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AN INTRODUCTION TO BUSINESS ETHICS

CHAPTER ONE: WHY STUDY ETHICS?

McGraw-Hill/Irwin

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

This chapter seeks to
• Identify reasons why the study of ethics is important

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• Explain the nature and meaning of business ethics
• Explain the difference between ethical values and other values • Clarify the difference between ethics and the law • Describe the distinction between ethics and ethos • Introduce the distinction between personal morality, virtues and social ethics
McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Discussion Case: Madoff
• Madoff pleads guilty to 11 counts of financial fraud and theft in March 2009 • Is sentenced to 150 years in prison • A Ponzi scheme is a fraud that attracts investors with a promise of high returns • 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

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

or were responsible for the harms? To what degree was this case mostly a failure of individuals. Inc. and how they were harmed. or are there organizational issues that allowed. . All rights reserved. or organizational structure. encouraged. by the Madoff fraud. or of government? • Can you imagine anything that would have prevented the Madoff fraud? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.Discussion Questions • Identify what ethical issues and questions are involved in the Madoff case. • Do you think that a scandal such as this is the result mostly of unethical individuals. 1-4 • Identify all the people you think may have been harmed.

Inc. . All rights reserved.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? 1-5 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc. than about which ethics should guide business decisions and how ethics can be integrated within business.1-6 The questions today are less about why or should ethics be a part of business. All rights reserved. .

Inc. . All rights reserved.Context: Who was harmed by the collapse of Enron? • • • • • • • Stockholders Employees Consumers in California Suppliers Enron’s accounting firm. investors and suppliers 1-7 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Arthur Anderson The Houston. TX community Families of employees.

Congress passed the Sarbanes-Oxley Act • Financial risks • Reputation and competitive advantage • Consumer boycotts • Efficiency and effectiveness • Employee trust.Reasons to be concerned with Ethics • The Law: In 2002. loyalty. commitment and initiative McGraw-Hill/Irwin 1-8 Copyright © 2011 by The McGraw-Hill Companies. . All rights reserved. Inc.

• 80% of those surveyed had developed codes of ethics beyond those required by SarbanesOxley • 90% included statements concerning the company’s obligation to its stakeholders. 1-9 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc.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. All rights reserved. .

1-10 The need to study Business Ethics • If business managers see the need to focus on ethical behavior. . All rights reserved. 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.

Values and Ethics: Doing Good and Doing Well • Built to Last: Successful Habits of Visionary Companies by James Collins and Jerry Porras 1-11 – 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. and not to be compromised for financial gain. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

Companies cited by Collins & Porras • • • • • • • • • IBM Johnson & Johnson Hewlett Packard Procter and Gamble Wal-Mart Merck Motorola Sony General Electric 1-12 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. . All rights reserved. Inc.

. All rights reserved.What are values? 1-13 • 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. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc.

Inc. • But there is no “right” set of core values. 1-14 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.Corporate Culture • Another way of saying a corporation has a set of identifiable values. All rights reserved. .

• Religious values serve spiritual ends. .Values vs. All rights reserved. Inc. Ethical Values • What are the ends that our core values serve? • Financial values serve monetary ends. • What ends are served by ethics? 1-15 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. • Aesthetic values serve the end of Beauty.

McGraw-Hill/Irwin 1-16 Copyright © 2011 by The McGraw-Hill Companies. .Elements of Ethical Values • Ethical values serve the ends of human wellbeing. • Ethical values promote human well-being in an impartial way. • No one person’s well-being is to be counted as more worthy or valuable than any other’s. All rights reserved. • The well-being promoted by ethical values is not personal and selfish well-being. Inc.

Disagreements about Ethics • People disagree about what ethics commits us to and what ends are served by ethical values. • Ethical values can conflict. . • So how do you decide if a company is an ethical company? McGraw-Hill/Irwin 1-17 Copyright © 2011 by The McGraw-Hill Companies. All rights reserved. and may result in serious illness and death to others. Inc.

Bean. Inc. Crew and Eddie Bauer • Aaron Feuerstein. McGraw-Hill/Irwin 1-18 Copyright © 2011 by The McGraw-Hill Companies. community life’s blood • Malden Mills provides fabric to L. keep jobs in the community and pay his employees until work resumes. J. • The last major textile manufacturer in town with 2. .L.400 employees. Land’s End. All rights reserved. the owner pledged to rebuild the plant. 1995 – A fire destroys most of Malden Mills.Malden Mills • December 11. the manufacturer of Polartec.

Inc. All rights reserved. • The community seemed to recover. • Remaining employees voted to authorize a strike in December 2004.Malden Mills continued… • Factory was rebuilt and reopened in one year. • Malden Mills filed for bankruptcy protection. McGraw-Hill/Irwin 1-19 Copyright © 2011 by The McGraw-Hill Companies. • Employees came back to work. . • Eventually controlled by creditors.

. values and principles while seeking to articulate and defend the ones that ought or should operate in business. McGraw-Hill/Irwin 1-20 Copyright © 2011 by The McGraw-Hill Companies.The Nature & Goals of Business Ethics • Business ethics refers to those values. All rights reserved. standards and principles that operate within business. • Business ethics is also an academic discipline that studies those standards. Inc.

. Inc. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.But… 1-21 • 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. and values common to business ethics. standards. All rights reserved. concepts.

• People vary in strength of character and motivation and fortitude. • Knowing what is right is different from doing what is right. . McGraw-Hill/Irwin 1-22 Copyright © 2011 by The McGraw-Hill Companies.Ethical Judgment vs. All rights reserved. Behavior • From the time of Aristotle we have noticed a discontinuity between judging some act as right and behaving rightly. Inc.

Inc. .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 1-23 The unexamined life is not worth living (Socrates). All rights reserved. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

Reasoning and Business Ethics 1-24 • The process of ethical reasoning must be emphasized. • Analyze each issue fully and rigorously. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. • Reasoning is distinct from answers. Inc. • Begin with an accurate and fair account of the facts from all “sides”. All rights reserved. • Be objective and open-minded. .

Many acts are not illegal until a court rules that they are. • The Law is rife with ambiguity. McGraw-Hill/Irwin 1-25 Copyright © 2011 by The McGraw-Hill Companies.Business Ethics and the Law • Compliance with the law will prove insufficient for ethically responsible businesses. All rights reserved. . Inc. • Court cases demonstrate that you cannot always rely on the law to decide what is right or wrong.

they are answered by each of us every day in the course of our lives. Inc.1-26 Whether we examine ethical questions explicitly or not. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved. .

meaning “customary” or “conventional. to obey the conventions and rules of one’s society and religion.” • To be ethical in the sense of ethos is to conform to what is typically done. Inc. McGraw-Hill/Irwin 1-27 Copyright © 2011 by The McGraw-Hill Companies. All rights reserved. .Ethics and Ethos • The word “ethics” is derived from the Greek ethos.

All rights reserved. . Inc.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 1-28 Copyright © 2011 by The McGraw-Hill Companies.

• The difference between what is valued and what ought to be valued is the difference between ethos and ethics. should be done. All rights reserved. McGraw-Hill/Irwin 1-29 Copyright © 2011 by The McGraw-Hill Companies.Philosophical Ethics • Distinguishes what people do value from what people should value • Requires we stand back. Inc. . abstract ourselves from what is typically done and reflect upon whether or not what is done.

. Inc.Business Ethics • A branch of philosophical ethics • Reflect: In what ways do the practices and decisions made within business promote or undermine human wellbeing? • How ought we to live? McGraw-Hill/Irwin 1-30 Copyright © 2011 by The McGraw-Hill Companies. All rights reserved.

All rights reserved. Inc. .1-31 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? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies.

. Inc. All rights reserved.Business institutions are human creations • Humans can not avoid responsibility for something they have created or contributed to. McGraw-Hill/Irwin 1-32 Copyright © 2011 by The McGraw-Hill Companies. • 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. • Business institutions have a tremendous influence on human lives and the quality of human life.

• All decisions faced by business managers. from finance to marketing to ethics and human resources. Inc. All rights reserved. McGraw-Hill/Irwin 1-33 Copyright © 2011 by The McGraw-Hill Companies.Ethical perspectives • Managerial ethics: What should a business manager do in various situations? • The types of questions asked will vary from perspective to perspective. exist in a social and legal context. .

Inc.Reflections on the chapter • A wide range of people can be adversely affected by the decision made within contemporary business. 1-34 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. • Business operates within a social context and has duties to a wide range of people beyond those people who own a company’s stock. 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.

.Review Questions 1-35 • 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. All rights reserved. and “value” when used as a noun? McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. Inc.

and social ethics. Inc. All rights reserved. virtues. How would you describe each? McGraw-Hill/Irwin 1-36 Copyright © 2011 by The McGraw-Hill Companies.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. .

. which other constituencies might have a stake in business decisions? McGraw-Hill/Irwin 1-37 Copyright © 2011 by The McGraw-Hill Companies. Inc. All rights reserved.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.