BUSINESS ETHICS

Moral Minimum

The minimum degree of ethical behavior expected of a business firm, which is usually defined as compliance with the law.

Outcome-based Ethics * In contrast to duty-based ethics, outcome-based ethics 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.

focuses on - the impacts of a decision on society - or on key stakeholders

Profit Maximization

resources flow to where they are most highly valued by society

Outcome-Based Ethics: Utilitarianism * Problem: In some situations, an action that produces the greatest good for the most people may not seem to be the most ethical.

"Greatest good for the greatest number" - a "good" decision is one that results in the greatest good for the greatest number of people affected by the decision. - Under a utilitarian model of ethics, an action is morally correct, or "right," when, among the people it affects, it produces the greatest amount of good for the greatest number or creates the least amount of harm for the fewest people.

Long-run profit maximization

Short-run: increase the profits by continuing to sell a product even though it knows that the product is defective. Long-run: because of the lawsuits, large settlements and bad publicity, such unethical conduct will cause profits to suffer. Thus, business ethics is consistent only with long-run profit maximization * An Over-emphasis on short-term profit maximization is the most common reason that ethical problems occur in business. * The company's focus on maximizing profits in the short run lead to unethical conduct that hurt profits in the long run

Triple Bottom Line

A business strategy that includes social, economic, and environmental criteria. The bottom line is - People - Planet - Profits

Cost-Benefit Analysis (CBA)

A decision-making technique that involves weighing the costs of a given action against the benefits of the action. - Under CBA, an action that affects the Majority negatively may be ethical if the opposite decision would affect a few individuals in a severe manner. => Majority but Minor impact < Individual but Major Impact

The Sarbanes-Oxley Act

A law passed by Congress that helps reduce corporate fraud and unethical management decisions. The 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.

Duty-based Ethics

An ethical philosophy rooted in the idea that every person has certain duties to others, including both humans and the planet. Duty-based ethics focuses on the obligations of the corporation. Those duties may be derived from revealed truths. religious principles or from other philosophical reasoning. *Taking an action based on religious principles, especially when those principles address socially or politically controversial topics, can lead to negative publicity and even to protests or boycotts.

Private company codes of ethics

Company codes are not law. Instead, they are rules that the company sets forth that it can also enforce (by terminating an employee who does not follow them, for instance). Codes of conduct typically outline the company's policies on particular issues and indicate how employees are expected to act.

"Gray Areas" in the Law

Law changes frequently and contains numerous "gray areas" and one cannot predict how a court will apply a certain law to a particular action. Ethics is less certain than law, highly subjective, and subject to change without a formal process.

Industry Ethical Codes

Many industries have their own codes of ethics that give guidance on ethical questions. Violation of an industry code may result in discipline of an employee or sanctions against a company from the industry organization. Remember, though, that these internal codes are not laws, so their effectiveness is determined by the commitment of the industry or company leadership to enforcing the codes.

Ethics

Moral principles and values applied to social behavior. - the study of what constitutes right or wrong behavior.

A Systematic Approach

Step 1: Inquiry - Understanding the problem by + Identifying the parties involved + Collecting the relevant facts. + Listing any relevant legal and ethical principles that will guide the decision. Step 2: Discussion - Lists possible actions - Ultimate goals for the decision are determined - Each option is evaluated using step 1 Step 3: Decision - Craft a consensus decision or consensus plan of action for the corporation Step 4: Justification - Articulates the reasons for the proposed action or series of actions Step 5: Evaluation - When the decision has been made and implemented, the solution should be analyzed to determine if it was effective. The results of this evaluation may be used in making future decisions.

Principles of Rights

The belief that human beings have certain fundamental rights. Whether an action or decision is ethical is how that decision affects the rights of others, such as owners, employees, consumers, suppliers, the community, and society.

Corporate Social Responsibility (CSR)

The concept that corporations can and should act ethically, and be accountable to society for their actions. * Incorporating both the social and the corporate components of CSR and making ethical decisions can help companies grow and prosper. * CSR is most successful when a company undertakes activities that are significant and related to its business operations. * The Social Aspects of CSR: the social aspect requires that corporations demonstrate that they are promoting goals that society deems worthwhile and are moving toward solutions to social problems. * The Corporate Aspects of CSR: any socially responsible activity will benefit a corporation. A corporation may see an increase in goodwill from the local community for creating a park, for instance. A corporation that is viewed as a good citizen may see an increase in sales. * Stakeholders: corporations have a duty not just to shareholders, but also to other groups affected by corporate decisions—called stakeholders. - The rationale for this "stakeholder view" is that, in some circumstances, one or more of these other groups may have a greater stake in company decisions than the shareholders do. - The most difficult aspect of the stakeholder analysis is determining which group's interests should receive greater weight if the interests conflict.

Business Ethics

The use of ethics in making business decisions Ethics in a business context A consensus of what constitutes right or wrong behavior in the world of business and the application of moral principles to situations that arise in a business setting. * Business ethics is concerned not only with the image of the business, but also with the impact that the business has on the environment, customers, suppliers, employees, and the global economy * The study of ethics goes beyond legal requirements to evaluate what is right for society. -> Businesspersons thus must remember that an action that is legal is not necessarily ethical.

The importance of Ethics in Making Business Decisions

When making decisions, a business should evaluate: 1. The legal implications of each decision 2. The public relations impact 3. The safety risks for consumers and employees 4. The financial implications. => Assist the firm in making decisions that not only maximize profits but also reflect good corporate citizenship.

Kantian Ethical Principles (Philosophical Reasoning)

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. *People Are Not a Means to an End - when people 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 - In deciding whether an action is right or wrong, or desirable or undesirable, a person should evaluate the action in terms of what would happen if everybody else in the same situation, or category, acted the same way.

Ethical Reasoning

the application of morals and ethics to a situation - A reasoning process in which a person examines the situation at hand in light of his or her moral convictions or ethical standards.

Relationship of Law and Ethics

the law does not codify all ethical requirements. compliance with the law is not always sufficient to determine "right" behavior