Key Business Ethics Case Studies

Why This Matters

These case studies aren't just cautionary tales—they're the foundation for understanding how ethical failures actually unfold in corporate environments. You're being tested on your ability to identify which ethical principles were violated, what systemic factors enabled the misconduct, and how stakeholders were harmed. Exams will ask you to analyze cases through frameworks like stakeholder theory, utilitarianism, deontological ethics, and corporate social responsibility. Each scandal illustrates specific mechanisms: fraudulent accounting, deceptive marketing, toxic corporate culture, or failures of governance.

Don't just memorize company names and fines—know what concept each case best illustrates. When an FRQ asks about fiduciary duty, you should immediately think Enron or Tyco. When it asks about informed consent, Cambridge Analytica should come to mind. The cases below are grouped by the type of ethical failure they represent, which is exactly how exam questions will frame them.

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Financial Fraud and Accounting Manipulation

These cases demonstrate what happens when companies deceive investors and regulators through deliberate misrepresentation of financial health. The core mechanism is the same: executives manipulate numbers to inflate perceived value, enriching themselves while destroying stakeholder trust.

Enron Scandal

• Fraudulent accounting through special purpose entities—executives hid billions in debt off the balance sheet to make the company appear profitable
• Fiduciary duty violation resulted in 20,000 job losses, $\$74\ \text{billion}$ in shareholder losses, and destroyed retirement savings
• Auditor complicity led to Arthur Andersen's collapse, demonstrating how third-party gatekeepers can enable fraud

WorldCom Accounting Fraud

• Asset inflation of $\$11\ \text{billion}$—improper capitalization of operating expenses created fictitious profits
• Largest bankruptcy in U.S. history at the time, wiping out employee pensions and investor savings
• Catalyst for Sarbanes-Oxley Act, which mandated stricter internal controls and CEO/CFO certification of financial statements

Tyco International Scandal

• Executive theft of $\$600\ \text{million}$—CEO Dennis Kozlowski and CFO Mark Swartz looted company funds for personal luxury
• Corporate governance failure allowed unchecked executive compensation and self-dealing transactions
• Board oversight reforms followed, emphasizing independent directors and compensation committee accountability

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Deceptive Practices and Consumer Harm

These cases involve companies deliberately misleading consumers or regulators about product safety, performance, or practices. The ethical violation centers on informed consent—stakeholders couldn't make rational decisions because they were given false information.

Volkswagen Emissions Scandal

• "Defeat device" software detected when cars were being tested and temporarily reduced emissions, then resumed polluting during normal driving
• 11 million vehicles affected globally, with fines exceeding $\$30\ \text{billion}$ and criminal charges against executives
• Regulatory trust breakdown raised questions about whether self-reported compliance data can ever be trusted

Theranos Fraud Case

• Technology that never worked—founder Elizabeth Holmes claimed finger-prick blood tests could run hundreds of diagnostics, but devices produced unreliable results
• Patient safety endangered as people received false medical information that could have affected treatment decisions
• Startup culture critique emerged, questioning whether "fake it till you make it" mentality creates ethical blind spots

Wells Fargo Account Fraud Scandal

• 2 million unauthorized accounts created by employees desperate to meet sales quotas, resulting in unauthorized fees and credit damage
• Toxic incentive structure pressured low-level employees to commit fraud while executives collected bonuses
• $\$3\ \text{billion}$ total penalties and ongoing reputational damage demonstrated how corporate culture can institutionalize misconduct

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Data Privacy and Digital Ethics

This category addresses the unique ethical challenges of the information age, where personal data becomes a commodity and consent mechanisms often fail to protect users.

Facebook-Cambridge Analytica Data Breach

• 87 million users' data harvested without meaningful consent through a personality quiz app that also collected friends' information
• Political manipulation concerns arose when data was used for targeted advertising in the 2016 U.S. election and Brexit campaign
• GDPR acceleration—the scandal strengthened momentum for Europe's comprehensive data protection regulation and sparked global privacy debates

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Supply Chain Ethics and Global Responsibility

These cases examine corporate responsibility for harms that occur outside direct company operations—in factories, communities, or environments where companies operate but don't directly control day-to-day activities.

Nike Sweatshop Controversy

• Subcontractor exploitation—factories in Vietnam, Indonesia, and China paid workers below living wages in unsafe conditions while Nike claimed no direct responsibility
• "Race to the bottom" dynamics illustrated how global competition pressures companies to seek the cheapest labor regardless of human cost
• CSR movement catalyst—Nike eventually became a leader in supply chain transparency, showing how reputational pressure can drive reform

Nestlé Infant Formula Controversy

• Aggressive marketing in developing nations discouraged breastfeeding and promoted formula use where clean water wasn't available, contributing to infant mortality
• Vulnerability exploitation—targeting mothers with free samples that dried up breast milk, then requiring purchase of expensive formula
• WHO International Code on marketing of breast-milk substitutes emerged directly from this scandal, establishing global ethical marketing standards

BP Deepwater Horizon Oil Spill

• 4.9 million barrels of oil released into the Gulf of Mexico after safety shortcuts and ignored warning signs led to the rig explosion
• 11 workers killed and massive ecosystem destruction demonstrated how cost-cutting on safety creates catastrophic risk
• $\$65\ \text{billion}$ in total costs including cleanup, fines, and settlements—proving that ethical shortcuts rarely save money long-term

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Quick Reference Table

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Self-Check Questions

1. Which two cases both involved deliberate deception of regulators, and how did their methods differ?

2. If an FRQ asks you to analyze how corporate culture can institutionalize unethical behavior, which case provides the strongest evidence of systemic pressure on employees—and what specific mechanisms created that pressure?

3. Compare Enron and Tyco: both involved executive misconduct, but what distinguishes fraud against external stakeholders from theft from the company itself?

4. Which cases best illustrate the tension between shareholder profit maximization and stakeholder welfare? Identify at least three and explain which stakeholder groups were harmed in each.

5. The Sarbanes-Oxley Act emerged from early 2000s scandals. Which specific cases prompted it, what problems did it address, and what types of misconduct (like Cambridge Analytica or Volkswagen) would it not have prevented?