Ch. 3~ Ethics in Business (BUS 221)

German auto giant Volkswagen caught lying on a spectacular scale

(2015) Volkswagen is right in the middle of a corporate scandal of epic proportions. The German auto giant has been caught lying, on a spectacular scale. 11 million of its 'clean' diesel engine cars were equipped with software deliberately programmed to cheat pollution tests. A blatant con that is highly illegal. In Australia, 10 Volkswagen models have now been suspended from sale, and 77-thousand vehicles face recall at the very least. Volkswagen's ruthless drive to be world number one, hid a dirty secret - diesel engines that couldn't deliver on high performance and still meet environmental standards.

Ethics

A branch of philosophy focusing on moral principles and values applied to social behavior. The study of what constitutes right or wrong behavior.

Who are primary stakeholders?

Employees Customers Suppliers The community in which the corporation operates (may also include advocacy groups)

Business Ethics

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.

Ethics has to do with an actions: (4)

Fairness, Justness, Rightness, Wrongness

Outcome-Based Ethics

Focuses on the consequences of an action rather than on the nature of the action itself or any set of pre-established moral values or religious beliefs

What is the 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.

Business Ethics on a Global Level

Individual countries and regions have different ethical expectations and priorities.

Gray Areas in the Law

Laws cannot codify all ethical requirements.

What is corporate citizenship ?

Promote goals that society considers worthwhile and take positive steps towards solving problems. The corporation has a responsibility to "do good." Promote the same social goals as society. For example, subsidize schools and help educate children.

Awareness

Regardless of the context in which a decision is called for, sometimes businesspersons are not even aware that the decision has ethical implications.

Corporate Social Responsibility

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

A Four Part Analysis

When making decisions, a business should evaluate each of the following: - The legal implications of each decision - The public relations impact - The safety risks for consumers and employees - The financial implications

When Uncertainty happens with an ethical decision one should (4)

When this occurs, a decision maker should: Try to identify what the ethical dilemma is Try to identify why he or she is feeling uneasy Take the time to think through the decision completely Consider various options

Does ethical reasoning apply to business?

Yes. As businesses make decisions, they must consider the ethical implications of each alternative.

The Importance of Ethical Leadership

- One of the most important ways to create and maintain an ethical workplace is for top management to demonstrate its commitment to ethical decision making. - Top management's behavior sets the ethical tone of a firm.

Duty Based Standards involve concepts of (3)

- Right and wrong - Duties owed - Rights to be protected These standards are often described in their mission statements or strategic plans. Som are based on nonreligious rationale while others derive their values from religious doctrine.

The Corporate Aspects of CSR Feat (Benefits of Acting Ethically 3)

Arguably, any socially responsible activity will benefit a corporation. Benefits can include: An increase in goodwill from the local community An increase in sales Higher employee retention At times, the benefit may not be immediate.

Bernie Madoff Ponzi Scheme (Ethical Relativsm)

Bernie Madoff steals billions through fraud. (Ponzi Schemes) Interview

Milton Friedman Philosophy

Business as a Pure Profit Maximizer - Originally, the only perceived duty of a corporation was to maximize profits and generate revenues for its owners. - In theory, if all firms strictly adhered to the goal of maximizing profits, it would lead to the most efficient allocation of scarce resources.

Fostering of Unethical Conduct

Business owners and managers sometimes take more active roles in fostering unethical and illegal conduct, with negative consequences for their businesses.

Short Term Profit Maximization

Business persons often commit ethical violations because they are too focused on one issue or one needed result, such as increasing profits or outperforming competition. In attempting to maximize profits, corporate executives and employees have to distinguish between short-run and long-run profit maximization.

Use of Social Media to Make Hiring Decisions

Employers are likely to use social media to evaluate job candidates.

Unrealistic Goals for Employees

Managers who set unrealistic production or sales goals increase the probability that employees will act unethically.

Social Media

Media Businesses often face ethical issues with respect to social media platforms (e.g., Facebook, Twitter, Snap chat, Pinterest, e t c.).

Religious Ethical Priniciples (Duty Based Ethics)

Nearly every religion has principles or beliefs about how one should treat others. Examples: The Ten Commandments, the Qur'an, the four Vedas Religious rules generally are absolute with respect to the behavior of their adherents. Ex: "Thou Shalt not Steal" Absolute no matter the reason. For businesses, religious principles can be a unifying force for employees or a rallying point to increase employee motivation. They can also present problems, however, because different owners, suppliers, employees, and customers may have different religious backgrounds.

Uncertainty

One common denominator identified by businesspersons who have faced ethical problems is the feeling of uncertainty about what they did, what they should've done, or whether there was an ethical issue or ethical breach involved.

Business as a Corporate Citizen

Over the years, many people became dissatisfied with the profit-maximization theory, and corporations came to be viewed as "citizens" that were expected to participate in bettering communities and society.

Foreign Corrupt Practices Act (FCPA)

Payments are permissible: If they are lawful within the foreign country For small amounts to minor officials to facilitate or speed up the performance of administrative services To private foreign companies or other third parties

The National Labor Relations Board (NLRB)

ruled that an employer cannot broadly prohibit its employees from criticizing the company or co-workers, supervisors, or managers via social media.

Laws may sometimes be difficult to interpret and apply due to a number of reasons, including: (4)

- Broad language. - Application of a law to more than just the intended situation. - Unclear guidance on the purpose of a law. - Ambiguous or weak provisions (+lack of enforcement). (Due to laws created through political process.)

What are the two major categories of Ethics?

- Duty Based Ethics - Outcome Based Ethics

Enron Scandal (Skiing V US)

- Enron had manipulated energy prices in California to create a fake crisis, along with other illegal deceptions. -Pocketed funds form investors and made the company look like it was profitable to get more investments. - To Skilling big risk meant big reward - 35 counts of fraud convicted of 19 counts of insder trade consipracy. 24 years in prison.

Principles of Rights (Rights Theory)

- Focuses on basic rights. The principle that human beings have certain fundamental rights (to life, freedom, and the pursuit of happiness is deeply embedded in Western Culture. - "Rights Theory" believe that a key factor in determining whether a business decision is ethical is how that decision affects the rights of others. (ie. firms owners, employees, the consumers of its products, suppliers, the community in which it does business and society as a whole.) - A potential dilemma for those who support rights theory is that they disagree on which rights are most important. Ex: Which employees should be laid off first, those with the highest salaries or those who have less seniority? - Rights theorists believe that whichever right is stronger in a particular circumstance takes precedence.

IDDR ("I Desire to Do Right")

- Helps organize issues and approach them systematically. - Help eliminate alternatives and identify strengths and weaknesses of alternatives. - Should be done in a group (not alone, preferably with supervisor). 1. Inquiry - Understand the problem and who is involved. - Be unbiased when determining what happened. - Refer to ethical principles for guidance. 2. Discussion - Compile a list of possible alternatives. - Discuss alternatives: Strengths and Weaknesses, Ethical and Legal Consequences. - Determine what they should do before what can and will do. 3. Decision - Make a decision and determine why a decision was based off (Step 2) 4. Review After the decision is implemented, the decision-makers should review the effectiveness of the solution.

Ethical Issues in Business

- Integrity and Trust

Primary Company and Industry Code 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 enforce. Ex: Terminating an employee that fails to follow them. - Codes of conduct typically outline the company's policies on particular issues and indicate how employees are expected to act. Ex: Google (Google removed "Don't be Evil in May 2018)

Stakeholders and CSR

- One view of CSR stresses that corporations have a duty to both shareholders and stakeholders. - The most difficult aspect of the stakeholder analysis is determining which groups interest should receive greater weight if the interests conflict. - Stakeholders can gain access to communicate their views through their POWER of importance to the organization. - The urgency of a stakeholder claim must be evaluated in terms of time sensitivity and the importance of the claim to the stakeholder. - Corporations must allow means for a respectful exchange of ideas.

Business persons should exhibit integrity in their dealings with (4)

- Other people in the company - Other businesses - Clients - The community

Business persons must learn to (decision making w/ethics) : (5) (Basically IDDR)

- Recognize ethical issues - Get the pertinent facts - Evaluate the alternatives - Make a decision - Test and reflect on the outcome of their decision

Duty based ethics deals with standard for behavior that traditionally derived from (3)

- Revealed truths - Religious authorities - Philosophical reasoning

Rationalization

- Sometimes, businesspersons rationalize ethically questionable decisions. - Example: An employee might rationalize it is acceptable to take company property for personal use just this one time, because she or he normally does not act in this way. - To counteract rationalization, businesspersons should first decide the right thing to do on an ethical level before making a business decision, then figure out how to mitigate the costs of doing the right thing.

Kantian Ethical Principle

- The German philosopher Immanuel Kant (1724-1804) - Identified some general guiding principles for moral behavior based on what he thought to be fundamental nature of human beings. - Believed that human beings are: - Qualitatively different from other physical objects - Kant said that when people are treated merely as a means to an end (such as when employees are treated as profit-making tools), they are being treated as the equivalent of objects and are being denied their basic humanity. - Categorical imperative

The Relationship of Law and Ethics

- The government has institutionalized some ethical rights and duties through the passage of laws and regulations. - Many laws are designed to prevent fraudulent (misleading, deceptive) conduct in various contexts, including Contracts, Health care, Financial reporting, Mortgages, and Sales

The Social Aspects of CSR

- The social aspects of CSR require corporations to demonstrate that they are: - Promoting goals that society deems worthwhile - Moving toward solutions to social problems Companies may be judged on: - How much they donate to social causes - How they conduct their operations with respect to employment discrimination, human rights, environmental concerns, and similar issues - Corporate Citizenship

Monitoring the Employment Practices of Foreign Suppliers

- WAGES AND WORKING CONDITIONS - CORPORATE WATCH GROUPS

Applying the utilitarian theory requires the following steps: (3)

1. A determination of which individuals will be affected by the action in question. 2. Cost Benefit Analysis: A decision-making technique that involves weighing the costs of a given action against the benefits of the action. 3. A choice among alternative actions that will produce maximum societal utility (the greatest positive net benefits for the greatest number of individuals)

Problems with Utilitarianism

3-Ignores the idea that what is good for the most people might not always be the right or moral thing to do.

Corporate Watch Groups

A company's actions in other nations can be discovered and publicized by "corporate watch" groups. As a result, U.S. businesses usually take steps to avoid such adverse publicity—either by refusing to deal with certain suppliers or by arranging to monitor their suppliers' workplaces to make sure that employees are not being mistreated.

Ethical Reasoning

A reasoning process in which an individual links his or her moral convictions or ethical standards to the particular situation at hand.

Utilitarianism (outcome based ethics)

An approach to ethical reasoning in which ethically correct behavior is related to an evaluation of the consequences of a given action on those who will be affected by it. In utilitarianism, a "good" decision is one that results in the greatest good for the greatest number of people affected by the decision.

duty-based ethics

An ethical philosophy rooted in the idea that every person has certain duties to others, including both humans and the planet. (in other words, based on whether that action itself is right or wrong under a series of rules, rather than based on the consequences of the action.)

Ethical Relativism

• A moral theory which holds that individuals must decide what is ethical based on their own feelings about what is right and wrong. • Under this moral theory, if a person meets his or her own moral standard in making a decision, no one can criticize him or her for it.

Some frameworks, for instance, focus more on legal than ethical implications. This approach tends to be primarily outcome-based and, as such, may not be appropriate for a company that is values driven or committed to corporate social responsibility (or has a consumer or investor base that is focused on CSR). Other models set out a series of steps to follow. (True or False)

True

wages and working conditions

U.S. businesses may hire contractors in developing nations that engage in unethical behavior at their worksites. Examples: Hiring women and children at below-minimum-wage rates or requiring employees to work long hours in a workplace full of health hazards

The Use of Social Media to Discuss Work Related Issues

Until recently, companies were free to discipline or even fire employees for their behavior on social media sites.

Al-Dabagh v. Case Western Reserve University

Case 3.1 Al-Dabagh v Case Western University United States Court of Appeals, Sixth Circuit, 777 F.3d 355 (2015) - Administrator of a university had this concept in mind when it applied the school's professionalism standard to a student who had engaged in serious misconduct. - Curriculum at Case Western Reserve University School of Medicine identifies nine "core competencies." - Professionalism = Ethical, Honest, Responsible and Reliable Behavior - The universities Committee on Students determine whether a student has met the professionalism requirements. - Amir Al-Dabagh - Did well academically. - Sexually harassed fellow students. - Often asked an instructor not to mark him late for class. - Received complaints from hospital staff a bout his demeanor - Convicted of driving while intoxicated. Committee unanimously refused to certify him for graduation and dismissed him from university. - Filed a suit in a federal district court against Case Western alleging a breach of good faith and fair dealing. The court order the school to issue a diploma, Case Western appealed. Us Court of Appeals for the Sixth Circuit (Ruled in favor of University) Sutton, Circuit Judge - Ruled that professionalism was an academic judgment (apart of university's academic curriculum). - Nothing in the record suggests that the university had impermissible motives, acted in bad faith, or death unfairly in this instance.

Businesses must comply with a host of federal and state laws and regulations, including those pertaining to: (3)

The environment Financial reporting Safety standards

Triple Bottom Line

The idea that investors and others should consider not only corporate profits, but also the corporation's impact on people and on the planet in assessing the firm. - People - Planet - Profit

Moral Minimum

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

Outsourcing (global ethics)

The practice by which a company hires an outside firm or individual to perform work rather than hiring employees. Ethical problems involving outsourcing most often arise when global companies outsource work to other countries in an attempt to save on labor costs.