Business Law Chapter 7

The Importance of Ethics in Making Business Decisions

1. The legal implications of each decision. 2. The public relations impact. 3. The safety risks for consumers and employees. 4. The financial implications.

Attitude of Top Management

A manager's attitude sets the ethical tone of a firm Managers who set unrealistic production or sales goals increase the probability that employees will act unethically. A manager who is not totally committed to an ethical workplace rarely succeeds in creating one.

Triple Bottom Line (Corporate Citizenship)

A measure that includes a corporation's profits, its impact on people, and its impact on the planet.

Accounting requirements of the Foreign Corrupt Practices Act

All companies must keep detailed records that "accurately and fairly" reflect the company's financial activities. In addition, all companies must have an accounting system that provides "reasonable assurance" that all transactions entered into by the company are accounted for and legal. These requirements assist in detecting illegal bribes.

Categorical Imperative (Duty Based Ethics)

An ethical guideline developed by Immanuel Kant under which an action is evaluated in terms of what would happen if everybody else in the same situation, or category, acted the same way.

Duty Based Ethics

An ethical philosophy rooted in the idea that every person has certain duties to others, including both humans and the planet. Those duties may be derived from religious principles or from other philosophical reasoning.

Misbehavior of Owners and Managers

Business owners' misbehavior can have negative consequences for themselves and their business. Not only can a court sanction the owners and managers, but it can also issue an injunction that prevents them from engaging in similar patterns of conduct in the future.

The Sarbanes-Oxley Act and Web-Based Reporting Systems

Congress enacted the Sarbanes-Oxley Act2 to help 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.

The Coporate Aspects of CSR

Corporations that are viewed as good citizens may see increases in sales. At times, the benefit may not be immediate and the action may cost a corporation now, but may lead to more impressive, and more committed, employees. Corporations that engage in meaningful social activities retain workers longer, particularly younger ones.

Ethics training for employees

For an ethical code to be effective, its provisions must be clearly communicated to employees. Most large companies have implemented ethics training programs, in which managers discuss with employees on a face-to-face basis the firm's policies and the importance of ethical conduct.

Problems with Utilitarianism

In some situations, an action that produces the greatest good for the most people may not seem to be the most ethical.

Systematic Approach Step 4 (Justification)

In this step, the decision maker articulates the reasons for the proposed action or series of actions. Generally these reasons should come from the analysis done in Step 3. This step essentially results in documentation to be shared with stakeholders explaining why the proposal is an ethical solution to the problem.

Systematic Approach Step 2 (Discussion)

In this step, the decision maker lists possible actions. The ultimate goals for the decision are determined, and each option is evaluated using the laws and ethical principles listed in Step 1.

Systematic Approach Step 3 (Decision)

In this step, those participating in the decision making work together to craft a consensus decision or consensus plan of action for the corporation.

Principal of Rights

Kay factor in determining whether a business decision is ethical and how that decision affects the rights of others

Ethics

Moral principals and values applied to social behavior

Ethics and Private Company Codes of Ethics

Most companies attempt to link ethics and law through the creation of internal codes of ethics. Company codes are not laws. Instead, they are rules that the company sets forth and 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.

Systematic approach (making ethical based decisions)

Organizing ethical concerns and issues and approaching them systematically can help a businessperson eliminate some alternatives and identify the strengths and weaknesses of the remaining alternatives.

The Social Aspects of CSR

Requires that corporations demonstrate that they are promoting goals that society deems worthwhile and are moving toward solutions to social problems.

Business Ethics

The application of moral and ethical principles in a business context.

The Foreign Corrupt Practices Act

The first part of the FCPA applies to all U.S. companies and their directors, officers, shareholders, employees, and agents. This part prohibits the bribery of officials of foreign governments if the purpose of the payment is to induce the officials to act in their official capacity to provide business opportunities. The FCPA does not prohibit payment of substantial sums to minor officials whose duties are ministerial. A ministerial action is a routine activity, such as the processing of paperwork, that involves little or no discretion.

Corporate Social Responsibility (CSR)

The idea that corporations can and should act ethically and be accountable to society for their actions.

Moral Minimum

The minimum level of ethical behavior expected by society, which is usually defined as compliance with the law.

Ethical Requirements

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.

Systematic Approach Step 5 (Evaluation)

This final step occurs once 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.

Systematic Approach Step 1 (Inquiry)

This step involves identifying the parties involved (the stakeholders) and collecting the relevant facts. Once the ethical problem or problems are clarified, the decision maker lists any relevant legal and ethical principles that will guide the decision.

Ethics and "Gray Areas" of the Law

When it is not entirely clear how a law applies, a company's best defense to allegations of misconduct is to show that the firm acted honestly and responsibly under the circumstances.

Short Run Profit Maximization

a company may increase its profits by continuing to sell a product, even though it knows that the product is defective.

long run profit maximization

because of lawsuits, large settlements, and bad publicity, such unethical conduct will cause profits to suffer. Business ethics is only consistent with this type of maximization

Stakeholders

groups affected by a company's actions/decisions

Profit Maximization as a goal

if all firms strictly adhere to the goal of profit maximization, resources flow to where they are most highly valued by society

Cost Benefit Analysis (Outcome Based Ethcis-Utilitarinism)

involves assessment of negative and positive effects of alternative actions 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).