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Ethics & Business

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McGraw-Hill/Irwin Business Ethics: Decision-Making for Personal Integrity & Social Responsibility

Copyright © 2008

1-1 1-1 The McGraw-Hill Companies, Inc. All rights reserved.

Ethics is tougher than you think . . .
“a business leader makes intelligent, ethical decisions...
(radio advert playing right now in Maine for a MBA program in the US)

What does this quote say about the market value of ethics and ethics training has today? Why?
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Ethics is tougher than you think . . .
What are some of the reasons which cause people to resist the idea of actively teaching business ethics? What are some of the reasons which cause people to actively promote the teaching of business ethics?
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Ethics is tougher than you think . . .
If the purpose of studying business subjects is primarily to empower students to ultimately $$$ make money $$$ … Does practicing Business Ethics have the potential to increase the amount of money you make for yourself or your company????
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Chapter Objectives

Chapter One Introduces the subject of business ethics, answers some basic questions about the field, and establishes understanding of some fundamental ideas and vocabulary.

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you will be able to: 1. Explain why ethical responsibilities go beyond legal compliance 7. Explain why ethics is important in the business environment. Explain the nature of business ethics as an academic discipline. Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Distinguish legal responsibilities from ethical responsibilities 6. 2. Distinguish ethical norms and values from other business-related norms and values 5.Chapter Objectives  After exploring this chapter. Distinguish ethical decision-making from other practical decision situations 1-6 1-6 . 3.

We will discuss a decision-making model that can help individuals to understand such failures and avoid future business and personal tragedies. Why explore ethics in business? Because Ethics Failures = Business Failures 1-7 1-7 .Business ethics is a process of responsible decision-making   The scandals and ruin experienced since the Enron collapse were brought about by ethical failures.

$$$ Ethics has financial repercussions $$$ That is what gives it relevance even in the most secular and cynical business discussions! 1-8 1-8 . We will discuss a decision-making model that can help individuals to understand such failures and avoid future business and personal tragedies.Business ethics is a process of responsible decision-making   The scandals and ruin experienced since the Enron collapse were brought about by ethical failures.

loyalty. and initiative are just some of the organizational benefits that are more likely to flourish within ethically stable and credible organizations 1-9 1-9 . Consumer boycotts give even the most skeptical business leader reason to pay attention to ethics. A company can go out of business. Trust.Why care about ethics?       Unethical behavior creates financial and marketing risks. and its employees can go to jail. Managing ethically can also pay significant dividends in organizational structure and efficiency. or disadvantage. A firm’s ethical reputation can provide a competitive advantage. creativity. if no one is paying attention to the ethical standards of the firm. commitment.

REALITY CHECK Why be good? The Institute for Business. Technology and Ethics suggests the following “Nine Good Reasons” to run a business ethically:          Litigation/indictment avoidance Regulatory freedom Public acceptance Investor confidence Supplier/partner trust Customer loyalty Employee performance Personal pride It’s right 1-10 1-10 .

Why is ethics important in the business environment? • Who was Enron? 1-11 1-11 .

..000 Employees 1-12 1-12 . 7th largest Company in the US – Fortune 500 top 10 “Americas Most Innovative Company” (Fortune) every year from 1996 until 2001 Company Payroll of 22.Why is ethics important in the business environment? • Who was Enron? Over 100 Billion in Stated Revenues in 2000.

Stock price goes from over $90 to pennies.Why is ethics important in the business environment? • Who was Enron? News breaks that Enron's financial health is really an elaborate web of accounting lies. Jeffery Skilling – 24 years / Kenneth Lay died before sentencing (faced up to 45 year) 1-13 1-13 . The largest bankruptcy proceedings in the history of the US begin.

Thousands of employees lost their jobs. Hundreds of businesses that worked with Enron as suppliers suffered economic loss with the loss of a large client. The wider Houston community was also hurt by the loss of a major employer and community benefactor. Enron’s accounting firm. suppliers were also hurt. Many of the individuals directly involved will themselves suffer criminal and civil punishment. went out of business as a direct result. investors.         Stockholders lost over $1 billion in stock value. Consumers in California suffered from energy shortages and blackouts that were caused by Enron’s manipulation of the market. including prison sentences for some. Arthur Andersen. 1-14 1-14 . Families of employees. their retirement funds.Why is ethics important in the business environment?  Consider the range of people who were harmed by the collapse of Enron. and their health care benefits.

Enron was just one of dozens of similar situations. Worldcom Tyco Sunbeam Nortel Bre-X Curragh ...

3. Distinguish legal responsibilities from ethical responsibilities 6. Explain the nature of business ethics as an academic discipline. Explain why ethical responsibilities go beyond legal compliance 7. Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Distinguish ethical norms and values from other business-related norms and values 5. Distinguish ethical decision-making from other practical decision situations 1-16 1-16 . Explain why ethics is important in the business environment. 2.Chapter Objectives  After exploring this chapter. you will be able to: 1.

to consider how human beings properly should live their lives. Responsible decision-making and deliberation will result in more responsible behavior. 1-17 1-17 .the informational content of the class To apply these theories as we explore ethical behavior. The point of a business ethics course?   To teach the theories of the great ethicists of history (secular and sacred) .Business Ethics as a Discipline   Decisions which follow from a process of thoughtful and conscientious reasoning will be more responsible and ethical decisions.

A process of rational decision-making. and reasoned decision-making. a process that involves careful thought and deliberation. 1-18 1-18 .Business Ethics as Ethical Decision-Making   An ethics class strives to produce more ethical behavior among the students who enroll. But the only academically and ethically legitimate way to do this is through careful. can and will result in behavior that is both more reasonable and more ethical.

”  The ethical person must ask themselves the question: • “What does what I do.Business Ethics as Ethical Decision-Making  The antithesis of Ethical Decision-Making : “I try not to think about that... do?” 1-19 1-19 .

what do we mean by “Ethics?” 1-20 1-20 .So.

Ethics is not this: 1-21 1-21 .

What is “ethics?” At its most basic level. . ethics is concerned with how we act and how we live our lives.

1-23 1-23 . practical. having to do with how we act. in that it deals with our reasoning about how we should act. in this sense. choose. Philosophers often emphasize that ethics is normative.What is “ethics?”  Ethics involves what is perhaps the most monumental question any human being can ask: How should we live?   Ethics is. do things. behave.

This meaning of ethics is sometimes referred to as morality. or it might mean all of us collectively. In the first sense. this is a question about how I should live my life.What is “ethics?” How should we live?     This fundamental question of ethics can be interpreted in two ways. and it is the aspect of ethics that we refer to by the phrase “personal integrity. what kind of person I should be. "We" can mean each one of us individually. what I should do. how I should act.” 1-24 1-24 .

you will be able to: 1. Distinguish legal responsibilities from ethical responsibilities 6.Chapter Objectives  After exploring this chapter. Explain why ethics is important in the business environment. Explain why ethical responsibilities go beyond legal compliance 7. 3. 2. Distinguish ethical norms and values from other business-related norms and values 5. Distinguish ethical decision-making from other practical decision situations 1-25 1-25 . Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Explain the nature of business ethics as an academic discipline.

1-26 1-26 .Personal Responsibility vs. about corporate social responsibility. “How should we live?” refers to how we live together in a community. In this sense. business ethics is concerned with how business institutions ought to be structured. about making decisions that will impact many people other than the individual decision-maker. Social Responsibility?  There will be many times within a business setting where an individual will need to step back and ask: What should I do? How should I act?   In the second sense.

Personal Responsibility vs. Social Responsibility?   This aspect of business ethics asks us to examine business institutions from a social rather than an individual perspective. 1-27 1-27 . We refer to this broader social aspect of ethics as decision-making for social responsibility.

a part of the main. Social Responsibility? "No man is an Island. entire of itself. any man's death diminishes me. if a clod be washed away by the sea. every man is a piece of the Continent. Europe is the less. And therefore never send to know for whom the bell tolls. because I am involved in Mankind. as well as if a promontory were. It tolls for thee." John Donne 1-28 1-28 .Personal Responsibility vs. as well as if a manor of thy friends or of thine own were.

by decisions made within the firm. suppliers. the decisions made within a business firm will affect many more people than only the individual themselves. and consider the impact that decisions will have on a wide range of stakeholders. Ethically responsible business decision-making therefore must move beyond a narrow concern with stockholders. management. In a general sense. stockholders. For better or for worse. a business stakeholder will be anyone affected. and surrounding communities. customers.“Stakeholders”     This discussion of the range of people impacted by the Enron collapse evidences how one case can dramatically affect the lives of thousands of people: employees. for better or worse. 1-29 1-29 .

Stakeholder Theory  Stakeholder theory is a model of corporate social responsibility that holds that business managers have ethical responsibilities to this more broad range of stakeholders. 1-30 1-30 . as opposed to a more narrow view that the primary responsibility of managers is limited to stockholders.

Stakeholders: Corporations       Customers/Clients Stockholders Employees Consumer advocates Regulators Media      Government Trade Associations Competitors Local Community Others????? 1-31 1-31 .

we must face the fact that stakeholder interests can compete and conflict. 1-32 1-32 .Stakeholders: Corporations  When we allow multiple parties into our ethical decision making.

2. Explain why ethics is important in the business environment.Chapter Objectives  After exploring this chapter. Explain why ethical responsibilities go beyond legal compliance 7. Distinguish legal responsibilities from ethical responsibilities 6. you will be able to: 1. Distinguish ethical norms and values from other businessrelated norms and values 5. Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Distinguish ethical decision-making from other practical decision situations 1-33 1-33 . 3. Explain the nature of business ethics as an academic discipline.

for example. Individuals can have their own personal values and. institutions also have values. importantly.Ethical Norms and Values Values = Those beliefs that incline us to act or to choose in one way rather than another.   A company’s core values. are those beliefs and principles that provide the ultimate guide in its decisionmaking. 1-34 1-34 .

Distinguishing Norms  One way to distinguish these various types of values is in terms of the ends that they serve. Different types of values are distinguished by the various ends served by those acts and choices. and so forth. and justice. religious values serve spiritual ends. order.   Financial values serve monetary ends.  So. legal values serve law. how are ethical values to be distinguished from these other types of values? What ends are served by ethics? 1-35 1-35 . aesthetic values serve the end of beauty.

Distinguishing Norms  In Ethics we strive to come to decisions which express what is “the right thing to do”.  The “Who” and “What” of “the right thing” in a business setting will occupy most of our time over the next 12 Tuesday nights 1-36 1-36 .

Ethical Responsibilities    The law provides a very important guide to ethical decisionmaking. Over the last decade.Legal Responsibilities vs. many corporations have established ethics programs and hired ethics officers who are charged with managing corporate ethics programs. In the US The Sarbanes-Oxley Act created a dramatic and vast new layer of legal compliance issues. but legal norms and ethical norms are not identical nor do they always agree. Much good work gets done by ethics officers. 1-37 1-37 . but it is fair to say that much of this focuses on compliance issues.

Distinguish ethical decision-making from other practical decision situations 1-38 1-38 . you will be able to: 1. 2. Explain the nature of business ethics as an academic discipline. Explain why ethics is important in the business environment. Distinguish ethical norms and values from other business-related norms and values 5. 3. Explain why ethical responsibilities go beyond legal compliance 7.Chapter Objectives  After exploring this chapter. Distinguish legal responsibilities from ethical responsibilities 6. Distinguish the ethics of personal integrity from the ethics of social responsibility 4.

Can’t the law answer the question of right or wrong?   What’s good about this approach? What’s challenging (negative) about this approach? 1-39 1-39 .

1-40 1-40 . The law is not always right. The law is slow to catch up to new quandaries. The law doesn’t answer every challenging dilemma. The law is not necessarily representative of universal (or your) morals.The law can be a floor      The law is constantly changing (consider segregation).

.  What should we do? or  What can we get away with? 1-41 1-41 ..Can’t the law answer the question of right or wrong?  Will business flourish best in a social environment where the essential question people ask is.

Can’t the law answer the question of right or wrong?  Do you want to be the person or company used to prove in court that a particuar decision was not just unethical – it was actually illegal? 1-42 1-42 .

Over 80 percent had developed formal codes of ethics beyond those required by Sarbanes-Oxley. and over 90 percent included statements concerning the company’s obligations to employees.000 publicly traded companies reported that 98 percent believed that an ethics and compliance program was an essential part of corporate governance. suppliers. and the community at large in their corporate code of ethics.] 1-43 1-43 .Reality Check Ethics goes Mainstream!    A 2003 poll by Deloitte of 5.000 directors of the top 4. customers. [See next slide. shareholders.

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Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Distinguish ethical decision-making from other practical decision situations 1-45 1-45 . you will be able to: 1. Explain why ethics is important in the business environment.Chapter Objectives  After exploring this chapter. Explain the nature of business ethics as an academic discipline. Distinguish legal responsibilities from ethical responsibilities 6. 2. 3. Distinguish ethical norms and values from other business-related norms and values 5. Explain why ethical responsibilities go beyond legal compliance 7.

reasoning about what we should do. which is reasoning about what we should believe.  1-46 1-46 . which is the highest standard for what we should believe. as opposed to theoretical reason.  Theoretical reason is the pursuit of truth.How is ethical decision-making different from other decisionmaking? Ethics is a part of practical reason.

or methodologies. to help us decide what to do. Ethical theories are patterns of thinking. 1-47 1-47 .Philosophical Ethics and Theories   Is there a comparable methodology or procedure for deciding what we should do and how we should act? There are guidelines that can provide direction and criteria for decisions that are more or less reasonable and responsible: philosophical ethics.

Aaron Feuerstein could have made many other decisions that would have been financially beneficial. To many people.Discussion of Opening Decision Point: Aaron Feuerstein    On the surface. although at a great costs to employees and the surrounding towns. he was a true hero. Malden Mills provides a clear. example of a business leader who was willing to make significant financial sacrifices for the well-being of his employees and community. if extreme. 1-48 1-48 .

you should have a clear understanding of the following Key Terms and you will find them defined in the Glossary:        Ethics Morality/Social Justice Values Normative ethics/Descriptive ethics Stakeholders Stakeholder Theory Practical Reasoning 1-49 1-49 .Chapter One Vocabulary Terms  After examining this Chapter.

rather than a helpful model for corporate executives. Is this a testament to the error of his decision to rebuild in Lawrence? Did Malden Mills fail for reasons unrelated to the ethics of their inspirational CEO Be ready to express a reasoned opinion next Tuesday! 1-50 1-50 .Discussion of Opening Decision Point        Yet. his responsibilities would have been significantly different. Feuerstein’s decisions are viewed by some as a simple case of personal generosity. the case eventually became more complex. Had Feuerstein been CEO of a publicly traded corporation. Malden Mills went into bankruptcy.

Opening Decision Point: Aaron Feuerstein  Malden Mills and Aaron Feuerstein – a classic ethics case:  Privately owned Malden Mills (“Polartec”) is burned to the ground in a 1995 fire. Some question his sanity. some think him a saint. 1-51 1-51   . rather than use the fire as an opportunity to relocate “offshore” (as most textile firms have done). Aaron Feurestein takes the insurance money and decides to rebuild exactly where he was.

or was this something he had a duty or obligation to do? What is the difference between acts of charity and obligatory acts? 1-52 1-52 .Opening Decision Point: Aaron Feuerstein  Should Aaron Feuerstein rebuild in Malden and pay his employees in the meantime?      What facts would be helpful as you make your judgments about Feuerstein? How many different ethical values are involved in this situation? What kind of man is Feuerstein? How would you describe his actions after the fire? Can you describe the man and his actions without using ethical or evaluative words? Whose interests should Feuerstein consider in making this decision? How many different people were affected by the fire and the decision? What other options were available for Feuerstein? How would these alternatives have affected the other people involved? Were Feuerstein’s actions charitable.

Reinforcement: To reinforce the resources available to you if confronted with ethical situations. Practice: To give you opportunities to "practice" values integration and ethical reasoning processes in case experiences. Understanding: To offer you a deep understanding of the role you play in forming organizational culture and the means by which you can impact it in a positive manner. Integration: To enable you to effectively integrate your personal values and reasoning skills into all of what you do and stand for.Purpose of our discussion: Learning Objectives       Sensitivity: To insure that you are aware of/sensitive to ethical issues in all aspects of the business environment and professional exchanges. 1-53 1-53 . Skill-Building: To provide you with reasoning and decision-making tools to help you think through ethical issues and to respond sensibly when faced with such issues.

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