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Slide1
Chapter 2: Ethics and Business Decision Making
©
2013
Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Slide2
Business Ethics
Ethics is the study of right and wrong behavior; whether an action is fair, right or just.
In business, ethical decisions are the
application of moral and ethical principles to the marketplace and workplace.
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Business EthicsWhy Is Business Ethics Important?
Directors
and Officers owe a complex set of ethical duties to
their stakeholders (internal and external).When these duties conflict, ethical dilemmas are created.
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Business Ethics
The Moral Minimum.
Normally considered as mere compliance with the law.
“Gray Areas” in the Law.Make it difficult for companies to navigate and forecast.
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Business Ethics
Short-Run Profit Maximization.
Some argue a businesses only goal should be to maximize profit. But executives need to distinguish between short-term and long-term maximization.
CASE 2.1
United States v. Skilling
(
2010).
What did Skilling do that was unethical?
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Business Ethics
“Gray Areas” in the Law.
Make it difficult for companies to navigate and forecast.
CASE 2.2
Mathews v. B and
K
Foods, Inc.
(2011).
What would you have done if you were the manager? If you were the employee?
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Business Ethics
Importance of Ethical Leadership.
Attitude
of Top Management.Behavior of Owners and Managers.
CASE 2.3 Krasner v. HSH Nordbank AG (2010).
Did the plaintiff prove the incidents and environment of sexual favoritism were related to
his
gender?
7Slide8
Business Ethics
Creating Ethical Codes of Conduct.
One of the most effective ways to promote ethical behavior in an organization.
Ethics Training for Employees.The Sarbanes-Oxley Act and web-based reporting systems (EthicsPoint).
8Slide9
Ethical Transgressions byFinancial Institutions
Corporate Stock Buybacks.
Rationale: Corporate management believes stock is undervalued, so instead of issuing dividends it buys stock in the market, thus boosting share value.
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Ethical Transgressions byFinancial Institutions
Startling Executive Decisions at American International Group (AIG).
Executive Bonuses.
10Slide11
Approaches to
Ethical
Reasoning
Duty
Based Ethics
- derived from religious and philosophical principles.
Religious Ethical Standards
.
Kantian Ethics
.
The Principle of Rights.
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Duty-Based Ethics.Religious Ethical Standards
.
The
rightness or wrongness of an action is usually judged according to its conformity to an absolute rule that commands a particular form of behavior.
Approaches to Ethical Reasoning
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Duty-Based Ethics.Religious Ethical Standards
.
The motive of the actor is irrelevant in judging the rightness or the wrongness of the action.
These rules often involve an element of compassion.
Approaches to Ethical Reasoning
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Duty-Based Ethics.Religious Ethical Standards
.
The motive of the actor is irrelevant in judging the rightness or the wrongness of the action.
These rules often involve an element of compassion.
Approaches to Ethical Reasoning
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Duty-Based Ethics.Kantian Ethics.
Premised on the belief that general guiding principles for moral behavior can be derived from human nature.
The
categorical imperative is a central postulate of Kantian ethics.
Approaches to Ethical Reasoning
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Duty-Based Ethics.Kantian Ethics (cont’d).
The rightness or wrongness of an action is judged by estimating the consequences that would follow if everyone in a society performed the act under consideration.
Approaches to Ethical Reasoning
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Duty-Based Ethics.Principle of Rights.
Belief that every duty gives rise to a corresponding right, deeply embedded in Western culture.
Ethicality of an action is judged by how the consequences of the action will affect the rights of others.
Approaches to Ethical Reasoning
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Outcome-based Ethics: Utilitarianism. Action is ethical based on whether it produces the greatest good for the greatest number of people.
If it affects the majority adversely, it is morally wrong.
Approaches to Ethical Reasoning
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Outcome-based Ethics: Utilitarianism. Applying the utilitarian theory requires:
Determination of individuals affected;
Cost-Benefit analysis, and
Choice among alternative actions
Approaches to Ethical Reasoning
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Corporate Social Responsibility.
Those who manage corporations should be accountable to society for their actions.
Stakeholder Approach
: corporations have a duty not only to shareholders but other groups (stakeholders) affected by corporate actions.
Approaches to Ethical Reasoning
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Corporate Social Responsibility (cont’d).
Corporate Citizenship
: promote goals that society considers worthwhile and take positive steps towards solving problems.
Approaches to Ethical Reasoning
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Corporate Social Responsibility (cont’d).
Corporate Citizenship
.
A Way of Doing Business. Poll found that 70% of executives polled agreed that corporate citizenship should be a priority.But not all socially responsible activities benefit a company.
Approaches to Ethical Reasoning
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Corporate Social Responsibility (cont’d).
Corporate Citizenship
.
Employee Recruiting and Retention. Younger employees look for firms that are committed to socially responsible goals and community projects.
Approaches to Ethical Reasoning
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Making Ethical Business
Decisions
George S. May company has provided six guidelines:
The law.
Rules and procedures.
Values.
Conscience.
Promises.
Heroes (role models).
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Practical Solutions to Corporate Ethics Questions
Corporate-Ethics.us has devised a procedure:
Inquiry.
Discussion.
Decision.
Justification.
Evaluation.
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Business Ethics on
a Global Level
American companies must be trained in cross-cultural business practices.
Monitoring of Employment
Practices of Foreign Suppliers.
Corporate Watch groups can
hold corporations accountable.
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Business Ethics on
a Global Level
Foreign
Corrupt Practices Act.Prohibition Against Bribery of Foreign Officials. But FCPA does not permit “grease” payments to minor officials.
Nor does FCPA prohibit payments to foreign officials which are lawful in that country.
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Business Ethics on
a Global Level
Foreign
Corrupt Practices Act (cont’d).
Nor does FCPA prohibit payments to private companies, unless the US firm knows the payments will go to an official.
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Business Ethics on
a Global Level
Foreign
Corrupt Practices Act (cont’d).
Bribery by Foreign Companies.
Accounting Requirements.
Penalties for Violations: companies up to $2 million in fines, individuals up to $100,000, and up to 5 years in prison.
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