Exam 2: Chapt 5

Why Ethical Problems Occur in Business

1- Personal Gain and Selfish Interest (ethical egoist) 2- Competitive pressures on profits 3- Conflicts of interest 4- Cross-cultural contradictions (5- Conflicts in Law and Regulation-- from Prof. N)

Why Should Business Be Ethical? (5 reasons)

1-To meet demands of business stakeholders. (for them to exhibit high levels of ethical performance and social responsibility. and thus meeting stakeholders' expectations is good biz as customers conduct more biz, which benefits stakeholders as well. positive feedback loop) 2-To enhance business performance; Ethics pays (Empirical studies have supported the economic benefits of being perceived as an ethical company. Ethisphere also found a strong link between ethics and financial performance. Companies that were on Ethisphere 's list of the World ' s Most Ethical Companies. ethical performance is linked to financial performance--> measured by a firm's integrity capital) 3-To comply with legal requirements. (2 legal requirements: 1) U.S. Corporate Sentencing Guidelines, and 2) Sarbanes-Oxley Act) 4-To prevent or minimize harm. (Do no harm. | Cautionary tale: greed of the financial sector led to the Great Recession) 5-To promote personal morality. (personal reason. feeds the soul. Most people want to act in ways that are consistent with their own sense of right and wrong. Being pressured to contradict their personal values creates emotional stress. Knowing that one works in a supportive ethical climate contributes to one's sense of psychological security. "Our findings confirm that companies with a commitment to ethical conduct enjoy distinct advantages in the marketplace, including attracting and retaining talent,")

Ethical egoist

A manager or employee who puts his or her own self-interest above all other considerations. (self-interest > biz interest) jeopardizing other's welfare.) Self-promotion, a focus on self-interest to the point of selfishness, and greed are traits commonly observed in an ethical egoist.

Ethics & its meaning

Is a conception of right and wrong conduct. It tells us whether our behavior is moral or immoral and deals with fundamental human relationships—how we think and behave toward others and how we want them to think and behave toward us. Ethical principles are guides to moral behavior. Basic rules of behaviors are essential for the preservation and continuation of organized life everywhere. Stability & trust. Core of ethical beliefs acts as a moral compass. Ethical relativism: which holds that ethical principles should be defined by various periods of time in history, a society's traditions, the special circumstances of the moment, or personal opinion. (basically everyone's definition of ethics may be different)

justice

Is it fair or just? Justice, or fairness, exists when benefits and burdens are distributed equitably and according to some accepted rule. For society as a whole, social justice means that a society's income and wealth are distributed among the people in fair proportions. A fair distribution does not necessarily mean an equal distribution. Most societies try to consider people's needs, abilities, efforts, and the contributions they make to society's welfare. Since these factors are seldom equal, fair shares will vary from person to person and group to group.

Applying Ethical Reasoning to Business Activities

Once the ethical analysis is complete, the decision maker should ask this question: Do all of the ethics approaches lead to the same decision? If so, then the decision or policy or activity is probably ethical. If the application of all ethics theories results in a "no, this is not ethical," then you probably are looking at an unethical decision, policy, or activity. The reason you cannot be absolutely certain is that different people and groups (1) may honestly and genuinely use different sources of information, (2) may rely on different values or definitions of what is a virtuous character, (3) may measure costs and benefits differently, (4) may not share the same meaning of justice, or (5) may rank various rights in different ways. What happens when the application of the four ethical approaches does not lead to the same conclusion? A corporate manager or employee then has to assign priorities to each method of ethical reasoning. What is most important to the manager, to the employee, or to the organization—virtue, utility, rights, or justice? What ranking should they be given? A judgment must be made, and priorities must be determined.

The Core Elements of Ethical Character

The ethical analysis and resolution of ethical dilemmas in the workplace significantly depend on the ethical character and moral development of managers and other employees. Good ethical practices not only are possible, but also become normal with the right combination of these components Managers' Values Managers are key to whether a company and its employees will act ethically or unethically. As major decision makers, they have more opportunities than others to create an ethical tone for their company. The values held by managers, especially the top-level managers, will serve as models for others who work at the company. pattern: Researchers also found that new CEOs tend to be more self-interested and short-term focused, possibly in an effort to immediately drive up company profits, rather than valuing long-term investments in research and development or capital expenditures.

U.S. Corporate Sentencing Guidelines (2004; 2010) (the first/2 legal requirement)

The sentencing guidelines come into play when an employee of a firm has been found guilty of criminal wrongdoing and the firm is facing sentencing for the criminal act, since the firm is responsible for actions taken by its employees. To determine the sentencing, the judge computes a culpability (degree of blame) score using the guidelines, based on whether or not the company has: 1. Established standards and procedures to reduce criminal conduct. 2. Assigned high-level officer(s) responsibility for compliance. 3. Not assigned discretionary authority to "risky" individuals. 4. Effectively communicated standards and procedures through training. 5. Taken reasonable steps to ensure compliance—monitor and audit systems, maintain and publicize reporting system. 6. Enforced standards and procedures through disciplinary mechanisms. 7. Following detection of offense, responded appropriately and prevented reoccurrence. (serves as a guideline/blueprint for when companies design their ethics and compliance programs)

4 methods of ethical reasoning

Virtue Ethics: Pursuing a "Good" Life. "aligning with good character" Utility: Comparing Benefits and Costs. "net benefits>net costs" Rights: Determining and Protecting Entitlements. "respecting basic human rights" Justice: Is It Fair? "benefits and costs are fairly distributed among stakeholders." (can be used in combo)

Competitive pressures on profits eg

When companies are squeezed by tough competition, they sometimes engage in unethical activities to protect their profits. This may be especially true in companies whose financial performance is already substandard. Research has shown that managers of poor financial performers and companies with financial uncertainty are more prone to commit illegal acts. In addition, intense competitive pressure in the global marketplace has resulted in unethical activity, such as the practice of price fixing or a violation of competition law.

Sources of Ethics

background (place raised, family, and communities), religion, education, media influences

virtue ethics

focuses on character traits that a good person should possess, theorizing that moral values will direct the person toward good behavior. Virtue ethics is based on a way of being and on valuable characteristics rather than on rules for correct behavior. Moral virtues are habits that enable a person to live according to reason, and this reason helps the person avoid extremes. Virtue ethics also suffers from this challenge: whose values? As noted in Figure 4.7, different people offer different sets of values to define virtue ethics. What if these values conflict or the list is incomplete? Does a set of values provide a sufficient framework to resolve the most complex ethical dilemmas found in global business? Does a manager sometimes have to be or seem to be "the bad person" or do or seem to do "a bad thing" for the sake of some ultimate ethical good? Would this be virtuous or vicious?

Business ethics

is the application of general ethical ideas to business behavior. To be considered ethical, business must draw its ideas about what is proper behavior from the same sources as everyone else in society. Business should not try to make up its own definitions of what is right and wrong.

Human rights

means that a person or group is entitled to something or is entitled to be treated in a certain way The most basic human rights are the rights to life, safety, free speech, freedom, being informed, due process, and property, among others. This approach to ethical reasoning holds that individuals are to be treated as valuable ends in themselves just because they are human beings. The main limitation of using rights as a basis of ethical reasoning is the difficulty of balancing conflicting rights. For example, an employee's right to privacy may be at odds with an employer's right to protect the firm's assets by testing the employee's honesty. Rights also clash when U.S. multinational corporations move production to a foreign nation, causing job losses at home but creating new jobs abroad. In such cases, whose job rights should be respected? person's fundamental right to life, freedom, privacy, growth, and human dignity. By defining the human condition and pointing the way to a realization of human potentialities, such rights become a kind of common denominator of ethical reasoning, setting forth the essential conditions for ethical actions and decisions.

A conflict of interest

occurs when an individual's self-interest conflicts with acting in the best interest of another, when the individual has an obligation to do so. ie: For example, if a purchasing agent directed her company's orders to a firm from which she had received a valuable gift, regardless if this firm offered the best quality or value, she would be accused of unethical behavior because of a conflict of interest. In this situation, she would have acted to benefit herself, rather than in the best interests of her employer. A failure to disclose a conflict of interest represents deception in and of itself and may hurt the person or organization on whose behalf judgment has been exercised.

integrity capital

the financial benefit a company reaps from promoting a culture of integrity among its workforce.

Sarbanes-Oxley Act (2002) (the second/2 legal requirement)

this law seeks to ensure that firms maintain high ethical standards in how they conduct and monitor business operations. For example, the Sarbanes-Oxley Act requires executives to vouch for the accuracy of a firm's financial reports and requires them to pay back bonuses based on earnings that are later proved fraudulent.

utilitarian reasoning

utility: the overall amount of good that can be produced by an action or a decision. cost-benefit analysis because it compares the costs and benefits of a decision, a policy, or an action These costs and benefits can be economic (expressed in dollar amounts), social (the effect on society at large), or human (usually a psychological or emotional impact). the net cost vs the net benefit. The main drawback to utilitarian reasoning is the difficulty of accurately measuring both costs and benefits. Some things can be measured in monetary terms—goods produced, sales, payrolls, and profits—but others that are less tangible, such as employee morale, psychological satisfaction, or the worth of a human life, are trickier. Human and social costs are particularly difficult to measure with precision. Another limitation of utilitarian reasoning is that the majority may override the rights of those in the minority. Since utilitarian reasoning is primarily concerned with the end results of an action, managers using this reasoning process often fail to consider the means taken to reach the end. Despite these drawbacks, cost-benefit analysis is widely used in business.