Business 18: Introduction to Business Law

Lecture Notes Chapter 2: Business Ethics & Social Responsibility

( S.Spencer)

What you are thunders so loudly that I cannot hear what you say to the contrary -- Ralph Waldo Emerson W ! B"# ER W$# E# $CS% We need to study business ethics to ma&e better decisions 'or oursel(es) the businesses *e *or& 'or and the society *e li(e it+ Society as a Whole Benefits o Corporate compliance *ith the la* is insu''icient alone to ensure ethical conduct b,c the la*s do not encompass all e-pressions o' ethical beha(ior+ .Corporate Social Responsibility /ebate0 S#12E "L/ER # E"R! (s+ 3R"4$# 516$5$71#$"N # E"R!

People Feel Better o Studyin8 ethical concepts and theories *ill help indi(iduals de'ine ethical conduct and learn to use a strate8y or 'rame*or& 'or ma&in8 decisions+ o Studyin8 ethical concepts and theories helps us understand oursel(es and others better+

Unethical Behavior Can Be Very Costly o o Corporations are in positions o' po*er that allo* them to do 8reater dama8e to others *hen they act unethically or socially irresponsibly+ $ncreased e-posure to liability and the passa8e o' onerous le8islation controllin8,monitorin8 business acti(ity+ Civil and criminal actions against wrongdoing corps. & their exec tives+ Con8ress passed the Sarbanes-Oxley Act of 2002 *hich increased penalties 'or corporate *ron8doers & established rules desi8ned to deter and

Page 1 of 11

Business 18: Introduction to Business Law

( S.Spencer)

pre(ent 'uture *ron8doin8+ P rpose of Stat te: Encoura8e & enable corporate e-ecuti(es to be ethical & socially responsible+ o o Ne8ati(e impact o' public criticism on reputation and corps ability to earn pro'its+ Ne8ati(e impact *ithin the 'irm (Unethical environment may encourage even more unethical conduct on part of employees)

Page 2 of 11

Business 18: Introduction to Business Law

( S.Spencer)

W 1# $S E# $C1L BE 19$"R% (See the Ethics Chec list ! "nalysis# pages $%& $') We *ill e-amine 4":R E# $C1L # E"R$ES: ;+ R$< #S # E"R! 2+ =:S#$CE # E"R! >+ :#$L$#1R$1N$S5 ?+ 3R"4$# 516$5$71#$"N #hese 'our theories can be classi'ied in t*o *ays: !eleological "thical !heories @ 4ocus on the C"NSEA:ENCES o' a decision #eontological "thical !heories (deeds) $ 4ocus on the /EC$S$"N itsel'+ %&'(!S !(")%* Encompasses a (ariety o' ethical philosophies holdin8 that certain human ri8hts are 'undamental and must be respected by other humans 4ocus is on each indi(idual member o' society and his,her ri8hts Each o' us 'aces a moral obli8ation not to harm the 'undamental ri8hts o' others

21N#$1N$S5 o $mmanuel 2ant Strict deontolo8ist ;Bth century philosopher umans are moral actors 'ree to ma&e choices and are able to Cud8e the morality o' any action by applyin8 his 'amous Categorical &mperative "ct only on that ma(im where)y at the same time you can will that it shall )ecome a universal law* $n other *ords) *e Cud8e an action by applyin8 it uni(ersally+ +or e(ample, -orrowing money even though you now you will never repay it* :sin8 the cate8orical imperati(e) you *ould state the 'ollo*in8 rule,ma-im: When I want money# I will )orrow money and promise to repay it# even though I now I won.t repay it* 1ccordin8 to 2ant) you

Page 3 of 11

Business 18: Introduction to Business Law

( S.Spencer)

*ould not *ant this ma-im to become a uni(ersal la* because no one *ould belie(e in promises to repay debts and you *ould N"# be able to borro* money *hen you *anted or needed to+ So) the ma-im 'ails the cate8orical imperati(e test) and you are compelled ethically N"# to promise 'alsely that you *ill repay a loan+ o "lways act to treat humanity# whether in yourself or others# as an end in itself# never merely as a means* $n other *ords) *e may not use or manipulate others to achie(e our o*n happiness+ $n the e-ample abo(e) you are usin8 the indi(idual,entity that you are borro*in8 'rom b,c i' they &ne* all the 'acts) they *ouldnDt a8ree to the loan+ +odern %ights !heories 3ropose mi-ed deontolo8ical theories b,c strict 2antianismDs duties are absolute and sometimes create inappropriate results+ (/ne can 0E1E2 lie or ill even though in some circumstances && such as self&defense && it may )e accepta)le to do so*) 1bide by a moral rule unless a more important rule con'licts *ith it+ .$n other *ords) donDt compromise a personDs ri8ht unless a 8reater ri8ht ta&es priority o(er it+0 +or e(ample# mem)ers of society have a right 0/3 to )e lied to* 4owever# if you could save someone.s life )y telling a falsehood# such as 0/3 telling a criminal the true location of a witness who will testify against him# you would )e compelled under the modern theory to save the witness. life )y 0/3 telling the truth*0 +a,or Strength $t protects 'undamental ri8hts unless some 8reater ri8ht ta&es precedence+

+a,or Criticisms /i''icult to achie(e a8reement about *hich ri8hts are protected+ .Ri8hts 'undamental to industrialiEed nations may be un&no*n or se(erely restricted in de(elopin8 nations* E*g*# certain freedoms# the treatment of women "R E(en *,n a country) citiEens may disa8ree about the ran&in8 o' ri8hts+ E*g*# Some "mericans argue that the right to health care is an important need that

Page 4 of 11

Business 18: Introduction to Business Law

( S.Spencer)

should )e met )y the gov.t or a person.s employer while others are opposed to funding universal health care )5c they want gov.t intervention limited*0 /oesnDt consider the costs or bene'its associated *,ri8hts Creates a sense o' entitlement that may ha(e a ne8ati(e impact on moti(ation+ (e*g*# If one is entitled to a 6o)# a place to live# food and healthcare regardless of how hard he wor s# he may not )e motivated to wor to earn those things*) Summary, #etermine whether anyone.s rights are negatively affected /y an alternative. 0US!&C" !(")%* =ohn Ra*ls) published " 3heory of 7ustice) in ;FG; 1r8ued it *as ri8ht 'or 8o(Dts to redistribute *ealth in order to help the poor and disad(anta8ed+ 'reatest 1i/erty Principle: Each person has an eHual ri8ht to basic ri8hts and liberties+ #his is limited by the #ifference Principle: Social ineHualities are acceptable only i' they cannot be eliminated *ithout ma&in8 the *orst-o'' class e(en *orse o''+ Foc s is on o tcomes+ 1re people 8ettin8 *hat they deser(e% Strength: Basic premise - #he protection o' those *ho are least ad(anta8ed in society+ Criticisms: /oesnDt e-amine the costs o' producin8 the eHuality+

Summary, Choose the alternative that allocates society.s /enefits and / rden most fairly. U!&1&!2%&23&S+ $denti'ied most *ith ;Fth century philosophers =eremy Bentham and =ohn Stuart 5ill ReHuires a decision ma&er to ma-imiEe utility 'or society as a *hole 5a- :tility @ achie(in8 the hi8hest le(el o' satis'actions o(er dissatis'actions $t Cud8es our actions based on outcomes .teleolo8ical0

Page 5 of 11

Business 18: Introduction to Business Law

( S.Spencer)

Strength- Easy to articulate the standard o' conduct 5erely do *hat is best 'or society as a *hole+ Criticismso o /i''iculty in measurin8 bene'it & harm to all members o' society+ :neHual distribution o' costs & bene'its may lead to detrimental results 'or a particular class or 8roup o' people+

Sumamry, Choose the alternative that promises the highest net welfare to society as a whole. P%)F&! +24&+&52!&)3 5a-imiEe the businessD lon8-run pro'its *ithin the limits o' the la* Based on the 8aisse +aire #heory o' Capitalism 'irst e-pressed by 1dam Smith in the ;Bth century 1r8ues total social *el'are is optimiEed i' humans are permitted to *or& to*ard their o*n sel'ish 8oals #he role o' 8o(Dts and the la* is limited solely to ensurin8 the *or&in8s o' a 'ree mar&et .by N"# inter'erin8 *,economic liberty) eliminatin8 collusion amon8 competitors) & promotin8 accurate in'ormation in the mar&etplace+ Strength- 1llocation o' societyDs resources to those units that are most e''icient increases o(erall producti(ity and ma-imiEes total social utility+ Criticisms /oesnDt concern itsel' *ith "W *ealth is allocated in society+ (for e(ample#

in the US"# 9:; of our wealth is held )y <:; of the population)* 5ar&et imper'ections and a personDs station at birth inter'ere *,his ability to compete* #he ability o' la*s and mar&et 'orces to control corporate beha(ior is limited Summary, Choose the alternative that prod ces the most long6r n profits for the company within the limits of the law.

133L!$N< # E E# $CS C EC2L$S#: 512$N< /EC$S$"NS ("pply the Ethics Chec list ! "nalysis# pages $%& $')

Page 6 of 11

Business 18: Introduction to Business Law

( S.Spencer)

"r8aniEationDs Responsibility to Society 1d(ertisin8 /ilemma "r8aniEationDs Responsibility to its Customers LandlordDs /ilemma (Section =

4ousing) "r8aniEationDs Responsibility to its Employees EnronDs 3ension 3lans (2an &and&

file vs* E(ecutive plan) "r8aniEationDs Responsibility to its Shareholders 4ordDs decision re: 'uel e''icient

S:9 (Environmentalist) "r8aniEationDs Responsibility "(erseesS*eat shops in de(elopin8 countries EmployeesD Responsibility to their "r8aniEation/ishonesty amon8 mana8ers

(+alse info provided)

Page 7 of 11

Business 18: Introduction to Business Law

# $N2$N< CR$#$C1LL!: E91L:1#$N< 1R<:5EN#S L"<$C1LL!

( S.Spencer)

3on Se7 it rs @ 1 conclusion that does not 'ollo* 'rom the 'acts or premises one sets out+

2ppeals to Pity @ <enerate support 'or a proposition by 'ocusin8 on a (ictimDs predicament+

False 2nalogies @ 1n analo8y essentially ar8ues that since somethin8 is li&e somethin8 else in one or more *ays) it is also li&e it in some other respect+ We should ma&e sure that the t*o situations are similar enou8h to ma&e the analo8y (alid+

Begging the 8 estion @ #a&in8 'or 8ranted or assumin8 the thin8 you are tryin8 to pro(eI circular reasonin8+

2rg ment m ad Pop l m @ 1r8ument to the people+ 1n emotional appeal to popular belie's) (alues or *ants+ #he 'allacy is that Cust because many or all people belie(e somethin8 does N"# mean it is true+

Bandwagon Fallacy @ Similar to ar8umentum ad populum+ States that *e should do .or not do0 somethin8 merely because one or more other people or 'irms do it+

2rg ment m ad Bac l m @ 1r8ument to the club+ #he ar8uer uses threats or 'ear to bolster his position+

2rg ment m ad (ominem @ 1r8ument a8ainst the man+ #his tactic attac&s the spea&er) N"# his reasonin8+

2rg ment from 2 thority @ 1r8uments 'rom authority rely on the Huality o' an e-pert or person in position o' authority) N"# the Huality o' the indi(iduals ar8ument+ Similar is the arg ment to reverence or respect+

Page 8 of 11

Business 18: Introduction to Business Law

( S.Spencer)

False Ca se @ #his 'allacy results 'rom obser(in8 t*o e(ents and concludin8 that there is a causal lin& bet*een them *hen there is no such lin&+ #his occurs b,c *e do not attempt to 'ind all the e(idence pro(in8 or dispro(in8 the causal connection+

!he 'am/ler.s Fallacy @ Results 'rom the mista&en belie' that independent prior outcomes a''ect 'uture outcomes+

%ed ctio ad 2/s rd m @ JSlippery SlopeK ar8ument+ Carries an ar8ument to its Jlo8icalK end *ithout considerin8 *hether it is an ine(itable or probable result+

2ppeals to !radition @ $n'er that because somethin8 has been done a certain *ay in the past) it should be done the same *ay in the 'uture+

!he 1 re of the 3ew @ "pposite o' Jappeals to traditionK+ #he idea that *e should buy somethin8 merely because it is JCust releasedK or Jimpro(edK+

S n9 Cost Fallacy @ 1n attempt to reco(er in(ested time) money and other resources by spendin8 still more time) money and resources+ 3hrowing >ood ?oney "fter -ad "W #" RES$S# REA:ES#S #" 1C# :NE# $C1LL! Reco8niEe :nethical ReHuests and Bosses

Buy #ime

4ind a 5entor & 3eer Support <roup

4ind JWin-WinK Solutions

Wor& Within the 4irm to Stop the :nethical 1ct

Page 9 of 11

Business 18: Introduction to Business Law

( S.Spencer)

3repare to Lose !our =ob (8ast resort )5c it.s difficult to ma e change effectively from the outside*)

Web sites to Re(ie* 3eople o' 8ood character are J#RR4CCK+ .3ronounced JterrificK0 Can you identi'y these Si( @illars of Character% <o to http:,,***+charactercounts+or8,de'si-+htm+

#he =osephson $nstitute o' Ethics http:,,***+Cosephsoninstitute+or8,+ Scroll do*n and select the Making Ethical Decisions A " Step&)y&Step >uide lin& at the bottom o' the pa8e+

Page 10 of 11

Business 18: Introduction to Business Law

( S.Spencer)

<R":3 E6ERC$SE: Critical !hin9ing and %ationali:ing Pirating #igital + sic LetDs apply *hat youD(e learned 'rom the chapter to a conte-t many o' you may be 'amiliar *ith: /o*nloadin8 Copyri8hted 5usic 4iles 'rom the $nternet at sites li&e Napster) 2aEaa and 5orpheus+ 1t the hei8ht o' NapsterDs popularity) ;LL users a second do*nloaded copyri8hted music 'or 'ree+ $n 2LL2) each month) nearly 2L million consumers used the di8ital under8round to do*nload bootle88ed copies o' music) 8ames) mo(ies and so't*are+ /o*nloadin8 copyri8hted music 'iles *ithout permission o' the copyri8ht o*ner is clearly ille8al) yet the practice continues+ Why% Because do*nloaders use 'i(e common rationaliEations to Custi'y stealin8 music 'iles+ Consider the 'ollo*in8 e-cuses and identi'y the possible 'allacies in each+

E-cuse M;: "very/ody does it+

E-cuse M2: &t.s the m sic la/els. fa lt. !hey release al/ ms with only one good trac9 per al/ m; yet charge <= to >? dollars at retail+

E-cuse M>: & wo ldn.t / y the C# anyway+

E-cuse M?: + sicians and la/els ma9e eno gh money already+

E-cuse MN: &.m merely sampling the m sic to decide if & li9e it; , st as & test drive a car /efore & / y it.

Page 11 of 11