AN INTRODUCTION TO BUSINESS ETHICS

WHY STUDY ETHICS?

McGraw-Hill/Irwin

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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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

McGraw-Hill/Irwin

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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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McGraw-Hill/Irwin

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

1-5 Why study Business Ethics? • Is it an oxymoron like “jumbo-shrimp”? • Is it a discipline of sentimentality and personal opinion? • Who’s to say what is right and what is wrong? • Is there a place for ethics in business? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. . Inc. All rights reserved.

Inc. It is about which ethics should guide business decisions and how ethics can be integrated within business. All rights reserved. .1-6 The questions today is not about why or should ethics be a part of business. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

Inc. All rights reserved. .Business Ethics • Public’s interest in business ethics increased during the last four decades • Public’s interest in business ethics spurred by the media 7 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

All rights reserved. Inc.Business Ethics: What Does It Really Mean? Business Ethics:Today vs. Earlier Period Society’s Expectations of Business Ethics Ethical Problem Actual Business Ethics Ethical Problem 1950s Time Early 2000s 8 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. .

Inc.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 9 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved. .

Business Ethics: What Does It Really Mean? Two Key Branches of Ethics • Descriptive ethics involves describing. Inc. . All rights reserved. characterizing and studying morality – “What is” • Normative ethics involves supplying and justifying moral systems – “What should be” 10 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

Families of employees. .Context: Who was harmed by the collapse of Enron? • • • • • • Stockholders Employees Consumers Suppliers Enron’s accounting firm. Inc. investors and suppliers 1-11 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved.

loyalty. commitment and initiative: Certainly helps McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. 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. .1-12 Reasons to be concerned with Ethics • The Law: Do we have any law? Even if it is there. Inc. All rights reserved.

Public’s 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. . Inc. 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? 13 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved.

. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved.1-14 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 company’s obligation to its stakeholders. Inc.

All rights reserved.1-15 The need to study Business Ethics • If business managers see the need to focus on ethical behavior. Inc. so should business students • Preparation for career in contemporary business • Consumers are affected by decisions made by businesses McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. .

and not to be compromised for financial gain. . All rights reserved. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc.Values and Ethics: Doing Good and Doing Well 1-16 • 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.

All rights reserved. Inc. McGraw-Hill/Irwin .1-17 Companies cited by Collins & Porras • • • • • • • • • IBM Johnson & Johnson Hewlett Packard Procter and Gamble Wal-Mart Merck Motorola Sony General Electric Copyright © 2011 by The McGraw-Hill Companies.

Inc. . McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved.1-18 What are values? • Those beliefs or standards 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 the company’s decision-making.

. All rights reserved.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 19 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc.

Inc. All rights reserved.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 20 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. .

. All rights reserved. Inc.Ethics and the Law • Law often represents an ethical minimum • Ethics often represents a standard that exceeds the legal minimum Frequent Overlap Ethics Law 21 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

Inc. .Making Ethical Judgments compared with Behavior or act that has been committed Prevailing norms of acceptability Value judgments and perceptions of the observer 22 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved.

and Law 6-14 .Ethics. Economics.

Inc.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? 24 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. . All rights reserved.

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved. • But there is no “right” set of core values.1-25 Corporate Culture • Another way of saying a corporation has a set of identifiable values. Inc. .

All rights reserved. • Aesthetic values serve the end of Beauty.1-26 Values vs. Inc. • What ends are served by ethics? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. • Religious values serve spiritual ends. Ethical Values • What are the ends that our core values serve? • Financial values serve monetary ends. .

• The well-being promoted by ethical values is not personal and selfish well-being. . • No one person’s well-being is to be counted as more worthy or valuable than any other’s. Inc.1-27 Elements of Ethical Values • Ethical values serve the ends of human wellbeing. • Ethical values promote human well-being in an impartial way. All rights reserved. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

All rights reserved. . and may result in serious illness and death to others.1-28 Disagreements about Ethics • People disagree about what ethics commits us to and what ends are served by ethical values. Inc. • So how do you decide if a company is an ethical company? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. • Ethical values can conflict.

Land’s End. community life’s blood • Malden Mills provides fabric to L. • The last major textile manufacturer in town with 2. Crew and Eddie Bauer • Aaron Feuerstein. the manufacturer of Polartec. keep jobs in the community and pay his employees until work resumes.1-29 Malden Mills • December 11. the owner pledged to rebuild the plant. All rights reserved.400 employees. Inc.L. 1995 – A fire destroys most of Malden Mills. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. . Bean. J.

• The community seemed to recover. • Employees came back to work. • Remaining employees voted to authorize a strike in December 2004. . • Malden Mills filed for bankruptcy protection.1-30 Malden Mills continued… • Factory was rebuilt and reopened in one year. All rights reserved. • Eventually controlled by creditors. Inc. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

• 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. All rights reserved. . McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc. standards and principles that operate within business.1-31 The Nature & Goals of Business Ethics • Business ethics refers to those values.

and values common to business ethics. . concepts.1-32 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. Inc. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved. standards.

1-33 Ethical Judgment vs. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. we have noticed a discontinuity between judging some act as right and behaving rightly. Inc. All rights reserved. • People vary in strength of character and motivation and fortitude. Behavior • From the time of Mahabharata. . • Knowing what is right is different from doing what is right.

All rights reserved. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. .1-34 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). Inc.

• Be objective and open-minded. Inc.1-35 Reasoning and Business Ethics • The process of ethical reasoning must be emphasized. • Reasoning is distinct from answers. . All rights reserved. • Begin with an accurate and fair account of the facts from all “sides”. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. • Analyze each issue fully and rigorously.

. • Court cases demonstrate that you cannot always rely on the law to decide what is right or wrong. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc. Many acts are not illegal until a court rules that they are. All rights reserved.1-36 Business Ethics and the Law • Compliance with the law will prove insufficient for ethically responsible businesses. • The Law is rife with ambiguity.

All rights reserved. Inc. .1-37 Whether we examine ethical questions explicitly or not. they are answered by each of us every day in the course of our lives. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

All rights reserved.” • To be ethical in the sense of ethos is to conform to what is typically done. Inc. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. .1-38 Ethics and Ethos • The word “ethics” is derived from the Greek ethos. meaning “customary” or “conventional. to obey the conventions and rules of one’s society and religion.

. All rights reserved. Inc.1-39 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 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

Inc. abstract ourselves from what is typically done and reflect upon whether or not what is done. . All rights reserved. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. should be done.1-40 Philosophical Ethics • Distinguishes what people do value from what people should value • Requires we stand back. • The difference between what is valued and what ought to be valued is the difference between ethos and ethics.

Inc. All rights reserved.1-41 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? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. .

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? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.1-42 Morality. . All rights reserved. Inc.

All rights reserved. . • As business people we face particular business decisions about our corporations.1-43 Business institutions are human creations • Humans can not avoid responsibility for something they have created or contributed to. but as citizens we have to decide whether or not to regulate those businesses for the public good. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc. • Business institutions have a tremendous influence on human lives and the quality of human life.

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. .1-44 Ethical perspectives • Managerial ethics: What should a business manager do in various situations? • The types of questions asked will vary from perspective to perspective. Inc. exist in a social and legal context. • All decisions faced by business managers. All rights reserved. from finance to marketing to ethics and human resources.

Inc. All rights reserved. .Inventory of Ethical Issues in Business • • • • • Employee-Employer Relations Employer-Employee Relations Company-Customer Relations Company-Shareholder Relations Company-Community/Public Interest 45 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc. All rights reserved. • 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 company’s stock.1-46 Reflections on the chapter • A wide range of people can be adversely affected by the decision made within contemporary business.

All rights reserved. .1-47 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. Inc. and “value” when used as a noun? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

virtues. How would you describe each? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved. Inc. and social ethics.1-48 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. .

1-49 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? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc. All rights reserved.