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Ethics and the Conduct of Business
Eighth edition Chapter 5 Business Information and Conflict of Interest Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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Modules Introduction: Business Information and Conflict of Interest
5.1: Confidential Information 5.2: Proprietary Information 5.3: Conflict of Interest Conclusion: Business Information and Conflict of Interest Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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Learning Objectives 5.1: Identify the competing rights and considerations of fairness for employers and employees seeking to protect or use confidential information 5.2: Explain the concepts of intellectual property and trade secrets; the arguments surrounding questions of ownership, protection, and collection; and how these issues affect the employer-employee relationship 5.3: Describe the meaning of conflict of interest, the different types of conflict of interest, and ways by which business firms can manage these situations Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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Introduction: Business Information and Conflict of Interest
Information valuable asset that companies protect Conflict of interests should be managed Confidential information is internal information Proprietary information said to be owned in form of property Intellectual property includes trade secrets, patents, trademarks, copyrights Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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5.1: Confidential Information (1 of 2)
Objective: Identify the competing rights and considerations of fairness for employers and employees seeking to protect or use confidential information 5.1.1: Duty of Confidentiality Justifying the duty Confidentiality agreements 5.1.2: Competitive Employment Noncompetition agreement Features 5.1.1: Duty of Confidentiality Point 1- Justifying the duty Parties involved are businesses, workers, and society Agency and fiduciary should maintain confidentiality First, establish the existence of the duty Second, understand which information should not be disclosed Point 2- Confidentiality agreements Nondisclosure agreements Treating all shared information as confidential Continues after leaving a job Employees coerced into giving up rights Careful balancing of rights and interests 5.1.2: Competitive Employment Point 1- Noncompetition agreement Signed at the time of hiring Restricts working for a competitor for certain period of time Point 2- Features Common and justified For high-level and highly creative executives Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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5.1: Confidential Information (2 of 2)
Objective: Identify the competing rights and considerations of fairness for employers and employees seeking to protect or use confidential information 5.1.3: Impact of Restrictions Imposition of noncompetition agreements Noncompetition agreements Drawbacks of noncompetition agreements Test to determine noncompetition agreements Factors in determining restrictions 5.1.3: Impact of Restrictions Point 1- Imposition of noncompetition agreements Well-to-do individuals are amply compensated Employers gain competitive advantage without offering workers any benefit Point 2- Noncompetition agreements Coercive nature and unfair constraints Benefits employer Point 3- Drawbacks of noncompetition agreements Apply regardless of employment termination condition Wider range of competition in mergers Undermines beneficial workings of a competitive market Point 4- Test to determine noncompetition agreements Must serve to protect legitimate business interests Must not be greater than that which is required for the protection of these legitimate interests Must not impose an undue hardship on the ability of an employee to secure gainful employment Must not be injurious to the public Point 5- Factors in determining restrictions Time period Geographical area Kind of work excluded Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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5.2: Proprietary Information (1 of 3)
Objective: Explain the concepts of intellectual property and trade secrets; the arguments surrounding questions of ownership, protection, and collection; and how these issues affect the employer-employee relationship 5.2.1: Intellectual Property Patents and copyright laws Creators have property rights in ideas Legal protection drawbacks 5.2.1: Intellectual Property Point 1- Patents and copyright laws Ideas are treated as property Company is the rightful owner People are hired to invent and paid for their work Point 2- Creators have property rights in ideas Without legal protection, there would be fewer innovations The grand patent bargain maximizes social benefit Point 3- Legal protection drawbacks Patents increases the price of the product Trade secrets permit a monopoly to exist Owner can prevent the dissemination of the important information Optimal trade-off should be found Disputes arise over ideas that can be patented Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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5.2: Proprietary Information (2 of 3)
Objective: Explain the concepts of intellectual property and trade secrets; the arguments surrounding questions of ownership, protection, and collection; and how these issues affect the employer-employee relationship 5.2.2: Defining Trade Secrets Examples of trade secrets Examples of confidential business information Factors that determine trade secrets Economic Espionage Act of 1996 Arguments for trade secret protection 5.2.3: Property Rights Argument Who owns the product? The Wexler case 5.2.2: Defining Trade Secrets Point 1- Examples of trade secrets Chemical composition of a product Design of a machine Details of manufacturing process Methods of quality control List of customers and suppliers Point 2- Examples of confidential business information Salary of an employee Amount of a specific bid Point 3- Factors that determine trade secrets Extent to which the information is known outside a company Extent to which it is known by employees and others inside a company Extent of measures taken by a company to guard the secrecy of information Value of information to a company and its competitors Amount of effort or money expended by a company in developing the information Point 4- Economic Espionage Act of 1996 Intended to prevent trade secret theft Criminalizes trade theft Primarily aimed at foreign espionage Point 5- Arguments for trade secret protection Property rights applied to trade secrets Trade secret cases based on right to compete and fair competition Employees who disclose trade secrets violate obligations of confidentiality 5.2.3: Property Rights Argument Point 1- Who owns the product? Individuals own when the idea is unrelated to the job they are performing The employer owns when the individual is hired to develop the product Point 2- The Wexler case Alvin Greenberg worked as chief chemist in Buckingham Wax Company Greenberg joins Brite Products after eight years Buckingham Wax Company sued Greenberg for using its formula Court decision was in favor of Greenberg The formula properly belongs to Greenberg who has the right to use them Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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5.2: Proprietary Information (3 of 3)
Objective: Explain the concepts of intellectual property and trade secrets; the arguments surrounding questions of ownership, protection, and collection; and how these issues affect the employer-employee relationship 5.2.4: Fair Competition Argument Fairness of trade Right to compete 5.2.5: Competitor Intelligence Collection practices Unethical methods 5.2.4: Fair Competition Argument Point 1- Fairness of trade Company information used by competitors without cost Fairness in trade should be maintained Point 2- Right to compete Associated press case Fairness in competition must be balanced Balancing act acute in the Internet age 5.2.5: Competitor Intelligence Point 1- Collection practices Computers facilitate intelligence gathering Challenge is to piece information together Competitor intelligence gathering has ethical and legal limits Ethical and legal limits concerned with the methods used Point 2- Unethical methods Theft and receipt of unsolicited information Misrepresentation Improper influence Covert surveillance Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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Figure 5.1: Business Information
Examples of business information Information is a valuable asset that companies protect Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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5.3: Conflict of Interest (1 of 2)
Objective: Describe the meaning of conflict of interest, the different types of conflict of interest, and ways by which business firms can manage these situations 5.3.1: Defining Conflict of Interest Occurrence Benefits 5.3.2: Some Relevant Distinctions Actual and potential conflict of interest Personal and impersonal conflicts of interest Individual and organizational conflict of interest 5.3.1: Defining Conflict of Interest Point 1- Occurrence Personal interest interferes with person’s ability to promote others’ interest Failing in a duty Point 2- Benefits People develop interest when they gain benefit Merely satisfying a desire not enough 5.3.2: Some Relevant Distinctions Point 1- Actual and potential conflict of interest Acting against the interest of the employer due to personal interest is actual conflict Possibility that a person will fail to fulfill the obligation in the future is potential conflict Point 2- Personal and impersonal conflicts of interest Interest that conflicts with the interest of another is personal conflict A person is obliged to act in interests of two different people in impersonal conflict Point 3- Individual and organizational conflict of interest Agency is a person acting in the interest of the principal Principal may be another person or organization Organization can be agents too Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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5.3: Conflict of Interest (2 of 2)
Objective: Describe the meaning of conflict of interest, the different types of conflict of interest, and ways by which business firms can manage these situations 5.3.3: Kinds of Conflict of Interest Biased judgment Direct competition Misuse of position Violation of confidentiality 5.3.4: Managing Conflict of Interest Not merely a matter of personal ethics Means of managing conflict of interest 5.3.3: Kinds of Conflict of Interest Point 1- Biased judgment Making judgments a characteristic of professionals Employees exercise some judgment in their jobs Judgment of purchasing agent to make decisions that are best for the firm Bribes and outside business interest factors that influence employee judgment Point 2- Direct competition Employee shows interest in performing other works Quality of employee’s work reduced Direct competition limits the company’s profit Point 3- Misuse of position Wall Street Journal reporter provided advance information about the content Home loan sanctioning bank manager mentioning her brother as contractor Extortion also constitutes misuse of position Point 4- Violation of confidentiality Using another’s information for personal gain The duty of a lawyer is not to use the information of client for personal interests R. Foster Winans case 5.3.4: Managing Conflict of Interest Point 1- Not merely a matter of personal ethics Conflicts occurs in the course of being professional Often occurs from structural features Should be managed through carefully designed systems Most corporations mention the means in their code of ethics Point 2- Means of managing conflict of interest Objectivity Avoidance Disclosure Competition Rules and policies Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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Conclusion: Business Information and Conflict of Interest
Ethical issues involves a delicate balancing Arguments about rights, duties, and fairness Language of duties and rights has dominated the discussion Conflict of interests involves concept of duty Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved
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