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1.1 What Is Business Ethics?

Learning Objectives

  1. Define the components of business ethics.
  2. Outline how business ethics works.

Captive Customers

Ann Marie Wagoner studies at the University of Alabama (UA). She pays $1,200 a year for books, which is exasperating, but what really ticks her off is the text for her composition class. Called A Writer’s Reference (Custom Publication for the University of Alabama), it’s the same Writer’s Reference sold everywhere else, with slight modifications: there are thirty-two extra pages describing the school’s particular writing program, the Alabama A is emblazoned on the front cover, there’s an extra $6 on the price tag (compared with the price of the standard version when purchased new), and there’s an added sentence on the back: “This book may not be bought or sold used.” The modifications are a collective budget wrecker. Because she’s forced to buy a new copy of the customized Alabama text, she ends up paying about twice what she’d pay for a used copy of the standard, not-customized book that’s available at and similar used-book dealers.

For the extra money, Wagoner doesn’t get much—a few additional text pages and a school spirit cover. Worse, those extra pages are posted free on the English department’s website, so the cover’s the only unambiguous benefit. Even there, though, it’d be cheaper to just buy a UA bumper sticker and paste it across the front. It’s hard to see, finally, any good reason for the University of Alabama English Department to snare its own students with a textbook costing so much.

Things clear up when you look closely at the six-dollar difference between the standard new book cost and the customized UA version. Only half that money stays with the publisher to cover specialized printing costs. The other part kicks back to the university’s writing program, the one requiring the book in the first place. It turns out there’s a quiet moneymaking scheme at work here: the English department gets some straight revenue, and most students, busy with their lives, don’t notice the royalty details. They get their books, roll their eyes at the cash register, and get on with things.

Wagoner noticed, though. According to an extensive article in the Wall Street Journal, she calls the cost of new custom books “ridiculous.” She’s also more than a little suspicious about why students aren’t more openly informed about the royalty arrangement: “They’re hiding it so there isn’t a huge uproar.”John Hechinger, “As Textbooks Go ‘Custom,’ Students Pay: Colleges Receive Royalties for School-Specific Editions; Barrier to Secondhand Sales,” Wall Street Journal, July 10, 2008, accessed May 11, 2011,

While it may be true that the Tuscaloosa university is hiding what’s going on, they’re definitely not doing a very good job since the story ended up splattered across the Wall Street Journal. One reason the story reached one of the United States’ largest circulation dailies is that a lot of universities are starting to get in on the cash. Printing textbooks within the kickback model is, according to the article, the fastest growing slice of the $3.5 billion college textbook market.

The money’s there, but not everyone is eager to grab it. James Koch, an economist and former president of Old Dominion University and the University of Montana, advises schools to think carefully before tapping into customized-textbook dollars because, he says, the whole idea “treads right on the edge of what I would call unethical behavior. I’m not sure it passes the smell test.”John Hechinger, “As Textbooks Go ‘Custom,’ Students Pay: Colleges Receive Royalties for School-Specific Editions; Barrier to Secondhand Sales,” Wall Street Journal, July 10, 2008, accessed May 11, 2011,

What Is Business Ethics?

What does it mean to say a business practice doesn’t “pass the smell test”? And what would happen if someone read the article and said, “Well, to me it smells all right”? If no substance fills out the idea, if there’s no elaboration, then there probably wouldn’t be much more to say. The two would agree to disagree and move on. Normally, that’s OK; no one has time to debate everything. But if you want to get involved—if you’re like Wagoner who sounds angry about what’s going on and maybe wants to change it—you’ll need to do more than make comments about how things hit the nose.

Doing business ethicsProviding reasons for how things ought to be in the economic world. means providing reasons for how things ought to be in the economic world. This requires the following:

  • Arranging valuesIn business ethics, the priorities selected to guide decisions. to guide decisions. There needs to be a clearly defined and well-justified set of priorities about what’s worth seeking and protecting and what other things we’re willing to compromise or give up. For example, what’s more important and valuable: consumers (in this case students paying for an education) getting their books cheaply or protecting the right of the university to run the business side of its operation as it sees fit?
  • Understanding the factsIn business ethics, the people and things involved in a decision.. To effectively apply a set of values to any situation, the situation itself must be carefully defined. Who, for example, is involved in the textbook conflict? Students, clearly, as well as university administrators. What about parents who frequently subsidize their college children? Are they participants or just spectators? What about those childless men and women in Alabama whose taxes go to the university? Are they involved? And how much money are we talking about? Where does it go? Why? How and when did all this get started?
  • Constructing argumentsIn business ethics, showing how, given the facts, one action serves specific values better than other actions.. This shows how, given the facts, one action serves our values better than other actions. While the complexities of real life frequently disallow absolute proofs, there remains an absolute requirement of comprehensible reasoning. Arguments need to make sense to outside observers. In simple, practical terms, the test of an ethical argument resembles the test of a recipe for a cook: others need to be able to follow it and come to the same result. There may remain disagreements about facts and values at the end of an argument in ethics, but others need to understand the reasoning marking each step taken on the way to your conclusion.

Finally, the last word in ethics is a determination about right and wrong. This actual result, however, is secondary to the process: the verdict is only the remainder of forming and debating arguments. That’s why doing ethics isn’t brainwashing. Conclusions are only taken seriously if composed from clear values, recognized facts, and solid arguments.

Bringing Ethics to Kickback Textbooks

The Wall Street Journal article on textbooks and kickbacks to the university is a mix of facts, values, and arguments. They can be sorted out; an opportunity to do the sorting is provided by one of the article’s more direct assertions:

Royalty arrangements involving specially made books may violate colleges’ conflict-of-interest rules because they appear to benefit universities more than students.

A conflict of interest occurs when a university pledges to serve the interest of students but finds that its own interest is served by not doing that. It doesn’t sound like this is a good thing (in the language of the article, it smells bad). But to reach that conclusion in ethical terms, the specific values, facts, and arguments surrounding this conflict need to be defined.

Start with the values. The priorities and convictions underneath the conflict-of-interest accusation are clear. When a university takes tuition money from a student and promises to do the best job possible in providing an education to the student, then it better do that. The truth matters. When you make a promise, you’ve got to fulfill it. Now, this fundamental value is what makes a conflict of interest worrisome. If we didn’t care about the truth at all, then a university promising one thing and doing something else wouldn’t seem objectionable. In the world of poker, for example, when a player makes a grand show of holding a strong hand by betting a pile of chips, no one calls him a liar when it’s later revealed that the hand was weak. The truth isn’t expected in poker, and bluffing is perfectly acceptable. Universities aren’t poker tables, though. Many students come to school expecting honesty from their institution and fidelity to agreements. To the extent these values are applied, a conflict of interest becomes both possible and objectionable.

With the core value of honesty established, what are the facts? The “who’s involved?” question brings in the students buying the textbooks, the company making the textbooks (Bedford/St. Martin’s in Boston), and the University of Alabama. As drawn from the UA web page, here’s the school’s purpose, the reason it exists in the first place: “The University of Alabama is a student-centered research university and an academic community united in its commitment to enhancing the quality of life for all Alabamians.”

Moving to the financial side, specific dollar amounts should be listed (the textbook’s cost, the cost for the noncustomized version). Also, it may be important to note the financial context of those involved: in the case of the students, some are comfortably wealthy or have parents paying for everything, while others live closer to their bank account’s edge and are working their way through school.

Finally, the actual book-selling operation should be clearly described. In essence, what’s going on is that the UA English Department is making a deal with the Bedford/St. Martin’s textbook company. The university proposes, “If you give us a cut of the money you make selling textbooks, we’ll let you make more money off our students.” Because the textbooks are customized, the price goes up while the supply of cheap used copies (that usually can be purchased through the Internet from stores across the nation) goes way down. It’s much harder for UA students to find used copies, forcing many to buy a new version. This is a huge windfall for Bedford/St. Martin’s because, for them, every time a textbook is resold used, they lose a sale. On the other side, students end up shelling out the maximum money for each book because they have to buy new instead of just recycling someone else’s from the previous year. Finally, at the end of the line there is the enabler of this operation, the English department that both requires the book for a class and has the book customized to reduce used-copy sales. They get a small percentage of Bedford/St. Martin’s extra revenue.

With values and facts established, an argument against kickback textbooks at Alabama can be drawn up. By customizing texts and making them mandatory, UA is forcing students to pay extra money to take a class: they have to spend about thirty dollars extra, which is the difference between the cost of a new, customized textbook and the standard version purchased used. Students generally don’t have a lot of money, and while some pass through school on the parental scholarship, others scrape by and have to work a McJob to make ends meet. So for at least some students, that thirty dollars directly equals time that could be spent studying, but that instead goes to flipping burgers. The customized textbooks, consequently, hurt these students’ academic learning in a measurable way. Against that reality there’s the university’s own claim to be a “student-centered” institution. Those words appear untrue, however, if the university is dragging its own students out of the library and forcing them to work extra hours. To comply with its own stated ideals—to serve the students’ interests—UA should suspend the kickback textbook practice. It’s important to do that, finally, because fulfilling promises is valuable; it’s something worth doing.

Argument and Counterargument

The conclusion that kickback textbooks turn universities into liars doesn’t end debate on the question. In fact, because well developed ethical positions expose their reasoning so openly (as opposed to “it doesn’t smell right”), they tend to invite responses. One characteristic, in other words, of good ethical arguments is that, paradoxically but not contradictorily, they tend to provoke counterarguments.

Broadly, there are three ways to dispute an argument in ethics. You can attack the

  1. facts,
  2. values,
  3. reasoning.

In the textbook case, disputing the facts might involve showing that students who need to work a few extra hours to afford their books don’t subtract that time from their studying; actually, they subtract it from late-night hours pounding beers in dank campus bars. The academic damage done, therefore, by kickback textbooks is zero. Pressing this further, if it’s true that increased textbook prices translate into less student partying, the case could probably be made that the university actually serves students’ interests—at least those who drink too much beer—by jacking up the prices.

The values supporting an argument about kickback textbooks may, like the facts, be disputed. Virginia Tech, for example, runs a text-customization program like Alabama’s. According to Tech’s English Department chair Carolyn Rude, the customized books published by Pearson net the department about $20,000 a year. Some of that cash goes to pay for instructors’ travel stipends. These aren’t luxury retreats to Las Vegas or Miami; they’re gatherings of earnest professors in dull places for discussions that reliably put a few listeners to sleep. When instructors—who are frequently graduate students—attend, they’re looking to burnish their curriculum vitae and get some public responses to their work. Possibly, the trip will help them get a better academic job later on. Regardless, it won’t do much for the undergraduates at Virginia Tech. In essence, the undergrads are being asked to pay a bit extra for books to help graduate students hone their ideas and advance professionally.

Can that tradeoff be justified? With the right values, yes. It must be conceded that Virginia Tech is probably rupturing a commitment to serve the undergrads’ interest. Therefore, it’s true that a certain amount of dishonesty shadows the process of inflating textbook costs. If, however, there’s a higher value than truth, that won’t matter so much. Take this possibility: what’s right and wrong isn’t determined by honesty and fidelity to commitments, but the general welfare. The argument here is that while it’s true that undergrads suffer a bit because they pay extra, the instructors receiving the travel stipends benefit a lot. Their knowledge grows, their career prospects improve, and in sum, they benefit so much that it entirely outweighs the harm done to the undergrads. As long as this value—the greatest total good—frames the assessment of kickback textbooks, the way is clear for Tech or Alabama to continue the practice. It’s even recommendable.

The final ground on which an ethical argument can be refuted is the reasoning. Here, the facts are accepted, as well as the value that universities are duty bound to serve the interests of the tuition-paying undergraduate students since that’s the commitment they make on their web pages. What can still be debated, however, is the extent to which those students may actually be benefitted by customizing textbooks. Looking at the Wall Street Journal article, several partially developed arguments are presented on this front. For example, at Alabama, part of the money collected from the customized texts underwrites teaching awards, and that, presumably, motivates instructors to perform better in the classroom, which ends up serving the students’ educational interests. Similarly, at Virginia Tech, part of the revenue is apportioned to bring in guest speakers, which should advance the undergraduate educational cause. The broader argument is that while it’s true that the students are paying more for their books than peers at other universities, the sequence of reasoning doesn’t necessarily lead from that fact to the conclusion that there’s a reproachable conflict of interest. It can also reach the verdict that students’ educational experience is improved; instead of a conflict of interest, there’s an elevated commitment to student welfare inherent in the kickback practice.

Conclusion. There’s no irrefutable answer to the question about whether universities ought to get involved in kickback textbooks. What is clear, however, is that there’s a difference between responding to them by asserting that something doesn’t smell right, and responding by uniting facts, values, and reasoning to produce a substantial ethical argument.

Key Takeaways

  • Business ethics deals with values, facts, and arguments.
  • Well-reasoned arguments, by reason of their clarity, invite counterarguments.

Review Questions

  1. What is the difference between brainwashing and an argument?
  2. What does it mean to dispute an argument on the basis of the facts?
  3. What does it mean to dispute an argument on the basis of the values?
  4. What does it mean to dispute an argument on the basis of the reasoning?