Chapter 5: Business Ethics Business Law Text and Cases The First Course Fourteenth Edition Miller Chapter 5: Business Ethics

§1: Business Ethics (1 of 12) Ethics: The application of moral principles and values to social behavior. Business Ethics: Moral principles and values applied to situations that arise in a business setting.

Business Ethics (2 of 12) Why Is Business Ethics Important? Traditionally, the only goal or duty of a corporation was to maximize profits. Today, many people view this idea as greedy or inhumane but the rationale for the profit-maximization theory is still valid.

Business Ethics (3 of 12) Profit Maximization: In an ideal world, if all firms strictly adhere to the goal of profit maximization, it would lead to the most efficient allocation of scarce resources.

Business Ethics (4 of 12) The Rise of Corporate Citizenship: Many investors and others now consider a corporation’s triple bottom line—its profits, its impact on people, and its impact on the planet. Companies are ranked on their environmental impact and ethical decisions and are viewed as “citizens” that are expected to help better communities and society.

Business Ethics (5 of 12) Importance of Ethics in Making Business Decisions: Businesses should evaluate these factors when making ethical decisions: The legal implications of each decision. The public relations impact. The safety risks for consumers and employees. The financial implications.

Business Ethics (6 of 12) Importance of Ethics in Making Business Decisions: Corporate executives and employees have to distinguish between short-run and long-run profit maximization. Case In Point 5.1: UNITED STATES V. PURDUE FREDERICK CO. (2007).

Business Ethics (7 of 12) Impact of the Internet: The Internet increases potential for damage to a corporation’s reputation or loss of profits through negative publicity. The courts generally consider such publicity to be an expression of opinion protected by the First Amendment and not defamatory speech.

Business Ethics (8 of 12) Image Is Everything: Business ethics affect the image of the business AND its impact on the environment, customers, suppliers, employees, and the global economy. Unethical corporate decisions can negatively affect suppliers, consumers, the community, and society as a whole.

Business Ethics (9 of 12) Relationship of Law and Ethics: The law does not codify all ethical requirements. The Moral Minimum: Generally considered as mere compliance with the law. Case 5.1 SCOTT V. CARPANZANO (2014).

Business Ethics (10 of 12) Ethical Requirements: Ethics goes beyond legal requirements to evaluate what is right for society. An action that is legal is not necessarily ethical. Private Company Codes of Ethics: Most companies attempt to link ethics and law via internal codes of ethics. While not law, they are rules that companies set forth that they can also enforce.

Business Ethics (11 of 12) Industry Ethical Codes: Many industries have their own codes of ethics that give guidance on ethical questions. Industry code violation may result in disciplinary action or sanctions from the industry organization. These codes are not laws and are only as effective as the industry or company leadership’s commitment to enforcing them.

Business Ethics (12 of 12) “Gray Areas” of the Law: Law changes frequently and contains numerous “gray areas” and one cannot predict how a court will apply a certain law to a particular action. Ethics is less certain than law, highly subjective, and subject to change without a formal process.

§2: Business Ethics and Social Media (1 of 2) Hiring Procedures: Companies are increasingly using social media to evaluate prospective employees. Candidates may be judged by what they post OR by their non-participation in social media.

Business Ethics and Social Media (2 of 2) Use of Social Media to Discuss Work-Related Issues: Companies were once free to fire or penalize employees for their behavior on social media sites. A 2012 ruling by the National Labor Relations Board (NLRB) against Costco’s social media policy changed the legality of such actions.

§3: Ethical Principles and Philosophies (1 of 14) Ethical reasoning is the application of morals and ethics to a situation. Two categories of ethics: Duty-Based Ethics. Outcome-Based Ethics.

Ethical Principles and Philosophies (2 of 14) Duty-Based Ethics: Derived from revealed truths and religious and philosophical principles. Religious Ethical Standards.  Kantian Ethics.  The Principle of Rights. 

Ethical Principles and Philosophies (3 of 14) Religious Ethical Standards: Nearly every religion has principles or beliefs about how one should treat others as well as fundamental rules for moral action. Religious rules generally are absolute with respect to the behavior of their adherents.

Ethical Principles and Philosophies (4 of 14) Principle of Rights (or “rights theory”): Adherents believe that the ethicality of an action is judged by how the consequences of the action will affect the rights of others. A potential dilemma with the rights theory is that people may disagree on whose rights are most important.

Ethical Principles and Philosophies (5 of 14) Kantian Ethics: Premised on the belief that general guiding principles for moral behavior can be derived from human nature. The categorical imperative is a central postulate of Kantian ethics.

Ethical Principles and Philosophies (6 of 14) Categorical Imperative: The rightness or wrongness of an action is judged by estimating the consequences that would follow if everyone in a society acted in the same way.

Ethical Principles and Philosophies (7 of 14) Outcome-Based Ethics: Focuses on the consequences of an action and how it maximizes benefits and minimizes harms. The premier philosophical theory for outcome-based ethics is utilitarianism.

Ethical Principles and Philosophies (8 of 14) Utilitarianism: An action is ethical based on whether it produces the greatest good for the greatest number of people upon which it has an effect. If it affects the majority adversely, it is morally wrong.

Ethical Principles and Philosophies (9 of 14) Utilitarianism requires: Determination of individuals affected. Cost-benefit analysis (assessment of the negative/positive effects of alternative actions on individuals). Choice among alternative actions that will produce maximum social utility.

Ethical Principles and Philosophies (10 of 14) Problems with the Utilitarian Approach: In some situations, an action that produces the greatest good for the most people may not be the most ethical.

Ethical Principles and Philosophies (11 of 14) Corporate Social Responsibility (CSR): Combines a commitment to good citizenship with a commitment to making ethical decisions, improving society, and minimizing environmental impact. CSR is not imposed by law.

Ethical Principles and Philosophies (12 of 14) The Social Aspects of CSR: Businesses have a responsibility to use that wealth and power in socially beneficial ways: Promotion of goals that society deems worthwhile. Movement toward solutions to social problems.

Ethical Principles and Philosophies (13 of 14) Corporate Aspects of CSR: A corporation may see some benefits from CSR including: Increased goodwill from the community. Increased sales. Higher employee retention. However, some benefits may not be immediate and may cost the company more in the short term.

Ethical Principles and Philosophies (14 of 14) Stakeholders: One view of CSR stresses that corporations have a duty to both shareholders and stakeholders (others impacted by corporate decisions). In some situations, stakeholders may have a greater stake in company decisions than the shareholders do.

§4: Making Ethical Business Decisions (1 of 3) Systematic Approach: Leonard H. Bucklin developed a five-step process for resolving ethics problems: Inquiry. Discussion. Decision. Justification. Evaluation.

Making Ethical Business Decisions (2 of 3) Importance of Ethical Leadership: Management must set standards—and also apply those same standards to themselves as they do to their employees. Attitude of top management. Behavior of owners and managers. Case Analysis 5.3 Moseley v. Pepco Energy Services, Inc. (2011). 

Making Ethical Business Decisions (3 of 3) Sarbanes-Oxley Requirements: Publicly traded companies must set up confidential systems so that people can report “red flags” about suspected illegal or unethical auditing and accounting practices. Some companies encourage employees to report illegal or unethical behavior that is outside the scope of Sarbanes-Oxley.

§5: Global Business Ethics (1 of 5) Different countries, regions, and states have different ethical expectations and priorities. Congress clarified the U.S. ethical position on employment issues and bribery in foreign nations. The Civil Rights Act. The Foreign Corrupt Practices Act.

Global Business Ethics (2 of 5) Monitoring the Employment Practices of Foreign Suppliers: U.S. businesses may hire contractors in developing nations that engage in unethical behavior at their worksites. Their actions in other nations can be discovered and publicized by “corporate watch” groups.

Global Business Ethics (3 of 5) Foreign Corrupt Practices Act (1977): Prohibits the bribery of most foreign government officials if the payment is meant to motivate the official to act in an official capacity to provide business opportunities. FCPA does not prohibit “grease” payments to minor officials OR payments to officials that are lawful in that country.

Global Business Ethics on (4 of 5) FCPA Accounting Requirements: U.S. companies must keep detailed records that “accurately and fairly” reflect financial activities. Accounting systems must provide “reasonable assurance” that all transactions entered into by the companies are accounted for and legal.

Global Business Ethics on (5 of 5) FCPA Accounting Requirements: The FCPA prohibits any person from making false statements to accountants or false entries in any record or account. Penalties for Violations: Companies that violate the FCPA can be fined up to $2 million and individuals can be fined up to $100,000 and receive up to 5 years in prison.