Legal Aspects of Business Chapter 3
A central theme in Kantian ethics is...
categorical imperative
Corporate social responsibility (CSR)
combines a commitment to good citizenship with a commitment to making ethical decisions, improving society, and minimizing environmental impact
moral minimum
compliance with the law; if people and entities merely comply with the law, they are acting at the lowest ethical level society will tolerate
Those who adhere to the principle of rights believe that a key factor in determining whether a business decision is ethical is....
how that decision affects the rights of others, including the firm's owners, its employees, the consumers of its products or services, its suppliers, the community in which it does business, and society as a whole
Walt Disney example
in an effort to curb childhood obesity, Disney recently announced that it was issuing strict nutritional standards for products advertised through all its media outlets. The initiative was intended to clarify Disney's mission and values, as well as enhance its reputation as a trustworthy, family-friendly company
rationale for "stakeholder view"
in some circumstances, one or more of these other groups may have a greater stake in company decisions than the shareholders do
What can help companies grow and prosper?
incorporating both the social and the corporate components of CSR and making ethical decisions
Managers who set unrealistic production or sales goals...
increase the probability that employees will act unethically. If a sales quota can be met only through high-pressure, unethical sales tactics, employees will look out for the company first and continue to make unethical decisions
Although CSR is not imposed on corporations by law,...
it does involve a commitment to self-regulation in a way that attends to the text and intent of the law, ethical norms, and global standards
Under a utilitarian model of ethics, an action is morally correct, or "right," when...
it produces the greatest amount of good for the greatest number among the people the action affects
Is it considered legal and ethical to fire employees for such activities as criticizing other employees or managers through social media outlets?
it used to be, but a ruling by the National Labor Relations Board (NLRB) has changed the legality of such actions
Ethics is based more on ... than ...
judgment, research
Businesspersons must remember that...
just because an action is legal does not mean it is ethical (example is corporations paying their executives excessive amounts- not illegal but immoral)
Employee ethics debate
likely to be an ongoing debate about how to balance employees' rights to free expression against employers' right to prevent inaccurate negative statements being spread across the Internet
business ethics is consistent only with...
long-run profit maximization
Why is the law not always sufficient to determine "right" behavior?
because the law does not codify all ethical requirements of all persons; laws have to be general enough to apply in a variety of circumstances; laws prohibit or require certain actions to avoid significant harm to society
The company must link the responsibility of citizenship with...
the the strategy and key principles of the business
A lot of US business now contract with companies in developing nations to produce goods, such as shoes and clothing, because...
the wage rates in those nations are significantly lower than wages in the US.
What is one potential dilemma for those who support rights theory?
there are often conflicting rights and people may disagree on which rights are most important
Many people believe that judging a job candidate based on what she or he does outside the work environment is...
unethical
Because business controls so much of the wealth and power of this country, business, in turn, has a responsibility to society to...
use that wealth and power in socially beneficial ways
Ethics defintion
what constitutes right or wrong behavior- branch of philosophy that focuses on morality and the way in which moral principles are derived and applied to one's conduct in daily life; has to do with questions relating to the fairness, justness, rightness, or wrongness of an action
example of conflicting rights
when considering all those affected by a business decision to downsize a firm, how much weight should be given to employees relative to shareholders? Which employees should be laid off first, those with the highest salaries or those who have worked there for less time (less seniority)? How should the firm weigh the rights of customers relative to the community, or employees relative to society as a whole?
The most difficult aspect of the stakeholder analysis is determining...
which group's interests should receive greater weight if the interests conflict
Can job candidates be rejected because they do not participate in social media?
yes, because the vast majority of younger people do use social media, some employers have decided that the failure to do so raises a red flag (some consider this behavior to be unethical too)
Example of what would be in a social responsibility report: Symantec the software company
88% of its facilities that it owns or leases on a long-term basis are certified as environmentally friendly by the Leadership in Energy and Environmental Design (LEED) program. In this case, certification required the achievement of high standards for energy efficiency, material usage in construction, and other environmental qualities
Applying the utilitarian theory requires the following:
A determination of which individuals will be affected by the action in question; a cost-benefit analysis, which involves an assessment of the negative and positive effects of alternative action on these individuals; a choice among alternative actions that will produce maximum societal utility (the greatest positive net benefits for the greatest number of individuals)
Apple example
Apple relies heavily on foreign suppliers for their products; following a number of high-profile labor problems with its foreign manufacturers and suppliers, Apple started to evaluate the practices of these companies in its supply chain and communicate its ethics policies to them; after its audits revealed numerous violations, in 2012 Apple released a list of its suppliers for the first time; Apple's "Supplier Responsibility Act' showed that many facilities were doing very unethical things, like docking pay as punishment, having employees use machines without safegaurd, and falsifying records; dumping pollutants; as a result, apple terminated is relationship with one supplier and turned over its findings to the Fair Labor Association for further inquiry
May v. Chrysler Group
Between 2002 and 2005, Otto May, a pipefitter at a Chrysler plant, was the target of a series of racist, homophobic, and anti-Semitic messages and graffiti. May complained to Chrysler. the employer documented the complaints and began a pretty thorough investigation. The employer reminded his workers that employee harassment is not okay- the harassers were never caught, but the incidents eventually stopped. May filed a suit against Chrysler in a federal district court for hostile-environment harassment; jury awarded May 709,000 dollars in compensatory damages and 3.5 million in punitive damages- judge overturned the punitive damages award and May appealed; a higher court confirmed that the steps Chrysler took were enough and they didn't need to pay punitive damages. an employer must act with malice or reckless indifference to an employee's federally protected rights to support an award of punitive damages- that was not the case in this example
Lawyer Samir Zia Chowhan example
Chowhan posted a "help-wanted' ad on Craigslist seeking an "energetic woman" for the position of a legal secretary; the ad stated the work included in the job, and said that there were also "additional duties;" applicants were asked to send pictures and describe their physical features; when a woman applied for the job, Chowhan sent her an email saying that the applicant would hbe required to have sexual interction with him and his partner, sometimes together and sometimes not; also said that she would have to perform sexual acts at the job interview; one applicant file da compaint with the Illinous bar association, which suspended Chowhan's law license for a year for making false statements about the ad; because the bar association's ethics rules prohibited attorneys from having sex with their clients, but not wiht potential employees, Chowhan could only be disciplined for lying
Costco example
Costco's social media policy specified that its employees should not make statements that would damage the company or any other person's reputation; employees who violated this were subject to discipline and could be fired; the NLRB ruled in 2012 that Costco's social media policy violated federal labor law, which protects employees' rights to engage in "concerted activities"- which is basically employees interacting and talking about workplace issues without employer interference- extends to social media
Diane Mathews example
Dianne Matthews was a manager for B and K Foods, when she was fired- filed for unemployment compensation, but B and K objected. At an employment commission hearing, the CEO testified that it was company policy to pay employees who worked through their lunch breaks. To be paid, an employee had to turn in a "no lunch sheet". However, Matthews abused this policy and turned in "no lunch sheets" when she was just running errands or doing other things other than working- she admitted to knowing the policy and abusing it; employment commission ruled that she could not receive unemployment compensation; a state appellate court affirmed the decision; court said that "work related misconduct must involve willful violation of the rules or standards of the employer," which was the case for Matthews
Resolving conflicts
In general, rights theorists believe that whichever right is stronger in a particular circumstance takes precedence
Eustace Lloyd Moseley example
Moseley worked for Pepco Energy services for a while and rose to a managerial position; Moseley and two other employees determined that their superior, Thomas Herzog, had been improperly using company assets, hiring family members, and engaging in other unethical activities; they disclosed this information to Pepco's annual ethics survey, and then Herzog was fired; a year later, Moseley recieved a negative performance review, which he thought was retaliation for his review against Herzog, and he thought his career was taking hit from it too when he was turned down for a promotion that he though he deserved; Moseley filed an action for retaliatory firing, and Pepco made a motion for summary judgment; arguing that Moseley could not make out a prima facie claim against the company; but a federal appellate court found that the facts supported an objectively "reasonable belief that a violation of law or fraudulent contact was being committed by Herzog. Because of this, summary judgment was denied by the court
Scott vs. Carpanzano case
Rick Scott deposited 2 million dollars in an escrow account maintained by a company owned by Carpanzano; right after the deposit was made, the funds were withdrawn in violation of the escrow agreement. Scott was unable to recover his money, and filed suit against Carpanzano and his daughter. Carpanzano failed to cooperate with anything- refused to go to court. The court issued a judgment for more than 6 million dollars in Scott's favor, finding that the defendants had willfully defaulted- intentionally failed to respond to the litigation
OxyContin example
When OxyContin, the powerful painkiller, was first marketed, its manufacturer, Perdue Pharma, claimed that it was unlikely to lead to drug addiction; later it was proved that the company's executives knew that it could lead to addiction, but kept it a secret and lied about it in order to boost sales and maximize short-term profits; ultimately Purdue Pharma and three former executives plead guilty to criminal charges that they misled regulators, patients, and physicians about OxyContin's risks- don't focus on the short term
What is the most common reason that ethical problems occur in business?
an overemphasis on the short-term profit maximization (like selling a product even though it is defective or dangerous in order to make money fast)
Social aspect of CSR: What do some corporations publish?
annual social responsibility reports, which may also be called corporate sustainability (referring to the capacity to endure) or citizenship reports
How do courts generally regard online attacks of businesses that could be considered defamatory?
as simply the expression of opinion and therefore a form of speech protected by the First Amendment
Why is business ethics more complicated than personal ethics?
because business decision makers often address more complex ethical dilemmas than they face in their personal lives
Chick-fil-A example
This example shows how ethics, which are not defined in the law, can have a large impact on a firm's finances and reputation. In 2012, Chick-fil-A's CEO made comments about their commitment to traditional marriage. Then information surfaced about them making donations to Christian organizations that were opposed to same-sex marriage; some politicians denounced Chick-fil-A's stance and said they would try to prevent the expansion of the company in their areas; ultimately, Chick-fil-A came out and said that it ceased donations to all of the questionable organizations and stopped promoting discrimination in any way; its actions raised questions about the role of corporations and the effect of corporate ethics on profit
When making decisions, a business should evaluate the following:
The legal implications of each decision, the public relations impact, the safety risks for consumers and employees, the financial implications
Religious Ethical standards
Usually religions have their own sources of revealed truth, like the 10 commandments for Christians- these are usually absolute with respect to the behavior of their adherents
work-related discussions on social media
because so many Americans use social media many times a day, they often discuss work-related issues there- numerous companies have provided strict guidelines about what is appropriate and inappropriate when making posts at one's own or others' social media accounts
triple bottom line
a corporation's profits, its impact on people, and its impact on the planet (websites and magazines began ranking companies on how ethical they are)
resolving conflicts example
a firm can either keep a manufacturing plant open, saving the jobs of 12 workers, or shut down the plan and avoid contaminating a river with pollutants that would put a lot of people in danger. In this situation, a rights theorist can easily choose which group to salvage
Thinking beyond things that are easily measured, such as profits, can be challenging because...
although profit projections are not always accurate, they are more objective than considering the personal impacts of decisions on employees, shareholders, customers, and even the community, but these subjective decisions could have great influence on company's profits
Given the various cultures and religions throughout the world, it is not surprising that...
conflicts in ethics frequently arise between foreign and US businesspersons; like how alcohol is legal in some countries but illegal in others; would be unethical for budweiser to go set up shop in Saudi Arabia
another way social responsibility can benefit a corporation
constructing a new plant that meets high LEED standards may cost more initially, but over the life of the building, the savings in maintenance and utilities may more than make up for the extra cost of construction
In addition to the two basic ethical approaches, several theories have been developed that specifically address the social responsibility of...
corporations
how can social responsibility benefit a corporation?
corporations may see an increase in goodwill from the local community for creating a park. Corporations may see increases in sales if they are viewed as good citizens
How can the Internet ruin a firms reputation?
cyberspace provides a forum where disgruntled employees, unhappy customers, or special interest groups can post derogatory remarks; Internet has increased the potential for a major corporation (or other business) to suffer damage to its reputation or loss of profits through negative publicity
What is the first fundamental approach that characterizes ethical reasoning relating to business?
defines ethical behavior in terms of duty, which also implies certain rights.
What is the second fundamental approach that characterizes ethical reasoning relating to business?
determines what is ethical in terms of the consequences, or outcome, of any given action
Because a duty cannot exist without a corresponding right,..
duty-based ethical standards imply that human beings have basic rights
Examples of stakeholders
employees, creditors, suppliers, surrounding community, and even advocacy groups that are really affected by the decisions you make
In the past, to learn about a prospective employee, the employer would ask the candidate's former employers for references. Today,...
employers are likely to also conduct an Internet search to discover what job candidates have posted on social media
What is crucial in today's fast-paced world
ensuring that all employees get on the "bandwagon" for ethical business decision-making
What does each individual engage in when faced with an ethical dilemma, including businesspersons?
ethical reasoning
Kantian Ethics
ethical standards may also be derived from philosophical reasoning; Immanuel Kant (German philosopher) identified some general guiding principles for moral behavior based on what he believed to be the fundamental nature of human beings
Ethical uncertainty
ethics can be a difficult subject for corporate officers to fully understand because there are a lot of grey areas that are not covered by the law- highly subjective and subject to change over time without any sort of formal process
Whether one believes in the profit-maximization theory or corporate citizenship, ...
ethics is important in making business decisions; corporations should strive to be "good citizens"
Business ethics
focuses on what constitutes right or wrong behavior in the business world and on how businesspersons apply moral and ethical principles to situations that arise in the workplace
What is one of the most important way to create and maintain an ethical workplace?
for top-level management, as well as business owners and managers, to actively demonstrate their commitment to ethical decision making, because employees take cues from management
Managers have found that discharging even on employee for ethical reasons...
has a tremendous impact as a deterrent to unethical behavior in the workplace; even if the company has a written code of ethics, if management doesn't enforce it, the code is basically not there
How may companies be judged under the social aspect of CSR?
how much they donate to social causes, as well as how they conduct their operations with respect to employment discrimination, human rights, environmental concerns, and similar issues
Company codes of ethics
most companies attempt to link ethics and law through the creation of internal codes of ethics- not law, but rules that the company sets forth that it can also enforce (by terminating an employee who does not follow them)- typically outline the company's policies on particular issues and indicate how employees are expected to act
Duty-based ethics
often derived from revealed truths, such as religious precepts; also can be derived through philosophical reasoning
How is this expensive for corporations?
often incur considerable expense in running marketing campaigns to thwart bad publicity and may even face legal costs if the complaint leads to litigation
the rise of the corporate citizenship
over the years, as resources were not sufficiently reallocated to cover the costs of social needs, many people became dissatisfied with the profit-maximization theory; investors and others began to look beyond profits and dividends and to consider the triple bottom line
Utilitarianism
philosophical theory developed by Jeremy Bentham and modified by John Stuart Mill (2 British philosophers)- unlike duty-based ethics, utilitarianism is outcome oriented, meaning that it focuses on the consequences of an action, not on the nature of the action itself or on any set of pre-established moral values or religious beliefs
Business Process Pragmatism
procedure for investigating and solving specific ethics problems and making ethical business decisions: involves the steps: inquiry, discussion, decision, justification, and evaluation (more details on page 62)
ethical reasoning
reasoning process in which the individual examines the situation at hand in light of his or her moral convictions or ethical standards
Sarbanes-Oxley Act
requires companies to set up confidential systems so that employees and others can raise red flags about suspected illegal or unethical auditing and accounting practices
Social aspects of CSR
requires that corporations demonstrate that they are promoting goals that society deems worthwhile and are moving toward solutions to societal problems
In theory, if all firms strictly adhere to the goal of profit maximization,...
resources flow to where they are most highly valued by society. Corporations can focus on their strengths, and other entities that are better suited to deal with social problems and perform charitable acts can specialize in those activities
Six guidelines to consider to help corporate employees judge their decisions (created by George S. May)
the law, rules and procedures, values, conscience, promises, heroes (p. 60 and 61)
Study of ethics goes beyond..
the moral minimum to evaluate what is right for society
How has the public perception of the corporation changed over the last 2 hundred years?
the public perception of the corporation has changed from an entity that primarily generates revenues for its owners to an entity that participates in society as a corporate citizen
A manager who looks the other way when she or he knows about an employee's unethical behavior...
sets an example indicating that unethical transgressions will be accepted
In attempting to maximize profits, corporate executives have to distinguish between...
short-run and long-run profit maximization
Corporate responsibility is most successful when a company undertakes activities that are...
significant and related to its business operations
Socially responsible activities and employees
socially responsible activities may cost a corporation now, but may lead to more impressive, and more committed employees; also will retain workers longer, particularly younger ones
During the Great Recession, to avoid slashing their workforces,...
some employers turned to alternatives such as four-day workweeks, unpaid vacations and voluntary furloughs, wage freezes, pension cuts, and flexible work schedules; some companies asked their workers to accept wage cuts to prevent layoffs, and the workers agreed
One view of CSR stresses that corporations have a duty not just to shareholders, but also, to other groups affected by corporate decisions, who are called...
stakeholders
A company that can show it acted ethically, responsibly, and in good faith has a better chance of...
succeeding in a dispute than one that cannot make such a showing
Unethical corporate decision-making can negatively affect...
suppliers, consumers, the community, and society as a whole; impacts reputation of the company and the individuals who run that company
What did Kant believe?
that human beings are qualitatively different from other physical objects and are endowed with moral integrity and the capacity to reason and conduct their affairs rationally; therefore, a person's thoughts and actions should be respected; when human beings are treated merely as a means to an end, they are being treated as the equivalent of objects and are being denied their basic humanity
categorical imperative and Eugene example
that individuals should evaluate their actions in light of the consequences that would follow if everyone in society acted in the same way; for example, Eugene is deciding whether to cheat on an examination; if he has adopted Kant's categorical imperative, he will decide not to cheat because if everyone cheated, the examination (and the entire education system) would be meaningless
Since internal codes are not laws, their effectiveness is determined by...
the commitment of the industry or company leadership to enforcing the codes
In pairing duty-based concepts with outcome-based concepts, strategists and theorists developed the idea of...
the corporate citizen
The study of business ethics is concerned with...
the purposes of a business and how that business achieves those purposes; the image of the business and the impacts that the business has on the environment, customers, suppliers, employees, and the global economy