Business Ethics

BUSINESS ETHICS
DEFINED
BUSINESS ETHICS DEFINED

Business ethics is a complicated and controversial topic.

Highly visible business ethics issues influence the public’s attitudes

toward business and can destroy trust.

 The field of business ethics concerns questions about whether specific

business practices are acceptable.

 Business ethics is controversial and there is no universally

accepted approach for resolving ethical issues.

 Values and judgments play a critical role in the making of ethical

decisions.
BUSINESS ETHICS DEFINED

Some special aspects must be considered when applying ethics to

business.
 Businesses must earn a profit to survive, but these profits should not
come from misconduct.

 Businesses must balance their desires for profits against the needs
and desires of society.
BUSINESS ETHICS DEFINED
 Morals refer to a person’s personal philosophies about what
is right or wrong.

 Business ethics comprises

organizational principles, values, and
norms that may originate from
individuals, organizational statements,
or from the legal system that
primarily guide individual and group
behavior in

the world of business.

 BUSINESS ETHICS DEFINED

 Principles are specific and pervasive boundaries

for behavior that should not be violated.

 Values are enduring beliefs and ideals that are

socially enforced.

 Investors, employees, customers, interest

groups, the legal system, and the community
often determine whether a specific action is
right or wrong and ethical or unethical.
 WHY
STUDY BUSINESS
ETHICS?
WHY STUDY
BUSINESS ETHICS?
A Crisis in Business
Ethics
Greater Scrutiny
of Ethical
 Ethical misconduct is a major Misconduct
business concern, and
organizations are under
greater scrutiny than ever by
stakeholders.
WHY STUDY
BUSINESS ETHICS?
A Crisis in Business
Ethics
 Misuse of company resources, abusive
behavior, harassment, accounting fraud,
conflicts of interest, defective products,
bribery, and employee theft are all Declining Ethical
Standard
problems cited as evidence of declining
ethical standards in business and in
other areas like government or sports.
Misconduct can occur in any
organization.
WHY STUDY
BUSINESS ETHICS?

A Crisis in Business Ethics

 Regardless of an individual’s beliefs about a particular action, if
society judges it to be unethical or wrong, whether correctly or not,
that judgment directly affects the organization’s ability to achieve
its business goals.

Society’s
Judgment affects
business goals
WHY STUDY
BUSINESS ETHICS?
Why studying business
ethics is valuable

 Business ethics is not merely

an extension of
Personal ethics not an individual’s own personal ethics—an
It is not just about sufficient to handle
individual values and business ethics individual’s personal values and moral
moral
philosophies are only one factor in the ethical

Values from personal decision-making process.

Business ethics is experience not
more complex specific for business  Being a good person with sound personal
decisions
ethics is not sufficient to handle the ethical
issues that arise in a business organization.
WHY STUDY
BUSINESS ETHICS?
Why studying business
ethics is valuable

 B usi nes s s trategy deci si ons involve

complex and detailed discussions. A high
It is not just about Personal ethics not
individual values and sufficient to handle level of personal moral development may
moral business ethics
not prevent an individual from violating the
law in an organizational context.
Values from personal
Business ethics is experience not  The values people learn from family, religion,
more complex specific for business
decisions
and school may not provide specifi c
guidelines for complex business decisions.
WHY STUDY
BUSINESS ETHICS?

 Studying business ethics helps

businesspeople begin to
 identify ethical issues,
 recognize the approaches
available to resolve
them,
 learn about the ethical
decision-making process and
ways to promote ethical
behavior, and
 begin to understand how to
cope with conflicts
between personal values
and organizational values.
THE DEVELOPMENT
OF BUSINESS
ETHICS
THE DEVELOPMENT OF
BUSINESS ETHICS

The Twenty-First
Century of
Business Ethics
The 1990s:
Institutionalization
of Business Ethics
The 1980s:
Consolidation
The 1970s:
Business Ethics as
an Emerging Field
The 1960s: The
rise of social
issues in business
Before 1960s:
Ethics in Business
THE DEVELOPMENT OF
BUSINESS ETHICS

The 1980s: Consolidation

 Business ethics became a legitimate field of study. Membership in business
ethics organizations increased, while centers of business ethics provided
publications, courses, conferences, and seminars.
 Stakeholder theory, pioneered by R. Edward Freeman had a major impact on
strategic management and corporations’ view of their responsibilities.
 Many firms established ethics and social policy committees to address ethical
issues.
THE DEVELOPMENT OF
BUSINESS ETHICS
The 1990s: Institutionalization of Business Ethics

 The Federal Sentencing Guidelines for Organizations, which were based on the
six principles of the Defense Industry Initiative, codified into law incentives to reward
organizations for taking action, such as developing effective internal legal and ethical
compliance programs, in order to prevent misconduct,.
 The guidelines mitigate penalties for businesses that strive to minimize misconduct
and establish high ethical and legal standards.
 Under the FSGO, if a company lacks an effective ethical compliance program and
its employees violate the law, it can incur severe penalties.
 The guidelines focus on firms taking action to prevent and detect business
misconduct in cooperation with government regulation.
THE DEVELOPMENT OF
BUSINESS ETHICS
The Twenty-First Century of Business Ethics
 New evidence emerged in the early 2000s that more than a few business
executives and managers had not fully embraced the public’s desire for high
ethical standards.
 To address a loss of confidence in financial reporting and corporate ethics,
Congress passed the Sarbanes-Oxley Act in 2002, the most far-reaching
change in organizational control and accounting regulations since the
Securities and Exchange Act of 1934.
 DEVELOPING
AN
ORGANIZATIONAL
AND GLOBAL
ETHICAL CULTURE
DEVELOPING AN
ORGANIZATIONAL AND
GLOBAL ETHICAL CULTURE
 Compliance and ethics initiatives in organizations are designed
to help establish appropriate conduct and core values.
 To develop more ethical corporate cultures many businesses
communicate core values to their employees via ethics programs and
appointing ethics officers to oversee them.

 The ethical component of a corporate culture relates to the values, beliefs,

and established and enforced patterns of conduct that employees use to
identify and respond to ethical issues.
DEVELOPING AN
ORGANIZATIONAL AND
GLOBAL ETHICAL CULTURE
 The term ethical culture is acceptable behavior as
defined by the company and industry.

 The goal of an ethical culture is to minimize the need

for enforced compliance of rules and maximize the
use of principles that contribute to ethical reasoning in
difficult or new situations.
DEVELOPING AN
ORGANIZATIONAL AND
GLOBAL ETHICAL CULTURE
 Globally, businesses are working more closely together to
establish standards of acceptable behavior.

 Many companies demonstrate their commitment to acceptable

conduct by adopting globally recognized principles, such as the
United Nations’ Global Compact.
THE BENEFITS OF
BUSINESS
ETHICS
THE BENEFITS OF BUSINESS
ETHICS
 The field of business
Increase
ethics is rapidly Efficiency

changing as more firms

Better Greater
recognize the benefits Financial
Performance
Benefits
Employee
Commitment
of
of improving ethical Business
Ethics

conduct and the

link between business Improv ed
Custom
Increase
Investor
e r Confidence
Satisfaction
ethics and financial
performance.
THE BENEFITS OF BUSINESS
ETHICS
 Among the rewards for being more
ethical and socially responsible in Increase
Efficiency
business are

 increased efficiency in daily

Better Greater
Financial Employee
operations, Performance
Benefits Commitment
of
 greater employee Business
Ethics
commitment,
 increased investor willingness to
entrust funds, Improv ed Increase
Custom Investor
e r Confidence
 improved customer trust and Satisfaction

satisfaction, and
 better financial performance.
THE BENEFITS OF BUSINESS
ETHICS

Ethics Contributes to
Employee Commitment
Increase

Efficiency

Better Greater
Financial Employee
Performance Commitment
Benefits
of
Business
Ethics

Improv ed Increase
Custom Investor
e r Confidence
Satisfaction
THE BENEFITS OF
BUSINESS
ETHICS
Ethics Contributes to Employee Commitment

 Employee commitment comes from employees who believe their

future is tied to that of the organization and their willingness to make
personal sacrifices for that organization.
 The more a company is dedicated to taking care of its employees, the
more likely it is that the employees will take care of the organization.
THE BENEFITS OF BUSINESS
ETHICS
Ethics Contributes to Employee Commitment
THE BENEFITS OF
BUSINESS
ETHICS
Ethics Contributes to Employee Commitment

 Employees’ perception of their firm as having an ethical environment

leads to performance- enhancing outcomes within the organization.
 An organization with a strong, ethical corporate culture helps to increase group
creativity, decrease turnover, and increase job satisfaction.

 Trusting relationships within an organization between both managers and their

subordinates and upper management contribute to greater decision-making
efficiencies.

 When companies are viewed as highly ethical by their employees, they were
six times more likely to keep their workers.
THE BENEFITS OF
BUSINESS
ETHICS
Ethics Contributes to Employee Commitment
 Research indicates that the ethical climate of a company
matters to employees.
THE BENEFITS OF BUSINESS
ETHICS
Ethics Contributes to Investor
Loyalty
Increase

Efficiency
 Investors today are
increasingly concerned about
the ethics, social responsibility, Better Greater
Financial Employee
and the reputation of Performance
Benefits Commitment
of
companies in which they Business
invest. Ethics

Improv ed Increase
Custom Investor
e r Confidence
Satisfaction
 THE BENEFITS OF
BUSINESS
ETHICS
Ethics Contributes to Investor Loyalty

 Investors today are increasingly concerned about the ethics, social

responsibility, and the reputation of companies in which they invest.
 Investors recognize that an ethical climate provides a foundation for efficiency,
productivity, and profits; while negative publicity, lawsuits, and fines can lower stock
prices, diminish customer loyalty, and threaten a company’s long- term viability.

 Investors look at the bottom line for profits or the potential for increased stock prices
or dividends, and for any potential flaws in the company’s performance, conduct, and
financial reports.

 Gaining investors’ trust and confidence is vital to sustaining the financial stability of the
firm.
THE BENEFITS OF BUSINESS
ETHICS
Ethics Contributes to
Customer Satisfaction
Increase

Efficiency
 Customer satisfaction is one of
the most important factors in
successful business strategy. Better Greater
Financial Employee
Performance Commitment
Benefits
of
Business
Ethics

Improv ed Increase
Custom Investor
e r Confidence
Satisfaction
THE BENEFITS OF
BUSINESS
ETHICS
Ethics Contributes to Customer Satisfaction

 Customer satisfaction is one of the most important factors in

successful business strategy.
 By focusing on customer satisfaction, a company continually deepens the
customer ’s dependence on the company, and as the customer ’s
confidence grows, the firm gains a better understanding of how to serve
the customer.

 Successful businesses provide an opportunity for customer feedback,

which can engage the customer in cooperative problem solving.
THE BENEFITS OF
BUSINESS
ETHICS
Ethics Contributes to Customer Satisfaction

 Research indicates that a majority of consumers prefer companies

that give back to society in a socially responsible
manner.

 A strong organizational ethical environment usually

focuses on the core value of placing customers’ interests first.
 An ethical climate that focuses on customers incorporates the interests of all
employees, suppliers, and other interested parties in decisions and actions.

 Ethical conduct toward customers builds a strong competitive position that has
been shown to affect both business performance and product innovation
positively.
THE BENEFITS OF BUSINESS
ETHICS
Ethics Contributes to Profits

Increase
 A company cannot nurture and Efficiency

develop an ethical
Better Greater
organizational climate unless it Financial
Performance
Employee
Commitment
Benefits
of
has achieved adequate Business
Ethics
financial performance in terms
of profits. Improv ed Increase
Custom Investor
e r Confidence
Satisfaction
THE BENEFITS OF
BUSINESS
ETHICS
Ethics Contributes to Profits
 A company cannot nurture and develop an ethical organizational climate unless
it has achieved adequate financial performance in terms of profits.
 Ethical conduct towards customers builds a strong competitive position that has been
shown to positively affect business performance and product innovation.

 Research has shown that the world’s most ethical companies tends to outperform other
publicly traded companies

 Companies perceived by their employees as having a high degree of honesty and

integrity have a much higher average total return to shareholders than do companies
perceived as having a low degree of honesty and integrity.

 Ethics is becoming one of the management issues within the effort to achieve
competitive advantage.
 The impact of
political,
economic, socio-
cultural,
environmental and
other external
influences
PESTELI

What is PEST(ELI)?
The term PEST has been used regularly in the last 20 years and its
true history is difficult to establish.

Economic, Technical, Political, and Social. Over the years this has
become known as PEST with the additional letters are: Ecological
factors, Legislative requirements, and Industry analysis.
PESTELI

What is PEST(ELI)?
The term PEST has been used regularly in the last 20 years and its
true history is difficult to establish.

Economic, Technical, Political, and Social. Over the years this has
become known as PEST with the additional letters are: Ecological
factors, Legislative requirements, and Industry analysis.
PESTELI

PESTELI is known as a ‘trends analysis’. The external environment

of an organisation, partnership, community etc. can be assessed
by breaking it down into what is happening at Political, Economic,
Social, Technological, Environmental, Legal and Industry levels.
PEST

Initially the acronym PEST was devised, which stands for:

Political factors - both big and small 'p' political forces and
influences that may affect the performance of, or the options open to
the organisation.
Economic influences - the nature of the competition faced by the
organisation or its services, and financial resources available within
the economy.
PEST

Sociological trends - demographic changes, trends in the way

people live, work, and think.

Technological innovations - new approaches to doing new

and old things, and tackling new and old problems; these do
not necessarily involve technical equipment - they can be novel
ways of thinking or of organising.
PESTELI

Ecological factors - definition of the wider ecological system

of which the organisation is a part and consideration of how the
organisation interacts with it
Legislative requirements - originally included under 'political',
relevant legislation now requires a heading of its own.
Industry analysis - a review of the attractiveness of the
industry of which the organisation forms a part.
Advantages- PESTELI

 Simple framework
 Facilitates an understanding of the wider business environment.
 Encourages the development of external and strategic thinking.
 Can enable an organisation to anticipate future business threats and take action
to avoid or minimise their impact.
 Can enable an organisation to spot business opportunities and exploit
them fully.
 By taking advantage of change, you are much more likely to be successful
than if your activities oppose it.
 Avoids taking action that is doomed to failure from the outset, for reasons
Disadvantages- PESTELI

 To be effective this process needs to be undertaken on a regular basis

 The best reviews require different people being involved each having a
different perspective.
 Access to quality external data sources, this can be time consuming and
costly.
 The pace of change makes it increasingly difficult to anticipate
developments that may affect an organisation in the future.
 The risk of capturing too much data is that it may make it difficult to see
the wood for the trees and lead to ‘paralysis by analysis’.
Political

 Government type and stability.

 Freedom of press, rule of law and levels of bureaucracy and
corruption.
 Regulation and de-regulation trends.
 Social and employment legislation.
 Tax policy, and trade and tariff controls.
 Environmental and consumer-protection legislation.
 Likely changes in the political environmen.
Economic

 Stage of business cycle

 Current and project economic growth, inflation and interest
rates
 Unemployment and labour supply
 Labour costs
 Levels of disposable income and income distribution
 Impact of globalisation
 Likely impact of technological or other change on the
economy
 Likely changes in the economic environment
Socio-cultural

Ø Population growth rate and age profile

Ø Population health, education and social mobility, and attitudes
Ø Population employment patterns, job market freedom and attitudes to
work
Ø Press attitudes, public opinion, social attitudes and social taboos
Ø Lifestyle choices and attitudes to these
Ø Socio-Cultural changes
Technological

 Impact of emerging technologies

 Impact of Internet, reduction in communications costs and
 increased remote working
 Research and Development activity
 Impact of technology transfer
PESTELI

Ecological factors – Air quality, transportation, parking, pollution discharge, water

quality, waste management, land use, coastal resources etc.
Legislative requirements – Primary and secondary legislation in relation to
Health Bills e.g. employment laws, contracts over rights of staff, rights of patients, direct
payments etc.
Industry Analysis – Demand, liaison and selection for services, products and/or
component parts on the basis of price, quality, delivery times and services support;
market knowledge, forecasting, purchasing strategies, liaising with users, business
efficiency.