The ethically relevant situation is defined by the
need to increase the performance of the company so
that it meets the earnings targets. Failing to meet the
earnings targets will reflect negatively on the firm’s
potential and, as Levitt (1998) states result in stock
price decline, therefore, negatively impacting
shareholder wealth and the value of executive stock
options. But the constraints represented by Gener-
ally Accepted Accounting Principles (GAAP) re-
quire that revenue must be earned11 before it can be
recorded in the books.
The awareness that the company’s revenues might
not (at least not in the short-term) be improved by
normal and legal business activities, combined with
the aspiration to bring about the desired result in spite
of the existent calamities, translated into the CEO’s
incentive to deploy illegitimate means. In the case of
Schick, a scheme was devised that would result in the
appearance of increasing sales, though the greater
proportion of those ‘‘sales’’ were revenues that were
not earned, i.e., did not result in actual sales of
product to customers. The company’s CEO ordered
improper booking of sales using schemes that in-
cluded (1) shipping products to a holding-ware-
house at the end of the quarter and recording
these shipments as revenues, (2) recording as rev-
enues that the amounts associated with ‘‘sales’’ that
either were made under a ‘‘loaner’’ or ‘‘try and
buy’’ program where the customer had 30 days to
return the merchandise with no obligation, and (3)
recording sham transactions, i.e., sales that were
bogus.12 In all these cases, the criteria to record
the revenues were not met.
After improperly recording sales the CEO an-
nounced that revenues were up 165% for the quarter
ended June 1998.13 The fictitious sales continued to
be recorded throughout 1998, but in December of
that year, the company announced that it would
write-off $5 million in receivables, claiming that bad
debts had been piling up.14 Upon hearing this news,
the company’s stock price tumbled – by mid-January
1999 stock price was at about $7.06 per share, down
from over $28 per share in 1998.15 It was later dis-
covered that the revenues were overstated by more
than $5.5 million, slightly more than one-third of
the overall company proceeds.16
20 Edwin R. Micewski and Carmelita Troy
What were the particular motives of the CEO and
vice-president in perpetrating this fraud? In this case,
the SEC reports that the ‘‘admitted purpose was to
inflate revenues in order to meet [the company’s]
earnings targets.’’17 The SEC company filings show
that as of July 1998 Schick’s CEO owned over
2 million shares of company stock and its vice-presi-
dent had exercisable stock options worth about
$1,000,000.18 Since their personal, and not insignifi-
cant wealth, that was tied up in the company’s stock
would sharply decline if they reported that the com-
pany did not meet earnings targets, this suggests that
the executives had a personal stake in ensuring that the
company met its earnings targets by hook or by crook.
So then, to what extent were the ethical principles of
the members of the company’s management team
impaired because of their compensation arrangements?
And more generally, how can or how do creative
compensation plans, particularly those plans where
compensation is based on achieving accounting-based
targets (i.e., bonuses) or stock options granted as a part
of executive compensation, affect moral judgment?
The company and executives were prosecuted by
the SEC for the accounting fraud. While they neither
admitted nor denied the charges brought against them
in the litigation, the executives consented to a final
judgment order, which among other things required
payment of civil monetary penalties and in the case of
the vice-president, disgorgement of ill-gotten gains.
By evaluating this case, at this point, from a rather
popular deontological perspective, a deontological
consideration (or insight) could have eased the
CEO’s motivation in the following sense: a ‘‘last
resort’’ to fraud was not necessary if a longer-term
view had been taken; a temporary underperfor-
mance would not have endangered the company’s
existence and may not have put at risk the wealth of
the executives over the long-term; the expected
shortfall could have been used to boost the ambitions
of stakeholders, especially if the executives could
bring expectations to a more reasonable level, and
pro-active business strategies could have been laun-
ched to improve future performance, etc. In this
case, it is worth noting that despite the company’s
troubles, the analysts still maintained a positive
outlook for the company with one of the company’s
analysts stating that ‘‘the underlying technology is
strong and defensible.’’19 So then was the fraud
justifiable? A deontologically balanced evaluation of
the situation and a deontological decision would
have kept the business executives within the
boundaries of what is not only legally, but more
importantly, ethically legitimate and acceptable.
Deontological ethics – explained and applied
The example hopefully makes clear that the extent to
which an individual can pursue his or her own hap-
piness (profit, benefit, well-being, prosperousness)
without endangering any another person’s happiness is
a norm that is found outside the empirical relations of a
concrete situation. Based on a merely rational effort
that can be replicated by any rationally talented being,
the solution lies in the formal and normative
assumptions that first, the transcendental20 equality of
people has to be assumed; and second, the reconcili-
ation of individual human freedom based on this uni-
versal tenet of transcendental equality of all people has
to be posited as the crux of morality.
Only when freedom is considered to be an
ontological given to all people can the most foun-
dational idea of what is ethically right be grasped. If
the ethical right, then, is what frames the limits for
everything that could ever be considered to be
morally good, the core of justice can be understood
in the sense outlined by the preeminent deonto-
logical philosopher, Immanuel Kant. As a result of
his transcendental analysis Kant (tr. 1996) defines
right as follows: Right is the whole of conditions
under which the voluntary actions of any one person
can be harmonized in reality with the voluntary
actions of every other person, according to the
universal law of freedom (Kant, 1996: 24 [6:230]).
The formality of this approach may be considered
a weakness, but it is, in fact, a strength; it allows for
the application to all possible empirical conditions.
Moreover, it is transformation into positive law is
the core of the art of legislation.
Justice, in a most formal and normative sense, is
therefore, the reconciliation of individual human
freedom and marks the point of intersection where
the freedoms of different individuals meet. At the
core of the ethical question regarding human rela-
tions rests the issue of justice, as the minimal
requirement for ethical behavior.
Injustice or wrongdoing in all its forms takes
place when the action of one person transgresses
Business Ethics – Deontologically Revisited 21
the borderline of right as outlined above. Since
transgressing the ethical demarcation line between
right and wrong constitutes injustice, the degree or
scope of transgression delineates the amount of
injustice done. Transgressing action can be direct
and immediate, such as hitting and injuring some-
body by direct physical contact or stealing some-
body’s physical property; or the transgressing
activity can be indirect and gradual, such as the
calumniation of another’s reputation, perjury or
stealing intellectual property. Moreover, the activity
can relate to material aspects, such as physical
integrity or property; or immaterial aspects of
human relations, like honor and dignity.
Whatever the level of injustice, an individual
commits a wrong against another because of the
following consistent deontological inference:
If my…condition at all can be harmonized with the
freedom of anyone according to a universal law of
freedom, the one who hinders me thereon is unjust;
because this hindrance (this resistance) cannot be rec-
onciled with a universal law of freedom (Kant, tr.
1996: 24 [6:231]).
