Business Law Chapter 4 Study Guide

Importance of Ethics in Decision Making

1. Long Run Profit Maximization: balancing short term gains with potential long term problems (ex. OxyContin). 2. Internet and Reputations: derogatory online posting about a company are usually legal, but can damage company profits. Most courts regard online attacks as simply the expression of opinion and therefore a form of speech protected by the 1st Amendment.

Long Run vs. Short Run Profit Maximization

1. Long Run: Because of lawsuits, large settlements, and bad publicity, such unethical conduct will cause profits to suffer. Business ethics is consistent only with long run. 2. Short Run: A company may increase its profits by continuing to sell a product, even though it knows that the product is defective. An over emphasis on short term profit maximization is the most common reason that ethical problems occur in business. If a company focuses on short term it could lead to unethical conduct that could hurt profits in the long run.

Other guidelines to making ethical decisions

1. The Law: is the action legal? 2. Business Rules and Procedures: is the action consistent with the company policies and procedures? 3. Social Values: is the proposed action consistent with the spirit of the law even if not specifically prohibited? 4. Your Conscience: how does your conscience regard your plan? can your plan survive the glare of publicity? 5. Promises to Others: will your action satisfy your commitments to others, inside and outside the firms? 6. Heroes: how would your hero regard your action?

A Systematic Approach

Can help a business person eliminate various alternatives and identify the strengths and weaknesses of the remaining alternatives; involves 5 steps called the Business Process Pragatism: 1. Inquiry: what is the problem? 2. Discussion: what are the possible actions? 3. Decision 4. Justification: what is the reason for the proposed action? 5. Evaluation: was the solution effective?

Ethical Principles and Philosophies

Ethical reasoning: the application of morals and ethics to a situation. The study of ethics is divided into two major categories- duty based ethics and outcome based ethics.

Duty Based Ethics

Focuses on the obligations of the corporation, deals with standards for behavior that come from religious authorities or philosophical reasoning. 1. Religious Ethical Principles: provide that when an act is prohibited by religious teachings it is unethical; also involve compassion. 2. Principles of Rights: idea that people have certain rights that must be balanced. The principle that human beings have certain rights (to life, freedom, and the pursuit of happiness). Those who adhere to this principle, believe that a key factor in determining whether a business decision is ethical is how that decision affects the rights of others. 3. Kantian Ethical Principles: referencing Immanuel Kant, based on idea that people should be respected because they are qualitatively different from other physical objects; individuals should evaluate their actions in light of what would happen if everyone acted the same way. Categorical Imperative. Should act based on reasoning and not on emotion.

Business Ethics and Social Media

Hiring Procedures. Using Social Media to Discuss Work-Related Issues. Employee Ethics.

Corporate Social Responsibility (CSR)

The question of CSR concerns the extent to which a corporation should act ethically and be accountable to society in that regard. CSR combines a commitment to a good citizenship with a commitment to making ethical decisions, improving society, and minimizing environmental impact. 1. Stakeholder Approach: stakeholders include employees, customers, creditors, suppliers, and then community within which a business operates. It is sometimes said that duties to these groups should be weighed against the duty to a firm's owners. 2. Corporate Citizenship: corporations are sometimes urged to actively promote social goals.

Ethics

The study of what constitutes right and wrong behavior; focuses on morality and the application of moral principles in everyday life. Includes: fairness, justness, and rightness/wrongness of an action

Business Ethics

The study typically looks at the decisions businesses make or have to make and whether those decisions are right or wrong. It has to do with how business persons apply moral and ethical principles in making their decision. Ethics. The Study of Business Ethics. Importance of Ethics in Decision Making. The Relationship of Law and Ethics.

Outcome Based Ethics

Utilitarianism: theory that focuses on the consequences of an action; an action is right when it produces the greatest amount of good for the greatest number of individuals. Outcome based ethics looks at the impacts of a decision in an attempt to maximize benefits and minimize harms. "The greatest good for the greatest number". 1. Determination of who will be affected. 2. Cost-Benefit Analysis: an assessment of the negative and positive effects of alternatives on those affected. 3. Choice among alternatives that will produce maximum societal utility. The greatest positive net benefits for the greatest number of individuals.

The Relationship of Law and Ethics

What is right is not always ethical. 1. Moral Minimum: compliance with the law is the minimal acceptable standard for ethical behavior. 2. Ethics and Private Code of Ethics: many companies or industries have internal ethical codes. Company codes are not law. They are rules that a company sets forth that is 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. 3. Ethical Uncertainty: refers to grey areas in the law that make it difficult to predict how a court will apply a given law to a particular action.

Making Ethical Business Decisions

A Systematic Approach. Other guidelines to making ethical decisions. The Importance of Ethical Leadership.

Monitoring the Employment Practice of Foreign Suppliers

Concerns include the rights and the treatment of foreign workers who make goods imported and sold in the US by US firms.

Using Social Media to Discuss Work-Related Issues

The National Labor Relations Board (NLRB) has rules that employees can freely associate with each other and have conversations about common workplace issues without employer interference. The NLRB is the federal agency that investigates unfair labor practices.

Employee Ethics

What are the consequences of employee negativity on social media?

The Study of Business Ethics

Looks at the decisions businesses make or have to make and whether those decisions are right or wrong. Those who study business ethics also evaluate what duties and responsibilities exists or should exist for businesses. 1. Profit Maximization: theory whereby resources go to where they are most needed; ideally, leads to the most efficient allocation of scarce resources. 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. The government, though taxes and other financial allocations can shift resources to those other entities to perform public services. 2. Rise of Corporate Citizenship: corporation is looked at as a person, "citizen", and is expected to participate in bettering communicates and society. Investors and others began to look beyond profits and dividends and to consider the Triple Bottom Line: a corporation's profits, its impact of people, and its impact on the planet. As resources were not sufficient reallocated to cover the costs of social needs, many people became dissatisfied with the profit maximization theory. 3. When making business decisions, businesses should evaluate: legal implications of each decision, public relations impact, safety risks for consumers and employees, financial implications. This analysis will assist the firm in making decisions that not only maximize profits but also reflect good corporate citizenship.

The Importance of Ethical Leadership

Managers must apply the same standards to themselves as they do the company's employees. 1. Attitude of Top Management: management behavior sets the tone for ethical employees; employees take their cues from management. 2. Behavior of Owners and Mangers: can negatively impact business. 3. Sarbanes-Oxley Act: requires companies to set up confidential systems to that employees and others can "raise red flags" about suspected illegal or unethical auditing and accounting practices.

Global Business Ethics

Monitoring the Employment Practices of Foreign Suppliers. Foreign Corrupt Practice Act (FCPA).

Hiring Procedures

Prospective employers will conduct internet searches to determine a job candidate's online presence, or lack thereof.

Foreign Corrupt Practices Act (FCPA)

Side payments to government officials in exchange for favorable business contracts are not unusual in some countries, nor are they considered to be unethical. In 1977 Congress passed the Foreign Corrupt Practices Act (FCPA), which prohibits US business persons from bribing foreign officials to secure beneficial contracts. 1. Prohibits against the Bribery of Foreign Officials: FCPA prohibits US business persons from bribing foreign officials to secure advantageous contracts. 2. Accounting Requirements: accountants may be subjected to penalties for making false statements in records or accounts. 3. Penalties for Violations: business firms may be fined up to $2 million; individuals may be fined up to $100K and imprisoned for up to 5 years.