Chapter 4: Ethics and Business Decision Making

§1: Business Ethics Ethics is the study of right and wrong behavior; whether an action is fair, right or just. In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace.

Why is Business Ethics Important? Directors and Officers owe a complex set of ethical duties to the company, shareholders, customers, community, employees, and suppliers. When these duties conflict, ethical dilemmas are created.

Importance of Ethical Leadership Attitude of Top Management. “Looking the Other Way”. Creating Ethical Codes of Conduct. Behavior of Owners and Managers. Case 4.1 Baum v. Blue Moon Ventures, LLC (2008).

§ 2: Approaches to Ethical Reasoning Duty-Based Ethics - derived from religious and philosophical principles. Religious Ethical Standards. Kantian Ethics. Rights Principles. Outcome-Based Ethics - seek to ensure a given outcome. Utilitarianism.

Religious Ethical Standards The rightness or wrongness of an action is usually judged according to its conformity to an absolute rule that commands a particular form of behavior. The motive of the actor is irrelevant in judging the rightness or the wrongness of the action. These rules often involve an element of compassion.

Kantian Ethics Immanuel Kant: belief that general guiding principles for moral behavior can be derived from human nature. The categorical imperative is a central postulate of Kantian ethics. The rightness or wrongness of an action is judged by estimating the consequences that would follow if everyone in a society performed the act under consideration.

Rights Principle This principle derives from the belief that every duty gives rise to a corresponding right. The belief in fundamental rights is a deeply embedded feature of Western culture. The ethicality of an action is judged by how the consequences of the action will affect the rights of others.

Outcome-Based Ethics: Utilitarianism Jeremy Bentham: An action is ethical based on whether it produces the greatest good for the greatest number of people upon which it has an effect. A cost-benefit analysis must be performed to determine the effects of competing alternatives on the persons affected. The best alternative is the one that produces the greatest good for the greatest number.

Corporate Social Responsibility CSR is the idea that those who manage corporations should be accountable to society for their actions. Stakeholder Approach: corporations have a duty not only to shareholders but other groups (stakeholders) affected by corporate actions. Corporate Citizenship: promote goals that society considers worthwhile and take positive steps towards solving problems. CASE 4.2 Fog Cutter Capital Group, Inc. v. Securities Exchange Commission (2007).

§ 3: How the Law Influences Business Ethics Legal compliance is the ‘moral minimum.’ Simply obeying the law does not necessarily make the business practice ethical. Backdating stock options (Apple Computer).

How the Law Influences Business Ethics Misleading Regulators – The Case of OxyContin. Fraudulent marketing which lead to abuse and addiction. Company kept this information secret. May 2007, executives plead guilty to criminal charges they misled regulators.

How the Law Influences Business Ethics “Gray” areas in the law. Business leaders must contemplate the ethical implications of a business decision. CASE 5.3 Guin v. Brazos Higher Education Service Corp. (2006).

§ 4: Making Ethical Business Decisions George S. May company has provided six guidelines: The law. Rules and procedures. Values. Conscience. Promises. Heroes (role models).

§5: Business Ethics on a Global Level American companies must be trained in cross-cultural business practices. Monitoring the Employment Practices of Foreign Suppliers. Corporate Watch groups can disseminate information instantly around world. Foreign Corrupt Practices Act. Bribes and Accounting Practices.