Its Legal, Ethical &Global Environment 6th Ed.
Its Legal, Ethical &Global Environment 6th Ed.
B U S I N E S SB U S I N E S S
MARIANNE M. JENNINGS
Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved.
Chapter 2Business Ethics andSocial Responsibility
Chapter 2Business Ethics andSocial Responsibility
2 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved.
Why Business Ethics?Why Business Ethics?
Importance of Values in Business SuccessEthics Resource Center Study
• Firms with written codes of ethics did substantially better as an investment than the general Dow Jones Composite over a 30-year period
• Executives feel ethical behavior strengthens a firm’s competitive edge
• Johnson & Johnson recall of Tylenol earned it high respect and higher earnings in spite of cost
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Why Business Ethics?
Costs of Unethical BehaviorDefense contractors and current
reputation Beech-Nut and the loss in sales from
selling fake “apple” juice Boycotts over Nestlé’s infant formula
marketing programs in Third World nations
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Why Business Ethics?Why Business Ethics?
Costs of Unethical BehaviorSavings and loan industry and abuses
Exxon and the Valdez oil spill Barings Bank, Gibson Greetings, Procter &
Gamble, Orange County, Bankers Trust and derivatives
Staged gas tank explosion of GM trucks by Dateline NBC
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Why Business Ethics?
Costs of Unethical Behavior To AllIncreased regulation for manufacturersDecreased profits to shareholdersLoss of consumer confidence
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Why Business Ethics?
Ethics as a StrategyAffords opportunity for planning and
ability to answer social needs and cultural changes
Creates goodwill between business and the community• Absence of goodwill can be costly
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Why Business Ethics?
Business Ethics for Personal ReasonsNot all ethical firms are profitable firmsNot all unethical firms are unprofitable
• Examples: Exxon and Johns-Manville
Being personally ethical is really a personal standard of behavior.• It is the correct thing to do
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Why Business Ethics?
The Value of a Good Reputation“A reputation, good or bad, is tough to shake.” Richard Teerlink, former CEO, Harley-Davidson
“A bad reputation is like a hangover. It takes a while to get rid of, and it makes everything else hurt.” James Preston, former CEO, Avon
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Leadership’s Role in Ethical ChoicesLeadership is the ability to see the
problem before it becomes a legal liability and fix it.
Enron, WorldCom scandals.
Leadership’s Role in Ethical ChoicesLeadership is the ability to see the
problem before it becomes a legal liability and fix it.
Enron, WorldCom scandals.
Why Business Ethics?Why Business Ethics?
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Ethics and LeadershipEthics and Leadership
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What is Business Ethics?What is Business Ethics?
Applying Standards of Moral Reasoning to Business DilemmasMoral standard is establishedIndividual moral standards differDebate over sources of moral standardsEvaluate moral standards and conflicts as
new data appear
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What is Business Ethics?What is Business Ethics?
Sources of Moral StandardsActual or positive lawNatural lawMoral relativism or situational ethicsReligious beliefs or divine revelation
Conflicts Among BusinessShareholders want profitsEmployees want safe, secure jobs
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What is Business Ethics?What is Business Ethics?
Conflicts Among BusinessSocial Responsibility
• Wants plant’s economic base but does not want its environment destroyed
• Dilemma: Should a company shut down to install state-of-the-art scrubbers on its plant?
Friedman PerspectiveShould only undertake a project if it benefits the
business. Example: Firms should engage in pollution control to attract workers not to benefit the community
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Ethical Postures, Social Responsibility
and Business Practice
Ethical Postures, Social Responsibility
and Business PracticeWHOM SHOULD SHAREHOLDERS SERVE?
Moral question:Whose interestshould corporationserve?
Policy question:Best way to serveinterest is if thecorporation isresponsive to:
Inherence Shareholders only Shareholders only
Enlightened self-interest
Shareholders only Larger society
Invisible hand Larger society Shareholders only
Social responsibility Larger society Larger society
Social Responsibilities of Corporations
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Whose interest does a corporation serve and what is the best way to serve that interest?The inherence school
• Serve shareholders• Friedman view
The enlightened self-interest school • Manager is responsible first to shareholders but serves
them best by being responsible to larger society• Business value is enhanced if it is responsive to society
needs
Ethical Postures, Social Responsibility
and Business Practice
Ethical Postures, Social Responsibility
and Business Practice
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The invisible hand schoolManagers believes larger society should be
served but manager does that best by serving shareholders first
Do not become involved in political or social responsibility issues - allow others to handle issues and they will comply
The social responsibility school Manager should serve larger society
Ethical Postures, Social Responsibility
and Business Practice
Ethical Postures, Social Responsibility
and Business Practice
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Recognizing Ethical Dilemmas
Recognizing Ethical Dilemmas
The Language of Ethical Lapses“Everybody else does it”
• Example: Zoë Baird's employment of illegal immigrants and her failure to pay payroll taxes on their earnings
“If we don’t do it, someone else will.”• Example: Selling O.J. Simpson masks and
bloody knives
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Recognizing Ethical Dilemmas
The Language of Ethical Lapses“That’s the way it has always been
done.”• Examples: Audit committees, independence,
and eventual SEC rules“We’ll wait until the lawyers tell us it’s
wrong”• Example: Derivatives—legality does not
determine morality
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Recognizing Ethical Dilemmas
Recognizing Ethical Dilemmas
The Language of Ethical Lapses“It doesn’t really hurt anyone”
• Examples: Freeway rubberneckers, health insurance claims and rising premiums
“The system is unfair”• Example: Cheating does not improve the system
“I was just following orders”• Example: German border guards, sometimes
morality requires disobedience
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Recognizing Ethical Dilemmas
Recognizing Ethical Dilemmas
Categories of Ethical DilemmasTaking things that don’t belong to you
• Example: Pens to postage to embezzlementSaying things you know are not true
• Example: Blaming others for your slip-upsGiving or allowing false impressions
• Example: Movie ads quoting reviews selectively to give the false impression that the reviewer likes the movie
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Recognizing Ethical Dilemmas
Recognizing Ethical Dilemmas
Categories of Ethical DilemmasBuying influence or engaging in conflict
of interest• Example: Those who award contracts accept
perks from biddersHiding or divulging information
• Example: In contract negotiations, failure to reveal important/material information; with employees, revealing private information
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Recognizing Ethical Dilemmas
Recognizing Ethical Dilemmas
Categories of Ethical DilemmasTaking unfair advantage
• Example: Capitalizing on another’s inexperience
Committing acts of personal decadence• Example: Office parties that result in drunken
behavior that harms others
Perpetrating interpersonal abuse• Example: Harassment
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Recognizing Ethical Dilemmas
Recognizing Ethical Dilemmas
Categories of Ethical DilemmasPermitting organizational abuse
• Examples: Child labor issues, low wagesViolating rules
• Example: Follow procedures for finances because of internal control issues; work to change rules, don’t violate them
Condoning unethical actions• Examples: Disclosing problems and confronting
violators
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Blanchard and PealeIs it legalIs it balancedHow does it make me feel
The Front-Page-of-the-Newspaper TestHow would the story be reportedUse an objective and informed reporter’s view
Resolution of Business Ethical Dilemmas
Resolution of Business Ethical Dilemmas
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Resolution of Business Ethical Dilemmas
Resolution of Business Ethical Dilemmas
Laura Nash and PerspectiveHow would I view the problem if I sat on
the other side of the fenceAm I able to discuss my decision with
my family, friends, and those closest to me
What am I trying to accomplish
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Resolution of Business Ethical Dilemmas
Resolution of Business Ethical Dilemmas
The Wall Street Journal ModelCompliance
• Are you violating any lawsContribution
• What does this action contribute to my customers, shareholders, bondholders, employees, community, and suppliers
Consequences• How will this action affect me, my company, my
family, our employees, and our shareholders
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Creating an Ethical Atmosphere
Creating an Ethical Atmosphere
The Tone at the TopClear signals are necessary for good business ethics
• Sears and its auto repair issues with pay incentives• Hotlines for reporting violations• Du Pont and its ethics bulletins
Developing an Ethics StanceSetting parameters for personal and business
behaviorSetting tone of tolerance or intolerance for behavior
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RELATIVISM
ABSOLULTISM
PRAGMATIC IDEALISTIC
Did she understand that embezzlementis wrong
How long was she embezzling
Why did she take the money
Termination
Creating an Ethical Atmosphere
Creating an Ethical Atmosphere
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Watch for Dangers of Unethical EnvironmentIntense competition and issues of
survivalManagers making poor judgmentsEmployees with no personal values
Creating an Ethical Atmosphere
Creating an Ethical Atmosphere
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Ethical Issues in International Business
Ethical Issues in International Business
Businesses Must Decide Whether to Operate Under One Uniform Set of Standards
Cultures, Laws, and Standards VaryCreates issues of bribes, grease payments, and culture-related
giftsProblems of economic development where bribery is common
• Additional costs and Lack of Trust• Basic assumptions underlying economic model of capitalism do not
exist and make investment more difficult
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Ethical Issues in International Business
Ethical Issues in International Business
Least Corrupt Countries Most Corrupt Countries Denmark 9.94 India 2.75 Finland 9.48 Indonesia 2.72 Sweden 9.35 Mexico 2.66 New Zealand 9.23 Pakistan 2.53 Canada 9.10 Russia 2.27 Netherlands 9.03 Columbia 2.23 Norway 8.92 Bolivia 2.05
Australia 8.86 Nigeria 1.76
Least Corrupt Countries Most Corrupt Countries Denmark 9.94 India 2.75 Finland 9.48 Indonesia 2.72 Sweden 9.35 Mexico 2.66 New Zealand 9.23 Pakistan 2.53 Canada 9.10 Russia 2.27 Netherlands 9.03 Columbia 2.23 Norway 8.92 Bolivia 2.05
Australia 8.86 Nigeria 1.76