Chapter 2 BUL

Because business controls so much wealth and power

, it has responsibility to use such influences in manner beneficial to society. • Should donate to charity, not pollute, etc.

Penalties for Violations:

- 2 mill in fines for the company - 100,000 in fines to individuals - Up to 5 years in prison

Civil Liability

- : Initiated by harmed individuals or administrative agencies such as the SEC

Top Management Attitudes

- A manager who is not totally committed to an ethical workplace rarely succeeds in creating one. - Management's only behavior sets the ethical tone of an organization - Employees tend to follow what they perceive to be management's lead - Managers must model ethical behavior for their employees - Managers who set unrealistic sales or production goals will increase the probability that employees will act unethically. - Managers should set realistic goals for their employees to reduce the incentive to cheat in order to achieve management's goals. - Managers who look the other way when an employee acts unethically, conveys the message that unethical behavior is acceptable to the organization.

Business Ethics on a Global Level

- American companies must be trained in cross-cultural business practices. - For instance, in certain countries the consumption of alcohol is prohibited for religious reasons - In these countries it would be imprudent to ask a prospective business partner out for a drink. - Organizations must monitor the Employment Practices of Foreign Suppliers What if a comp any hires a foreign supplier to manufacturer its products that does not provide its employees with a safe working environment? Corporate Watch groups can hold corps accountable through adverse publicity.

Approaches to Ethical Reasoning: Duty Based Ethics:

- Based upon an underlying concept of performing an action or refraining from performing an action based on a duty. - Generally arise from religious beliefs or philosophical reasoning

Ethics Training

- Businesses with and without formal codes of conduct should talk with employees about ethical behavior and should consider in house or out sourced ethics training programs. - If an organization is accused of an ethics transgression a court will consider the presence or absence of such training.

Creating Ethical Codes of Conduct

- Creating an ethical code of conduct is one of the most effective ways to promote ethical behavior in an organization. - An Ethical code of conduct reflects an organizations commitment to legal compliance and the welfare of the customers, employees, and shareholders.

Applying the Utilitarian theory requires:

- Determination of individuals affected - Cost Benefit Analysis - Consideration of alternative actions

Business ethics is important because-

- Directors and Officers owe a complex set of duties to all of their stakeholders When these duties conflict ethical dilemmas are created

1. Principle of Rights:

- In deciding whether an action is ethical, one should consider what consequence her actions would have on the fundamental rights of others. - Idea that in order for society to be successful government must make laws in which members of such societies give up some rights to enjoy the benefits of being part of the society, but government cannot infringe on certain basic rights. - Belief that every duty gives rise to corresponding right, deeply embedded in Western culture.

Foreign Corrupt Practices Act:

- In response to numerous scandals involving US companies paying bribes to foreign government officials in order to gain strategic concessions, Congress passed the this act in 1977.

Religious Ethical Standard

- In the Judo-Christian tradition the ten commandments establish fundamental rules for morality. - The rightness or wrongness of an action is usually judged according to its conformity to an absolute rule that commands a particular form of behavior. Ex: "Thou shalt not steal" - The motive of the actor is irrelevant in judging the rightness or the wrongness of the action - Robin hood stealing from the rich to give to poor immoral as still theft.

Criminal Culpability

- Initiated by law enforcement and/or prosecutors - Professional Liability- Loss of license to practice in certain professions (i.e lawyer, accountant, physician, etc.)

Ethics borne of

- Natural law - Religious principles - Life experiences - Cultural and societal expectations - Parental and family influences - Educational experiences

Stakeholders of a corporation include

- Shareholders/owners - Employees - Customers - Creditors - Suppliers - The community within which a business operates

Short Run Profit Maximization

- Some argue businesses only goal should be to maximize profit as profit maximization leads to the most efficient allocation of scarce resources - However, executives need to distinguish between short term and long term profit maximization and how they impact an organizations goodwill, reputation, and profitability. - With regard to short term, unethical behavior may cause short term profits to increase.

1. Kantian Ethics

- The rightness or wrongness of an action is judged by estimating the consequences that would follow if everyone in a society performed the act under consideration. - Absolute moral standard dictates behavioral actions that do not vary based on individual circumstances. - Ex: borrowing money when you know you will never be in a position to pay it back as always wrong, regardless of circumstances, even the most dire, b/c if everyone in need would do so w/o the ability to repay, which would diminish the value of a promise.

Corporate Social Responsibility:

- The theory that those who manage corporations should be accountable to society for their actions.

Outcome-based Ethics: Utilitarianism

- Utilitarianism: an action is ethical based on whether it produces the greatest good for the greatest number of people upon which it has an effect. - If it affects the majority adversely, it is morally wrong. - Focuses on the outcome of the action and not the nature of the action itself - Does not take into account morals or religious beliefs.

Business ethics

- ethics is consistent with long term profit maximization, for instance, selling a defective product may maximize short term profits but not long term profits due to negative publicity and lawsuits.

Promises:

- every business organization is based on trust, customers, suppliers, and employees believe your company will do what it is supposed to, will your company's actions live up to your commitments?

An over emphasis on short term profit max

- is the most common reason that ethical problems manifest in business.

Business Ethics is the application

- of Moral principles and values to situations that arise in a business setting (i.e. marketplace and workplace

Corporate Citizenship Approach:

- organization should promote goals that society considers worthwhile and take positive steps towards solving problems

In the long run,

- such behavior may lead to costly lawsuits and bad publicity, all of which undercut long term profits and a company's goodwill

Foreign Corrupt Practices Act:

1. It prohibits any US company, director, officer, shareholder, employee, or agent from bribing any foreign gov official if the purpose of the payment is to get the official to act in her official capacity to provide business opps to the party offering the bribe. 2. Requires US companies to keep detailed accounting records that "accurately and fairly" reflect all foreign activities. 3. Prohibits anyone from making false statements or false entries in said records 4. Provides sanctions against both companies and individual agents who violate the FCPA.

- Duty Based Ethics fall into three categories

1. Religious Ethical Standards 2. Kantian Ethics 3. The Principle of Rights

Conscience:

: if you feel guilty, let your conscience be your guide, would you be happy to be interviewed by national news media about the action you are going to take?

- Rules and Procedures:

Are you following the internal rules and procedures that have been laid out by your company? They were developed to avoid problems If your plan is inconsistent with internal rules and procedures, then abort the plan or face the consequences.

Forums where ethical lapses may be addressed-

Civil Liability, Criminal Culpability, Professional Liability - In many instances one knows whether a given action is legal (i.e firing someone due to their race would clearly violate federal employment discrimination laws) - In other instances, the legality of a course of action is not as clear creating a "grey area"

Business Ethics

Ethics is the study of right and wrong behavior - Knowing whether an action is fair, right or just. - The application of moral principles and values to behavior

Making Ethical Business Decisions - The Law:

Is the action you are considering legal? If you do not know the laws governing the action, then find out Ignorance of the laws is not excuse!

- Values:

Laws and internal company policies reinforce society's values Step 1: are you trying to find a legal loophole? Step 2: are you following the spirit of the law and/or internal policy?

Professional Liability

Loss of license to practice in certain professions (i.e lawyer, accountant, physician, etc.)

Stakeholder Approach:

corporations have a duty not only to shareholders but other groups (stakeholders) affected by corporate actions.

Heroes:

everyone has heroes that act as role models, compare your actions with that of your role model, if your action if inconsistent, is it an action you should be taking?

Prospective employees-

particularly younger ones, often seek jobs, and are more likely to stay in jobs, that allow them to participate in community improvement and other meaningful social activities.

Internet

provided a forum for complaints that increases potential for damage to reputation of companies

Socially-responsible corporate behavior

• behavior is most likely to succeed when it is relevant and important to a company's stakeholders and its business operations