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2-1
Chapter 2—The Ethical Basis of
Law and Business Management
REED SHEDDREED SHEDD PAGNATTARO PAGNATTARO MOREHEAD MOREHEAD
F I F T E E N T H E D I T I O NF I F T E E N T H E D I T I O N
TheThe Legal & Legal & RegulatoryRegulatory Environment of of BusinessBusiness
McGraw-Hill/IrwinCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights
reserved.
2-2
IntroductionIntroduction
We suffer from a loss of moral sense, of knowing the difference between right and wrong, and being governed by it.
The law is the witness and external deposit of our moral life. Its history is the
history of the moral development of
the race.Barbara Tuchman Oliver Wendell Holmes
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Learning ObjectivesLearning Objectives
To appreciate the connection between law and ethical principles;
To grasp why ethical consequentialism and not ethical formalism has been the chief source of values for business ethics;
To develop an individual framework for ethical values in business, and
To analyze the obstacles and rewards of ethical business practice in our property based legal system.
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EthicsEthics
…and Society•Diversity/few shared values.•Decline in public education and family structure.•Interdependence•News media.
…and Government•May step in.•Business wants to limit further gov’t regulation.•Self-regulation.
Contemporary Business EthicsContemporary Business Ethics
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Nature of Ethics Morality – Values that guide our behavior (right vs. wrong)
Sharing moral values promotes social cooperation and control.
Businesses must be sensitive to different moral values
Law – Rules of conduct instituted by state. External Motivator (state sanctions) Law sets minimum standards.
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FormalismAffirms absolute Affirms absolute
morality.morality.•Ethics involves duty.•Categorical Imperative•Social Contract
ConsequentialismConcerned with moral Concerned with moral
consequences of consequences of actionsactions..
•Utilitarianism•Protestant Ethic
Deontology Teleology
Two Systems of Ethics
Ethical SystemsEthical Systems
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Ethical Systems Comparisons
DilemmaDilemma
FormalismFormalism•AbsolutismAbsolutism
•Morality of ActionMorality of Action
ResolutionResolution
ConsequentialismConsequentialism•RelativismRelativism
•Morality of ActionMorality of Action
2-9
pop
QUIZpop
QUIZpop
QUIZPhilosophers call the end result of Philosophers call the end result of ethical examination – ethical examination –
a.a. the goodthe goodb.b. the badthe badc.c. the uglythe uglyd.d. the rule of lawthe rule of law
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think
TANKthink
TANKthink
TANKIs there a relationship between Is there a relationship between law and ethics?law and ethics?
a.a. YesYesb.b. NoNo
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Sources Sources of Valuesof Values
Legal Legal RegulationRegulation
Professional Professional Codes of EthicsCodes of Ethics
Organizational Organizational Codes of Codes of
EthicsEthics
Individual Individual ValuesValues
Value Sources of Business Ethics
Value Sources of Business Ethics
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Ethical Rules Drawn from the Law
• Liberty & Rights
• Good Faith
• Due Care
• Confidentiality
• Conflicts Of Interest
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Professional Codes Of Ethics
Historic tradition
Self-regulation
Examples
American Marketing Association
American Institute of Certified Public
Accountants
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Organizational Codes of Ethics
Self-Regulation requires:Self-Regulation requires:
•EnthusiasmEnthusiasm
•CommitmentCommitment
Provide for sanctions when Provide for sanctions when
violatedviolated
Lack of industry codesLack of industry codes
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Questions to Questions to ask yourself to ask yourself to
help explore help explore ethical values ethical values before making before making
decisions.decisions.
1. Have I thought if action 1. Have I thought if action is right or wrong?is right or wrong? 2. Will I be proud to 2. Will I be proud to
tell of my action?tell of my action?
3. Am I willing for 3. Am I willing for everyone to act everyone to act like me?like me?
4. Will my decision 4. Will my decision cause harm?cause harm?
5. Will my actions violate5. Will my actions violatethe law?the law?
Individual Values:Self-ExaminationIndividual Values:Self-Examination
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Achieving Ethical Business Corporation
Obstacles Emphasis on profit- creates
conflict/pressure Effect of group- no individual
responsibility
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Steps to Promote Business Ethics in Corporate Life
Involve top management Openness in communication Consideration of stakeholders
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Steps to Promote Business Steps to Promote Business
Ethics in Corporate LifeEthics in Corporate Life
Involve Top Involve Top ManagementManagement
•Role models•Must really believe expressed values.
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Openness in Openness in CommunicationCommunication•Promotes trust•Complexity of information.
Steps to Promote Business Ethics in Corporate Life
Involve Top Involve Top ManagementManagement
•Role models•Must really believe expressed values.
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Consideration of Stakeholders
Stakeholder Theory Rewards
Business Ethics = Profitability Ethics = Business Asset Business Community Concern- Sensitive To
Society’s Changes Ethics = Leadership
2-21
pop
QUIZpop
QUIZpop
QUIZSuppose the product you are going to produce will Suppose the product you are going to produce will cause serious injury if not constructed properly. cause serious injury if not constructed properly. State A’s laws are more favorable, imposing a lower State A’s laws are more favorable, imposing a lower product testing standard on your business than does product testing standard on your business than does State B. Your business will need to spend less on State B. Your business will need to spend less on testing the product. If you test at that lower level, more testing the product. If you test at that lower level, more people will be injured than if you test at the level people will be injured than if you test at the level required in State B. As president of the corporation, required in State B. As president of the corporation, which state will you select and why? which state will you select and why?
1.1. State AState A2.2. State BState B
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Criticism•Wealth and poverty
Support•Less wastefulness•Wealth maximization•Justice
Morality of PropertyMorality of Property