Economics LAP 21 Business Ethics On the Up and Up

Explain the concept of business ethics.

Understanding Ethics  Ethics—the basic principles that govern your behavior  Your personal code of ethics—guides you to make the right decisions, even in tough situations  Business ethics—the basic principles that govern a business’s actions  Ethics—the basic principles that govern your behavior  Your personal code of ethics—guides you to make the right decisions, even in tough situations  Business ethics—the basic principles that govern a business’s actions

Understanding Ethics  A business’s code of ethics:  Determines whether or not a certain action is acceptable for that business  Especially if the consequences of that action might have a negative impact on :  Determines whether or not a certain action is acceptable for that business  Especially if the consequences of that action might have a negative impact on : Employees Customers The community Employees Customers The community

Understanding Ethics  Businesses must create their own codes of ethics.  Most industries also have general ethical codes for all related businesses to follow.  Businesses must create their own codes of ethics.  Most industries also have general ethical codes for all related businesses to follow.

Understanding Ethics  Not always the easiest task  Business ethics and personal ethics may not mesh perfectly.  Not always the easiest task  Business ethics and personal ethics may not mesh perfectly. Different people within an organization may have different personal ethics. Ethics are not always clear-cut to begin with. Different people within an organization may have different personal ethics. Ethics are not always clear-cut to begin with.

Law  Not the same thing  Think of them as overlapping circles: Where they overlap, there are actions that are both legal and ethical. But, there are also legal actions that are not ethical, and, in some cases, there may be ethical actions that are not legal. Where they overlap, there are actions that are both legal and ethical. But, there are also legal actions that are not ethical, and, in some cases, there may be ethical actions that are not legal. Ethics and Law Ethics

 Actions that are legal but may not be ethical  Example: Ethics and Law However, most doctors would consider it unethical not to care for their patients to the utmost of their abilities. A doctor’s office is not required by law to go “above and beyond” for a patient by trying several different treatments or recommending a specialist.

Ethics and Law  Actions can be illegal but still considered ethical  May be more difficult to think of these actions  Often actions that individuals and companies approach with an “everybody does it—so it must be OK” attitude  Actions can be illegal but still considered ethical  May be more difficult to think of these actions  Often actions that individuals and companies approach with an “everybody does it—so it must be OK” attitude  Example—exceeding the speed limit by one mile per hour  Example—copying software onto multiple computers, even with only one license  Example—exceeding the speed limit by one mile per hour  Example—copying software onto multiple computers, even with only one license

Ethics and Law  Business ethics are easy when the circles overlap.  Many state and federal laws address a business’s ethical obligations.  Examples:  Business ethics are easy when the circles overlap.  Many state and federal laws address a business’s ethical obligations.  Examples: The Americans with Disabilities Act The Sarbanes-Oxley Act The Americans with Disabilities Act The Sarbanes-Oxley Act  Complying with these laws is both the legal and ethical thing to do. Law Ethics

Ethics and Law  While ethics are often unwritten rules, the law must be published.  The consequences for breaching your ethics and breaking the law may be different—disappointing customers v. spending time in jail, etc.

Why Businesses Should Act Ethically  Social responsibility  Four pillars: 2. Legal responsibility— operating within the confines of federal, state, and local laws 1. Economic responsibility— Making money Contributing to the national and local economies Economic Responsibility Legal Responsibility

 Four pillars (Continued) 3. Ethical responsibility— Acting with integrity Respecting the rights of others  Philanthropic responsibility— contributing to society in an altruistic (charitable) manner Economic Responsibility Legal Responsibility Ethical Responsibility Philanthropic Responsibility Why Businesses Should Act Ethically “Playing fair”

Why Businesses Should Act Ethically Businesses must fulfill obligations to stakeholders: Use their money wisely Provide them with returns for their investments  Investors—Businesses must:

Why Businesses Should Act Ethically  Employees—Businesses must provide them with: Jobs Clean, safe working environments, free of discrimination and harassment  Customers—Businesses must meet their needs and wants with quality goods and services.  Community members—Businesses must: Pay taxes to support schools, hospitals, etc. Do their part to protect and conserve the environment

Why Businesses Should Act Ethically Pay taxes to support schools, hospitals, etc. Do their part to protect and conserve the environment Pay taxes to support schools, hospitals, etc. Do their part to protect and conserve the environment

Why Businesses Should Act Ethically  Ethical businesses set examples for the rest of the businesses in their industry and establish themselves as leaders in their fields.  A business that invests in practicing good ethics is making an important investment in itself.  Ethical businesses set examples for the rest of the businesses in their industry and establish themselves as leaders in their fields.  A business that invests in practicing good ethics is making an important investment in itself.

C o n s e q u e n c e s Why Businesses Should Act Ethically  While practicing good ethics can be rewarding for a business, there are no guarantees that an ethical action will produce a positive outcome.  Sometimes, doing the right thing can have negative consequences.  While practicing good ethics can be rewarding for a business, there are no guarantees that an ethical action will produce a positive outcome.  Sometimes, doing the right thing can have negative consequences. Positive Negative

Why Businesses Should Act Ethically  Example—A company refuses to pay a bribe to a foreign government official and allows a major contract to go to a competitor.  Businesses must practice good ethics because it is the right thing to do, not just to reap monetary rewards.  Example—A company refuses to pay a bribe to a foreign government official and allows a major contract to go to a competitor.  Businesses must practice good ethics because it is the right thing to do, not just to reap monetary rewards.

Describe the impact of ethics on business organizations.

Reasons Businesses Behave Unethically  The action is not illegal.  Example—moving business operations overseas to save money, leaving current employees jobless

Reasons Businesses Behave Unethically  The action is acceptable within the industry.  Example— high-pressure sales techniques for vacation property

Reasons Businesses Behave Unethically  The action is acceptable in a foreign culture.  Example— lower wages for workers in developing countries

Reasons Businesses Behave Unethically  The action benefits the company.  Example—making money by selling client information

Reasons Businesses Behave Unethically  The action is committed by unethical employees.  Example—Enron

Consequences of Unethical Business Practices  Negative public image  Unethical actions can damage a company’s reputation, sometimes irreversibly.  Example—Arthur Andersen (Enron’s accounting firm)

 Decreased customer loyalty and retention  An unethical business is likely to lose customers.  Retaining loyal customers costs less than recruiting new ones. Consequences of Unethical Business Practices

 Long-term customers have great lifetime value to a company.  Missing out on these benefits can damage a company’s sustainability and success. Consequences of Unethical Business Practices

 Exposure to lawsuits  Examples—Disney giving refunds for Baby Einstein DVDs

Consequences of Unethical Business Practices  Potential jail time  Many former CEOs and CFOs of major corporations are now in prison for their unethical (and illegal) actions in the widespread accounting-practice scandals of the early 2000s.

Consequences of Unethical Business Practices  Increased opportunities for the competition to beat you  Customers prefer to do business with companies they consider to be ethical.

Consequences of Unethical Business Practices  If one company engages in unethical business practices, other companies in the same industry will be in a better position to recruit and retain loyal customers.

Consequences of Unethical Business Practices  Increased internal problems  Unethical behavior creates conflict and tension within the company itself.

Consequences of Unethical Business Practices  It encourages fraudulent behavior among employees.  It decreases performance levels and productivity.

Consequences of Unethical Business Practices  Increased financial risk  Lost productivity  Fines  Employee turnover $ $ $ $ $ $

Consequences of Unethical Business Practices  Decreased sales  Lowered stock prices  Decreased company value  Bankruptcy