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Chapter 12.3

1. The Due-Care View and Ethical Obligations

The due-care view posits that manufacturers possess a significant advantage in knowledge, expertise, and resources compared to consumers. Therefore, they have a strict ethical obligation to exercise "due care" to ensure their products do not pose hidden risks, and to fully inform consumers of any inherent dangers.

Implications for Tobacco Companies: This view required tobacco companies to design products as safely as possible, completely abstain from manipulating nicotine levels to increase addiction, and transparently communicate the severe health risks (cancer, cardiovascular disease) associated with smoking.

Extent of Compliance: Tobacco companies fundamentally failed to meet these obligations for decades. According to the DOJ findings upheld by Judge Kessler, the industry actively engaged in a multi-decade conspiracy to hide the health hazards of smoking, publicly denied the addictiveness of nicotine while privately engineering cigarettes to maximize addiction, and marketed low-tar/light cigarettes as safer alternatives despite knowing they carried identical health risks.

2. Disgorgement of Profits from the "Conspiracy"

Arguments for Forcing Disgorgement (Why they should): From a retributive and compensatory justice perspective, profits generated through deliberate fraud, public deception, and the systemic destruction of human health are fundamentally illegitimate. Allowing companies to keep billions in profits made from an unlawful conspiracy creates severe moral hazard, signaling that corporate deception remains highly profitable even after accounting for legal penalties.

Arguments Against Disgorgement (Why they should not/Challenges): From a pragmatic legal framework, determining the exact proportion of profits directly caused by the conspiracy versus the legitimate market demand for a legal (though dangerous) product is exceptionally complex. Furthermore, massive asset seizures could lead to immediate corporate bankruptcy, impacting thousands of innocent supply-chain employees, tobacco farmers, and shareholders who were not part of the historic management conspiracy.

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Chapter 12.2

1. Intel as a Monopoly and Monopoly Power

Intel held an estimated 80%+ market share of the x86 microprocessor market during the era in question.

Is it a monopoly? Structurally, yes. A firm holding such a dominant market share that it can act largely independently of competitive pressures qualifies as a monopoly.

Did it use monopoly-like power? Yes. Intel achieved its objectives by leveraging its market dominance to dictate terms to Original Equipment Manufacturers (OEMs) like Dell, HP, and Lenovo. It utilized exclusive loyalty rebates, meaning OEMs received massive financial discounts only if they purchased nearly 100% of their chips from Intel, effectively blocking competitor AMD from gaining market traction.

2. Ethics of Intel’s Rebates

Unethical View (Predatory/Anti-competitive): The rebates can be viewed as highly unethical because they were not based on standard volume-based cost efficiencies. Instead, they functioned as financial penalties to lock out competitors. This behavior restricts consumer choice and stifles innovation by starving competitors of the revenue needed for R&D.

Ethical View (Free-Market Capitalist): A counterargument suggests that aggressive discounting is a legitimate tool of competitive capitalism. Proponents argue that lowering prices for customers (OEMs) benefits the supply chain and that Intel was simply defending its market position through aggressive pricing strategies.

3. Compilers and Software Libraries

Unethical View: Intel’s compilers deliberately optimized software to run efficiently on Intel chips while degrading performance on AMD chips (even when AMD chips supported the same instruction sets). This is unethical because it relies on deception and artificial sabotage rather than product superiority to win market share.

Free-Market Economy View: Some argue that a company has no ethical duty to optimize its proprietary software tools for a competitor’s hardware. However, in a truly ethical free market, competition should be based on transparent product merit rather than hidden code manipulations that intentionally mislead end consumers regarding a rival chip's capabilities.

4. Direct Assessment of Rebates

Intel's conditional rebates were fundamentally unethical because their primary intent was exclusionary rather than efficiency-driven. By conditioning discounts on the exclusion or restriction of AMD products, Intel used its financial muscle to undermine the competitive process itself, distorting the natural forces of supply and demand.

5. Sherman Antitrust Act Violations

Intel's actions arguably violated both core sections of the Sherman Antitrust Act:

Section 1 (Conspiracies to Restrain Trade): The loyalty agreements with major OEMs acted as de facto exclusive dealing arrangements that unreasonably restrained interstate commerce by closing off distribution channels for competitors.

Section 2 (Monopolization/Attempted Monopolization): Intel possessed monopoly power and willfully maintained that power through predatory, exclusionary practices (the loyalty rebates and compiler manipulations) rather than through superior product development, foresight, or historic accident.

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Chapter 12.1 1.

Obstacles to Moral BehaviorAaron Beam: Beam's responses include diffusion of responsibility and obedience to authority.

Under great duress from CEO Richard Scrushy, he attempted to "fix the numbers." AFraid of being fired or confronting a high-powered executive, he used rationalization to think that at least it was a short-term solution to keep the stock price up.Richard Scrushy: Scrushys greatest barriers to being able to carry out the fraudulent activity was his egocentrism and his hubris.He had an insatiable passion for wealth and status, and had a total disdain for rules or factors involved with the commission of the fraud, and actively distorted interpersonal relations to instil submission and actively avoid involvement in the implementation of the fraud, so the identification of the fraud was feasible (plausible deniability).Beam's Application- Beam could have over- leaned that his fiduciary obligation (being CFO) was to safeguard the financial position of the company, and that he was being directed by the CEO and todo what is in the best interest of the shareholders. 2.Validity: no, argument invalid in this case.. When it comes to business ethics, the loyal agent's argument is a false one when requesting an illegal or immoral act.

An agent's corporate loyalty can never take priority over general moral law (or over any statute, such as financial fraud laws.)No loyalty is involved here. 3.Aaron Beam (Stage 2 or 3): Beam mainly functions between the Pre-conventional level and stage 2: Individualism and Exchange and the conventional level and stage 3: Interpersonal Accord and conformity.

It was individualism that motivated him to stay and his equity in the company and to keep out of trouble with Scrushy and to conform to (or fit in with) the corporate culture.Richard Scrushy (Stage 1 or 2): Scrushy works strictly from the Pre-conventional portion of the setup (Stage 1: Punishment and Obedience / Stage 2: Instrumental Purpose). 4. Moral Responsibility & Mitigation

Was Beam morally responsible? Yes. Beam possessed both knowledge (he knew the accounting adjustments were fraudulent) and freedom of action (he could have resigned, blown the whistle, or refused).

Was his responsibility mitigated? Only slightly regarding duress, but not cleared. While Scrushy exerted massive psychological pressure, Beam was a C-level executive with significant financial security compared to a low-level employee. The pressure does not excuse the scale of the fraud.

Changing clinic reports to increase earnings: Beam bears full moral responsibility for this act as it directly falsified public financial statements and deceived investors.

Cooperators' responsibility: Anyone who willingly altered records, prepared fake balance sheets, or covered up the data bears moral responsibility. Their responsibility is only mitigated if they were severely coerced, lacked full knowledge of the fraud, or had a reasonable fear of immediate physical harm (which was not the case here).

Scrushy’s moral responsibility: Absolutely. As the architect of the culture and the individual who demanded the manipulation of numbers, Scrushy carries the highest degree of moral responsibility, regardless of whether he physically entered the fraudulent data himself.

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1. Due-care and ethical obligations

The due-care principle required tobacco companies to protect consumers by providing truthful information and avoiding deception. If the DOJ claims were true, they failed to meet these obligations by misleading the public about the health risks of smoking.

2. Turning over profits

Yes. If the profits were earned through deception and unethical conduct, the companies should have been required to give up those profits to promote accountability and justice.

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1. Intel as a monopoly

Intel was not a complete monopoly, but it held dominant market power. It used that power through rebates and agreements to limit competitors.

2. Ethics of Intel's rebates

The rebates were unethical because they encouraged customers to avoid competitors, reducing fair competition.

3. Compilers and software libraries

Intel's actions were unethical if the software was designed to unfairly disadvantage competitors' products rather than improve performance.

4. Were Intel's rebates unethical?

Yes. They discouraged competition, limited customer choice, and harmed competitors instead of competing mainly on product quality.

5. Sherman Antitrust Act

Yes, possibly. Intel's conduct may have violated the Sherman Antitrust Act by using its dominant market position to restrain competition and maintain market power.

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1. Obstacles to moral behavior

Aaron Beam: Obedience to authority, loyalty to the company, fear of losing his job, and rationalizing unethical actions.

Richard Scrushy: Greed, desire for power and success, pressure to meet financial targets, and lack of ethical concern.

2. Loyal agent's argument

Beam could argue that he was only following his CEO's instructions to help the company survive.

Validity: No. Employees still have a moral responsibility to refuse illegal or unethical actions.

3. Kohlberg's stages of moral development

Beam: Stage 3 (seeking approval and loyalty) or Stage 4 (following authority and organizational rules).

Scrushy: Stage 2 (self-interest), as his actions focused mainly on personal gain.

4. Moral responsibility

Beam was morally responsible for using aggressive accounting and altering clinic reports because he knowingly participated.

His responsibility was partly mitigated by pressure from Scrushy and fear of consequences, but not eliminated.

Employees who cooperated were also morally responsible, though their responsibility was similarly reduced by pressure.

Scrushy was morally responsible because he allegedly directed and encouraged the fraudulent accounting for personal and corporate benefit.

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12.3

1. Due-care view and tobacco companies’ obligations

The due-care view means manufacturers have a responsibility to protect consumers from harm and provide truthful information about their products. If the DOJ claims were true, tobacco companies failed their ethical duties by hiding health risks and misleading customers. They did not meet their responsibilities to protect consumers.

2. Should tobacco companies return their profits?

Yes, tobacco companies should have been required to give up profits gained from their misleading practices because those profits were earned through unethical actions that harmed consumers. This would help hold them accountable for their behavior.

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1. Is Intel a monopoly? Did Intel use monopoly-like power?

Intel was not a complete monopoly because other companies, such as AMD, also competed in the market. However, Intel had significant market power because it controlled a large share of the CPU market. It used this power to influence customers and limit competitors’ opportunities.

2. Were Intel’s rebates ethical or unethical?

Intel’s rebates were unethical because they encouraged customers to buy Intel products while discouraging them from choosing competitors. This reduced fair competition and limited consumer choices.

3. Was Intel’s use of compilers and software libraries unethical?

Intel’s use of its software tools was unethical if it intentionally reduced the performance of competitors’ products. However, creating and improving its own software is acceptable in a free market as long as it does not unfairly harm competitors.

4. Were Intel’s rebates unethical? Why?

Yes, Intel’s rebates were unethical because they were used to pressure customers into avoiding competitors. Although discounts are normally acceptable, these rebates were designed to maintain Intel’s dominance unfairly.

5. Did Intel violate the Sherman Antitrust Act?

Intel may have violated the Sherman Antitrust Act because it used its market power to restrict competition. Its rebate practices could be considered an attempt to maintain a monopoly position and prevent competitors from competing fairly.

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12.1

1. Obstacles to moral behavior

Aaron Beam was influenced by pressure to achieve company goals, loyalty to his boss, and fear of losing his position. Richard Scrushy was influenced by greed, personal interest, and the desire to maintain high company performance and reputation.

2. Loyal agent’s argument

Beam could argue that he was only being loyal to HealthSouth and following the CEO’s instructions. However, this argument is not valid because loyalty does not justify illegal actions or financial fraud.

3. Kohlberg’s moral development stage

Beam was at the Conventional level because he followed authority and company expectations instead of moral principles. Scrushy was at the Pre-conventional level because his actions were mainly based on personal gain and success.

4. Moral responsibility

Beam was morally responsible for using aggressive accounting because he knowingly participated in misleading reports. His responsibility was slightly reduced due to pressure from management, but it did not excuse his actions. Those who helped with the fraud were also responsible, although their responsibility depended on their involvement and level of pressure. Scrushy was morally responsible because he encouraged a culture focused on profits and failed to ensure ethical practices.

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1. Was Intel a monopoly?
Yes, to a large extent. Intel held a dominant share of the CPU market and used its strong market position to influence customers through rebates and business agreements.

2. Were Intel’s rebates ethical or unethical?
Unethical. The rebates encouraged customers to avoid competitors, reducing fair competition and limiting consumer choice.

3. Was Intel’s use of its compilers and software libraries unethical?
Yes. Optimizing software mainly for Intel processors while disadvantaging competitors was unfair and could mislead customers.

4. Were Intel’s rebates unethical? Why?
Yes. They were used to discourage customers from buying competitors’ products, which harmed market competition.

5. Did Intel violate the Sherman Antitrust Act?
Yes. Intel’s actions may have violated Section 2 by maintaining monopoly power through anti-competitive practices. Some conduct could also raise concerns under Section 1 if it involved agreements that restrained trade.

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Chp 12.1

1. Beam: Groupthink/conformity — going along because "everyone else was doing it"; fear of losing his job/status; rationalization ("just this quarter, we'll fix it later"); loyalty to a founder/friend (Scrushy).

Scrushy: Self-interest and greed (stock price, bonuses); overconfidence/arrogance from success; using authority to pressure subordinates; possibly self-deception (convincing himself the numbers would "catch up").

2. Not valid, because loyalty has limits — it cannot justify illegal or fraudulent acts. Genuine loyalty to a company means protecting its long-term integrity, not enabling fraud that eventually destroys it. Beam owed a higher duty to law, shareholders, and truth than to Scrushy personally.

3. Beam: Stage 3–4 — driven by wanting approval/avoiding conflict with Scrushy, and by "loyalty/duty" to the company, not fraud out of pure self-interest. He knew it was wrong but couldn't bring himself to resist authority.

Scrushy: Stage 2 — self-interest, reward/punishment thinking; he manipulated the numbers to benefit himself (bonuses, stock price, reputation) with little concern for broader ethics.

4. Beam was morally responsible for the aggressive accounting and the changed clinic reports — he knowingly participated, not just followed orders blindly. His responsibility is somewhat mitigated by the intense pressure and fear of retaliation from Scrushy, but not erased, since he still chose to comply rather than refuse or report it.

Those who cooperated with Beam share responsibility too, since they knowingly carried out the fraud, though their guilt may be slightly lessened by their lower rank and fear of losing their jobs.

Scrushy was also morally responsible, arguably more so — he created the pressure and culture that drove the fraud and benefited the most from it, even if he claimed no direct knowledge. Setting the incentive for wrongdoing doesn't excuse him from it.

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Chp 12.2

1. Intel had a very large market share, which under antitrust law suggests monopoly power. However, having a large share isn't illegal by itself — it becomes a problem if gained/maintained through anticompetitive conduct, not just innovation and efficiency. The rebates it gave to PC makers for exclusivity suggest it used its power to block AMD, not just superior products.

2. Unethical, if the rebates were conditional on exclusivity (i.e., "buy only from us and get a discount"). This isn't normal price competition — it locks out rivals and harms consumer choice, even if short-term prices seem lower. Ordinary rebates for volume buying are fine; exclusionary rebates are not.

3. Yes, unethical. Reports showed Intel's compiler intentionally made competitor (AMD) chips run software slower, without disclosing this to customers. This is deceptive — it's not fair competition, it's rigging the outcome behind the scenes. Free markets assume transparency; hidden sabotage violates that.

4. Yes— because they weren't simple discounts for volume, but payments conditioned on manufacturers not doing business with AMD. This suppresses competition rather than winning it fairly.

5. Likely yes — using market power to exclude competitors through exclusive rebates and deceptive compiler practices fits "maintaining a monopoly through improper means."

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Chp 12.3

1. The due-care theory says manufacturers, because they have special knowledge of their product, owe consumers a duty to design, test, and warn about risks honestly. If Kessler's findings are true — that companies knew nicotine was addictive and lied about it, manipulated nicotine levels, and marketed to kids — then they clearly failed this duty. Due care requires honesty and adequate warning; deliberate deception is the opposite. So no, they did not meet their obligations.

2. Yes, arguably. If profits were gained through fraud and concealment (unfair means), justice requires disgorgement — you shouldn't keep gains from wrongdoing. This also deters future misconduct.
Counterargument: courts must prove which profits came specifically from the fraud (not just from legal cigarette sales), which is hard to calculate — this is why enforcement (RICO case) was legally complicated.

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Chp 12.3

1. Due Care and the Tobacco Industry

The due care principle means manufacturers must protect consumers by providing safe products and honest information. If the DOJ claims are true, tobacco companies failed to meet this duty because they hid the health risks and misled the public about smoking. Therefore, they did not fulfill their ethical obligations.

2. Should the tobacco companies return their profits? Why?

Yes. If the profits were earned through misleading consumers and hiding important health information, the companies should return those profits. This promotes accountability, fairness, and discourages unethical business practices.

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Chp 12.2

1. Is Intel a monopoly?

Intel was not a complete monopoly, but it had a very dominant market position. It used its strong market power to influence computer manufacturers, making it difficult for competitors to compete.

2. Were Intel's rebates ethical?

The rebates were unethical because they encouraged customers to buy mainly from Intel and reduced fair competition, limiting consumer choice.

3. Was Intel's use of compilers and software libraries ethical?

It was unethical if Intel designed its software to make competitors' products perform worse without informing customers. This harmed fair competition.

4. Were Intel's rebates unethical? Why?

Yes. The rebates discouraged customers from buying competitors' products, creating an unfair market advantage and reducing competition.

5. Did Intel violate the Sherman Antitrust Act?

Yes, in my opinion. Intel's actions may have violated the Act because it used its dominant market position to limit competition instead of competing fairly through better products or innovation.

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Chp 12.1

1. Obstacles to moral behavior

Aaron Beam: Pressure from his boss, fear of losing his job, and loyalty to the company influenced his decisions.

Richard Scrushy: Greed, desire for success, and abuse of power led to unethical behavior.

2. Loyal agent's argument

Beam could argue that he was only following his CEO's instructions and trying to protect the company.

However, this argument is not valid because employees are still responsible for their own ethical decisions.

3. Kohlberg's moral development

Beam: Stage 3 (Good interpersonal relationships) – He wanted to please his boss and remain loyal.

Scrushy: Stage 2 (Self-interest) – He focused mainly on personal gain and company profits.

4. Moral responsibility

Yes, Beam was morally responsible because he knowingly used aggressive accounting and changed financial reports. Although pressure from his CEO reduced his freedom, it did not remove his responsibility.

Employees who helped with the fraud were also morally responsible because they chose to participate, even if they were under pressure.

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MUST get 80% correction.

Complete by 30th July 2026 (Thursday), 11.59pm.

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Apply Due Care to the Tobacco Industry

1. If the DOJ claims are true, as Judge Gladys Kessler determined, what does the due-care view of the manufacturer’s

duties imply with respect to the ethical obligations of the tobacco companies? To what extent did the tobacco companies meet these obligations?

2. Should the tobacco companies have been forced to turn over the profits they made from their “conspiracy”? Why or

why not?

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Case Study : Intel’s Rebates and Other Ways It “Helped” Customers (November 12, 2009)

1. In your judgment, is Intel a monopoly? Did Intel use monopoly like power; in other words, did Intel achieve its objectives by

relying on power that it had due to its control of a large portion of the market? Explain your answers.

2. In your judgment, were Intel’s rebates ethical or unethical? Explain your answer.

3. Was it unethical for Intel to use its compilers and its “libraries” of software code in the way it did, or were its actions permissible in a free market economy? Explain your answer.

4. Were Intel’s rebates unethical? Explain why or why not.

5. In your view, did Intel violate either of the two key sections of the Sherman Antitrust Act? Explain.

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Journal: Evaluate Moral Responsibility at HealthSouth

1. Which of the “obstacles” to moral behavior do you see at work in Aaron Beam’s behavior and thinking? In Richard Scrushy’s?

2. Explain how Beam might have used the loyal agent’s argument on defend his actions. Do you think that in Beam’s

situation, the loyal agent’s argument might have been valid? Explain.

3. In terms of Kohlberg’s views on moral development, at what stage of moral development would you place Beam? Explain. At what stage would you place Scrushy?

4. Was Beam morally responsible for engaging in the “aggressive accounting” methods he used? Was his responsibility mitigated in any way? Was he morally responsible for changing the clinic reports to increase the company’s earnings?

Was his responsibility for this mitigated? Were those who cooperated in his actions morally responsible for those actions? Was their responsibility mitigated? Do you think Scrushy was morally responsible for the accounting fraud? Explain each of your answers.