also ethical to have compassion for those who want to work and be contributing members of society. This principle holds for customers as well as employees. Recognizing the need for protection in this area, the federal government has enacted several laws to provide it. The Disability Rights Division of the U.S. Department of Justice lists ten different federal laws protecting people with disabilities, including not only the ADA but also laws such as the Rehabilitation Act, the Air Carrier Access Act, and the Architectural Barriers Act.
A key part of complying with the law is understanding and applying the concept of reasonableness: “An employer is required to provide a reasonable accommodation to a qualified applicant or employee with a disability unless the employer can show that the accommodation would be an undue hardship—that is, that it would require significant difficulty or expense.”
The law does not require an employee to refer to the ADA or to “disability” or “reasonable accommodation” when requesting some type of assistance. Managers need to be able to recognize the variety of ways in which a request for an accommodation is communicated. For example, an employee might not specifically say, “I need a reasonable accommodation for my disability” but rather, “I’m having a hard time getting to work on time because of the medical treatments I’m undergoing.” This example demonstrates a challenge employers may face under the ADA in properly identifying requests for accommodation.

### Managing Religious Diversity in the Workplace

Title VII of the CRA, which governs nondiscrimination, applies the same rules to the religious beliefs (or nonbeliefs) of employees and job applicants as it does to race, gender, and other categories. The essence of the law mandates four tenets that all employers should follow: nondiscrimination, nonharassment, nonretaliation, and reasonable accommodation.
Regulations require that an employee notify the employer of a bona fide religious belief for which he or she wants protection, but the employee need not expressly request a specific accommodation. The employer must consider all possible accommodations that do not require violating the individual’s beliefs and/or practices, such as allowing time off (). However, the accommodation need not pose undue hardship on the firm, in terms of either scheduling or financial sacrifice. The employer must present proof of hardship if it decides it cannot offer an accommodation.
Some cases of accommodation are based on cultural heritage rather than religion.
Reasonable accommodation may require more than just a couple of hours off to go to weekly worship or to celebrate a holiday. It may extend to dress and uniform requirements, grooming rules, work rules and responsibilities, religious expression and displays, prayer or meditation rooms, and dietary issues.
The law also protects those who do not have traditional beliefs. In Welsh v. United States (1970), the Supreme Court ruled that any belief occupying “a place parallel to that filled by the God of those admittedly qualifying for the exception” is covered by the law. A nontheistic value system consisting of personal, moral, or ethical beliefs that is sincerely held with the strength of traditional religious views is deserving of protection. Protected individuals need not have a religion; indeed, if atheist or agnostic, they may have no religion at all.
Religion has become a hot-button issue for some political groups in the United States. Religious tolerance is the official national policy enshrined in the Constitution, but it has come under attack by some who want to label the United States an exclusively Christian nation.

### Summary

To accommodate religious beliefs, the absence of formal religious faith, or disabilities, businesses should make every reasonable accommodation they can to allow workers to contribute to the company. This may require scheduling flexibility, the use of special devices, or simply an understanding manager.

### Assessment Questions

### Endnotes


# Recognizing and Respecting the Rights of All

## Sexual Identification and Orientation

### Learning Objectives

By the end of this section, you will be able to:
1. Explain how sexual identification and orientation are protected by law
2. Discuss the ethical issues raised in the workplace by differences in sexual identification and orientation
As society expands its understanding and appreciation of sexual orientation and identity, companies and managers must adopt a more inclusive perspective that keeps pace with evolving norms. Successful managers are those who willing to create a more welcoming work environment for all employees, given the wide array of sexual orientations and identities evident today.

### Legal Protections

Workplace discrimination in this area means treating someone differently solely because of his or her sexual identification or sexual orientation, which can include, but is not limited to, identification as gay or lesbian (homosexual), bisexual, transsexual, or straight (heterosexual). Discrimination may also be based on an individual’s association with someone of a different sexual orientation. Forms that such discrimination may take in the workplace include denial of opportunities, termination, and sexual assault, as well as the use of offensive terms, stereotyping, and other harassment.
Although the U.S. Supreme Court ruled in United States v. Windsor (2013) that Section 3 of the 1996 Defense of Marriage Act (which had restricted the federal interpretations of “marriage” and “spouse” to opposite-sex unions) was unconstitutional, and guaranteed same-sex couples the right to marry in Obergefell v. Hodges (2015), marital status has little or no direct applicability to the circumstances of someone’s employment. In terms of legal protections at work, the LGBTQ community had been at a disadvantage because Title VII of the CRA was not interpreted to address sexual orientation and federal law did not prohibit discrimination based on this characteristic. In the 2020 Supreme Court case Bostock v. Clayton County, the Court held that discrimination based on "sex" includes discrimination based on sexual orientation and gender identity.
While the 2020 Supreme Court decision extended protection in terms of employment considerations, discrimination in other forms remains. For example, a proposed law named the Equality Act is a federal LGBTQ nondiscrimination bill that would provide protections for LGBTQ individuals in employment, housing, credit, and education. But unless and until it passes, it remains up to the business community to provide protections consistent with those provided under federal law for other employees or applicants.

### Ethical Considerations

In the absence of a specific law, LGBTQ issues present a unique opportunity for ethical leadership. Many companies choose to do the ethically and socially responsible thing and treat all workers equally, for example, by extending the same benefits to same-sex partners that they extend to opposite-sex spouses. Ethical leaders are also willing to listen and be considerate when dealing with employees who may still be coming to an understanding of their sexual identification.
Financial and performance-related considerations come into play as well. Denver Investments recently analyzed the stock performance of companies before and after their adoption of LGBTQ-inclusive workplace policies. The number of companies outperforming their peers in various industries increased after companies adopted LGBTQ-inclusive workplace policies. Once again, being ethical does not mean losing money or performing poorly.
In fact, states that have passed legislation considered anti-LGBTQ by the wider U.S. community, such as the Religious Freedom Restoration Act in Indiana or North Carolina’s H.B. 2, the infamous “bathroom bill” that would require transgender individuals to use the restroom corresponding with their birth certificate, have experienced significant economic pushback. These states have seen statewide and targeted boycotts by consumers, major corporations, national organizations such as the National Collegiate Athletic Association, and even other cities and states. In 2016, in response to H.B. 2, nearly seventy large U.S. companies, including American Airlines, Apple, DuPont, General Electric, IBM, Morgan Stanley, and Wal-Mart, signed an amicus (“friend of the court”) brief in opposition to the unpopular North Carolina bill. In 2017, the North Carolina legislature replaced the law, and a 2019 court settlement substantially altered it; however, the remaining North Carolina law limits local municipalities' protections for LGBTQ people. Indiana’s Religious Freedom Restoration Act evoked a similar backlash in 2015 and public criticism from U.S. businesses.
To assess LGBTQ equality policies at a corporate level, the Human Rights Campaign foundation publishes an annual Corporate Equality Index (CEI) of approximately one thousand large U.S. companies and scores each on a scale of 0 to 100 on the basis of how LGBTQ-friendly its benefits and employment policies are (). More than six hundred companies recently earned a perfect score in the 2018 CEI, including such household names as AT&T, Boeing, Coca-Cola, Gap Inc., General Motors, Johnson & Johnson, Kellogg, United Parcel Service, and Xerox.
Another organization tracking LGBTQ equality and inclusion in the workplace is the National LGBT Chamber of Commerce, which issues third-party certification for businesses that are majority-owned by LGBT individuals. There are currently more than one thousand LGBT-certified business enterprises across the country, although California, New York, Texas, Florida, and Georgia account for approximately 50 percent of them. Although these are all top-ranked states for new business startups in general, they are also home to multiple Fortune 500 companies whose diversity programs encourage LGBT-certified businesses to become part of their supply chains. Examples of large LGBT-friendly companies with headquarters in these states are American Airlines, JPMorgan Chase, SunTrust Bank, and Pacific Gas & Electric.

### Summary

Although about half the states prohibit sexual orientation discrimination in private and public workplaces and a few do so in public workplaces only, federal law does not. Successful companies will not only follow the applicable law but also develop ethical policies to send a clear message that they are interested in job skills and abilities, not sexual orientation or personal life choices.

### Assessment Questions

### Endnotes


# Recognizing and Respecting the Rights of All

## Income Inequalities

### Learning Objectives

By the end of this section, you will be able to:
1. Explain why income inequality is a problem for the United States and the world
2. Analyze the effects of income inequality on the middle class
3. Describe possible solutions to the problem of income inequality
The gap in earnings between the United States’ affluent upper class and the rest of the country continues to grow every year. The imbalance in the distribution of income among the participants of an economy, or income inequality, is an enormous challenge for U.S. businesses and for society. The middle class, often called the engine of growth and prosperity, is shrinking, and new ethical, cultural, and economic problems are following from that change. Some identify income inequality as an ethical problem, some as an economic problem. Perhaps it is both. This section will address income inequality and the way it affects U.S. businesses and consumers.

### The Middle Class in the United States

Data collected by economic researchers at the University of California show that income disparities have become more pronounced over the past thirty-five years, with the top 10 percent of income earners averaging ten times as much income as the bottom 90 percent, and the top 1 percent making more than forty times what the bottom 90 percent does. The percentage of total U.S. income earned by the top 1 percent increased from 8 percent to 22 percent during this period.  indicates the disparity as of 2015.
The U.S. economy was built largely on the premise of an expanding and prosperous middle class to which everyone had a chance of belonging. This ideal set the United States apart from other countries, in its own eyes and those of the world. In the years after World War II, the GI Bill and returning prosperity provided veterans with money for education, home mortgages, and even small businesses, all of which helped the economy grow. For the first time, many people could afford homes of their own, and residential home construction reached record rates. Families bought cars and opened credit card accounts. The culture of the middle class with picket fences, backyard barbecues, and black-and-white televisions had arrived. Television shows such as Leave it to Beaver and Father Knows Best reflected the “good life” desired by many in this newly emerging group. By the mid-1960s, middle-class wage earners were fast becoming the engine of the world’s largest economy.
The middle class is not a homogenous group, however. For example, split fairly evenly between Democratic and Republican parties, the middle class helped elect Republican George W. Bush in 2004 and Democrat Barack Obama in 2008 and 2012. And, of course, a suburban house with a white picket fence represents a consumption economy, which is not everyone’s idea of utopia, nor should it be. More importantly, not everyone had equal access to this ideal. But one thing almost everyone agrees on is that a shrinking middle class is not good for the economy. Data from the International Monetary Fund indicate the U.S. middle class is going in the wrong direction. Only one-quarter of 1 percent of all U.S. households have moved up from the middle- to the upper-income bracket since 2000, while twelve times that many have slid to the lower-income bracket. That is a complete reversal from the period between 1970 and 2000, when middle-income households were more likely to move up than down. According to Business Insider, the U.S. middle class is “hollowing out, and it’s hurting U.S. economic growth.”
Not only has the total wealth of middle-income families remained flat () but the overall percentage of middle-income households in the United States has shrunk from almost 60 percent in 1970 to only 47 percent in 2014, a very significant drop. Because consumers of comfortable means are a huge driver of the U.S. economy, with their household consumption of goods and services like food, energy, and education making up more than two-thirds of the nation’s gross domestic product (GDP), the downward trend is an economic challenge for corporate America and the government. Business must be part of the solution. But exactly what can U.S. companies do to help address income inequality?

### Addressing Income Inequality

Robert Reich was U.S. Secretary of Labor from 1993 to 1997 and served in the administrations of three presidents (Gerald Ford, Jimmy Carter, and Bill Clinton). He is one of the nation’s leading experts on the labor market and the economy and is currently the chancellor’s professor of Public Policy at University of California, Berkeley, and a senior fellow at the Blum Center for Developing Economies. Reich recently told this story: “I was visited in my office by the chairman of one of the country’s biggest high-tech firms. He wanted to talk about the causes and consequences of widening inequality and the shrinking middle class, and what to do about it.” Reich asked the chairman why he was concerned. “Because the American middle class is the core of our customer base. If they can’t afford our products in the years ahead, we’re in deep trouble.”
Reich is hearing a similar concern from a growing number of business leaders, who see an economy that is leaving out too many people. Business leaders know the U.S. economy cannot grow when wages are declining, nor can their businesses succeed over the long term without a growing or at least a stable middle class. Other business leaders, such as Lloyd Blankfein, CEO of Goldman Sachs, have also said that income inequality is a negative development. Reich quoted Blankfein: “It is destabilizing the nation and is responsible for the divisions in the country . . . too much of the GDP over the last generation has gone to too few of the people.”
Some business leaders, such as Bill Gross, chair of the world’s largest bond-trading firm, suggest raising the federal minimum wage, currently $7.25 per hour for all employers doing any type of business in interstate commerce (e.g., sending or receiving mail out of state) or for any company with more than $500,000 in sales. Many business leaders and economists agree that a higher minimum wage would help address at least part of the problem of income inequality; industrialized economies function best when income inequality is minimal, according to Gross and others who advocate for policies that bring the power of workers and corporations back into balance. A hike in the minimum wage affects middle-class workers in two ways. First, it is a direct help to those who are part of a two-earner family at the lower end of the middle class, giving them more income to spend on necessities. Second, many higher-paid workers earn a wage that is tied to the minimum wage. Their salaries would increase as well.
Without congressional action to raise the minimum wage, states have taken the lead, along with businesses that are voluntarily raising their own minimum wage. Twenty-nine states have minimum wages that exceed the federal rate of $7.25 per hour. Costco, T.J. Maxx, Marshalls, Ikea, Starbucks, Gap, In-and-Out Burger, Whole Foods, Ben & Jerry’s, Shake Shack, and McDonalds have also raised minimum wages in the past two years. Target recently announced a rise in its minimum wage to eleven dollars per hour, and banks, including Wells Fargo, PNC Financial Services, and Fifth Third Bank, announced a fifteen-dollar minimum wage.
The American Sustainable Business Council, in conjunction with Business for a Fair Wage, surveyed more than five hundred small businesses, and the results were surprising. A clear majority (58%–66%, depending on region) supported raising the minimum wage to at least ten dollars per hour. Business owners were not simply being ethical; most understand that their business would benefit from an increase in consumers’ purchasing power, and that this, in turn, would help the general economy. Frank Knapp, CEO of the South Carolina Small Business Chamber of Commerce representing five thousand business owners, said a higher minimum wage “will put more money in the hands of 300,000 South Carolinians who make less than ten dollars per hour and they will spend it here in our local economies. This minimum wage increase will also benefit another 150,000 employees who will have their wages adjusted. The resulting net $500 million increase in state GDP will be good for small businesses and good for the economy of South Carolina.”
In addition to paying a higher wage, businesses can help workers move to, or stay in, the middle class in other ways. For decades, some companies have hired many full-time workers as independent contractors because it saves them money on a variety of employee benefits they do not have to offer as a result. However, that practice shifts the burden to the workers, who now have to pay the full cost of their health insurance, workers’ compensation, unemployment benefits, time off, and payroll taxes. A recent Department of Labor study indicates that employer costs for employee compensation averaged $35.64 per hour worked in September 2017; wages and salaries averaged $24.33 per hour worked and accounted for 68 percent of these costs, whereas benefit costs averaged $11.31 and accounted for the remaining 32 percent. That means if employees on the payroll were paid as independent contractors, their pay would effectively be about one-third less, assuming they purchased benefits on their own. The 30 percent difference companies save by hiring independent contractors is often the margin between being in the middle class and falling below it.
Yet sympathy for raising the minimum wage at either the federal or state level to sustain the middle class or reduce poverty in general has not been unanimous. Indeed, some economists have questioned whether a positive correlation exists between greater wages and a lowering of the poverty rate. Representative of such thought is the work of David Neumark, an economist at the University of California, Irvine, and William L. Wascher, a long-time economic researcher on the staff of the Board of Governors of the Federal Reserve System. They argue that, however well-meaning such efforts might be, simply raising the minimum wage can be counterproductive to driving down poverty. Rather, they maintain, the right calculus for achieving this goal is much more complex. As they put it, “we are hard-pressed to imagine a compelling argument for a higher minimum wage when it neither helps low-income families nor reduces poverty.” Instead, the federal and state governments should consider a series of steps, such as the Earned Income Tax Credit, that would be more effective in mitigating poverty.

### Pay Equity as a Corollary of Income Equality

The issue of income inequality is of particular significance as it relates to women. According to the World Economic Forum (WEF), gender inequality is strongly associated with income inequality. The WEF studied the association between the two phenomena in 140 countries over the past twenty years and discovered they are linked virtually everywhere, not only in developing nations. The issue of pay discrimination is addressed elsewhere in this textbook; however, the issue merits mention here as a part of the bigger picture of equality in the workplace. Adding to the disparity in income between men and women is the reality that many women are single mothers with dependent children and sometimes grandchildren. Hence, any reduction in their earning power has direct implications for their dependents, too, constituting injustice to multiple generations.
According to multiple studies, including those by the American Association of University Women and the Pew Research Center, on average, women are paid approximately 80 percent of what men are paid. Laws that attempt to address this issue have not eradicated the problem. A recent trend is to take legislative action at the state rather than the federal level. A New Jersey law, for example, was named the Diane B. Allen Equal Pay Act to honor a retired state senator who experienced pay discrimination. It will be the strongest such law in the country, allowing victims of discrimination to seek redress for up to six years of underpayment, and monetary damages for a prevailing plaintiff will be tripled.
The most significant part of the law, however, is a seemingly small change in wording that will have a big impact. Rather than requiring “equal pay for equal work,” as does the federal law and most state laws aimed at the gender wage gap, the Diane B. Allen Equal Pay Act will require “equal pay for substantially similar work.” This means that if a New Jersey woman has a different title than her male colleague but performs the same kinds of tasks and has the same level of responsibility, she must be paid the same. The new law recognizes that slight differences in job titles are sometimes used to justify pay differences but in reality are often arbitrary.
Minnesota recently passed a similar law, but it applies only to state government employees, not private-sector workers. It mandates that women be paid the same for comparable jobs and analyzes the work performed on the basis of how much knowledge, problem solving, and responsibility is required, and on working conditions rather than merely on job titles.
Ethical business managers will see this trend as an effort to address an ethical issue that has existed for well over a century and will follow the lead of states such as New Jersey and Minnesota. A company can help solve this problem by changing the way it uses job titles and creating a compensation system built on the ideas behind these two laws, which focus on job characteristics and not titles.

### Summary

Income inequality has grown sharply while the U.S. middle class, though vital to economic growth, has continued to shrink. Currently, the federal minimum wage is $7.25 per hour, and many states simply follow the federal lead in establishing their own minimums. Though some economists dispute the existence of a simple, direct link between a shrinking middle class and governmental failure to raise the minimum wage at a sufficiently rapid pace, no one denies that businesses themselves could take the lead here by paying a higher minimum wage. Companies also can commit to hire workers as employees rather than as independent contractors and pay the cost of their benefits, and to pay women the same as men for similar work.

### Assessment Questions

### Endnotes


# Recognizing and Respecting the Rights of All

## Animal Rights and the Implications for Business

### Learning Objectives

By the end of this section, you will be able to:
1. Explain rising concerns about corporate treatment of animals
2. Explain the concept of agribusiness ethics
3. Describe the financial implications of animal ethics for business
Ethical questions about our treatment of animals arise in several different industries, such as agriculture, medicine, and cosmetics. This section addresses these questions because they form part of the larger picture of the way society treats all living things—including nonhuman animals as well as the environment. All states in the United States have some form of laws to protect animals; some violations carry criminal penalties and some carry civil penalties. Consumer groups and the media have also applied pressure to the business community to consider animal ethics seriously, and businesses have discovered money to be made in the booming business of pets. Of course, as always, we should acknowledge that culture and geography influence our understanding of ethical issues at a personal and a business level.

### A Brief History of the Animal Rights Movement

Rhode Island, along with Boulder, Colorado, and Berkeley, California, led the way in enacting legislation recognizing individuals as guardians, not owners, of their animals, thus giving animals legal status beyond being just items of property. Many U.S. colleges now teach courses on animal rights law, there is strong support for granting fundamental legal rights to animals, and some attorneys, scientists, and ethicists dedicate their careers to animal rights.
The animal movement started in the late nineteenth century when the American Society for the Prevention of Cruelty to Animals (ASPCA) was formed, along with the American Humane Association. The American Welfare Institute and the Humane Society of the United States (HSUS) were established in the 1950s. The first federal animal protection law, the Humane Slaughter Act, was passed in the 1950s to avoid unnecessary suffering to farm animals (ten billion of which are killed every year). The most important U.S. law forbidding cruelty to animals in laboratory settings was enacted in 1966; the Animal Welfare Act requires basic humane conditions to be maintained for animals in testing facilities. Finally, in the 1970s and 1980s, the modern animal rights social movement emerged. It has led to an increased awareness of animal ethics by consumers and businesses.
However, despite significant progress, research using animals for product testing continues to be controversial in the United States, particularly because improved technology has offered humane and effective alternatives. The use of animals in biomedical research has drawn slightly less negative reaction than in consumer product testing, because of the more critical nature of the research. Though animal welfare laws have ameliorated some of the pain of animals used in biomedical research, ethical concerns remain, and veterinarians and physicians are demanding change, as are animal rights groups and policy and ethics experts. Increased integration of ethics in business conduct is operating alongside the desire to recognize animal rights, the entitlement of nonhuman animals to ethical treatment.

### The Ethics of What We Eat

Concern for the welfare of animals beyond pets brings us to the agribusiness industry. This is where groups such as the ASPCA and HSUS have been particularly active. Agribusiness is a huge industry that provides us with the food we eat, including plant-based and animal-based foodstuffs. The industry has changed significantly over the past century, evolving from one consisting primarily of family and/or small businesses to a much larger one dominated mostly by large corporations. Aspects of this business with relevant and interrelated ethical questions range from ecology, animal rights, and economics to food safety and long-term sustainability (). To achieve a high level of sustainability in the world’s food supply chain, all stakeholders—the political sector, the business sector, the finance sector, the academic sector, and the consumer—must work in concert to achieve an optimal result, and a cost-benefit analysis of ethics in the food industry should include a recognition of all their concerns.
Experts predict that for us to meet the food needs of the world’s population, we will need to double food production over the next fifty years. Given this, a high priority in the agribusiness industry ought to be to meet this demand for food at a reasonable price with products that are not a threat to human health and safety, animal health, or the limited resources in Earth’s environment. However, to do so requires attention to factors such as soil and surface water conservation and protection of natural land and water areas. Furthermore, the treatment of animals by everyone in the livestock chain (e.g., livestock farmers, dealers, fish farmers, animal transporters, slaughterhouses) must be appropriate for a society with high legal and ethical standards.
The food chain can be truly sustainable only when it safeguards the social welfare and living environment of the people working in it. This means eliminating corruption, human rights violations (including forced labor and child labor), and poor working conditions. We must also encourage and empower consumers to make informed choices, which includes enforcing labeling regulations and the posting of relevant and accurate dietary information.
Finally, an analysis of the food supply chain must also include an awareness of people’s food needs and preferences. For example, the fact that growing numbers of consumers are adopting vegetarian, vegan, gluten-free, or non–genetically modified organism diets is now apparent at responsive restaurants, grocery stores, and employer-provided cafés. For many, the ethical treatment of animals remains a philosophic issue; however, some rules about what foods are morally acceptable and how they are prepared for consumption (e.g., halal or kosher) are also grounded in faith, so animal rights have religious implications, too.
All in all, consumers’ growing ethical sensitivity about what we eat could ultimately transform agribusiness. More acreage might be assigned to growing fruits and vegetables relative to those given over to livestock grazing, for instance. Or revelations about slaughterhouse processes may reduce our acceptance of the ways in which meat is processed for consumption. The economic consequences for agribusiness of such changes are difficult to underestimate.

### The Use of Animals in Medical and Cosmetic Research

Viewpoints about animals used in medical research are changing in very significant ways and have resulted in a variety of initiatives seeking alternatives to animal testing. As an example, in conjunction with professionals from human and veterinary medicine and the law, the Yale University Hastings Program in Ethics and Health Policy, a bioethics research institute, is seeking alternatives to animal testing that focus on animal welfare.
Animals such as monkeys and dogs are used in medical research ranging from the study of Parkinson disease to toxicity testing and studies of drug interactions and allergies. There is no question that medical research is a valuable and important practice. The question is whether the use of animals is a necessary or even best practice for producing the most reliable results. Alternatives include the use of patient-drug databases, virtual drug trials, computer models and simulations, and noninvasive imaging techniques such as magnetic resonance imaging and computed tomography scans. Other techniques, such as microdosing, use humans not as test animals but as a means to improve the accuracy and reliability of test results. In vitro methods based on human cell and tissue cultures, stem cells, and genetic testing methods are also increasingly available.
As for consumer product testing, which produces the loudest outcry, the Federal Food, Drug, and Cosmetic Act does not require that animal tests be conducted to demonstrate the safety of cosmetics. Rather, companies test formulations on animals in an attempt to protect themselves from liability if a consumer is harmed by a product. However, a significant amount of new research shows that consumer products such as cosmetics can be accurately tested for safety without the abuse of animals. Some companies may resist altering their methods of conducting research, but a growing number are now realizing that their customers are demanding a change.

### Regulating the Use of Animals in Research and Testing

Like virtually every other industrialized nation, the United States permits medical experimentation on animals, with few limitations (assuming sufficient scientific justification). The goal of any laws that exist is not to ban such tests but rather to limit unnecessary animal suffering by establishing standards for the humane treatment and housing of animals in laboratories.
As explained by Stephen Latham, the director of the Interdisciplinary Center for Bioethics at Yale, possible legal and regulatory approaches to animal testing vary on a continuum from strong government regulation and monitoring of all experimentation at one end, to a self-regulated approach that depends on the ethics of the researchers at the other end. The United Kingdom has the most significant regulatory scheme, whereas Japan uses the self-regulation approach. The U.S. approach is somewhere in the middle, the result of a gradual blending of the two approaches.
A movement has begun to win legal recognition of chimpanzees as the near-equivalent of humans, therefore, as “persons” with legal rights. This is analogous to the effort called environmental justice, an attempt to do the same for the environment (discussed in the section on Environmental Justice in Three Special Stakeholders: Society, the Environment, and Government). A nonprofit organization in Florida, the Nonhuman Rights Project, is an animal advocacy group that has hired attorneys to present a theory in court that two chimpanzees (Tommy and Kiko) have the legal standing and right to be freed from cages to live in an outdoor sanctuary (). In this case, the attorneys have been trying for years to get courts to grant the chimps habeas corpus (Latin for “you shall have the body”), a right people have under the U.S. Constitution when held against their will. To date, this effort has been unsuccessful. The courts have extended certain constitutional rights to corporations, such as the First Amendment right to free speech (in the 2010 Citizens United case). Therefore, some reason, a logical extension of that concept would hold that animals and the environment have rights as well.
In cosmetic testing, the United States has relatively few laws protecting animals, whereas about forty other nations have taken more direct action. In 2013, the European Union banned animal testing for cosmetics and the marketing and sale of cosmetics tested on animals. Norway and Switzerland passed similar laws. Outside Europe, a variety of other nations, including Guatemala, India, Israel, New Zealand, South Korea, Taiwan, and Turkey, have also passed laws to ban or limit cosmetic animal testing. U.S. cosmetic companies will not be able to sell their products in any of these countries unless they change their practices. The Humane Cosmetics Act has been introduced but not yet passed by Congress. If enacted, it would end cosmetics testing on animals in the United States and ban the import of animal-tested cosmetics. However, in the current antiregulatory environment, passage seems unlikely.
According to the Humane Society of the United States, a more realistic alternative approach is to develop nonanimal tests that could provide more human safety data, including information about cancer and birth defects related to new products. Consumer pressure can also influence change. If consumer purchases demonstrate a preference for cruelty-free cosmetics and support ending cosmetics animal testing, businesses will get the message. Almost one hundred companies have already ceased testing cosmetics on animals, including The Body Shop, Burt’s Bees, E.L.F. Cosmetics, Lush, and Tom’s of Maine. Lists of such firms are maintained by People for the Ethical Treatment of Animals and similar organizations.
Companies will be wise to adapt to the increasing level of public awareness and consumer expectations, not least because U.S. culture now incorporates pets in almost every aspect of life. Dogs, cats, and other animals function as therapy pets for patients and those experiencing stress; an Uber-style dog service will bring dogs to work or school for a few minutes of companionship. Pets visit hospitals and act as service animals, appearing in restaurants, campuses, and workplaces where they would have been prohibited as recently as ten years ago. According to the American Pet Products Association (APPA), a trade group, two-thirds of U.S. households own a pet, and pet industry sales have tripled in the past fifteen years. The APPA estimates U.S. spending on pets will reach almost $70 billion a year by 2018.
“People are fascinated by pets. We act and spend on them as if they were our children,” says New York University sociology professor Colin Jerolmack, who studies animals in society. As people increasingly want to include pets in all aspects of life, new and different industries have emerged and will continue to do so, such as tourism centered on the presence of pets and retail opportunities such as health insurance for animals, upscale stores, and new products specifically tailored for pets. With interest in pets at an all-time high, businesses cannot ignore the trend, either in terms of revenue to be earned or in terms of the ethical treatment of their fellow animals in laboratories.

### Summary

Mainstream businesses from pharmaceutical and medical companies to grocers and restaurants must all consider the growing public awareness of the ethical treatment of nonhuman animals. This evolving concern has particular consequences for agribusiness in terms of what creatures we consider appropriate to cultivate and eat. Cosmetic companies are increasingly subject to legislative mandates in the global marketplace and to consumer pressure at home to adopt ethical policies with regard to animal testing. An aware consuming public can continue to force improvements in our treatment of animals.

### Assessment Questions

### Endnotes


# Professions under the Microscope

## Introduction

As consumers, employees, and community members, we see everywhere the extent to which business can contribute to either social well-being or harm. Some career paths invite special scrutiny because of their influential role in society and the extent to which they serve as magnets for business students. Friends and critics of these professions have studied the unique ethical issues they raise and individuals who pursue careers in these fields should give careful consideration to these findings to decide if the benefits outweigh the potential downsides.
Entrepreneurship, for instance, offers the opportunity to construct your own business in the hope of profit, but at some personal and financial cost. Are the potential gains being overplayed when, in fact, most entrepreneurial businesses fail? Advertising is the driver of sales, but are its claims honest and its delivery platforms, including social media, acting in good faith? Do they exert undue or biased influence on the gullible and the young? Insurance is necessary, but what is the proper and ethical role of property insurers, for example, in the face of increasingly dangerous natural disasters? Health care in the United States is extraordinarily expensive, especially compared with that in other industrialized nations, and access is too often limited to those with means. Should quality health care be a right for all rather than a privilege for the few?


# Professions under the Microscope

## Entrepreneurship and Start-Up Culture

### Learning Objectives

By the end of this section, you will be able to:
1. Identify ethical challenges relating to entrepreneurial start-ups
2. Describe positive and negative effects of growth in a start-up
3. Discuss the role of the founder in instilling an ethical culture
An entrepreneur is a business leader willing to risk starting a new company and offering a product or service he or she hopes will be sustainable and permit the firm to prosper. The entrepreneur may have to find the money required for this venture and typically draws on business experience gained by working for others first. Entrepreneurship often requires hard work, but the potential for economic payoff and career satisfaction appeals to many.

### The Risks of Entrepreneurship

Although the risk of failure associated with starting a business is real and even high, we hear much in the media about success stories and little about those entrepreneurs who crash and burn. Perhaps the allure of entrepreneurship inevitably outshines any mention of the downside. Still, start-ups impose a higher than normal degree of risk, and we turn to the evidence for this now.
What is the specific nature of entrepreneurial risk? Different studies yield different results, but business consultant Patrick Henry reported that “75 percent of venture-backed startups fail.” Henry added that “this statistic is based on a Harvard Business School study by Shikhar Ghosh. In a study by Statistical Brain, ‘Startup Business Failure Rate by Industry,’ the failure rate of all U.S. companies after five years was over 50 percent, and over 70 percent after ten years.”
This figure might be enough to chill the enthusiasm of any would-be entrepreneur who believes an exciting or novel concept is enough to support a successful company with a minimal amount of time and effort and a great deal of other people’s money. Still, the ranks of start-ups expand prodigiously each month in the United States.
Even start-ups that beat the odds financially need to be watchful for a different sort of pitfall, an ethical failure that can be nourished by the very strengths that allow a company to get off the ground. That pitfall is the hubris or excessive pride that may characterize some entrepreneurs, particularly after they have had some initial success. Uber, an application-based, ride-hailing service, was founded in San Francisco by Travis Kalanick and Garrett Camp in 2009. If ever an idea matched the success potential of smartphones, it was this one. Offering a cheaper and more convenient service than hailing a cab on city streets, Uber was valued at $70 billion in 2017 and operated, with varying degrees of success, in seventy countries at that point. However, the corporate culture, especially at headquarters, left many observers aghast in early 2017 after an Uber engineer, Susan Fowler, blogged about her experiences there. Other employees substantiated much of her account, revealing an atmosphere rife with misogyny, homophobia, and sexual harassment.
This culture was permitted—even fostered—by Kalanick, who reigned unchecked for several years over what the New York Times labeled an “aggressive, unrestrained workplace culture.” Muted grumblings from quarters within the company never received much attention outside the firm, allowing Kalanick to become a high-flying role model for would-be entrepreneurs who wished to emulate his success. A reckoning finally arrived when Uber’s board of directors asked him to resign his position as chief executive officer in June 2017.
Yet the workplace culture that prevailed during his years at the company was not unique to Uber. Many firms have experienced it. Holding destructive egos in check is an ethical challenge at many successful businesses, particularly at hard-riding start-ups. Founders and their start-up teams need to be aware of how deeply their attitudes toward others; their visible treatment of employees, customers, and clients; and their display of fairness will come to shape the company they are building. It is not enough for the founders to hypothesize, “we’ll get around to establishing the right protocols after we’re solvent.” Nor is it adequate to insist that standards of courteous business practice will naturally emerge on their own. An initial culture either of ethics or its absence will set a tone from the first day of business. If the founders believe these niceties are not required of them owing to their genius or confidence, such arrogance will displace ethics as a best practice. To believe otherwise is self-deception.

### Why Successful Start-Ups Change as They Grow

A legendary example of a start-up that still inspires many today is the Hewlett-Packard Corporation (HP). Its origins lie in the efforts of Bill Hewlett and David Packard, two Stanford University classmates in the 1930s. Much like members of a garage band, they started their company in a real garage, and the firm has outgrown its humble beginnings many times over ().
Start-ups are exciting. Many of their founders, like the late Steve Jobs of Apple, attain near-rock star status, and the companies can generate enormous profit. They allow many to do what they have always wanted to do and be their own bosses. Yet we often overlook the fact that even some of the most successful entrepreneurs experience many failures before they succeed, and long hours of hard work are typically required even for these failures. Smart entrepreneurs learn from their failures, but each lesson can be painful, frustrating, and time consuming.
A unique personality is required to weather the stresses and strains of a start-up, and it is a personality that tolerates much personal deprivation as it pursues the perceived highest goal of all, success for the firm, no matter what personal or collective costs might be entailed. The culture of entrepreneurialism allows for many business leaders and their staffs to be deprived of a portion of their humanity along the way to success. Thus, a preeminent ethical consideration is whether the result justifies this cost. At the very least, determined entrepreneurs must be advised of these possible sacrifices. They constitute the collateral damage of entrepreneurial dreams that any ambitious start-up founder should contemplate. Will one emerge at the end of the process as the sort of person one most wishes to be?
Even if a start-up becomes what its founders wish it to be—astronomically successful—inevitably it will change as it grows, acquires new locations, and hires more employees. These changes may eventually produce an organization with added layers—essentially, a hardened bureaucracy that slows down and complicates the management process. The company may no longer make essential decisions with the speed and nimbleness that once were possible. In short, success for a start-up is often accompanied by the risk of becoming, over time, exactly the traditional business structure its founders once rejected. So the founders of an entrepreneurial shop, and their successors, must guard against change that radically alters the original spirit of innovation and the free and rapid flow of information, even as the company grows. No business leader seeks bureaucracy, but it typically accompanies growth within any organization.
Particular problems that arise out of bureaucratization are additional layers of management, more codified procedures, and internal obstructions that surface as a business attempts to capitalize on its initial success. As more employees are added to the mix, the original team’s sense of common purpose can become diluted.
Max Weber (1864–1920), the German academic, economist, and sociologist, appreciated the consequences of bureaucracy years ago. In Wirtschaft und Gesellschaft [Economy and Society], published posthumously in 1925, he pointed out, “in the private economy, [bureaucracy emerges] only in the most advanced institutions of capitalism.” Weber cemented the link between bureaucracy and capitalism further: “The development of the money economy [emphasis is Weber’s] . . . is a presupposition of bureaucracy. Today it not only prevails but is predominant.”
Because start-ups constitute an “advanced” feature of capitalism, and because bureaucracy presupposes a “money economy,” Weber prophesied that agile start-ups would be ripe for bureaucratization as they grow and age. Finally, he included this acknowledgement of the permanence of bureaucracy: “Once it is firmly established, bureaucracy is among those social structures which are the hardest to destroy.”
More recently, Michael A. Lutzker confirmed Weber’s testimony on the inevitability of bureaucracy: “The administrative function has of course been a pervasive element of all societies, ancient, medieval, and modern, but Weber was among the first to recognize the distinctive character of bureaucracy in the modern era.”
Simply put, the very same success that permits a start-up to flourish often produces bureaucratic structures that chip away at the free-flowing camaraderie that allowed a handful of founders to act instantly and with one mind. As the staff expands, employees’ ranks become more defined, titles and hierarchies appear, and individual achievements become harder to spot. This is what changes within a successful start-up, and it moves the company away from the more congenial atmosphere that characterized it at its outset. An original small partnership often becomes a corporate behemoth, and it takes on many of the attributes of those cubicle workplaces that frequently inspired its founders to strike out on their own in the first place.
All the better, then, if ethical practices that permit coworkers to bond as colleagues with a sense of commitment to each other and to their customers or clients emerge through a company’s trial-and-error experience at the outset. Only if the founders and initial staff emphasize treating all stakeholders with honesty, courtesy, and respect will the new firm stand a chance of indelibly cementing ethics into its operating matrix.

### Entrepreneurial Culture

A fairly common characteristic of successful start-ups is charismatic, driven founders with take-no-prisoner competitive mentalities, as was illustrated earlier in this chapter in the example of Kalanick and the leadership values at Uber. After all, it takes a thick skin and powerful ego to get through the inevitable disappointments that confront a start-up leader. Often, however, even when these self-assured personalities evade the most egregious behavior of a Kalanick, they still remain very difficult for others to abide. Many companies discover that a different leadership ethos is necessary as they grow. Could entrepreneurs still succeed if they also embraced a humanistic leadership style at the outset, or would this invariably undermine the already low initial odds of success? It is a difficult problem with which many firms wrestle. Dedicated employees may be put off by demanding leaders who are harsh, giving little back to loyal workers even after achieving success. New employees may decide the working climate is less congenial than they anticipated and simply leave. This turnstile effect of workers voting on management with their feet constitutes an ethical judgment of repugnant leadership at the top.
These observations identify what may be unique to entrepreneurial culture. This is a combination of personality and management style often identified with those business leaders who strike out on their own, bring a start-up to life, and shape its initial business practices and culture on the job. If the enterprise is successful, the principles and philosophy of the founder become enshrined in the lore of the company, so that long after his or her departure, succeeding leaders find themselves beholden to the management philosophy exemplified from the early days of the firm. As you seek the right leadership style to implement on the job, begin by asking precisely what kind of leader you would prefer to work for if you were not the boss. The answer you provide may very well be the best model to follow as you develop your own leadership personality, whether it is at a start-up or a more established company.
The first employees of a start-up realize what is at stake as the company tiptoes into new entrepreneurial waters. The founder may be the boss, but those associated with him or her sense a collaborative spirit that directly joins them to the founder as well as each other. There can be a genuine fraternity among those who have been with the firm since day 1 or shortly thereafter. Founding members of an entrepreneurial business are also often willing to undergo the strains and rigors attached to a start-up in return for an ownership stake in the company that allows them to profit handsomely from its later growth and success.
Newer staff, however, may not share this mindset. They may simply be seeking a secure position with a growing business rather than a chance to get in on the ground floor of a risky start-up. They will not necessarily have the tolerance for the demanding hours, chaos, and abrasive personalities that can characterize the early days of an enterprise. Can entrepreneurial founders shape a company’s culture so it can accommodate talented employees who are looking for a corporate culture that supports some work–life balance?
Consider also the ethical practices of an entrepreneur and the ethical expectations of employees. Suppose that one of the distinguishing features woven into the fabric of the start-up is the respect extended to customers or clients. An entrepreneur typically promises always to hold customers in the highest regard, never lie to them, and serve them well. Furthermore, suppose this entrepreneur successfully instills this same ethos among all employees from the outset. Respect for customers is intended to become a distinguishing feature of the business; even if it causes monetary loss to the company, this entrepreneur will not cheat a client or misrepresent the company’s services. Finally, presume that this ethos is embedded into the culture of the company while it is still in start-up mode.
Now, and literally against the odds, suppose the company becomes successful. This may signal the hardest time of all for the entrepreneur. Growth often accompanies success, and growth means, among other things, more employees. Not all these new hires will be as committed to the same degree of responsibility for customers. They will not necessarily set out to cheat clients, but they might lack the founder’s enthusiasm for the most honorable treatment of customers. How can an entrepreneur ensure that the initial commitment carries over to the second generation of leadership? He or she cannot simply order it to happen—human nature usually does not respond so easily. So entrepreneurs must do their best to ensure that their version of customer service, one that prioritizes respect for clients, is passed along to new employees. It may be ingrained in the longest-serving employees, but it must be nurtured to the point where it has the same significance for the newest hires. This is where leadership mettle is tested to the severest degree.

### Summary

The atmosphere surrounding entrepreneurs and their start-ups can provide a dizzying rush. The opportunities to create a company, be your own boss, make a dramatic impact on business, establish an entrepreneurial culture that will be adopted by others, and possibly become rich in the process certainly all appeal to our human nature. Still, the entrepreneurial lifestyle is challenging, and the success rate for start-ups is exceptionally low. Interpersonal conflicts are prevalent in start-up environments, and entrepreneurs who seek to stay true to their vision and ethical values face a difficult road. At many points, start-up founders have to choose how they most wish to be remembered: for the sake of their business success alone or also for the ethical fashion in which they attained that success and the humane culture they have embedded in their new firm. Sometimes these are mutually exclusive goals, but the most ethical entrepreneurs do their best to ensure that both objectives mesh for themselves and their firms. This lies at the heart of any definition of ethical leadership.

### Assessment Questions

### Endnotes


# Professions under the Microscope

## The Influence of Advertising

### Learning Objectives

By the end of this section, you will be able to:
1. Discuss how social media has altered the advertising landscape
2. Explain the influence of advertising on consumers
3. Analyze the potential for subliminal advertising
The advertising industry revolves around creating commercial messages urging the purchase of new or improved products or services in a variety of media: print, online, digital, television, radio, and outdoor. Because as consumers we need and want to be informed, this feature of advertising is to the good. Yet some advertising is intended to lead to the purchase of goods and services we do not need. Some ads may make claims containing only the thinnest slice of truth or exaggerate and distort what the goods and services can actually deliver. All these tactics raise serious ethical concerns that we will consider here.

### The Rise of Social Media

Relevant to any discussion of the influence and ethics of advertising is the emergence and dominance of social media, which now serve as the format within which many people most often encounter ads. Kelly Jensen, a digital-marketing consultant, observed that we inhabit a “Digital Era” in which “the internet is arguably the single most influential factor of our culture—transforming the way we view communication, relationships, and even ourselves. Social media platforms have evolved to symbolize the status of both individuals and businesses alike. . . Today, using social media to create brand awareness, drive revenue, engage current customers, and attract new ones isn’t optional anymore. Now it is an absolute ‘must.’”
These are bold claims—as are the claims of some advertising—but Jensen argues convincingly that social media platforms reach many consumers, especially younger ones, who simply cannot be captured by conventional advertising schemes. For those who derive most of the significant information that shapes their lives solely through electronic sources, nothing other than social media–based appeals stands much chance of influencing their purchasing decisions.
This upending of conventional modes of advertising has begun to change the content of ads dramatically. It certainly presents a new stage on which people as young as their teens increasingly rely for help in choosing what to buy. Many marketers have come to appreciate that if they are not spreading the word about their products and services via an electronic source, many millennials will ignore it.
Undeniably, a digital environment for advertising, selling, and delivering products and services functions as a two-edged sword for business. It provides lightning-quick access to potential customers, but it also opens pathways for sensitive corporate and consumer data to be hacked on an alarming scale. It offers astute companies nearly unlimited capacity to brand themselves positively in the minds of purchasers, but it simultaneously offers a platform for disgruntled stakeholders to assail companies for both legitimate and self-serving reasons.
Paul A. Argenti, who has taught business communication for many years at the Tuck School of Business at Dartmouth University, has studied this dilemma. As he put it, “mobile apps have created a new playground for cyber-thieves.” And consumer advocates and purchasers alike “now use technology to rally together and fuel or escalate a crisis—posing additional challenges for the corporation” in the crosshairs of criticism. Finally, “the proliferation of online blogs and social networking sites has greatly increased the visibility and reach of all current events, not excluding large corporate” bungling.
Regardless of the delivery platform, however, any threat that the advertising of unnecessary or harmful products may pose to our autonomy as consumers is complicated by the fact that sometimes we willingly choose to buy goods or services we may not necessarily require. Sometimes we even buy things that have been proven to be harmful to us, such as cigarettes and sugary drinks. Yet we may desire these products even if we do not need them. If we have the disposable income to make these discretionary purchases, why should we not do so, and why should advertisers not advise us of their availability?

### Does Advertising Drive Us to Unnecessary Purchases?

By definition, advertising aims to persuade consumers to buy goods and services, many of which are nonessential. Although consumers have long been encouraged to heed the warning caveat emptor (let the buyer beware), it is a valid question whether advertisers have any ethical obligation to rein in the oft-exaggerated claims of their marketing pitches. Most consumers emphatically would agree that they do.
The award-winning Harvard University economist John Kenneth Galbraith directly addressed this issue in The Affluent Society, first published in 1958. In what he depicted as the “the dependence effect,” Galbraith bemoaned the power of corporations to harness wide-ranging advertising strategies, marketing efforts, and sales pitches to influence consumer purchasing decisions. He asked whether it is possible for a sophisticated advertising campaign to create a demand for a product whose benefits are frivolous at best. If so, is there anything inherently wrong with that? Or are informed consumers themselves responsible for resisting tempting—though misleading—advertising claims and exercising their own best judgment about whether to buy a product that might be successful, not because it deserves to be but simply because of the marketing hype behind it? These questions remain fundamental to the manager’s task of creating ethical advertising campaigns in which truthful content is prioritized over inducing wasteful consumption.
Psychological appeals form the basis of the most successful ads. Going beyond the standard ad pitch about the product’s advantages, psychological appeals try to reach our self-esteem and persuade us that we will feel better about ourselves if we use certain products. If advertising frames the purchase of a popular toy as the act of a loving parent rather than an extravagance, for instance, consumers may buy it not because their child needs it but because it makes them feel good about what generous parents they are. This is how psychological appeals become successful, and when they do work, this often constitutes a victory for the power of psychological persuasion at the expense of ethical truthfulness.
Purchases are also affected by our notion of what constitutes a necessity versus a luxury, and that perception often differs across generations. Older consumers today can probably remember when a cell phone was considered a luxury, for instance, rather than a necessity for every schoolchild. On the other hand, many younger consumers consider the purchase of a landline unnecessary, whereas some older people still use a conventional phone as their main or even preferred means of communication. The cars and suburban homes that were once considered essential purchases for every young family are slowly becoming luxuries, replaced, for many millennials, by travel. Generational differences like these are carefully studied by advertisers who are anxious to make use of psychological appeals in their campaigns.
A consumer craze based on little more than novelty—or, at least, not on necessity or luxury in the conventional sense—is the Pet Rock, a recurring phenomenon that began in 1977. Pet Rocks have been purchased by the millions over the years, despite being nothing more than rocks. During the 2017 holiday shopping season, they retailed at $19.95. Is this a harmless fad, or a rip-off of gullible consumers who are persuaded it can satisfy a real need? In the annals of marketing, the Pet Rock craze denotes one of the most successful campaigns—still unfolding today, though in subdued fashion—in support of so dubious a product.
As long as marketers refrain from breaking the law or engaging in outright lies, are they still acting ethically in undertaking influential advertising campaigns that may drive gullible consumers to purchase products with minimal usefulness? Is this simply the free market in operation? In other words, are manufacturers just supplying a product, promoting it, and then seeing whether customers respond positively to it? Or are savvy marketing campaigns exerting too much influence on consumers ill prepared to resist them? Many people have long asked exactly these questions, and we still have arrived at no clear consensus as to how to answer them. Yet it remains an obligation of each new generation of marketers to reflect on these points and, at the very least, establish their convictions about them.
A second ethical question is how we should expect reasonable people to respond to an avalanche of marketing schemes deliberately intended to separate them from their hard-earned cash. Are consumers obligated to sift through all the messages and ultimately make purchasing decisions in their own best interest? For example, does a perceived “deal” on an unhealthy food option justify the purchase ()? These questions have no consensus answers, but they underlie any discussion of the point at which sophisticated advertising runs headlong into people’s obligation to take responsibility for the wisdom of their purchases.
No one would argue that children are particularly susceptible to the ads commercial television rains over them regularly. Generally, young children have not developed sufficient judgment to know what advertised products are good for them and which ones have little or no benefit or perhaps can even harm. Research has even shown that very young children have difficulty separating what is real on television from what is not. This is especially so as it pertains to advertising for junk food. Savvy marketers take advantage of the fact that young children (those younger than age seven or eight years) view advertising in the same manner they do information from trustworthy adults—that is, as very credible—and so marketers hone pitches for junk food directly to these children.
What restrictions could we reasonably impose on those who gear their ads toward children? We could argue that they should take special care that ads targeting children make absolutely no exaggerated claims, because children are less capable of seeing through the usual puffery that most of us ignore. Children are more literal, and once they gain the ability to understand messages directed toward them, especially when voiced by adult authority figures, they typically accept these as truthful statements.
When adults make poor consumer choices, who is responsible? Is it ourselves? Is it our society and culture, which permit the barrage of marketing to influence us in ways we often come to regret? Is it the persuasive power of marketers, which we should rein in through law? Do adults have the right to some assistance from marketers as they attempt to carry out their responsibility to protect children from manipulative ads? We have no easy answers to these questions, though they have taken on special urgency as technology has expanded the range of advertising even to our smartphones.

### Is Subliminal Advertising Real?

It may be possible for marketing to be unfairly persuasive in ways that overwhelm the better judgment of consumers. Whether it is the consumers’ responsibility to resist or marketers’ to tone down their appeals, or both, will continue to be debated. Yet the question of where responsibility lies when consumers are steered to make choices certainly has ethical ramifications.
Some psychologists and educational specialists claim that the very old and the very young are particularly ill prepared to exercise good judgment in the face of subliminal advertising, that is, embedded words or images that allegedly reach us only beneath the level of our consciousness. Other experts, however, disagree and insist that subliminal advertising is an urban myth that no current technology could create or sustain.
A U.S. journalist, Vance Packard, published The Hidden Persuaders in 1957, contending that subliminal messaging had already been introduced into some U.S. cinemas to sell more refreshments at the theaters’ snack bars. Alarms sounded at the prospect, but it turned out that any data on which Packard was relying came from James Vicary, a U.S. market researcher who insisted he had engineered the feat in a cinema in New Jersey. No other substantiation was provided, and Vicary’s claim was eventually dismissed as self-promotion, which he seemed to concede in an interview five years later. Although the immediate threat of subliminal advertising receded, some people remain concerned that such persuasion might indeed be possible, especially with the advent of better technologies, like virtual reality, to implement it.
A 2015 study at the University of South Carolina found that thirsty test subjects placed in the role of shoppers in a simulated grocery store could be subliminally influenced in their choice of beverages if they were primed by images of various beverage brands within fifteen minutes of acknowledging being thirsty. After that window of time passed, however, any impact of subliminal messaging receded.
So the scientific evidence establishing any real phenomenon of subliminal advertising is inconclusive. Put another way, the evidence to this point does not definitively demonstrate the existence of a current technology making subliminal marketing pitches possible. Given this, it cannot be clearly determined whether such a technology, if it did exist, would be effective. Another question is whether virtual reality and augmented reality might eventually make subliminal advertising viable. Real subliminal persuasion might render children, the elderly, and those with developmental disabilities more vulnerable to falling prey. Could even the most skeptical viewer resist a message so powerfully enhanced that the product can be sampled without leaving home? Would you be in favor of federal government regulation to prevent such ads? What sort of ethical imperatives would you be willing to request of or impose on sophisticated marketers?
Advertising plays a useful role in informing consumers of new or modified products and services in the marketplace, and wise purchasers will pay attention to it but with a discerning eye. Even the exaggerated claims that often accompany ads can serve a purpose as long as we do not unquestioningly accept every pitch as true.

### Summary

The Internet and social media present new canvasses for marketing that possess great power and for which rules and ethical norms are being developed. Psychological appeals and subliminal messaging present their own ethical issues. Discerning consumers currently must rely on their own sensibility to ferret out factual claims for advertised products and bear the burden of shielding those under their charge from the worst manipulative effects of marketing.

### Assessment Questions

### Endnotes


# Professions under the Microscope

## The Insurance Industry

### Learning Objectives

By the end of this section, you will be able to:
1. Discuss whether the underlying business model of the insurance industry is an ethical one
2. Identify the reasons why the government offers certain kinds of insurance
3. Discuss the ethical issues in insurers’ decisions whether to offer disaster insurance
4. Explain the concept of redlining
Although the concept of insurance dates back to antiquity, the insurance industry as a profession came of age in the seventeenth century, when maritime trade in valuable commodities like coffee, tea, cocoa, sugar, and silk became an immense industry, but one fraught with uncertainty. Merchants sought a means to limit their financial losses in the event their cargoes were lost at sea.
In England, merchants and shippers gathered together in associations, or syndicates, to distribute the risk of loss as evenly as possible. For a fee, individual merchants and ships’ owners in these syndicates could buy insurance, essentially the right to be financially compensated by the syndicate’s fund for their loss if their shipments or vessels sank. The first such association of traders and shippers began at Samuel Lloyd’s coffee house, on Tower Street near the River Thames, in 1688. This was the origin of the huge insurance market now known as Lloyd’s of London, and from these early forms of group insurance sprang the profession as it exists today.
From the seventeenth century to the present, the profession has faced a fundamental ethical quandary: An insurance company makes money when purchaser fees, called premiums, are numerous and claims, requests for monetary compensation for covered losses, are few. But the reality is that accidents occur, whether they take the form of shipping losses, vehicular collisions, or home or business fires. So insurance carriers set customer premiums at a high enough rate to compensate themselves with a baseline profit when claims for compensation arise. The ethical question then is what constitutes a reasonable profit. The way the industry defines “reasonable” is directly reflected in the premiums it sets, which also take into account actuarial and statistical calculations of the historic frequency of the occurrence of various claims.

### How Insurance Works

The irony of insurance coverage of any sort is that we buy it hoping never to use it. Still, business and consumers alike appreciate that a catastrophic loss can be financially devastating and so they seek to protect against it. Insurance coverage does not prevent illness, accidents, or other unforeseen events from occurring, but it does offer a means to recover, at least partially, from the monetary costs associated with them.
Insurance policies constitute a form of contract between insurers and the insured. To reduce their losses in those situations in which they must pay on a claim, insurers do their best to attach high premiums to the coverage and identify exclusions and limits on it. They worry about being forced to pay out on frivolous and exaggerated claims, while policyholders fear that on the rare occasions when they will have to file a claim, their reimbursement will be minuscule and/or their future premiums will rise. From the perspective of the consumer, the guarantee of a fair payout on a claim is the only inducement to pay insurance premiums in the first place.
Insurance protections are, in fact, limited. In August 2017, Hurricane Harvey dumped fifty-two inches of rain on Houston, Texas, accompanied by fierce winds. Tens of thousands of homes, stores, factories, and other industrial sites suffered severe damage and flooding. Although normal homeowners’ and business owners’ insurance provides for loss due to hurricane winds, it does not cover loss due to flooding. As The Economist observed in the immediate aftermath of the hurricane, “whereas wind damage is covered under most standard insurance policies in America, flood insurance is a government-run add-on that far from all homeowners buy. As a result, of over $30 billion in property losses in Texas, only 40 percent may be insured.”
Not only do few homeowners buy flood insurance; few private insurers offer it. After all, most insurance carriers are for-profit, and companies would make little money insuring everyone against flood damage in flood-prone areas. It would be a losing proposition for any carrier to undertake, because insurance companies enjoy their highest returns when claims are few and payouts small. But the federal government is not a commercial broker and does not intend to make a profit from extending any sort of insurance coverage. For that reason, the National Flood Insurance Act of 1968 established a way to dispense flood coverage through a federal agency. Today that supervising agency is the Federal Emergency Management Authority (FEMA), in partnership with the Department of Homeland Security (). As of August 2017, just before Harvey struck, some five million households had taken out FEMA-sponsored flood coverage.
The California Earthquake Authority serves a similar function at the state level by managing privately funded insurance against earthquakes in California. The private brokers in the program make no profit from offering this coverage, but they do earn the right to offer (and profit from) other insurance in California.

### The Ethical Dilemma of Insuring against Natural Disasters

We do not know with certainty what effect climate change will have on the incidence or severity of natural disasters (i.e., accidents that do not appear to have any direct human cause). We do know, however, that these events can be ruinously expensive, for the carriers that insure against them and for those who suffer them and must put their lives back together afterward.
Business writer Don Jergler said, for example, that “climate change has created a ‘wildfire crisis in California,’ which in turn is ‘causing a fire insurance predicament.’” California insurance commissioner Dave Jones warned in December 2017, after a particularly disastrous fire season in California, that “insurers may start to back off writing insurance in some areas [of the state],” and this would pose a crisis for homeowners who consequently lost insurance protection against losses caused by wildfires.
In Canada, too, “environmental risks linked to climate change are becoming important issues for insurers who need to consider their response to related risks and climate related losses whether arising from weather related events such as flood and storms or liability risks from third party claims.”
When insurance carriers must pay claimholders more often on claims arising from natural disasters, they lose money at a rate that could make them less willing to underwrite similar policies in the future. This unwillingness, in turn, would deny coverage against these disasters to an increasing number of individuals and companies. The high cost of disaster claims and subsequent shrinking of policy offerings are losses first experienced by the insurance industry, but they have rapid and dire consequences for policyholders.
Again, we come to the ethical conundrum as to what we might fairly expect from insurance carriers and from clients who seek to indemnify themselves against natural disasters. In regions where certain kinds of disasters are more likely to occur, is it reasonable to dictate that carriers still must provide coverage? If so, should we consider extending public subsidies to the carriers to protect them against catastrophic payouts? Should premiums be assigned on the basis of the incidence patterns and severity of risk associated with particular disasters in certain regions? With these questions, we return to the ethical consideration of what constitutes a reasonable profit for carriers and what premium policy holders ought to be charged for sufficient coverage.
The United States does not have the strong tradition of private/public ownership of industries, such as petroleum extraction or air travel that some other nations do. Essentially, private/public ownership is an arrangement in which private (industry) and public (government) monies are combined to more safely bear an industry’s risk and also share in its profit. It is often a successful partnership. When we consider the scale of loss that can result from natural disasters, and the extent of the public’s need for protection from such loss, insurance may be a U.S. industry in which private/public ownership of some policies would be appropriate. The National Flood Insurance Program and the California Earthquake Authority are rare examples of public agencies managing insurance coverage that private insurers have declined to provide because the potential for profit is too low. Whether partnerships like this can and should be expanded, and whether they can be funded from federal and state budgets, are ethical questions for federal and state governments and policyholders alike.

### Redlining: Discrimination in Insurance

A specific ethical challenge within the insurance profession is the tendency to engage in redlining. Redlining is the practice of assigning or denying coverage for certain policies, such as auto, homeowners, or business insurance, on the basis of the geographic neighborhoods where applicants for such coverage live, particularly inner-city neighborhoods. A variation on the practice is to charge considerably higher prices for the same coverage in different neighborhoods. Redlining assumes that the propensity for accidents, burglaries, fires, and other catastrophes is higher in some areas than others, so claims and costs will be higher for the insurance carrier.
At first glance, this practice appears to make economic sense from the perspective of both the insurer and the insured. Looking beneath the surface, however, reveals that redlined neighborhoods are often areas where racial and ethnic minorities live. No insurance carrier ever admits to engaging in discriminatory redlining (the term refers to an older practice by which insurance companies marked certain neighborhoods in red on print copies of coverage maps). Nearly every state in the United States forbids the practice. Yet a comprehensive 2017 study by Consumer Reports and ProPublica, a nonprofit research organization, indicated the phenomenon may remain very much a reality. This study focused on rates for auto insurance and found that for “decades, auto insurers have been observed to charge higher average premiums to drivers living in predominantly minority urban neighborhoods than to drivers with similar safety records living in majority White neighborhoods. Insurers have long defended their pricing by saying that the risk of accidents is greater in those neighborhoods, even for motorists who have never had one.”
The authors of the report compared auto insurance premiums and claims paid in four states (California, Illinois, Missouri, and Texas) and found similar results whether the carrier was Allstate, Geico, Liberty Mutual, or another. They contended “that many of the disparities in auto insurance prices between minority and White neighborhoods are wider than differences in risk can explain.” This is significant because laws do typically permit premium rates to be set according to the incidence of claims filed within certain neighborhoods. Yet laws never allow rates to be based solely or predominantly on the race or ethnicity of the residents in different neighborhoods. This is the essence of prohibited redlining. Professionals in the industry do well to steer clear of this practice or even the appearance of it, and that is the overriding theme of this study.
Drawing back, the ethical challenge for any responsible carrier is to ensure that the race, ethnicity, or creed of any policyholder plays absolutely no role in the premiums assigned him or her. There is no defensible reason to base a carrier’s decision to extend or deny insurance coverage or assign the premium amount for it on these factors.

### Summary

Business owners and individuals are willing to pay insurance premiums in the hope that they will never have to be file a claim for reimbursement on their policy. Because the insurance industry profits only when claims are few and small, there may be a bigger role for government to play in managing disaster insurance through a private/public partnership, such as FEMA currently does to provide flood insurance and the California Earthquake Authority does where potentially disastrous earthquakes may occur. Ethical issues such whether to expand the use of public tax revenues to subsidize these partnerships need to be resolved.

### Assessment Questions

### Endnotes