BLAW CH 5

The Role of Business in Society

Business as a Pure Profit Maximizer Business as a Corporate Citizen

•The study of ethics identifies two major categories:

Duty-based ethics Outcome-based ethics

•Stakeholders

Groups, other than the company's shareholders, that are affected by corporate decisions. •Examples include: •Employees •Customers •Suppliers - The community in which the corporation operates

unethically

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

•The bottom line is:

•People •Planet •Profits

Decision making

•The most difficult aspect of ethics that businesses face is in ____

Business 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.

categorical imperative.

•A central postulate of Kantian ethics is the _________ 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.

•Some types of C S R activities that businesses are engaging in today include:

•Environmental efforts •Ethical labor practices •Charitable donations •Volunteer work

Problems with the Utilitarian Approach

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

Duty-based ethics

- An ethical philosophy rooted in the idea that every person has certain duties to others, including both humans and the planet.

Outcome-based ethics

- An ethical philosophy that focuses on the impacts of a decision on society or on key stakeholders.

•Applying the utilitarian theory requires the following steps:

1.A determination of which individuals will be affected by the action in question 2.A 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)

•Businesspersons must learn to:

1.Recognize ethical issues 2.Get the pertinent facts 3.Evaluate the alternatives 4.Make a decision 5.Test and reflect on the outcome of their decision

•When making decisions, a business should evaluate each of the following:

1.The legal implications of each decision 2.The public relations impact 3.The safety risks for consumers and employees 4.The financial implications This four-part analysis will assist the firm in making decisions that not only maximize profits but also reflect good corporate citizenship.

When uncertainty occurs, a decision maker should:

1.Try to identify what the ethical dilemma is 2.Try to identify why he or she is feeling uneasy 3.Take the time to think through the decision completely 4.Consider various options

cost-benefit analysis

A decision-making technique that involves weighing the costs of a given action against the benefits of the action.

Principles of Rights

•- The principle that human beings have certain fundamental rights (to life, freedom, and the pursuit of happiness, for example). •A key factor in determining whether a business decision is ethical under this theory is how that decision affects the rights of others, such as employees, customers, suppliers, and the community. •A potential dilemma for those who support rights theory is that they may disagree on which rights are most important. •In general, rights theorists believe that whichever right is stronger in a particular circumstance takes precedence.

•Ethical reasoning

•A reasoning process in which an individual links his or her moral convictions or ethical standards to the particular situation at hand. - applies to businesses as well. •As businesses make decisions, they must consider the ethical implications of each alternative.

Utilitarianism

•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. •a "good" decision is one that results in the greatest good for the greatest number of people affected by the decision.

•Benefits of CSR 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. •Example: The high initial costs of the construction of a plant to meet high energy and environmental standards offset by the savings in maintenance and utilities over the life of the building

Kantian Ethical Principles

•Based on this view, 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.

The Social Aspects of C S R

•Because business controls so much of the wealth and power in this country, business has a responsibility to use that wealth and power in socially beneficial ways. •The social aspects of C S R 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

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

•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

•Gray" areas in the law.

•Business leaders must contemplate the ethical implications of a business decision. •Laws cannot codify all ethical requirements.

unethical and illegal conduct

•Business owners and managers sometimes take more active roles in fostering ___________, with negative consequences for their businesses.

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 •Looks at the impacts of a decision in an attempt to maximize benefits and minimize harms •The premier philosophical theory for this is utilitarianism.

short-run profit maximization

•In attempting to maximize profits, corporate executives and employees have to distinguish between short-run and long-run profit maximization. •Example: Continuing to sell a defective product to increase profits (short-run profit maximization) versus lawsuits, large settlements, and bad publicity as a result of continuing to sell the product (long-run profit maximization) •An overemphasis on __________ is perhaps the most common reason that ethical problems occur in business.

•The IDDR ("I Desire to Do Right") approach:

•Involves organizing the issues and approaching them systematically •Can help eliminate various alternatives and identify the strengths and weaknesses of the remaining alternatives •Contains four steps

Ethics

•Moral principles and values applied to social behavior. has to do with an action's: •Fairness •Justness •Rightness •Wrongness

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 enforce. •Codes of conduct typically outline the company's policies on particular issues and indicate how employees are expected to act.

Religious Ethical Principles

•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. •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. •Such uncertainty is practically unavoidable, but it should be treated as an indicator of a potential ethical problem.

The Importance of Ethical Leadership: Attitude of Top Management

•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.

Stakeholders and C S R

•One view of C S R stresses that corporations have a duty to both shareholders and stakeholders. •The rationale for this view is that, in some circumstances, one or more of these groups may have a greater stake in company decisions that the shareholders do.

Business as a Pure Profit Maximizer

•Originally, the only perceived duty of a corporation was to maximize profits and generate revenues for its owners. •Although people today may view this idea as greedy or ruthless, the rationale for the profit-maximization theory is still valid. •In theory, if all firms strictly adhered to the goal of maximizing profits, it would lead to the most efficient allocation of scarce resources.

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.

•The German philosopher Immanuel Kant (17 24-18 0 4) believed that human beings are:

•Qualitatively different from other physical objects •Endowed with moral integrity and the capacity to reason and conduct their affairs rationally

Awareness

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

•Duty-based ethics deals with standards for behavior that traditionally were derived from:

•Revealed truths •Religious authorities •Philosophical reasoning

•These standards for behavior involve concepts of:

•Right and wrong •Duties owed •Rights to be protected

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.

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

•The environment •Financial reporting •Safety standards

Moral minimum

•The minimum degree of ethical behavior expected of a business firm, which is usually defined as compliance with the law. •Businesspersons must remember that an action that is legal is not necessarily ethical.

Steps in the IDDR approach

Step 1: Inquiry •The decision makers must identify the ethical problem and all the parties involved—the stakeholders. •It is important that the decision makers not frame the issue in a way that gives them the answer they might prefer. Step 2: Discussion •Once the ethical problem(s) have been clarified, a list of possible actions can be compiled. •In discussing these alternatives, decision makers should: •Take time to think through each alternative completely •Analyze each alternative's potential impact on stakeholders •Evaluate each option's: •Strengths •Weaknesses •Ethical consequences •Legal consequences •At this point, decision makers should consider what they should do before considering what they can or will do. Step 3: Decision •With all the relevant facts collected and the alternatives thoroughly analyzed and discussed, the decision makers should craft a consensus decision or plan of action. •Once the decision has been made, the decision makers should articulate the reasons they arrived at the decision so they can share with stakeholders why the course of action is an ethical solution to the problem. Step 4: Review •After the decision is implemented, the decision makers should review the effectiveness of the solution.

•Corporate social responsibility (C S R)

The concept that corporations can and should act ethically and be accountable to society for their actions. •is not imposed on corporations by law. •However, it does involve a commitment to self-regulation in a way that attends to the text and intent of the law as well as to ethical norms and global standards. •is most successful when a company undertakes activities that are significant and related to its business operations.

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.