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Since its inception, An Introduction to Business Ethics by Joseph DesJardins has been a cuting- edge resource for the business ethics course. DesJardins’ unique multidisciplinary approach offers critical analysis and integrates the perspective of philosophy with management, law, economics, and public policy, providing a clear, concise, yet reasonably comprehensive introductory survey of the ethical choices available to us in business.

Highlights of the Fifh Edition: • NEW! Discussion cases throughout focused on Goldman Sachs, the LIBOR banking

scandal, Patagonia, and Chick-fil-A and same-sex marriage. Additional revised and updated cases include discussions on Walmart and briber y in Mexico, Apple and Foxconn in China, executive compensation, conflicts of interest at Goldman Sachs, and employee privacy.

•   A revised discussion of ethical theory which de-emphasizes philosophical jargon, 

introduces ethics as involving frameworks and paterns of reasoning rather than as abstract “theories,” and expands discussion of ethical principles, rights, and duties.

What Instructors are Saying about An Introduction to Business Ethics: “A great book, thorough and accessible.”– Jessica McManus, Notre Dame University

“Provides all the major areas in Business Ethics . . . It is clear, challenging, and comprehensive.” 

– Andy Wible, Meskegon Community College

Visit www.mhhe.com/desjardins5e for a wealth of student and instructor resources! Fifth E

dition A

n Introduction to B usiness Ethics

D esJardins

F i f t h E d i t io n

An Introduction to

Joseph DesJardins

Business Ethics

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A N I N T R O D U C T I O N T O

B U S I N E S S E T H I C S

F i f t h E d i t i o n

J o s e p h D e s J a r d i n s C o l l e g e o f S t . B e n e d i c t / S t . J o h n ’ s U n i v e r s i t y

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AN INTRODUCTION TO BUSINESS ETHICS, FIFTH EDITION

Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221

Avenue of the Americas, New York, NY, 10020. Copyright © 2014 by The McGraw-Hill Compa-

nies, Inc. All rights reserved. Printed in the United States of America. Previous editions © 2011,

2009 and 2006. No part of this publication may be reproduced or distributed in any form or by

any means, or stored in a database or retrieval system, without the prior written consent of The

McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic

storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers

outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 DOC/DOC 1 0 9 8 7 6 5 4 3

ISBN 978-0-07-803832-7

MHID 0-07-803832-4

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All credits appearing on page or at the end of the book are considered to be an extension of the

copyright page.

Library of Congress Cataloging-in-Publication Data

DesJardins, Joseph R.

An introduction to business ethics/Joseph DesJardins.—Fifth edition.

pages cm

ISBN 978-0-07-803832-7 (alk. paper)

1.  Business ethics. I. Title.

HF5387.D392 2014

174’.4—dc23

2012048757

www.mhhe.com

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iii

About the Author

Joe DesJardins is Vice Provost, as well as Professor in the Department of Phi-losophy, at the College of St. Benedict and St. John’s University in Minnesota. His other books include Business Ethics: Decision Making for Personal Integrity and Social Responsibility (with Laura Hartman and Chris MacDonald); Environ- mental Ethics: An Introduction to Environmental Philosophy; Environmental Ethics: Concepts, Policy, and Theory; Contemporary Issues in Business Ethics (co-editor with John McCall); and Business, Ethics, and the Environment. He is the former Execu- tive Director of the Society for Business Ethics and has published and lectured extensively in the areas of business ethics, environmental ethics, and sustain- ability. He received his B.A. from Southern Connecticut State University and his M.A. and Ph.D. from the University of Notre Dame. He previously taught at Villanova University.

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To Linda

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v

Contents

Preface x

Chapter One: Why Study Ethics? 1

Learning Objectives 1 Discussion Case: The LIBOR Scandal: Is It Ok If Everyone Does It? 2 Discussion Questions 4 1.1 Why Study Business Ethics? 4 1.2 Values and Ethics: Doing Good and Doing Well 6 1.3 The Nature and Goals of Business Ethics 10 1.4 Business Ethics and the Law 12 1.5 Ethics and Ethos 13 1.6 Morality, Virtues, and Social Ethics 15 1.7 Ethical Perspectives: Managers and Other Stakeholders 16 1.8 A Model for Ethical Decision Making 17 Refl ections on the Chapter Discussion Case 18 Chapter Review Questions 19

Chapter Two: Ethical Theory and Business 20

Learning Objectives 20 Discussion Case: AIG Bonuses and Executive Salary Caps 21 Discussion Questions 22 2.1 Introduction 23 2.2 Ethical Relativism and Reasoning in Ethics 25 2.3 Modern Ethical Theory: Utilitarian Ethics 29 2.4 Challenges to Utilitarianism 33 2.5 Utilitarianism and Business Policy 35 2.6 Principle-Based Ethics 37 2.7 Virtue Ethics 41 2.8 Summary and Review 44 Refl ections on the Chapter Discussion Case 45 Chapter Review Questions 46

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vi Contents

Chapter Three: Corporate Social Responsibility 48

Learning Objectives 48 Discussion Case: Walmart 49 Discussion Questions 52 3.1 Introduction 53 3.2 The Economic Model of Corporate Social Responsibility 53 3.3 Critical Assessment of the Economic Model:

The Utilitarian Defense 56 3.4 Critical Assessment of the Economic Model:

The Private Property Defense 61 3.5 The Philanthropic Model of Corporate Social Responsibility 64 3.6 Modifi ed Version of the Economic Model: The Moral Minimum 65 3.7 The Stakeholder Model of Corporate Social Responsibility 67 3.8 Strategic Model of Corporate Social Responsibility:

Sustainability 71 3.9 Summary and Review 74 Refl ections on the Chapter Discussion Case 75 Chapter Review Questions 76

Chapter Four: Corporate Culture, Governance, and Ethical Leadership 79

Learning Objectives 79 Discussion Case: Goldman Sachs’s “Toxic Culture” 80 Discussion Questions 81 4.1 Introduction 81 4.2 What is Corporate Culture? 82 4.3 Culture and Ethics 83 4.4 Ethical Leadership and Corporate Culture 86 4.5 Effective Leadership and Ethical Leadership 87 4.6 Building a Values-Based Corporate Culture 89 4.7 Mandating and Enforcing Ethical Culture:

The Federal Sentencing Guidelines 92 Refl ections on the Chapter Discussion Case 94 Chapter Review Questions 94

Chapter Five: The Meaning and Value of Work 97

Learning Objectives 97 Discussion Case: Social Enterprises and Social Entrepreneurs 98 Discussion Questions 100 5.1 Introduction 101 5.2 The Meanings of Work 102 5.3 The Value of Work 104 5.4 Conventional Views of Work 107 5.5 The Human Fulfi llment Model 109

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Shahlo Djabbarova

Contents vii

5.6 The Liberal Model of Work 112 5.7 Business’s Responsibility for Meaningful Work 114 Refl ections on the Chapter Discussion Case 116 Chapter Review Questions 117

Chapter Six: Moral Rights in the Workplace 119

Learning Objectives 119 Discussion Case: Electronic Privacy at Work 120 Discussion Questions 121 6.1 Introduction: Employee Rights 122 6.2 The Right to Work 123 6.3 Employment at Will 127 6.4 Due Process in the Workplace 129 6.5 Participation Rights 132 6.6 Employee Health and Safety 134 6.7 Privacy in the Workplace 139 Refl ections on the Chapter Discussion Case 143 Chapter Review Questions 143

Chapter Seven: Employee Responsibilities 145

Learning Objectives 145 Discussion Case: Confl icts of Interests in Subprime Mortgages

and at Goldman Sachs and Enron 146 Discussion Questions 151 7.1 Introduction 151 7.2 The Narrow View of Employee Responsibilities:

Employees as Agents 152 7.3 Professional Ethics and the Gatekeeper Function 157 7.4 Managerial Responsibility and Confl icts of Interest 160 7.5 Trust and Loyalty in the Workplace 163 7.6 Responsibilities to Third Parties: Honesty,

Whistle-Blowing, and Insider Trading 165 Refl ections on the Chapter Discussion Case 171 Chapter Review Questions 172

Chapter Eight: Marketing Ethics: Product Safety and Pricing 174

Learning Objectives 174 Discussion Case: Life-Cycle Responsibility for Products 175 Discussion Questions 177 8.1 Introduction: Marketing and Ethics 177 8.2 Ethical Issues in Marketing: An Overview 178 8.3 Ethical Responsibility for Products: From Caveat

Emptor to Negligence 181

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viii Contents

8.4 Strict Product Liability 185 8.5 Ethics and Pricing 187 Refl ections on the Chapter Discussion Case 191 Chapter Review Questions 192

Chapter Nine: Marketing Ethics: Advertising and Target Marketing 194

Learning Objectives 194 Discussion Case: Predatory Lending: Subprime Mortgages and Credit Cards 195 Discussion Questions 196 9.1 Introduction: Ethics of Sales, Advertising, and

Product Placement 197 9.2 Regulating Deceptive and Unfair Sales and Advertising 200 9.3 Marketing Ethics and Consumer Autonomy 203 9.4 Targeting the Vulnerable: Marketing and Sales 208 Refl ections on the Chapter Discussion Case 212 Chapter Review Questions 214

Chapter Ten: Business’s Environmental Responsibilities 216

Learning Objectives 216 Discussion Case: Sustainable Business 217 Discussion Questions 219 10.1 Corporate Social Responsibility and the Environment 219 10.2 Business’s Responsibility as Environmental Regulation 221 10.3 Business Ethics and Sustainable Economics 223 10.4 Business Ethics in the Age of Sustainable Development 227 10.5 The “Business Case” for Sustainability 230 Refl ections on the Chapter Discussion Case 232 Chapter Review Questions 233

Chapter Eleven: Diversity and Discrimination 234

Learning Objectives 234 Discussion Case: Chick-fi l-A and Same-Sex Marriage 235 Discussion Questions 236 11.1 Introduction: Diversity and Equality 237 11.2 Discrimination, Equal Opportunity, and Affi rmative Action 238 11.3 Preferential Treatment in Employment 243 11.4 Arguments Against Preferential Hiring 247 11.5 Arguments in Support of Preferential Hiring 250 11.6 Sexual Harassment in the Workplace 253 Refl ections on the Chapter Discussion Case 258 Chapter Review Questions 259

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Contents ix

Chapter Twelve: International Business and Globalization 261

Learning Objectives 261 Discussion Case: Business in a Global Setting 262 Discussion Questions 263 12.1 Introduction 264 12.2 Ethical Relativism and Cross-Cultural Values 265 12.3 Cross-Cultural Values and International Rights 267 12.4 Globalization and International Business 269 12.5 Globalization and the Poor 271 12.6 “Race to the Bottom” 273 12.7 Democracy, Cultural Integrity, and Human Rights 275 Refl ections on the Chapter Discussion Case 278 Chapter Review Questions 279

Photo Credits 281 Index 283

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x

Preface to the Fifth Edition

My overarching goal in the fi fth edition of this text remains what it was for the fi rst edition: “to provide a clear, concise, and reasonably comprehensive introductory survey of the ethical choices available to us in business.” This book arose from the challenges encountered in my own teaching of business ethics. Over the years I have taught business ethics in many settings and with many formats. I sometimes relied on an anthology of readings, other times I emphasized case studies. I taught business ethics as a lecture course and in a small seminar. Most recently, I taught business ethics exclusively to under- graduates in a liberal arts setting. It is diffi cult to imagine another discipline that is as multidisciplinary, taught in as many formats and as many contexts, by faculty with as many different backgrounds and with as many different aims, as business ethics.

Yet, although the students, format, pedagogy, and teaching goals change, the basic philosophical and conceptual structure for the fi eld remains relatively stable. There are a range of stakeholders with whom business interacts: em- ployees, customers, suppliers, governments, society. Each of these relationships creates ethical responsibilities, and every adult unavoidably will interact with business in several of these roles. A course in business ethics, therefore, should ask students to examine this range of responsibilities from the perspective of employee, customer, and citizen as well as from the perspective of business manager or executive. Students should consider such issues in terms of both the type of lives they themselves wish to lead and the type of public policy for governing business they are willing to support.

My hope was that this book could provide a basic framework for examin- ing the range of ethical issues that arise in a business context. With this basic framework provided, individual instructors would then be free to develop their courses in various ways. I have been grateful to learn that this book is being used in a wide variety of settings. Many people have chosen to use it as a supplement to the instructor ’s own lectures, an anthologized collection of readings, a series of case studies, or some combination of all three. Others have chosen to use this text to cover the ethics component of another course in such business-related disciplines as management, marketing, account- ing, human resources. The book also has been used to provide coverage of

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Preface to the Fifth Edition xi

business-related topics in more general courses in applied or professional eth- ics. I take this variety of uses as evidence that the fi rst edition was reasonably successful in achieving its goals.

NEW TO THE FIFTH EDITION

The primary goal of this new edition is to update cases with more contempo- rary examples and to continue to revise the text for the sake of clarity and ac- cessibility for students. To those ends, readers will note the following major changes for the fi fth edition:

• Every chapter begins with a new, or revised and updated, discussion case. Highlights include new cases on Goldman Sachs, the LIBOR banking scandal, Patagonia, and Chick-fil-A and same-sex marriage. Revised and updated cases include new discussions on Walmart and bribery in Mexico, Apple and Foxconn in China, executive compensation, conflicts of interest at Goldman Sachs, and employee privacy.

• A revised discussion of ethical theory that deemphasizes philosophical jargon (readers will no longer see the word “deontological” for example!). The new discussion introduces ethics as involving frameworks and pat- terns of reasoning rather than as “theories” and substitutes a discussion of ethical principles, rights, and duties for the former section on deontologi- cal ethics.

As always, a new edition provides an opportunity to not only update mate- rial, but to present it in a more accessible style. It has been gratifying to learn that readers have found the book clearly written and accessible to students un- familiar with the fi eld. In continuing to strive for these goals, I have rewritten some sections, deleted some outdated cases and dated material, and worked to improve the clarity of the more philosophical sections.

Readers of previous editions will fi nd a familiar format. Each chapter be- gins with a discussion case developed from actual events. The intent of these cases is to raise questions and get students thinking and talking about the ethi- cal issues that will be introduced in the chapter. The text of each chapter then tries to do three things:

• Identify and explain the ethical issues involved; • Direct students to an examination of these issues from the points of view

of various stakeholders; and

• Lead students through some initial steps of a philosophical analysis of these issues.

The emphasis remains on encouraging student thinking, reasoning, and de- cision making rather than on providing answers or promoting a specifi c set of conclusions. To this end, a section on ethical decision making at the end of chapter 1 provides one model for decision making that might prove useful throughout the remainder of the text.

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xii Preface to the Fifth Edition

ACKNOWLEDGMENTS

As with previous editions, my greatest debt in writing this book is to those scholars engaged in the academic research of business ethics. I tried to acknowl- edge their work whenever I relied on it in this text, but in case I have missed anyone, I hope this general acknowledgment can serve to repay my debt to the business ethics community. I also acknowledge three members of that com- munity who deserve special mention and thanks. My own work in business ethics has, for over 20 years, benefi ted from the friendships of John McCall, Ron Duska, and Laura Hartman. They will no doubt fi nd much in this book that sounds familiar. Twenty years of friendship and collaboration tends to blur the lines of authorship, but it is fair to say that I have learned much more from John, Ron, and Laura than they from me.

Previous editions have also benefi ted from the advice of a number of people who read and commented on various chapters. In particular, I would like to thank Norman Bowie, Ernie Diedrich, Al Gini, Patrick Murphy, Denis Arnold, and Christopher Pynes.

I owe sincere thanks to the following teachers and scholars who were gracious enough to review previous editions of this book for McGraw-Hill: Dr. Edwin A. Coolbaugh—Johnson & Wales University; Jill Dieterlie—Eastern Michigan University; Glenn Moots—Northwood University; Jane Hammang- Buhl—Marygrove College; Ilona Motsif—Trinity College; Bonnie Fremgen— University of Notre Dame; Sheila Bradford—Tulsa Community College; Donald Skubik—California Baptist University; Sandra Powell—Weber State University; Gerald Williams—Seton Hall University; Leslie Connell— University of Central Florida; Brad K. Wilburn—Santa Clara University; Carlo Filice—SUNY, Genesco; Brian Barnes—University of Louisville; Marvin Brown—University of San Francisco; Patrice DiQuinzio—Muhlenberg Col- lege; Julian Friedland—Leeds School of Business, University of Colorado at Boulder; Derek S. Jeffreys—The University of Wisconsin, Green Bay; Albert B. Maggio Jr.—bicoastal-law.com; Andy Wible—Muskegon Community College; Christina L. Stamper—Western Michigan University; Charles R. Fenner, Jr.— State University of New York at Canton; Sandra Obilade—Brescia University; Lisa Marie Plantamura—Centenary College; James E. Welch—Kentucky Wesleyan College; Adis M. Vila—Dickinson College; Chester Holloman— Shorter College; Jan Jordan—Paris Junior College; Jon Adam Matthews— Central Carolina Community College; Bruce Alan Kibler—University of Wisconsin-Superior

The fifth edition benefited from the thorough and thoughtful reviews by:

• Carla Johnson, St. Cloud State University • Martha Helland, University of Sioux Falls • Jessica MacManus, Notre Dame • David Levy, State University of New York—Geneseo • Barbara Barresi, Capital University

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Preface to the Fifth Edition xiii

• Kenneth Ferguson, East Carolina University • Michael Shaffer, St. Cloud State University • Wake Maki, University of North Carolina–Greensboro • Andy Wible, Muskegon Community College • Richard McGowan, Butler University

Joseph DesJardins

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1

1 C H A P T E R

Why Study Ethics?

L E A R N I N G O B J E C T I V E S

After reading this chapter, you will be able to:

• Identify reasons why the study of ethics is important;

• Explain the nature and meaning of business ethics;

• Explain the difference between ethical values and other values;

• Clarify the difference between ethics and the law;

• Describe the distinction between ethics and ethos;

• Distinguish between personal morality, virtues, and social ethics;

• Identify ethical issues within a case description.

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2 Chapter 1

DISCUSSION CASE: The LIBOR Scandal: Is It Ok If Everyone Does It?

On June 27, 2012, as part of a U.S. Department of Justice Investigation, Barclays Bank admitted to manipulating and reporting fraudulent inter- est rates used in international fi nancial markets. Barclays, a multinational fi nan- cial services and banking fi rm headquartered in London, was fi ned more than $450 million dollars (U.S.) by both U.K. and U.S. regulators. Evidence showed that Barclays had regularly manipulated the LIBOR (London InterBank Offered Rate) since at least 2005, in order both to profi t from large trades and to falsely portray the bank as fi nancially stronger than it was.

The LIBOR is the rate at which major London banks report that they are able to borrow. This rate then serves as the benchmark at which interest rates are set for countless other loans, ranging from credit cards to mortgages and interbank loans. It also acts as a measure of market confi dence in the bank; if a bank must pay a higher rate to borrow than others do, then markets must have less confi dence in the institution’s fi nancial strength.

The LIBOR is established in a surprisingly simple manner. Each morning at 11 a.m. London time, members of the British Bankers Association (BBA) report to the fi nancial reporting fi rm of Thomson Reuters the rates at which they would expect to pay for loans from other banks. Discarding the high- est and lowest quartiles, Thomson Reuters then calculates a daily average, which becomes the daily LIBOR benchmark. Within an hour, Thomson Re- uters publicizes this average worldwide, along with all of the individual rates reported to them. This benchmark is then used to settle short-term in- terest rates as well as futures and options contracts. By one estimate, the LIBOR is used to set interest rates for global fi nancial transactions worth more than $500 trillion. The individual rates also provide an indirect mea- sure of the fi nancial health of each reporting institution—the lower their rates, the stronger their fi nancial position.

Evidence shows that as early as 2007, before the major fi nancial collapse of Lehman Brothers and the economic meltdown that followed, regulators in both the United States and the United Kingdom were aware of allegations that Barclays was underreporting their rates. In the early days of the 2008 fi nancial collapse, the Wall Street Journal published a series of articles questioning the in- tegrity of LIBOR reporting and suggested that banks were intentionally misre- porting rates to strengthen public perception of their fi nancial health. Timothy Geithner, U.S. Secretary of Treasury under President Obama, acknowledged that in 2008 when he was chairman of the New York Federal Reserve Bank, he recommended that British regulators change the process for setting the LIBOR. In testimony to the U.S. Congress in July 2012, Geithner said “We were aware [in 2008] of the risks that the way this was designed created not just the incen- tive to underreport, but also the opportunity to underreport.”

Internal documents and e-mails showed that traders, compliance of- fi cers, and senior management at Barclays were aware of and approved the

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Why Study Ethics? 3

underreporting. An e-mail sent from a Barclays employee to his supervisor in 2007 said: “My worry is that we are being seen to be contributing patently false rates. We are therefore being dishonest by defi nition and are at risk of dam- aging our reputation in the market and with the regulators. Can we discuss urgently please?”

Evidence also showed that Barclays employees were in regular commu- nication with traders who would explicitly ask that Barclays report specific higher or lower rates in order to benefit their trades. For example, Deriva- tive traders, who would stand to gain or lose millions of dollars depend- ing on the rate, would communicate directly with their Barclays banking contacts and request that certain rates be reported. The tone of their com- munication demonstrates the familiarity that existed between these parties: “Dude. I owe you big time! . . . I’m opening a bottle of Bollinger,” wrote one trader to his Barclays contact. “Pls set 3m libor as high as possible today,” wrote another. Yet another, “Dude, what’s up with ur guys . . fix this . . .tell him to get it up!

Investigations into the LIBOR scandal showed widespread intentional fraud among many individual employees and executives at Barclays. But from the earliest days of the scandal, allegations were being made that other banks were equally involved. While admitting guilt, Barclays denied that they were the only bank involved in misreporting data. In a recorded interview, one Barclays employee told investigators that “We did stick our head above the parapet last year, got it shot off, and put it back down again. So, to the extent that, um, the Libors have been understated, are we guilty of being part of the pack? You could say we are. . . . Um, so I would, I would sort of express us maybe as not clean clean, but clean in principle.” In a conversation between a senior executive at Barclays’ and a representative of the British banking Ad- ministration, which was reported by the U.S. investigation, the Barclays em- ployee defended the bank, saying “We’re clean, but we’re dirty-clean, rather than clean-clean.”

The BBA representative responded: “No one’s clean-clean.” By the end of August 2012, the investigation had spread to include allega-

tions of fraudulent LIBOR reporting by HSBC and royal bank of Scotland, the two other largest banks in the United Kingdom, as well as more than a dozen other international banks.

The scandal even spread to the British government. Barclays CEO Bob Diamond testifi ed that at the height of the fi nancial collapse in fall 2008, he received a call from Paul Tucker, deputy governor of the Bank of England. According to Diamond, Tucker called on behalf of “senior Whitehall” fi gures and put pressure on Mr. Diamond to lower his reported LIBOR rates. The al- legation is that the higher rates would undermine confi dence in Barclays at a time that fi nancial markets needed boosting, and it increased the likelihood that the British government would need to bail out Barclays as it already had done for other failing banks. Mr. Tucker claims that he was misunderstood by …