Chapter 4: Ethics and Social Responsibility Quiz

Criticisms/Weaknesses of Profit Maximization

- Assumption of open and free competition often not met. - Can cause undo harm to some stakeholders, under the principle "the ends justify the means" (as with utilitarianism, to be discussed next). - As such, may not account for "externalities." - Puts a great deal of pressure on the law to reflect society's values. - Hard to define deception. - Biases may affect decision-making.

Criticisms/ Weaknesses of Universalism

- Hard to apply in many circumstances: ➢ E.g., it is difficult to "never lie," yet a pure application of universalism says lying is wrong. ➢ Relatedly, some would argue that there aren't many things that are wrong, "no matter what." - Biases (personal, situational, organizational) can inappropriately affect how "equivalent circumstance" and "inappropriately" are defined. Could potentially justify any action by saying circumstances not equivalent.

Important things to note about Universalism

- Is NOT the same thing as the "Golden Rule!" It builds on and extends. - The first principle mentions "equivalent circumstances." A key is what constitutes equivalent. - "What you want" in the first principle refers specifically to the objective of your decision, not in general. - The first principle also gets at the issue of sustainability. - "Inappropriately" in the second principle relates to dignity, and fundamental human rights, that shouldn't be violated no matter what the outcome.

Important things to note about Rule of Law

- Is part of other perspectives: ➢ Is a constraint in profit maximization. ➢ Universalism typically requires obeying the law, because if "everyone broke the law..." you probably wouldn't get what you want.

Criticisms/Weaknesses of Utilitarianism

- It could be argued that sometimes harm cannot be outweighed by any benefit. That is, sometimes the ends can't justify the means. - Calculating the harm and benefit can be difficult. Some argue that the ends can never truly be foreseen. So the focus needs to be on the means. - Biases (personal, situational, organizational) can inappropriately affect benefit/harm assessment.

Key Principles of Universalism

- Take an action only if you'd get what you want if everyone did it, under equivalent circumstances. - Do not use others inappropriately as a means to an end.

Key Principles of Utilitarianism

- The greatest good for the greatest number. - The ends justify the means.

Important things to note about Utilitarianism

- This perspective underlies the stakeholder approach. - In this perspective, harm to the minority can outweigh the benefit to the majority. So some things are wrong even if more people are benefited than harmed. - Therefore, it is not a simple count of those stakeholders positively vs. negatively affected.

Important things to note about Profit Maximization

- This theory only relates to a corporation. It is not a perspective that relates to an individual's personal profit maximization. - In applying profit maximization to a business decision always assess whether the constraints are met.

Criticisms/ Weaknesses of Rule of Law

- What is legal or illegal does not always reflect a society's moral standards. - Related to above, not all in society have equal ability to influence the legal system. - Law may be ambiguous or silent in your situation. - What if you intentionally break the law and accept the punishment: Is that ethical? - Hard to always obey every law. Where to draw the line? Biases (personal, situational, organizational) may affect decision.

What is the Ethical Decision- Making Process?

1. Identify the ethical dilemma 2. Discover alternative actions 3. Decide who might be affect 4. List the probable effects of the alternatives 5. Select the best alternative

What are some ethical questions?

1. Is it against the law? Does it violate company or professional policies? 2. Even if everyone is doing it, how would I feel if someone did this to me? 3. Am I sacrificing long-term benefits for short- term gains?

What are the 4 Ethical Decision Bases?

1. Utilitarianism 2. Universalism 3. Rule of Law 4. Profit Maximization

Key Principle of Rule of Law

Always obey the law.

Rules based on moral principles about how businesses and employees ought to conduct themselves.

Business Ethics

A set of guidelines for maintaining ethics in the workplace. • Most businesses have their own. • Most unethical behaviors lead to the passage of legislation that makes those behaviors illegal.

Code of Ethics

A conflict between self-interest and professional obligation.

Conflict of Interest

A person, group, organization, member or system who affects or can be affected by an organization's actions. • Examples: Stockholders, Employees, Customers, The community, society in which the company operates, government, suppliers, etc. • Business actions and decisions affect stakeholders differently.

Corporate Stakeholder

Moral principles by which people conduct themselves personally, socially, or professionally.

Ethics

• Each business has its own code of ethics. • A code of ethics can cover issues such as: employee behavior and environmental safety. • Unethical business practices include lying, offering merchandise known to be substandard, or treating customers or employees unfairly.

Ethics as Good Business

Necessary between businesses for the marketplace to operate effectively. Some companies do not act responsibly when it comes to fair competition.

Fair Competition

• Ethics involve a system of moral principles that govern appropriate conduct for a person or group. • Laws involve rules for conduct that may be used to punish violators. • In business, people follow rules as well as a code of ethics.

Law and Ethics

Why are constraints necessary in Profit Maximization?

Otherwise, according to the theory, societal benefit may not be maximized. And, importantly, if they are, societal benefit WILL be maximized, according to the theory.

• Late 1990s and early 2000s, a number of major corporations reportedly kept inaccurate accounting records- showing that the firms had higher profits than they reported. • The Sarbanes- Oxley Act (2002)- mandates truthful reporting and makes the CEO more accountable for the actions of the financial managers of a firm.

Responsibility to Creditors and Owners

Businesses should offer a good, safe product or service at a reasonable price.

Responsibility to Customers

• Some businesses provide work experience for people with limited job skills. - Public assistance - Purpose is to develop the skills and confidence necessary for success. • Volunteerism - Some companies allow employees to take 1 or 2 more paid days off during the year to work on community projects. • Safe Working conditions, equal treatment, and fair pay - Occupational Safety and Health Administration (OSHA). - The Equal Pay Act (1964). - Americans with Disabilities Act (1990).

Responsibility to Employees

• One of the biggest social issues facing businesses today is environmental responsibility. • Environmental Protection Agency (EPA) (1970)- enforces rules that protect the environment and control pollution.

Responsibility to Society

The duty to do what is best for the good of society. - The social Responsibility of business takes into consideration all that business does or does not do to solve the problems of society.

Social Responsibility

Shops or factories in which workers are employed for long hours at low wages and under unhealthy conditions. • The Occupational Safety and Health Administration (OSHA) is a division of the U.S. Department of Labor, which sets and enforces work- related health and safety rules. • Other agencies protect consumers, address discrimination in the workplace, and promote truthfulness in financial reporting.

Sweatshops

Key Principles of Profit Maximization

The objective of a business decision should be to maximize the corporation's profit and shareholder value. Note that this means profit and shareholder value in the long-term, not the short-term. • Constraints (assumptions that must be met for profit maximization to be an ethical theory). - The law must be obeyed. - There must be open and free competition. - There must be no deception or fraud.