MBA Business Ethics Course Guide Template

Business Ethics Course Guide: [Course name, term and section]

A course guide for the business ethics and corporate responsibility part of a leading MBA core: the main ethical theories (consequentialism, deontology, virtue ethics, justice), the purpose of the corporation (shareholder primacy and stakeholder theory), corporate governance, integrity and compliance programmes, decision frameworks for hard calls, and behavioural ethics (why good people cross lines). It gives a 13-session roadmap, a key concepts table, an original mini-case set at Tallow Creek Medical Center with exhibits and a teaching note, assignment rubrics, an exam plan and a self-test. It is for MBA students taking the course, for admitted students who want a head start, and for managers who want a structured refresher. Source basis: the primary works named in each section (Rawls 1971; Freeman 1984; Friedman 1970; Jensen and Meckling 1976; Paine 1994; Rest 1986; Jones 1991; Bazerman and Tenbrunsel 2011, among others), written up in original words. The mini-case, people and numbers are fictional and were computed in Python. Replace every [bracketed] value and every row marked Example. This is a learning aid, not legal or compliance advice.

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Contents

1. What the course is for
2. Prerequisites and my starting point
3. The core ideas in brief
4. Session roadmap
5. Key concepts table
6. Mini-case: Tallow Creek Medical Center
7. Assignments and how they are graded
8. Exam preparation plan
9. Common struggles
10. Reading list
11. Self-test
12. Answer key

1. What the course is for

Most ethical failures in business are not committed by villains. They come from capable people under pressure, with incentives that reward the wrong thing, in organisations where nobody asks the uncomfortable question in time. A business ethics course therefore does three jobs. It gives you vocabulary and theories to see that a decision has an ethical dimension and to argue about it clearly. It gives you frameworks for making and defending hard calls when duties conflict and facts are uncertain. And it teaches organisational design: governance, incentives, culture and speak-up systems that make good conduct the easy path.

The course is not a list of rules. Laws and codes set a floor; the hard cases sit above the floor, where several choices are legal and the question is which one you can defend to the people affected, to your board and to yourself.

Competencies the course builds, mapped to the competency list used across this library (AACSB-style):

2. Prerequisites and my starting point

No philosophy background is needed. Useful preparation:

• Case method skills: mba/mba-case-reading-guide and mba/mba-case-prep-sheet.
• Basic finance and accounting, to read the cost of a decision and its effect on covenants: mba/pre-mba-accounting-primer and mba/pre-mba-finance-primer.
• Basic statistics, to judge an audit sample: academic/stats-learning-roadmap and the confidence-interval cards.

3. The core ideas in brief

Consequentialism. An act is right if it produces the best overall consequences. Classical utilitarianism (Bentham 1789; Mill 1863) counts the welfare of everyone affected equally. Its key question: which option produces the most good, all things considered? Strength: it forces you to count everyone and to compare options. Weaknesses: it can justify harming a few for the many, it needs predictions that are often uncertain, and welfare is hard to measure. Cost-benefit analysis in business and policy is its practical cousin.

Deontology. Some acts are required or forbidden whatever their consequences. Kant (1785) proposed tests such as acting only on a maxim you could will to be a universal law, and treating people never merely as a means. Rights-based thinking belongs here. Key question: what duties do I have, and whose rights are at stake? Strength: protects individuals from being sacrificed for aggregate gains; explains why lying and coercion are wrong even when profitable. Weakness: duties conflict (honesty versus loyalty), and rigid rules can produce bad outcomes.

Virtue ethics. Ethics is about character: what would a person of practical wisdom, honesty, courage and fairness do here (Aristotle, Nicomachean Ethics)? Key question: what would this choice make of me, and would I be proud to explain it? Strength: fits how people actually decide and how culture works in organisations. Weakness: gives less precise guidance when virtues point in different directions.

Justice. Rawls (1971) asked which principles free and equal people would choose behind a "veil of ignorance", not knowing their place in society. He argued for equal basic liberties, fair equality of opportunity and the difference principle (inequalities are acceptable only if they benefit the least advantaged). Key question: would I accept this arrangement if I did not know which side of it I would be on? In business: pay structures, layoffs, access to services, pricing of essentials.

Purpose of the corporation. Friedman (1970), in an essay in The New York Times Magazine, argued that the social responsibility of business is to increase its profits while staying within the rules of the game, open and free competition without deception or fraud. Freeman (1984) argued that managers must attend to all groups who can affect or are affected by the firm, and that value is created through these relationships. The modern debate covers enlightened shareholder value, stakeholder governance and ESG reporting (see mba/mba-stakeholder-esg-card).

Corporate governance. Jensen and Meckling (1976) framed the firm as a set of contracts in which managers (agents) may not act in owners' (principals') interests, creating agency costs. Governance mechanisms (boards, independent directors, audit committees, executive pay, disclosure, the market for control) aim to reduce them. The UK Cadbury Report (1992) shaped the "comply or explain" model of board codes adopted in many countries. Ethics adds a second question: governance for whose benefit, and who watches the incentive systems themselves?

Integrity and compliance. Paine (1994) contrasted compliance-based programmes (rules, monitoring, penalties, aimed at preventing illegal conduct) with integrity-based programmes (shared values, management accountability, systems that support ethical choices). Most effective programmes combine both: clear rules where the law demands them, plus leadership, incentives and speak-up channels that make values credible.

Decision frameworks. Rest (1986) split ethical action into four components: moral awareness (recognising the issue), moral judgement (deciding what is right), moral motivation (prioritising it) and moral character (following through). Jones (1991) added moral intensity: people are more likely to notice and act on issues with large, likely, immediate, concentrated consequences for people close to them. Treviño (1986) showed that individual traits and the situation (culture, authority, rewards) interact.

Behavioural ethics. People are boundedly ethical: they behave less ethically than they would predict, without noticing (Chugh, Bazerman and Banaji 2005; Bazerman and Tenbrunsel 2011). Mechanisms include ethical fading (the ethical side of a decision disappears behind a business framing; Tenbrunsel and Messick 2004), motivated blindness (not seeing misconduct that benefits you), the gap between the want self in the moment and the should self in planning, and goal setting gone wrong, where narrow, high targets with rewards encourage cutting corners (Ordóñez, Schweitzer, Galinsky and Bazerman 2009). Meta-analytic work finds that individual, issue and organisational factors all matter: "bad apples, bad cases and bad barrels" (Kish-Gephart, Harrison and Treviño 2010).

A practical decision routine used in this guide combines these ideas:

4. Session roadmap

5. Key concepts table

6. Mini-case: Tallow Creek Medical Center

6.1 Situation

Tallow Creek Medical Center is a 380-bed not-for-profit regional hospital. Its cardiology service line is one of its few profitable units, and much of its surplus pays for an emergency department and a maternity ward that run at a loss. The hospital is funded largely by payers who reimburse each inpatient case at a fixed rate that depends on the diagnosis group and a severity tier: base, with a complication (CC) or with a major complication (MCC). The tier is set from what physicians document in the medical record and what coders assign from it.

At the start of the second quarter, Chief Financial Officer Daniela Osei and Vice President of Revenue Cycle Marcus Hale launched a clinical documentation improvement (CDI) programme in cardiology. Documentation specialists reviewed charts and sent physicians queries when the record seemed to understate how sick a patient was. The programme was sold to the board as a way to capture "true acuity" that busy physicians failed to write down. To motivate the small CDI team, Hale designed a bonus pool equal to 6% of incremental coded revenue compared with the first-quarter baseline mix.

By the fourth quarter, the share of cardiology cases coded MCC had risen from 18% to 31% (Exhibit 1). A peer group of similar hospitals reported a stable MCC share of about 19%. Hale presented the results as a success: revenue per case up 9%, an estimated USD 5.2 million of additional revenue over three quarters, and a bonus pool of about USD 314,000.

Chief Compliance Officer Ji-woo Park was less comfortable. Two physicians had told her, separately, that they felt "pushed" by queries that suggested a specific diagnosis. Park asked internal audit to review a random sample of 120 fourth-quarter MCC claims. Its preliminary memo found that in 22 of them the record did not support the major complication; the correct tier would have been CC (Exhibit 2). The auditors noted that their sample covered the fourth quarter only.

The timing is difficult. Tallow Creek's bonds carry a covenant requiring at least 90 days of cash on hand at each quarter end. The hospital is at 93.7 days. Returning an estimate of the overpayments for the second to fourth quarters before year end would take it to about 89.5 days, below the covenant (Exhibit 3), which could raise borrowing costs just as the hospital plans to finance a new outpatient clinic.

Osei proposes a measured path: extend the audit to a larger sample with an external firm, which will take about four months, and say nothing to payers or bondholders until the results are final. Hale argues that the programme has corrected years of under-documentation, that the peer benchmark proves nothing about Tallow Creek's sicker population, and that suspending the bonus would "punish people for doing their jobs". Chief Medical Officer Dr. Elena Vasquez is worried that some queries crossed from clarifying into leading. Park believes the hospital has a duty to stop the practice now and to raise the issue with payers promptly, with legal counsel involved in how.

Chief Executive Officer Tomasz Brenner must bring a recommendation to the board's audit committee in ten days.

6.2 Exhibits

Exhibit 1. Cardiology inpatient cases and severity mix by quarter (fictional)

Average payment per case: base USD 9,000; CC USD 12,500; MCC USD 17,800.

Peer group MCC share: about 19% in each quarter. Bonus pool at 6% of incremental revenue: USD 313,900.

Exhibit 2. Internal audit sample of Q4 MCC claims (preliminary)

Exhibit 3. Liquidity and covenant (fictional, USD)

6.3 Discussion questions

1. Separate the facts from the assumptions. How big might the overpayment be, and how sure can the hospital be, using Exhibits 1 and 2? What does extrapolating a fourth-quarter sample to three quarters assume?
2. Analyse Osei's, Hale's and Park's positions through the consequentialist, deontological, virtue and justice lenses. Where do the lenses agree and where do they conflict?
3. Map the stakeholders by power, legitimacy and urgency (mba/mba-stakeholder-esg-card). Whose claims are least likely to be heard, and why?
4. What role did the incentive design and the framing "capture true acuity" play? Use the behavioural ethics ideas in Section 3 and propose a redesign.
5. Draft the recommendation Brenner should take to the audit committee: what to stop, what to investigate, whom to tell and when, and how to handle the covenant. Note where legal counsel must decide.

6.4 Teaching note

Facts and uncertainty. Excel set-up: revenue per case =SUMPRODUCT(shares, payments), for Q1 =0.52*9000+0.3*12500+0.18*17800 = 11,634; incremental Q4 =(12708-11634)*2400 = USD 2.578 million. The audit rate is 22/120 = 18.3% (=22/120), with a 95% Wilson interval of 12.4% to 26.2%. Point estimates of the overpayment:

Extrapolating to Q2 and Q3 assumes the error rate was the same before the programme matured; it could have been lower (fewer queries) or higher (less training). Either way the uncertainty is about the size, not the existence, of the problem: even the low end (USD 1.264 million) would use about four fifths of the USD 1.625 million covenant headroom (=1.264/1.625 = 78%). Days cash on hand would fall to 89.5 at the point estimate (=(41.2-1.865)/((172-11.5)/365)), 90.8 at the low end (just above the covenant) and 87.6 at the high end. Note also what the data do not show: some of the rise in MCC share may be genuine acuity that was under-documented before. The peer benchmark of 19% and the jump from 18% to 31% in three quarters make it unlikely that all of it is.

The lenses. A consequentialist analysis counts more than the covenant: payers and their members bear the overpayment, the hospital risks larger penalties and reputational harm if the problem is found by others, physicians' trust erodes, and the services the surplus funds are at risk either way. Delay for four months while the practice continues increases harm. A deontological analysis finds a duty of honesty to payers (the claims assert facts that may be false) and a duty not to use physicians as means to revenue through leading queries. Virtue ethics asks what kind of institution and leaders Tallow Creek wants to be; Osei's silence and Hale's defence both look like motivated blindness: they benefit from not seeing. A justice lens notes that the people who pay (payers, ultimately premium payers and taxpayers) did not consent and are not at the table. The lenses agree on stopping the practice now; they differ only on how much to disclose before the estimate is final, which is a question of method rather than of principle.

Stakeholders. Definitive: the audit committee and bondholders (power, legitimacy, urgency through the covenant) and the payers once informed. Dependent: patients and premium payers, whose claims are legitimate and urgent in aggregate but who have no power in the room; the compliance officer is their advocate. The CDI team and physicians have legitimate claims to fair treatment: they followed a system that leaders designed.

Behavioural ethics. A narrow goal (incremental coded revenue), a team reward tied to it, and the positive framing "capture true acuity" are a textbook setting for ethical fading and goals gone wild. Nobody needed to decide to commit fraud; the system rewarded more aggressive queries and nobody measured accuracy. Redesign: pay CDI staff on documentation accuracy measured by independent audit, cap query rates, use non-leading query templates reviewed by physicians, benchmark MCC rates and investigate outliers, and separate the people who code from those who benefit from revenue.

Recommendation (one defensible version). (1) Immediately suspend the revenue-linked bonus and leading queries, without blaming individuals for a system leaders built. (2) Commission an independent audit with a fixed deadline that is much shorter than four months, sampling each quarter, with counsel directing the work. (3) With counsel, notify payers promptly that a review is under way and that overpayments will be quantified and returned; laws and payer contracts in many jurisdictions set deadlines for reporting and returning identified overpayments, and counsel must determine which apply. (4) Talk to the bond trustee early about the covenant: lenders react better to a disclosed, managed issue than to a surprise, and a waiver or cure plan may be available. (5) Report to the full board, train physicians and CDI staff, and add documentation accuracy to the compliance dashboard. The cost of honesty is real (about USD 1.9 million plus a covenant conversation), but every alternative carries larger expected costs and violates clear duties.

7. Assignments and how they are graded

Typical assignments:

Rubric for the ethics memo and the exam (4 points per row):

8. Exam preparation plan

Exam technique: spend the first 15% of the time reading and listing issues and stakeholders, the middle 60% on analysis with at least two lenses and numbers where the case gives them, and the final 25% on the recommendation and its risks. Always end with what to do, by whom and when.

9. Common struggles

10. Reading list

Classic and primary works:

• Aristotle. Nicomachean Ethics (any modern translation).
• Bentham, J. (1789). An Introduction to the Principles of Morals and Legislation.
• Kant, I. (1785). Groundwork of the Metaphysics of Morals.
• Mill, J. S. (1863). Utilitarianism.
• Rawls, J. (1971). A Theory of Justice. Harvard University Press.
• Friedman, M. (1970). The social responsibility of business is to increase its profits. The New York Times Magazine, 13 September 1970.
• Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman.
• Jensen, M. C., and Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
• Committee on the Financial Aspects of Corporate Governance (1992). Report of the Committee on the Financial Aspects of Corporate Governance (the Cadbury Report). London.
• Paine, L. S. (1994). Managing for organizational integrity. Harvard Business Review, 72(2).
• Rest, J. R. (1986). Moral Development: Advances in Research and Theory. Praeger.
• Treviño, L. K. (1986). Ethical decision making in organizations: a person-situation interactionist model. Academy of Management Review, 11(3), 601-617.
• Jones, T. M. (1991). Ethical decision making by individuals in organizations: an issue-contingent model. Academy of Management Review, 16(2), 366-395.
• Donaldson, T., and Dunfee, T. W. (1994). Toward a unified conception of business ethics: integrative social contracts theory. Academy of Management Review, 19(2), 252-284.
• Tenbrunsel, A. E., and Messick, D. M. (2004). Ethical fading: the role of self-deception in unethical behavior. Social Justice Research, 17(2), 223-236.
• Ordóñez, L. D., Schweitzer, M. E., Galinsky, A. D., and Bazerman, M. H. (2009). Goals gone wild: the systematic side effects of overprescribing goal setting. Academy of Management Perspectives, 23(1), 6-16.
• Kish-Gephart, J. J., Harrison, D. A., and Treviño, L. K. (2010). Bad apples, bad cases, and bad barrels: meta-analytic evidence about sources of unethical decisions at work. Journal of Applied Psychology, 95(1), 1-31.
• Bazerman, M. H., and Tenbrunsel, A. E. (2011). Blind Spots: Why We Fail to Do What's Right and What to Do about It. Princeton University Press.
• Mitchell, R. K., Agle, B. R., and Wood, D. J. (1997). Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts. Academy of Management Review, 22(4), 853-886.
• Chugh, D., Bazerman, M. H., and Banaji, M. R. (2005). Bounded ethicality as a psychological barrier to recognizing conflicts of interest. In D. A. Moore, D. M. Cain, G. Loewenstein and M. H. Bazerman (eds.), Conflicts of Interest. Cambridge University Press.

Textbooks, by name only: Treviño, L. K., and Nelson, K. A., Managing Business Ethics: Straight Talk about How to Do It Right (Wiley); Crane, A., Matten, D., Glozer, S., and Spence, L., Business Ethics (Oxford University Press); Sandel, M. J., Justice: What's the Right Thing to Do? (Farrar, Straus and Giroux, 2009). Open resource: OpenStax, Business Ethics (CC BY-NC-SA 4.0), https://openstax.org/details/books/business-ethics.

11. Self-test

1. State the key question that each of the four ethical lenses asks, in one sentence each.
2. What did Friedman (1970) mean by "the rules of the game", and why does the phrase matter for his argument?
3. Name Rest's (1986) four components and give a business example of a failure at each.
4. List three dimensions of moral intensity (Jones 1991) and explain why they predict whether people notice an issue.
5. Contrast Paine's (1994) compliance-based and integrity-based strategies. Why do most effective programmes combine them?
6. Explain ethical fading with an example not from this guide.
7. In the Tallow Creek case, why is the confidence interval for the unsupported rate important to the decision, and why does it not justify waiting four months?
8. Compute days cash on hand for a hospital with USD 30 million cash, annual operating expenses of USD 140 million and depreciation of USD 10 million. What is the cash headroom above a 90-day covenant?
9. Apply Rawls's veil of ignorance to a decision to close one of two plants. What would you look at?
10. What is an agency cost, and name two governance mechanisms that reduce it.
11. Give two features of an incentive design that make "goals gone wild" more likely.
12. Under integrative social contracts theory, when is a local business norm (for example, about gifts) legitimate?

Answer key

1. Consequentialism: which option produces the best overall consequences for everyone affected? Deontology: which duties and rights are at stake, and which acts are off limits? Virtue: what would a person of good character and practical wisdom do, and what does this choice make of me? Justice: is the arrangement one I would accept without knowing my position, and does it treat the least advantaged fairly?
2. Open and free competition without deception or fraud, within the law and ethical custom. It concedes limits on profit seeking; critics argue the rules are incomplete (externalities, lobbying), so profit within them can still cause harm.
3. Awareness (a manager sees a pricing change only as a margin issue), judgement (recognises it but reasons badly, for example "everyone does it"), motivation (knows it is wrong but lets the bonus win), character (decides to act but gives in under a boss's pressure).
4. Magnitude of consequences, probability of effect, temporal immediacy, proximity, concentration of effect and social consensus (any three). Issues with large, likely, near, concentrated effects on people close to us are more vivid, so they are noticed and acted on.
5. Compliance: rules, monitoring, discipline, aimed at preventing illegal acts, often led by lawyers. Integrity: shared values, leadership accountability, systems that support ethical choices. Rules alone breed box-ticking and loophole-seeking; values alone lack clarity where the law requires it.
6. Example: a sales team calls aggressive upselling to elderly customers "maximising wallet share"; the business frame removes the question of whether customers are harmed, so nobody sees an ethical choice.
7. It shows the size is uncertain (12.4% to 26.2%) but that even the low end (USD 1.264 million over three quarters) uses about 78% of the covenant headroom, and the point estimate breaches it. Uncertainty about the amount affects how much to repay, not whether to stop the practice and inform payers, and continuing for four months adds harm every week.
8. Daily cash expenses = (140 - 10) / 365 = USD 0.3562 million; days cash = 30 / 0.3562 = 84.2 days (=30/((140-10)/365)). Below the covenant: headroom is negative, minus USD 2.055 million (=30-90*(140-10)/365).
9. Imagine not knowing whether you will be a worker in either plant, a manager, an investor or a member of either town. Look at who bears the losses, notice periods, severance, retraining, transfer options, the community effect, and whether the least advantaged are protected.
10. The cost of monitoring and bonding managers plus the residual loss when they still do not act in owners' interests. Mechanisms: independent boards and audit committees, pay linked to long-run value, disclosure, shareholder voice, the market for corporate control (any two).
11. Narrow targets on one measure, very high or short-term targets, large rewards tied directly to the target, no measure of how results were achieved, team pressure (any two).
12. When it is consistent with hypernorms (universal principles), the community members have voice and exit, and the norm is widely accepted in that community (authentic). Gifts of modest value that are disclosed may pass; payments that buy a public official's decision do not.

Revision history

Standard and licence note

Structure aligned with the business ethics and corporate responsibility courses commonly found in the MBA core and with the primary works listed in the reading list. The text, the decision routine, the Tallow Creek Medical Center mini-case, its exhibits and teaching note, the rubric and the questions are original; no published case or textbook text is copied or paraphrased, and all people and organisations in the case are fictional. This guide is independent and not affiliated with or endorsed by any business school, accreditor or publisher. Check your own course syllabus and, for any real situation, the applicable law and qualified advice. Template licence: MIT.