the blackwell dictionary of business ethics (werhane and freeman)

THE BLACKWELL ENCYCLOPEDIA OF MANAGEMENT
BUSINESS ETHICS
THE BLACKWELL ENCYCLOPEDIA OF MANAGEMENT
SECOND EDITION
Encyclopedia Editor: Cary L. Cooper
Advisory Editors: Chris Argyris and William H. Starbuck
Volume I: Accounting
Edited by Colin Clubb (and A. Rashad Abdel Khalik)
Volume II: Business Ethics
Edited by Patricia H. Werhane and R. Edward Freeman
Volume III: Entrepreneurship
Edited by Michael A. Hitt and R. Duane Ireland
Volume IV: Finance
Edited by Ian Garrett (and Dean Paxson and Douglas Wood)
Volume V: Human Resource Management
Edited by Susan Cartwright (and Lawrence H. Peters, Charles R. Greer, and Stuart A.
Youngblood)
Volume VI: International Management
Edited by Jeanne McNett, Henry W. Lane, Martha L. Maznevski, Mark E. Mendenhall, and
John O’Connell
Volume VII: Management Information Systems
Edited by Gordon B. Davis
Volume VIII: Managerial Economics
Edited by Robert E. McAuliffe
Volume IX: Marketing
Edited by Dale Littler
Volume X: Operations Management
Edited by Nigel Slack and Michael Lewis
Volume XI: Organizational Behavior
Edited by Nigel Nicholson, Pino Audia, and Madan Pillutla

Volume XII: Strategic Management
Edited by John McGee (and Derek F. Channon)
Volume XIII: Index
S E C O N D E D I T I O N
BUSINESS ETHICS
Edited by
Patricia H. Werhane and
R. Edward Freeman
Darden Graduate School of
Business Administration,
University of Virginia
THE BLACKWELL
ENCYCLOPEDIA
OF MANAGEMENT
# 1997, 1999, 2005 by Blackwell Publishing Ltd
except for editorial material and organization # 1997, 1999, 2005 by Patricia H. Werhane and R. Edward Freeman
BLACKWELL PUBLISHING
350 Main Street, Malden, MA 02148-5020, USA
108 Cowley Road, Oxford OX4 1JF, UK
550 Swanston Street, Carlton, Victoria 3053, Australia
The right of Patricia H. Werhane and R. Edward Freeman to be identified as the Authors of the Editorial Material in this
Work has been asserted in accordance with the UK Copyright, Designs, and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form
or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright,
Designs, and Patents Act 1988, without the prior permission of the publisher.
First published 1997 by Blackwell Publishers Ltd
Published in paperback in 1999 by Blackwell Publishers Ltd
Second edition published 2005 by Blackwell Publishing Ltd
Library of Congress Cataloging in Publication Data
A catalogue record for this title is available from the British Library.

The Blackwell encyclopedia of management. Business ethics / edited by
Patricia H. Werhane and R. Edward Freeman.
p. cm. (The Blackwell encyclopedia of management; v. 8)
Rev. ed. of: The Blackwell encyclopedic dictionary of business ethics / edited by
Patricia H. Werhane and R. Edward Freeman.
Includes bibliographical references and index.
ISBN 1-4051-0013-3 (hardcover: alk. paper)
1. Business ethics Dictionaries. 2. Management Dictionaries.
I. Werhane, Patricia Hogue. II. Freeman, R. Edward, 1951 . III. Blackwell Publishing Ltd.
IV. Blackwell encyclopedic dictionary of business ethics. V. Title: Business ethics. VI. Series.
HD30.15 .B455 2005 vol. 2
[HF5387]
658’.003 s dc22
[174’.4’03]
2004007693
ISBN for the 12-volume set 0 631 23317 2
Set in 9.5 on 11pt Ehrhardt
by Kolam Information Services Pvt. Ltd, Pondicherry, India
Printed and bound in the United Kingdom
by TJ International, Padstow, Cornwall
The publisher’s policy is to use permanent paper from mills that operate a sustainable forestry policy, and which has been
manufactured from pulp processed using acid-free and elementary chlorine-free practices. Furthermore, the publisher
ensures that the text paper and cover board used have met acceptable environmental accreditation standards.
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Contents
Preface vi
About the Editors viii
List of Contributors ix

Dictionary Entries A–Z 1
Index 556
Preface
The second edition of the Blackwell Encyclopedia of Management: Business Ethics is again a labor of love
undertaken by over 220 contributors. When we began the first edition we did not realize that it would
entail asking so many of our friends, colleagues, acquaintances, and strangers freely and willingly to
write entries. The result is amazing. Each entry to this volume was written without complaint by
philosophers, theologians, social scientists, professors of management, and practitioners. A few
contributors even volunteered to write second, third, even fourth pieces, should we need them.
Such enthusiasm was again demonstrated in putting together the second edition. This volume is
dedicated to its contributors.
The idea of an eleven volume Encyclopedia of Management that would include a dictionary of
business ethics was the brainstorm of the two senior editors, Cary L. Cooper and Chris Argyris. For
us, it was a positive indication that business ethics had become part of mainstream management,
management teaching and research, and management practice. This is reinforced with the publication
of this new edition. The Blackwell Encyclopedia of Management: Business Ethics will again be listed in
Blackwell’s philosophy catalogue, indicating that perhaps applied ethics will now become part of
mainstream philosophy as well. This inclusion reflects on the foresight of Blackwell editors, and is a
compliment to our contributors, many of whom are academic philosophers or professors of religious
studies.
There are a number of other people who deserve special mention for making this book possible. The
premier encyclopedia in the field is Larry and Charlotte Becker’s monumental work, the Encyclopedia
of Ethics, now in its second edition. In that work, the Beckers set out exemplary criteria for all
encyclopedias of its kind. In addition, because their work is on ethics we learned a great deal from
their topic headings, and indeed, we asked some of the same authors to write on the same or similar
topics. Surprisingly, in the interests of advancing applied ethics, most of these authors changed their
Becker entry to be more appropriate for business ethics. Our deepest, heartfelt gratitude to Charlotte
and Larry Becker.
The first edition of this volume could not have been possible without the fine editorial work of
Henry W. Tulloch, a retired executive and Senior Fellow at the Olsson Center for Applied Ethics at

the Darden School, Tara Radin, Maura Mahoney, Susan Crandell, and our tireless editorial assistant
on this project, Kirsti Severance. Entries for the second edition were read and edited by Jenny Mead,
the associate editor, with the assistance of Henry Tulloch. Without their tireless efforts, there would be
no dictionary. Karen Musselman, the administrator of the Olsson Center at Darden, has assisted all of
us in a myriad of ways throughout this project. To all of these people, each of whom has made
invaluable contributions – and there are others we have neglected to mention – we give our deepest
thanks. The Darden School of the University of Virginia has been most supportive of our work on this
project in every way. A number of faculty contributed entries, and the administration provided
encouragement, space, equipment, and release time as well as financial resources. Additional financial
assistance for the volume was provided by the Olsson Center for Applied Ethics, the Ruffin Founda
tion, and the Batten Institute.
The shortcomings of the book are, unfortunately, the sole responsibility of its editors.
Patricia H. Werhane and R. Edward Freeman
editorial staff
Jenny Mead, Associate Editor
Henry W. Tulloch, Assistant Editor
The editors gratefully acknowledge Lawrence C. Becker and Charlotte B. Becker (eds.), Encyclopedia
of Ethics, New York: Garland Publishing, 1992, and Lawrence C. Becker and Charlotte B. Becker
(eds.), Encyclopedia of Ethics, 2nd edition, New York: Routledge, 2001, for permission to reprint
substantial portions of ‘‘Justice, circumstances of’’ (published here as JUSTICE) and RIGHTS. The
reader is also directed to the following entries in the Encyclopedia of Ethics: Acts and Omissions;
Altruism, Authenticity; Autonomy of Ethics; Business Ethics; Coercion; Computers; Envy; Guilt and
Shame, Harm and Offense; Interests; Kantian Ethics; Liberalism; Liberty, economic; Moral Di
lemmas; Needs; Partiality; Practical Reason(ing); Promises; Reciprocity; Responsibility; Self decep
tion; Technology; Universalizability; Utilitarianism.
In memory of
Max B. E. Clarkson
Dana R. Clyman
Richard M. Hare
Dove Izraeli

Wesley A. Magat
Clarence C. Walton
James B. Wilbur
About the Editors
Editor in Chief
Cary Cooper is based at Lancaster University as Professor of Organizational Psychology. He is the
author of over 80 books, past editor of the Journal of Organizational Behavior, and Founding President
of the British Academy of Management.
Advisory Editors
Chris Argyris is James Bryant Conant Professor of Education and Organizational Behavior at
Harvard Business School.
William Haynes Starbuck is Professor of Management and Organizational Behavior at the Stern
School of Business, New York University.
Volume Editors
Patricia H. Werhane, Ruffin Professor of Business Ethics and Senior Fellow of the Olsson Center
for Applied Ethics, holds a joint appointment at Darden and at DePaul University, where she is
Wicklander Chair in Business Ethics and Director of the Institute for Business and Professional
Ethics. Werhane teaches Ethics Courses in the Darden MBA program, heads the school’s Doctoral
Program Operating Committee, and is Academic Advisor for the Business Roundtable Institute for
Corporate Ethics. She is a prolific author, an acclaimed authority on employee rights in the workplace,
one of the leading scholars on Adam Smith, and founder and former editor in chief of Business Ethics
Quarterly, the leading journal of business ethics. She was a founding member and past president of the
Society for Business Ethics.
R. Edward Freeman, Elis and Signe Olsson Professor of Business Administration, heads Darden’s
Olsson Center for Applied Ethics, one of the world’s leading academic centers for the study of ethics,
and is also Academic Director of the Business Roundtable Institute for Corporate Ethics. Freeman has
written or edited ten books on business ethics, environmental management, and strategic management.
His latest book, Environmentalism and the New Logic of Business: How Firms Can be Profitable and Leave
Our Children a Living Planet, helps executives meet the challenge of being profitable while being
environmentally responsible. He has also authored more than 40 Darden case studies and 50 scholarly

articles. Freeman serves on the advisory board of the University of Virginia Institute for Practical
Ethics.
Contributors
Julia J. Aaron
Philosophy Department, Clarion University of
Pennsylvania
Raj Aggarwal
Graduate School of Management, Kent State
University
Kenneth D. Alpern
Department of Philosophy, Hiram College
Sita C. Amba Rao
School of Business, Indiana University Kokomo
Lyn Suzanne Amine
School of Business and Administration, St.
Louis University
Mary Beth Armstrong
Orfalea College of Business, California Poly
technic State University
Denis G. Arnold
Department of Philosophy, University of Ten
nessee
Kaushik Basu
Department of Economics, Cornell University
Alan R. Beckenstein
Darden Graduate School of Business Adminis
tration, University of Virginia
Daniel A. Bell
City University of Hong Kong
Rosalyn W. Berne

School of Engineering and Applied Sciences,
University of Virginia
Frederick Bird
Department of Religion, Concordia University
Lawrence Blum
Department of Philosophy, University of Mas
sachusetts
John R. Boatright
School of Business Administration, Loyola Uni
versity Chicago
Norman E. Bowie
Carlson School of Management, University of
Minnesota
F. Neil Brady
Romney Institute of Public Management, Brig
ham Young University
George G. Brenkert
McDonough School of Business, Georgetown
University
Richard N. Bronaugh
Department of Philosophy, University of West
ern Ontario
Allen Buchanan
Department of Philosophy, Duke University
Rogene A. Buchholz, emeritus
College of Business Administration, Loyola
University New Orleans
Martin Calkins
Leavey School of Business, Santa Clara Univer
sity

Joan C. Callahan
Department of Philosophy, University of Ken
tucky
Archie B. Carroll
Terry College of Business, University of Georgia
Thomas Carson
Department of Philosophy, Loyola University
Chicago
Barry Castro
Seidman School of Business, Grand Valley State
University
Gerald F. Cavanagh
College of Business Administration, University
of Detroit Mercy
Susan Chaplinsky
Darden Graduate School of Business Adminis
tration, University of Virginia
Joanne B. Ciulla
Jepson School of Leadership Studies, University
of Richmond
Max B. E. Clarkson (deceased)
Clarkson Centre for Business Ethics & Board
Effectiveness; Rotman School of Management,
University of Toronto
James G. Clawson
Darden Graduate School of Business Adminis
tration, University of Virginia
Peggy A. Cloninger
Victoria School of Business, University of
Houston

Dana R. Clyman (deceased)
Darden Graduate School of Business Adminis
tration, University of Virginia
Phillip L. Cochran
Kelley School of Business, Indiana University
Jane Collier
Judge Institute of Management, University of
Cambridge
Robert M. Conroy
Darden Graduate School of Business Adminis
tration, University of Virginia
J. Angelo Corlett
Department of Philosophy, San Diego State
University
Maria Cecilia Coutinho De Arruda
Fundac¸a
˜
o Getulio Vargas Business School,
Brazil
Kendall D’Andrade
John M. Darley
Department of Psychology, Princeton Univer
sity
Martin N. Davidson
Darden Graduate School of Business Adminis
tration, University of Virginia
Sharon L. Davie
Women’s Center, University of Virginia
Michael Davis
Center for the Study of Ethics in the Profes

sions, Illinois Institute of Technology
Michael Deck
PricewaterhouseCoopers LLP
J. Gregory Dees
Fuqua School of Business, Duke University
Richard T. De George
Department of Philosophy, University of
Kansas
Robbin Derry
Kellogg Graduate School of Management,
Northwestern University
Joseph R. DesJardins
Department of Philosophy, College of St. Bene
dict and St. John’s University
Paul de Vries
New York Evangelical Seminary Fund
x List of Contributors
John N. Dienhart
Albers School of Business and Economics,
Seattle University
John Dobson
College of Business, California Polytechnic State
University
Thomas J. Donaldson
Wharton School, University of Pennsylvania
Thomas W. Dunfee
Wharton School, University of Pennsylvania
Craig P. Dunn
Department of Management, San Diego State
University

Ronald F. Duska
American College
Deni Elliott
Department of Journalism and Media Studies,
University of South Florida – St. Petersburg
Dawn R. Elm
Department of Management, University of St.
Thomas
Robin J. Ely
Harvard Business School, Harvard University
Georges Enderle
Mendoza College of Business, University of
Notre Dame
Amitai Etzioni
George Washington University
Paul W. Farris
Darden Graduate School of Business Adminis
tration, University of Virginia
Paul Fiorelli
Center for Business Ethics and Social Responsi
bility, Xavier University
Richard E. Flathman
Department of Political Science, Johns Hopkins
University
Timothy L. Fort
School of Business Administration, University
of Michigan
Leslie P. Francis
Department of Philosophy, University of Utah
Robert H. Frank

Johnson Graduate School of Management, Cor
nell University
Robert E. Frederick
Center for Business Ethics, Bentley College
William C. Frederick, emeritus
Katz Graduate School of Business, University of
Pittsburgh
James R. Freeland
Darden Graduate School of Business Adminis
tration, University of Virginia
R. Edward Freeman
Darden Graduate School of Business Adminis
tration, University of Virginia
Peter A. French
Lincoln Center for Applied Ethics, Arizona
State University
James C. Gaa
School of Business, University of Alberta
Christopher Gale, emeritus
Darden Graduate School of Business Adminis
tration, University of Virginia
Alan Gewirth, emeritus
Department of Philosophy, University of Chi
cago
Christine Gichure
Department of Philosophy, Kenyatta University
Daniel R. Gilbert, Jr.
Department of Management, Gettysburg Col
lege
A. R. Gini

Department of Philosophy, Loyola University
Chicago
List of Contributors xi
James R. Glenn, Jr.
College of Business, San Francisco State Uni
versity
Alan H. Goldman
Department of Philosophy, College of William
and Mary
Kenneth E. Goodpaster
Graduate School of Business, University of St.
Thomas
Carol C. Gould
Department of Philosophy, George Mason Uni
versity
Joseph Grcic
Department of Philosophy, Indiana State Uni
versity
Mitchell S. Green
Department of Philosophy, University of Vir
ginia
Barbara A. Gutek
Department of Management and Policy, Uni
versity of Arizona
Richard M. Hare (deceased)
Department of Philosophy, Corpus Christi Col
lege, Oxford
Robert S. Harris
Darden Graduate School of Business Adminis
tration, University of Virginia

David Kirkwood Hart, emeritus
Marriott School of Management, Brigham
Young University
Edwin M. Hartman
Department of Management, Rutgers Univer
sity
Brian Harvey
Manchester Business School, Manchester Uni
versity
Mark E. Haskins
Darden Graduate School of Business Adminis
tration, University of Virginia
John Hasnas
School of Law, George Mason University
W. Michael Hoffman
Center for Business Ethics, Bentley College
Rachelle D. Hollander
National Science Foundation
LaRue Tone Hosmer, emeritus
School of Business Administration, University
of Michigan
Lynn A. Isabella
Darden Graduate School of Business Adminis
tration, University of Virginia
Dove Izraeli (deceased)
Leon Recanati Graduate School of Business Ad
ministration, Tel Aviv University
Robert Jackall
Department of Anthropology and Sociology,
Williams College

Kevin T. Jackson
Graduate School of Business Administration,
Fordham University
Deborah G. Johnson
School of Engineering and Applied Sciences,
University of Virginia
Robin D. Johnson
Management and Human Resources Depart
ment, California Polytechnic University
Thomas M. Jones
Business School, University of Washington
Albert R. Jonsen, emeritus
School of Medicine, University of Washington
Kenneth Kipnis
Department of Philosophy, University of
Hawaii Manoa
George Klosko
Department of Government and Foreign
Affairs, University of Virginia
xii List of Contributors
Daryl Koehn
Cameron School of Business, University of St.
Thomas
James M. Kouzes
The Leadership Challenge1
Nancy B. Kurland
School of Business, University of Southern Cali
fornia; novelist
Gene R. Laczniak
College of Business Administration, Marquette

University
C. Jay Lambe
Pamplin College of Business, Virginia Tech
William L. Langenfus
Department of Philosophy, John Carroll Uni
versity
Andrea Larson
Darden Graduate School of Business Adminis
tration, University of Virginia
William S. Laufer
Wharton School, University of Pennsylvania
D. Jeffrey Lenn
School of Business and Public Management,
George Washington University
Jeanne M. Liedtka
Darden Graduate School of Business Adminis
tration, University of Virginia
Henk van Luijk, emeritus
Nijenrode University, Netherlands School of
Business
David Lyons
Department of Philosophy and School of Law,
Boston University
John J. McCall
Department of Philosophy, St. Joseph Univer
sity
Deirdre N. McCloskey
Department of English, Department of Eco
nomics, Liberals Arts & Sciences, University of
Illinois at Chicago

Michael Maccoby
Maccoby Group
Tibor R. Machan
School of Business & Economics, Chapman
University
Eric Mack
Murphy Institute of Political Economy and De
partment of Philosophy, Tulane University
Christopher McMahon
Department of Philosophy, University of Cali
fornia – Santa Barbara
Rev. Thomas F. McMahon, CSV, emeritus
School of Business Administration, Loyola Uni
versity Chicago
John McVea
Undergraduate Division of Business, University
of St. Thomas
Wesley A. Magat (deceased)
Duke University
John Marshall, emeritus
Department of Philosophy, University of Vir
ginia
Deryl W. Martin
College of Business Administration, Tennessee
Technological University
Marilynn Cash Mathews
International Consulting and Executive Devel
opment
Larry M. May
Department of Philosophy, Washington Uni

versity
Jenny Mead
Darden Graduate School of Business Adminis
tration, University of Virginia
List of Contributors xiii
David M. Messick
Kellogg Graduate School of Management,
Northwestern University
Alex C. Michalos
Institute for Social Research and Evaluation,
University of Northern British Columbia
Ann E. Mills
Center for Biomedical Ethics, University of Vir
ginia
Barry Mitnick
Katz Graduate School of Business, University of
Pittsburgh
Christopher W. Morris
Department of Philosophy, University of Mary
land
Kevin W. Mossholder
E. J. Ourso College of Business Administration,
Louisiana State University
Patrick E. Murphy
School of Business Administration, Notre Dame
University
Jan Narveson
Department of Philosophy, University of
Waterloo
Samuel M. Natale

School of Business, Adelphi University
Lisa Newton
Department of Philosophy, Fairfield University
James W. Nickel
College of Law, Arizona State University
Kai Nielsen
Department of Philosophy, Concordia Univer
sity
Richard P. Nielsen
Wallace E. Carroll School of Management,
Boston College
William G. O’Neill
Department of Philosophy, Iona College
Daniel R. Ortiz
School of Law, University of Virginia
Daniel T. Ostas
Michael F. Price College of Business, University
of Oklahoma
David T. Ozar
Center for Ethics and Social Justice, Loyola
University Chicago
Lynn Sharp Paine
Graduate School of Business Administration,
Harvard University
Moses Pava
Sy Sims School of Business, Yeshiva University
Tom Peters
Tompeterscompany!
Jeffrey H. Peterson
School of Business, St. Bonaventure University

Michael J. Phillips
Kelley School of Business, Indiana University
Robert A. Phillips
School of Business Administration, University
of San Diego
Deborah C. Poff
College of Arts, Social and Health Sciences,
University of Northern British Columbia
Lawrence A. Ponemon
Ponemon Institute
Barry Z. Posner
Leavey School of Business, Santa Clara Univer
sity
Frederick R. Post
College of Business Administration, University
of Toledo
Patrick Primeaux
Department of Theology and Religious Studies,
St. John’s University
xiv List of Contributors
Michael H. Prosser
Department of English, Beijing Language and
Culture University
Tara J. Radin
Frank G. Zarb School of Business, Hofstra Uni
versity
Robert J. Rafalko
Department of Philosophy, University of New
Haven
David J. Reibstein

Wharton School, University of Pennsylvania
Alan J. Robb
Department of Accounting, Finance and Infor
mation Systems, University of Canterbury,
Christchurch
Donald P. Robin
Calloway School of Business & Accountancy,
Wake Forest University
Joanne Rockness
Cameron School of Business, University of
North Carolina at Wilmington
Julie A. Roin
University of Chicago Law School
Sandra B. Rosenthal, retired
Department of Philosophy, Loyola University –
New Orleans
Gedeon J. Rossouw
Department of Philosophy, Rand Afrikaans
University
Mark Rowe
Center for Business Ethics, Bentley College
Brother Leo V. Ryan, CSV
College of Commerce, DePaul
University
Abdulaziz A. Sachedina
Department of Religious Studies, University of
Virginia
Robert J. Sack, emeritus
Darden Graduate School of Business Adminis
tration, University of Virginia

Mark Sagoff
Institute for Philosophy and Public Policy, Uni
versity of Maryland
Steven R. Salbu
McCombs School of Business, University of
Texas at Austin
Howard S. Schwartz
Elliott School of Business Administration, Oak
land University
Maureen A. Scully
Center for Gender in Organizations, Simmons
School of Management
S. Prakash Sethi
Zicklin School of Business, Baruch College, City
University of New York
William H. Shaw
Department of Philosophy, San Jose State Uni
versity
Jon M. Shepard, emeritus
Pamplin College of Business, Virginia Polytech
nic Institute and State University
Kristin Shrader Frechette
Department of Philosophy and Department of
Biological Sciences, University of Notre Dame
William W. Sihler
Darden Graduate School of Business Adminis
tration, University of Virginia
A. John Simmons
Department of Philosophy, University of Vir
ginia

Alan E. Singer
Department of Management, University of Can
terbury, Christchurch
Ming S. Singer
Department of Psychology, University of Can
terbury, Christchurch
List of Contributors xv
Walter Sinnott Armstrong
Department of Philosophy, Dartmouth College
Michael W. Small
Curtin Business School, Curtin University of
Technology
Patricia G. Smith
Department of Philosophy, Baruch College &
the Graduate Center, City University of New
York
Scott Sonenshein
School of Business Administration, University
of Michigan
Sebastian A. Sora
School of Business, Adelphi University
Robert E. Spekman
Darden Graduate School of Business Adminis
tration, University of Virginia
Roger D. Staton
Attorney, Lebanon, Ohio
Paul Steidlmeier
School of Management, Binghamton University
(State University of New York)
Carroll U. Stephens, emerita

Pamplin College of Business, Virginia Polytech
nic Institute and State University
John A. Stieber
Cox School of Business, Southern Methodist
University
Iwao Taka
Business Ethics and Compliance Research
Center, Reitaku University
Jesse Taylor
Department of Philosophy, Appalachian State
University
Barbara Ley Toffler
Columbia Business School, Columbia Univer
sity
Rosemarie Tong
Department of Philosophy, University of North
Carolina – Charlotte
Linda Klebe Trevin
˜
o
Smeal College of Business Administration,
Pennsylvania State University
Thomas M. Tripp
School of Business, Washington State Univer
sity – Vancouver
Manuel Velasquez
Leavey School of Business, Santa Clara Univer
sity
Sankaran Venkataraman
Darden Graduate School of Business Adminis

tration, University of Virginia
Sandra Waddock
Carroll School of Management, Boston College
Clarence C. Walton (deceased)
Charles Lamont Post Chair in Ethics and the
Professions, American College
Douglas N. Walton
Department of Philosophy, University of Win
nipeg
Gary R. Weaver
Alfred Lerner College of Business & Economics,
University of Delaware
Jack Weber
Darden Graduate School of Business Adminis
tration, University of Virginia
Vivian Weil
Center for Study of Ethics in the Professions,
Illinois Institute of Technology
Carl P. Wellman
Department of Philosophy, Washington Uni
versity
Patricia H. Werhane
Darden Graduate School of Business Adminis
tration, University of Virginia and Institute for
xvi List of Contributors
Business and Professional Ethics, DePaul Uni
versity
Alan Wertheimer
Department of Political Science, University of
Vermont

Laura Westra
Department of Philosophy, University of Wind
sor
Andrew C. Wicks
Darden Graduate School of Business Adminis
tration, University of Virginia
James B. Wilbur (deceased)
State University of New York – Buffalo
Paul G. Wilhelm
School of Business, University of Texas of the
Permian Basin
Rev. Oliver F. Williams, CSC
Graduate School of Business, University of
Cape Town
Donna J. Wood
College of Business Administration, University
of Northern Iowa
Thomas Wren
Department of Philosophy, Loyola University
Chicago
Shaker A. Zahra
F. W. Olin Graduate School of Business, Babson
College
List of Contributors xvii

A
accounting ethics
James C. Gaa
Accounting is difficult to define precisely, but it
is generally agreed that its focus is on the pro

duction of financial information, and its use for
various purposes. The ethical issues and prob
lems of accounting may be divided into two
types. One type relates to the production and
use of accounting information as an economic
good. The second type relates to the practice of
accounting (i.e., accountancy) as a professional
occupation, including the role of accounting in
formation in organizations.
Two characteristics of accounting informa
tion are central to the ethical issues of account
ing. One is that, depending on whether and how
it is disclosed to interested parties, accounting
information may have the characteristics of a
private good or of a public good. Welfare issues
relating to the amount of information produced,
the extent to which market forces may be relied
on to produce the ‘‘optimal’’ amount of infor
mation, who is to benefit from its production and
use, and how it is distributed follow immediately
from this.
The other characteristic is that accounting
information is normally asymmetrically distrib
uted among individuals and groups who have a
stake in the organization, and therefore a stake in
the production and use of accounting informa
tion. Information asymmetry exists when one
party possesses information that another party
lacks. The imbalance has an ethical dimension
because the asymmetry confers an advantage on

the party who possesses the information. Be
cause information asymmetry concerns the dis
tribution of information, it is clear that it
presents a wide range of ethical issues, in which
the question is whether a given asymmetry ought
to be maintained or reduced. In some cases, for
example the protection of intellectual property
and privacy, judgments are in favor of maintain
ing an asymmetry, so that protection of privacy
is tantamount to protecting the asymmetry
(see intellectual property; privacy).
On the other hand, many securities market regu
lations (such as Regulation Fair Disclosure of
the Securities and Exchange Commission in
the US) are intended to ensure that asymmetries
are minimized. The focus of many of the ethical
issues relating to accounting information is on
information asymmetry. For example, corporate
insiders may engage in insider trading in the
capital market to their own advantage (see in
sider trading). The existence of information
asymmetry is consistent with the adage ‘‘know
ledge is power.’’ Insofar as they are about ac
counting, the recent financial scandals, mainly in
the US in the last few years, have centered
around information asymmetry.
These scandals also demonstrate the import
ance of addressing the ethical issues of account
ing as a social practice. For example, the
financial frauds relating to Enron and World

Com, and the collapse of Andersen (a major
multinational public accounting firm) concern
the practice of accounting (and auditing) as
social institutions with major social dimensions.
The accounting profession contains three
main branches: managerial accounting, external
financial accounting and reporting, and public
accounting. Although accountants perform a
great variety of managerial tasks, the activities
that define accountancy focus on recording, ana
lyzing, and reporting of financial information
about the affairs of individuals and organiza
tions. Accountants may be members of any of a
number of professional associations, which con
trol admission into the professional ranks and
define the norms of competence and conduct
governing their actions. With few exceptions,
public accountants who perform audits of finan
cial statements must be licensed by an agency of
the jurisdiction in which they practice.
Ethical Issues in Accounting
Although a small amount of work (e.g., Carey,
1946; Mautz and Sharaf, 1961) dates from an
earlier period, the ethics of the accounting pro
fession has emerged as a scholarly field only in
the last few years. Theories of the ethics of the
accounting profession and even an adequate
understanding of the issues are at an early stage
of development. A primary reason for this is
that, although the accounting profession is

closely linked with the administration of organ
izations and the conduct of business activity, few
attempts have been made to link it explicitly to
the older and better established field of business
ethics. For example, many of the ethical issues
that arise in public accounting are not profes
sional problems per se; rather, they result from
the way public accounting firms are organized
and managed, and are thus instances of generic
business ethics issues. Nor has much of the
conceptual framework of business ethics entered
the accounting literature to date. (For an exam
ination of the limited use of stakeholder litera
ture in accounting, see Roberts and Mahoney,
2004.)
The issue of whose interests should be served
by accountants pervades all parts of the pro
fession (see roles and role morality).
The scope of services issue (discussed below) is
essentially the question of whether public ac
countants are able successfully to act in the
interest of the readers of audited financial state
ments when they are also acting in the interest of
their client in other areas. Financial accountants
regularly face the problem of being expected to
act in the interest of their employers by control
ling the content of financial statements (and
thereby perpetuating an information asym
metry), and also to provide information to the
readers of these statements. In managerial ac

counting, the content and flow of information
(e.g., budgets and expected levels of perform
ance) from superiors to subordinates can be used
to manipulate the latter’s behavior. In addition,
accountants place a high value on the confidenti
ality of information about their employer or
client, but often possess information about
misdeeds that might, on ethical grounds,
merit unauthorized disclosure (see whistle
blowing).
Ethical Issues in Managerial
Accounting
Managerial accountants, that is, corporate finan
cial officers, produce a large variety of financial
and non financial information for use within
organizations of all kinds, including accumulat
ing information about the cost of producing
goods and services, budgets, forecasts, non
routine cost analyses, transfer prices, and the
measurement of economic performance. In add
ition to working with the accounting information
system, management accountants may perform
many of the general management functions in
such organizations.
Managerial accounting developed around the
end of the nineteenth century with the ascend
ancy of the scientific management movement,
which magnified the need for detailed financial
information and sophisticated analyses of cost of
production.

Most of the basic techniques of managerial
accounting were developed by about 1925 (with
some recent developments such as activity based
costing, economic value added, and the balanced
score card). Recent developments in the man
agerial accounting profession, including the
above but also major changes in information
technology, have caused the professional associ
ations of managerial accountants to promote the
idea that the primary role of managerial account
ants is management, rather than accounting
per se.
The ethics of managerial accounting has
almost completely escaped serious attention by
either scholars or practicing accountants. This
may be an implicit recognition that most of the
ethical issues of managerial accounting are es
sentially business ethics issues, where the role of
managerial accountants is to design information
systems and provide information to aid the man
agement of organizations. The key ethical factor
for managerial accounting is that many uses of
accounting information involve the manipula
tion of people to perform in ways the organiza
tion prefers, but which are not necessarily in the
2 accounting ethics
interest of the individual being manipulated (see
bluffing and deception).
Managerial accountants are subject to the
codes of professional conduct of the professional

organizations of which they are members. As the
codes apply to managerial accountants, their
provisions are generally non restrictive and
they do not provide for significant enforcement
powers. The provisions applying to managerial
accountants focus on avoiding conflict of interest
and maintaining confidentiality. They are silent
on many issues, including (surprisingly, in view
of accountants’ close involvement with confi
dential information) whistleblowing. More gen
erally, the codes do not deal with the common
problem of conflict between the requirement to
follow the instructions of superiors and profes
sional values or standards which may conflict
with those instructions.
Ethical Issues in Financial Accounting
and Reporting
Many accountants employed by organizations
also engage in financial accounting and
reporting, which focuses on the preparation of
general purpose financial statements (e.g., the
financial statements found in the annual reports
of corporations and in filings with securities
market regulators), primarily for use by parties
who are external to the organization (see finan
cial reporting).
A basic ethical principle governing financial
accounting is that readers of financial statements
should be provided with ‘‘full and fair disclos
ure’’ of all the important and relevant aspects of

the organization’s activities and financial pos
ition. However, as agency theory suggests, man
agers have powerful economic incentives to
disclose only that information to outsiders
which gives the organization and/or its manage
ment a strategic advantage (see agency
theory).
The ethical dimension of this situation does
not seem to have received serious attention. For
example, a number of people believe that earn
ings management is the most important ethical
issue facing the accounting profession. A widely
accepted definition of the concept is the
following: ‘‘Earnings management occurs when
managers use judgment in financial reporting
and in structuring transactions to alter financial
reports to either mislead some stakeholders
about the underlying economic performance of
the company or to influence contractual out
comes that depend on reported accounting
numbers’’ (Healy and Wahlen, 1999). Thus, fi
nancial accountants frequently engage in
‘‘income smoothing,’’ i.e., manipulation of the
calculation of an organization’s income for stra
tegic reasons. Many practicing accountants be
lieve that some techniques for smoothing income
are more ethically acceptable than others (Mer
chant and Rockness, 1994), even though the
result may be equally deceptive. Financial ac
countants are rarely punished by their profes

sional associations for misrepresentation of
corporate financial statements.
Although there is a burgeoning literature on
earnings management, it has almost entirely
focused on the economic aspects of the phenom
enon. A distinction is often made between
‘‘good’’ earnings management (i.e., that which
benefits its stakeholders, such as shareholders of
a corporation) and ‘‘bad’’ earnings management
and fraud (i.e., that which benefits some stake
holders, such as management, at the expense of
others). However, the normative issues have not
been addressed in a serious way. For example, it
is apparently implicitly assumed that ‘‘good’’
earnings management is ethically acceptable,
while ‘‘bad’’ earnings management is ethically
unacceptable. However, the situation is more
complex than that. For example, some instances
of earnings management may benefit current
shareholders at the expense of future sharehold
ers, creditors, or the general public. An example
of the focus on shareholder interests is found in
Arya, Glover, and Sunder (2003).
Ethical Issues in Public Accounting
Public accounting firms are usually identified
with the audit, or independent examination of,
external financial statements of their clients.
However, more than half of the revenues (and
even more of the profits) of most public account
ing firms come from income tax planning and

preparation, and a wide range of other manage
ment advisory services for their clients. This
situation has been a major focus of attention
in recent years, culminating in the financial
scandals in the US. Although ethical issues
exist in managerial accounting and non audit
accounting ethics 3
aspects of public accounting, the bulk of work on
accounting ethics has focused on the role of
public accountants in the relationship
between management and owners of business
enterprises.
Auditing. Auditing, or more generally, assur
ance, is regarded by many as the essence of
public accounting for a number of reasons, in
cluding the fact that it is the only activity for
which accountants are exclusively granted li
censes to practice by government agencies. In
addition, from society’s point of view, there is a
clear public interest in auditing, in view of its
role in capital markets and the fact that the
right to perform audits is a legally recognized
monopoly. In this regard, a quid pro quo exists
between members of the profession and the rest
of society.
The role of auditors is quite different from
that of other professionals. According to virtu
ally all statements of professional ethics, profes
sionals are supposed to have an overriding
responsibility to act in the public interest, in

exchange for the benefits they obtain through
the right to organize (Gaa, 1991). For most pro
fessions (such as law, medicine, and engineering,
as well as the non audit services provided by
public accountants), the public interest is sup
posed to be served by acting (within limits) in
the interest of the client, i.e., the party paying for
the services. While this is also the case for non
audit services provided by public accountants,
for auditing it may mean acting against the
client’s interest.
It is generally agreed that auditors owe a
fiduciary duty to the non management
owners and other external stakeholders of the
organizations they audit. The exact nature of
that duty has, however, been a source of contin
ual controversy (accompanied by lawsuits al
leging professional negligence) since the 1880s.
This is the so called ‘‘expectations gap’’ between
the profession’s and the public’s opinion about
the ethical (and legal) duties of auditors, specif
ically the extent to which auditors are responsible
for detecting fraud and other illegal and unethical
acts by their clients. Generally, auditors have
taken a narrow view, limiting the scope of both
their examinations and their legal liability, while
the general public, courts, and government agen
cies have regularly taken a broader view.
Closely related to the expectations gap, the
nature of the auditor–client relationship has

been problematic. Since the interests of their
clients and of the external stakeholders are gen
erally in conflict, auditors must make judgments
that leave one of these groups better off and
others worse off. Furthermore, auditors them
selves have their own economic interest, which
may conflict with one or more of these stake
holder groups. According to the concept of au
ditor independence, auditors are supposed to be
able to provide objective and unbiased opinions
of their clients’ financial statements, and are not
supposed to subordinate their judgment to their
clients’ interests. The difficulty is that auditors
and their clients inevitably develop a close eco
nomic and personal relationship that threatens
this independence. The essence of this problem
is conflict of interest, in which there is
some likelihood that the auditor will act in the
client’s interest at the expense of the external
stakeholders to whom their auditor’s report is
addressed (Gaa, 1994).
The chance that auditors may fail to act in
accordance with their duty to external stakehold
ers has increased in recent years because of in
creased competition in the market for public
accounting services. Although one of the pri
mary rationales for organizing as a profession is
to restrict competition and thus enable its
members to earn economic rents, it is also true
that competitive forces may pressure profession

als either to cut costs and do substandard work or
to violate the independence principle. Increas
ingly, auditors must provide fixed price bids for
audits, and may engage in ‘‘low balling’’ (i.e.,
bidding below the cost of providing the service,
in the hope of recovering the lost profit through
subsequent audits or the provision of non audit
services).
Non audit services. Both income tax consulting
and management advisory services are essen
tially conventional business consulting. As
such, the public accountant qua business
consultant faces the same kinds of ethical
problems as other business consultants (see
consulting, ethics of). However, some
4 accounting ethics
commentators believe that providing such ser
vices is incompatible with the independence re
quired for the audit function. The question is:
what is the appropriate scope of services which a
public accounting firm may provide for a client,
while still remaining independent while per
forming audits (Mautz and Sharaf, 1961; Briloff,
1990)? In addition, fee arrangements common in
business consulting may be incompatible with
auditor independence. The Sarbanes Oxley
Act of 2002 has drastically reduced (but not
eliminated) this conflict by restricting the type
and amount of consulting work that may be
performed for audit clients.

Regulation of Financial Accounting
and Auditing
Financial accounting and auditing are highly
regulated, both by professional associations and
by public and private sector regulatory agencies.
In addition to a code of ethics, financial account
ants and auditors must act in accordance with a
number of auditing standards, accounting
principles, and a whole host of disclosure regu
lations (see professional codes). These
standards of behavior are promulgated by a
large variety of professional associations, and
private sector and public sector agencies. The
professed primary purpose of these agencies and
regulations is to protect external stakeholders
from the self interested behavior of manage
ment. Extensive regulation (by both government
and the profession) in North America dates back
to the corporate governance debates in
the early 1930s in the US, with passage of the
Securities Acts of 1933 and 1934.
Scholars and practitioners have devoted sig
nificant attention to the process of setting finan
cial accounting and reporting standards. The
primary issue is how a standard setting agency
(such as the Financial Accounting Standards
Board in the US) should fulfill its responsibil
ities to stakeholders. Discussions of stakeholders
have been generally limited to individuals and
groups that have a direct connection to business

activities, such as actual and potential investors
and creditors, suppliers, customers, employees,
regulators, and the business press. Two
problems have been addressed. The standard
problem of stakeholder theory (i.e., how to
rank the claims of the various stakeholders) has
received only minor attention. Focusing on
the conflicting interests of management and
groups of financial statement users, Gaa (1988)
provided theoretical foundations for the ‘‘user
primacy’’ principle based on integrated
social contracts theory. Although it is
clear that other stakeholder groups are affected
by accounting and auditing standards, the role of
their interests has not been explored. The other
ethical problem is the identification of principles
underlying standard setters’ choices among al
ternative regulations. Various approaches have
been offered, including rights theory (Gaa,
1988), duty theory (Ruland, 1984), justice theory
(Williams, 1987), and a version of utilitarianism
(Zeff, 1978).
Critical Approaches to Accounting
Although much of the literature on accounting
focuses on the role of accounting in representing
reality, in some sense, a significant literature
exists which focuses on the ways in which our
conceptions of ‘‘reality’’ are shaped by the insti
tution of accounting. In the last twenty years or
so, a literature has appeared which seeks to ex

plain accounting as a social institution. Two
primary streams have developed. One employs
various continental and postmodern theories
(e.g., Arrington and Francis, 1989; Cooper and
Taylor, 2000; Shearer, 2002). The other stream
is based on political theory.
Both focus on several basic ideas, including a
collective, rather than individual, approach to
ethical issues; and the concepts that accounting
is part of a power structure, and plays an active
role in the success of corporations; that account
ants are therefore not passive or neutral, but are
partisans in a struggle for economic power; and
that the accounting profession is regulated for
the benefit of its members. In addition, many
advocates of this point of view believe that more
conventional approaches to accounting ethics
serve to perpetuate the traditional understand
ing of accounting as a purely technical and neu
tral activity by providing rationalizations for the
status quo. Examples of this literature include
Burchell et al., 1980; Cooper and Sherer, 1984;
accounting ethics 5
Tinker, 1984; Miller and O’Leary, 1987; Hines,
1988; and Power, 2003. For a review of a wide
range of alternative research in management ac
counting, see Baxter and Chua, 2003.
See also information, right to
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