AN INTRODUCTION TO BUSINESS ETHICS

WHY STUDY ETHICS?

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This chapter seeks to

Identify reasons why the between ethics and the study of ethics is law important Describe the distinction Business Ethics and between ethics and ethos Public Opinion Introduce the distinction What Does Business between personal Ethics Mean? morality, virtues and social ethics Explain the difference between ethical values Four Important Ethics and other values Questions Ethics, Economics and Law: Venn Model Clarify the difference McGraw-Hill/Irwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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Discussion Case: Ponzi scheme

Bernard Madoff, American stock broker pleads guilty to 11 counts of financial fraud and theft in March 2009 and sentenced to 150 years in prison He was one of the creator of Ponzi scheme, which a fraud scheme that attracts investors with a promise of high returns. India is not the exception to such ponzi schemes. The perpetrator benefits either by disappearing with the money or living a wealthy lifestyle by skimming Many would say this is a complete failure of government regulations

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Discussion Questions
Identify what ethical issues and questions are involved in such Ponzi schemes. Identify all the people you think may have been harmed, and how they were harmed, by the Saradha fraud. Do you think that a scandal such as this is the result mostly of unethical individuals, or are there organizational issues that allowed, encouraged, or were responsible for the harms? To what degree was this case mostly a failure of individuals, or organizational structure, or of government? Can you imagine anything that would have prevented the Saradha fraud?

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Why study Business Ethics?

Is it an oxymoron like jumbo-shrimp? Is it a discipline of sentimentality and personal opinion? Whos to say what is right and what is wrong? Is there a place for ethics in business?

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The questions today is not about why or should ethics be a part of business,

It is about which ethics should guide business decisions and how ethics can be integrated within business.

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Business Ethics
Publics interest in business ethics increased during the last four decades Publics interest in business ethics spurred by the media

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Business Ethics: What Does It Really Mean?

Business Ethics:Today vs. Earlier Period
Societys Expectations of Business Ethics

Ethical Problem

Actual Business Ethics Ethical Problem

1950s

Time

Early 2000s

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Business Ethics: What Does It Really Mean?

Definitions
Ethics involves a discipline that examines good or bad practices within the context of a moral duty Moral conduct is behavior that is right or wrong Business ethics include practices and behaviors that are good or bad
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Business Ethics: What Does It Really Mean?

Two Key Branches of Ethics
Descriptive ethics involves describing, characterizing and studying morality
What is

Normative ethics involves supplying and justifying moral systems

What should be

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Context: Who was harmed by the collapse of Enron?

Stockholders Employees Consumers Suppliers Enrons accounting firm, Families of employees, investors and suppliers

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Reasons to be concerned with Ethics

The Law: Do we have any law? Even if it is there, will it be useful? Financial risks: Who bothers? Reputation and competitive advantage: Yes it matters Consumer boycotts: To some extend Efficiency and effectiveness: Outcome Employee trust, loyalty, commitment and initiative: Certainly helps
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Publics Opinion of Business Ethics

Gallup Poll finds that only 17 percent to 20 percent of the public thought the business ethics of executives to be very high or high To understand public sentiment towards business ethics, ask three questions Has business ethics really deteriorated? Are the media reporting ethical problems more frequently and vigorously? Are practices that once were socially acceptable no longer socially acceptable?
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What do managers think?

2003: Deloitte polled 5000 directors of the top 4000 publicly traded companies and reported that 98 percent believed ethics and compliance programs are essential to corporate governance. 80% of those surveyed had developed codes of ethics beyond those required by Sarbanes-Oxley (US Law on corporate Governance) 90% included statements concerning the companys obligation to its stakeholders.

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The need to study Business Ethics

If business managers see the need to focus on ethical behavior, so should business students Preparation for career in contemporary business Consumers are affected by decisions made by businesses

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Values and Ethics: Doing Good and Doing Well

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Built to Last: Successful Habits of Visionary Companies by James Collins and Jerry Porras
Key finding: Exceptional and enduring companies place great emphasis on a set of core values These core values are essential and enduring tenets defining the company, and not to be compromised for financial gain.
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Companies cited by Collins & Porras

IBM Johnson & Johnson Hewlett Packard Procter and Gamble Wal-Mart Merck Motorola Sony General Electric
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What are values?

Those beliefs or standards that incline us to act or to choose in one way rather than another A companys core values are those beliefs and principles that provide the ultimate guide in the companys decision-making.

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Conventional Approach to Business Ethics

Conventional approach to business ethics involves a comparison of a decision or practice to prevailing societal norms
Pitfall: ethical relativism

Decision or Practice Norms

Prevailing

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Sources of Ethical Norms

Fellow Workers Fellow Workers Regions of Country

Family

Profession

The Individual
Conscience Friends Employer

The Law

Religious Beliefs

Society at Large

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Ethics and the Law

Law often represents an ethical minimum Ethics often represents a standard that exceeds the legal minimum
Frequent Overlap

Ethics

Law

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Making Ethical Judgments

compared with Behavior or act that has been committed Prevailing norms of acceptability

Value judgments and perceptions of the observer

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Ethics, Economics, and Law

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Four Important Ethical Questions

What is? What ought to be? How to we get from what is to what ought to be? What is our motivation for acting ethically?

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Corporate Culture
Another way of saying a corporation has a set of identifiable values. But there is no right set of core values.

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Values vs. Ethical Values

What are the ends that our core values serve? Financial values serve monetary ends. Religious values serve spiritual ends. Aesthetic values serve the end of Beauty. What ends are served by ethics?

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Elements of Ethical Values

Ethical values serve the ends of human wellbeing. The well-being promoted by ethical values is not personal and selfish well-being. No one persons well-being is to be counted as more worthy or valuable than any others. Ethical values promote human well-being in an impartial way.
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Disagreements about Ethics

People disagree about what ethics commits us to and what ends are served by ethical values. Ethical values can conflict, and may result in serious illness and death to others. So how do you decide if a company is an ethical company?

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Malden Mills
December 11, 1995 A fire destroys most of Malden Mills, the manufacturer of Polartec. The last major textile manufacturer in town with 2,400 employees; community lifes blood Malden Mills provides fabric to L.L. Bean, Lands End, J. Crew and Eddie Bauer Aaron Feuerstein, the owner pledged to rebuild the plant, keep jobs in the community and pay his employees until work resumes.

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Malden Mills continued

Factory was rebuilt and reopened in one year. Employees came back to work. The community seemed to recover. Malden Mills filed for bankruptcy protection. Eventually controlled by creditors. Remaining employees voted to authorize a strike in December 2004.
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The Nature & Goals of Business Ethics

Business ethics refers to those values, standards and principles that operate within business. Business ethics is also an academic discipline that studies those standards, values and principles while seeking to articulate and defend the ones that ought or should operate in business.
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But
There is a growing body of literature in business ethics about the right ways to teach and learn business ethics. There are a set of principles, standards, concepts, and values common to business ethics.

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Ethical Judgment vs. Behavior

From the time of Mahabharata, we have noticed a discontinuity between judging some act as right and behaving rightly. Knowing what is right is different from doing what is right. People vary in strength of character and motivation and fortitude.

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The Goals of Business Ethics

To treat students as active learners To engage students in an active process of thinking and questioning To allow students to think for themselves To deal with the mess of relativistic conclusions

The unexamined life is not worth living (Socrates).

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Reasoning and Business Ethics

The process of ethical reasoning must be emphasized. Reasoning is distinct from answers. Begin with an accurate and fair account of the facts from all sides. Be objective and open-minded. Analyze each issue fully and rigorously.

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Business Ethics and the Law

Compliance with the law will prove insufficient for ethically responsible businesses. The Law is rife with ambiguity. Many acts are not illegal until a court rules that they are. Court cases demonstrate that you cannot always rely on the law to decide what is right or wrong.
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Whether we examine ethical questions explicitly or not, they are answered by each of us every day in the course of our lives.

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Ethics and Ethos

The word ethics is derived from the Greek ethos, meaning customary or conventional. To be ethical in the sense of ethos is to conform to what is typically done, to obey the conventions and rules of ones society and religion.
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Philosophical Ethics
Denies that simple conformity and obedience are the best guides to living Rejects authority as the source of ethics Defends the use of reason as the foundation of ethics Seeks a reasoned analysis of custom and a reasoned defense of how we ought to live

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Philosophical Ethics
Distinguishes what people do value from what people should value Requires we stand back, abstract ourselves from what is typically done and reflect upon whether or not what is done, should be done. The difference between what is valued and what ought to be valued is the difference between ethos and ethics.
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Business Ethics
A branch of philosophical ethics Reflect: In what ways do the practices and decisions made within business promote or undermine human well-being?

How ought we to live?

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Morality, Virtues and Social Ethics

Morality: How should I live my life? How should I act? What should I do? What kind of person should I become? Virtues: character traits that constitute a life worth living Social Ethics: How ought society be structured? How ought we live together?

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Business institutions are human creations

Humans can not avoid responsibility for something they have created or contributed to. Business institutions have a tremendous influence on human lives and the quality of human life. As business people we face particular business decisions about our corporations, but as citizens we have to decide whether or not to regulate those businesses for the public good.

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Ethical perspectives
Managerial ethics: What should a business manager do in various situations? The types of questions asked will vary from perspective to perspective. All decisions faced by business managers, from finance to marketing to ethics and human resources, exist in a social and legal context.

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Inventory of Ethical Issues in Business

Employee-Employer Relations Employer-Employee Relations Company-Customer Relations Company-Shareholder Relations Company-Community/Public Interest
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Reflections on the chapter

A wide range of people can be adversely affected by the decision made within contemporary business. There are many roles to play within the economic system to insure integrity of that system and to prevent fraud and abuse. Business operates within a social context and has duties to a wide range of people beyond those people who own a companys stock.

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Review Questions
Describe several reasons why ethics is relevant to business? Can a good business be an unethical business? What are values? What is the difference between ethical values and other types of values? What is the difference between value when used as a verb, and value when used as a noun?
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Review Questions continued

What is the difference between ethics and ethos? How is descriptive business ethics different from normative business ethics? This chapter introduced a distinction between morality, virtues, and social ethics. How would you describe each?

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Review Questions continued

How would you answer someone who asked: Why should I study ethics if I want to be an accountant?
Other than business managers and owners, which other constituencies might have a stake in business decisions?

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