Business Ethics Unit 1

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Ethics
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what you do when you think no one is watching
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Ethics
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well-established rules of right and wrong that prescribe what humans ought to do
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Business Ethics
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how personal moral norms and choices apply to the activities and goals of commercial enterprise
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Ethical Decision Making
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consideration of the moral context, antecedents, and consequences of actions in a business context
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Renfro Foods
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Case 1; Cannery considered replacing expensive tomatoes with cheap ones when following a recipe for a private company.
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Stakeholders
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all the people who stand to gain or lose by the policies and activities of a business
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Clawson’s Four Elements of Ethical Leadership
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(1) telling the truth (2) keeping one’s promises (3) treating others fairly (4) respecting the rights of others
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telling the truth
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first of Clawson’s four elements of ethical leadership
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keeping one’s promises
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second of Clawson’s four elements of ethical leadership
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treating others fairly
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third of Clawson’s four elements of ethical leadership
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respecting the rights of others
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fourth of Clawson’s four elements of ethical leadership
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trailer company
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Case 2; potential new President of the company overcharges long-time customer by not offering policy discount, earning the company many thousand in “pure profit.” Current manager (Neeley) not happy, risk loss of important client. Potential hire forced to apologize and pay out of his commission to give the client the correct price plus an extra discount.
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Velasquez, “Why Ethics Matters”
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argues that justice is more profitable, more rational, and more valuable than injustice.
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Prisoner’s Dilema
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situations when two parties are faced with a choice between 2 options- to cooperate or to defect; if both cooperate, both benefit; if both defect, no benefits; if one cooperates while the other defects, the one who cooperatd suffers while the one who defets gets benefit.
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Tit for Tat Strategy
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a strategy in which the individual’s first move is cooperative and thereafter the individual mimics the other person’s behavior, whether cooperative or competitive
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Vice, “On the Tedium of the Good”
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Article that says that being good is not boring
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Friedman, “Social Responsibility of Business”
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Article that says that the only responsibility of busiess is to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game- engaged in open and free competition without deception or fraud
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Twain, “Edward Mills and George Benton”
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main point of article: being good does not always lead to external reward
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Smith, “Why managers fail to do the right thing”
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deterrence theory doesn’t necessarily work
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deterrence theory
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we can reduce or prevent bad actions by giving punishments 3 characteristics: swift, certain, severe
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swift, certain, severe
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3 characteristics of deterrence theory
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Machiavelli, “The Prince”
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The Price must start out very stern then over time exhibit mercy
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why people act unethically
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rewards can be high, punishment for failure can be high, flexibility in performing job, no oversight
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Adam Smith
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said that “the only reason business people come together is to conspire to defraud the public”
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trust
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groups of companies that get together to conspire to defraud the public
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Sherman Anti-Trust Act
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1906 act that says that businesses cannot combine to restrain trade; violations are civil and criminal
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Robinson-Patman Act
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act that deals with pricing; can’t charge customers two different prices for products of same grade and quantity
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exceptions to RP Act
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true cost difference, transaction must be “in commerce,” or if the product is obsolete or in danger of being obsolete
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Clayton Act
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act against tying agreements
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tying agreement
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agreement between a buyer and a seller in which the buyer is required to purchase one product to get another
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regulatory cycle
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Written by Mary Anne Jennings; anytime a new product, technology or market is entered ethical problems are encountered that are novel to you, then the government steps in and makes laws against it.
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federal sentencing guidelines
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the set of rules for sentencing of organizations
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arthur anderson
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Enron’s Accounting Firm
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time lag problem
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problem with deterrence theory; by the time law is passed grievous damage can already be done; offenders have an advantage over non-offenders until loophole is fixed
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system of fines
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monetary, government sanction
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Hester Prynne
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non-monetary, government sanction; punishment to shame; named after character in the Scarlet Letter; EX: ad campaign, print apology
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Modified Vendetta
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non-government sanctions (monetary or non-monetary) like environmental organizations, can organize boycotts, etc.
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Infact
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example of a modified vendetta; infant formula action committee
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Sarbanes Oxley
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established public company accounting oversight board, auditor independence, corporate responsibility, and enhanced financial disclosures
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auditor independence
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Title II of Sarbanes-Oxley; an auditor or their family must not maintain a financial or business relationship with the client, cannot own stock in a company that they audit an accountant who engages in unethical or improper profession conduct may be banned from practice by the SEC
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corporate responsibility
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part of Sarbanes Oxley; the idea that corporations can and should act ethically and be accountable to society for their actions; how do we control a company?
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audit committees
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A subset of a company’s board of directors composed of outside members (those not involved in the day-to-day operations of the company) who can provide a buffer between the audit firm and management; SOX says they must be independent, financially sophisticated, and not already on the finance committee
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independent, financially sophisticated, not already on the finance committee
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by SOX, in order to serve on the finance committee, you must have these three characteristics:
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enhanced financial disclosures
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part of SOX that prevents loans to executives and requires senior management directors to disclose changes in securities ownership within two business days after close of calendar month
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Dodd-Frank
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2010 law that regulates banking and financial institutions; creates new agency housed in the Fed to oversee institutions providing credit to consumers, ends “to big to fail” bailouts like AIG, created system to give early warning signals before big companies can threaten stability of the economy, etc.
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Adelphia
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big cable operator owned by Rigas family; Rigas family reported taking very little compensation, but actually was taking a lot through major loans with no repayment plans that were completely forgiven after 10 years. This case contributed to SOX.
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AIG
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biggest insurance company in the world; they kept no loss reserves and needed a bailout of $180 billion after the hurricane, led to parts of Dodd-Frank
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Heuristic
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rule of thumb
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AICPA model
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this model is a flow chart by the American Institute of CPAs; sets CPAs apart from non-certified accountants
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Harris Methodist model
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this model is a simple decision heuristic
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Traditional model
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this model has four steps: awareness, understanding, application/decision, and post-decision consequences
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awareness
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first step of the traditional model; recognize situations with ethical implications and identify the facts
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ethical decision
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right or wrong?
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ethical dilemma
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right verses right?
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understanding
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second step of the traditional model; identify stakeholders and stakes involved, identify alternatives, obtain information, and evaluate the alternatives using religious, philosophical, legal, or regulatory perspectives
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application/decision
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third step of the traditional model; make a decision using judgment, decision aids, and decision analysis; everyone has bias in this step
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post-decision consequences
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fourth step of the traditional model; learn from decision and use the feedback in future decisions
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phase model
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this model consists of an introductory phase and three subsequent phases that allow the decision-maker to consider the implications and understand the facts of the case, become aware of the contextual factors affecting the perception of the ethical issue, assess the options for action in a given situation, and evaluate the potential benefits and harms
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ethical pluralism
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problem of the traditional theory that says that no one ethical principle or set of principles can possible perform such a comprehensive function as to cover every problem
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FCPA
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foreign corrupt practices act; made bribery illegal in the US. different cultures have different standards, reflecting ethical pluralism
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individual decision-making
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problem of the traditional theory that the traditional model is based upon this kind of decision making, not group-decision making; EX: Asch experiment
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reactive
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one problem of the traditional model is that it is this; it addresses problems that already exist
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Introductory phase, principle-based evaluation, virtue-based solution, contract-based decision
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4 phases of the 3 phase model
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utilitarian theory
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theory that tries to balance benefits with costs
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deontology
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theory that says that people have rights and we can’t do anything without their consent. Kant.
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fraud
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knowing misstatement of a material fact upon which the buyer depends and suffers damage as a result
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false claim
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any citizen can bring this claim; get up to 30% for bringing suit
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important
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first characteristic of dilemmas; they must be ____ questions
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tradeoff
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second characteristic of a dilemma; a dilemma is a ____ between two or more alternatives
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law
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third characteristic of a dilemma; no ___ involved
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winners and losers
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fourth characteristic of a dilemma; there will be one or more ____ ___ ____.
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consequences
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fifth characteristic of a dilemma; any option selected will result in these to the parties
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understood
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sixth characteristic of a dilemma; dilemmas must be this before they can be communicated and resolved
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truth vs. loyalty
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first kind of dilemma; when you find yourself in the position of having to choose between being completely honest and telling the whole truth, or not telling the whole truth out of a sense of loyalty to someone.
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individual vs. community
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second type of dilemma; Sometimes you have to choose between what’s best for one person and what’s best for a group of people
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short-term vs. long-term
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third type of ethical dilemma where we are torn between the gratification of needs now, or being willing to postpone gratification to a later date.
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justice vs. mercy
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fourth type of dilemma; Does a cop serve justice and give you a ticket, or does he be merciful and let you off with a warning?
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primacy of the interests of one party over the other
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fifth type of dilemma; who comes first, client or group
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distribution in one way or other
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sixth type of dilemma; in the Bible, workers in the vineyard were all paid the same amount despite differing work time
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obligation of one to another
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seventh type of dilemma; duty, custom, legal obligation
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genuine dilemma
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one is unsure as to what one ought to do, but has the will and the ability to do what is right
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compliance problem
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one knows that the moral obligations are but experiences difficulty in fulfilling them
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moral laxity
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one acknowledges a general moral duty but given that there is an indefinite range or ways to fulfill this duty is unsure as to what exactly ought to be done and fails to take steps toward pursuit of the general duty
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no-problem problem
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one knows what the moral obligations are and has the will and the ability to fulfill them

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