Business & Society Business & Society Ethics, Sustainability, and Stakeholder Management Eighth Edition Archie B. Carroll Ann K. Buchholtz © 2012 South-Western, a part of Cengage Learning 1

Chapter 7 Business Ethics Fundamentals © 2012 South-Western, a part of Cengage Learning 2

Learning Outcomes © 2012 South-Western, a part of Cengage Learning 1. Describe how the public regards business ethics. 2. Define business ethics and appreciate the complexities of making ethical judgments. 3. Explain the conventional approach to business ethics. 4. Analyze economic, legal, and ethical aspects by using a Venn Model. 5. Enumerate and discuss the four important ethics questions. 6. Identify and explain three models of management ethics. 7. Describe Kohlberg’s three levels of developing moral judgment. 8. Identify and discuss the elements of moral judgment. 3

Chapter Outline The Public’s Opinion of Business Ethics Business Ethics: Meaning, Types, Approaches Ethics, Economics and Law: A Venn Model Four Important Ethics Questions Three Models of Management Ethics Making Moral Management Actionable Developing Moral Judgment Elements of Moral Judgment Summary 4 © 2012 South-Western, a part of Cengage Learning

Business Ethics The public’s interest in business ethics is at an all-time high, spurred by headline- grabbing scandals. The Enron scandal impacted business to greatly it is called “The Enron Effect.” Business will never be the same. © 2012 South-Western, a part of Cengage Learning 5

High-Profile Ethics Scandals Enron Era Worldcom Tyco Arthur Andersen Wall Street Financial Scandals Era AIG Bear Stearns Lehman Brothers Fannie Mae/Freddy Mac Bernard Madoff 6 © 2012 South-Western, a part of Cengage Learning

Inventory of Ethical Issues in Business 7 © 2012 South-Western, a part of Cengage Learning

The Public’s Opinion of Business Ethics The Marist College Institute for Public Opinion Study Survey Findings Over 3/4ths said the moral compass of Corporate America is pointing in the wrong direction. (58% of business executives feel the same.) A majority gave corporate America D or F grades for honesty and ethics. (Business leaders gave C and B marks.) Around 53% of Americans and two-thirds of executives gave a grade of D or F to the financial sector for honesty and ethical conduct. Around 90 percent of Americans and executives see career advancement, personal financial gain, increasing profits, or gaining competitive advantage as the primary factors driving business decisions. 8 © 2012 South-Western, a part of Cengage Learning

The Public’s Opinion of Business Ethics (continued) National Business Ethics Survey Findings Observed ethical misconduct at work has decreased (from 56% to 49%). Whistle-blowing is on the rise (from 58% to 63%). Ethical cultures have strengthened post-2008 (from 53% to 62%). Pressure to cut corners has decreased (from 10% to 8%). But, retaliation against those who report misconduct has increased.  Business ethics tend to improve in tough economic times. 9 © 2012 South-Western, a part of Cengage Learning

Media Reporting on Business Ethics News media outlets are reporting ethical problems more frequently and fervently. In-depth investigative reporting of business ethics on TV shows as 60 Minutes, 20/20, Dateline NBC, and Frontline. Internet coverage in the form of webpages and blogs has expanded. 10 © 2012 South-Western, a part of Cengage Learning

Is Society Changing? Former U.S. Treasury Secretary, Michael Blumenthal, believes People are not less moral. The context in which corporate decisions are made has changed. Greater demands on businesses. Shifts in what is considered appropriate conduct. 11 © 2012 South-Western, a part of Cengage Learning

Business Ethics Today versus Earlier Periods 12 © 2012 South-Western, a part of Cengage Learning Ethical Problem Society’s Expectations of Business Ethics Actual Business Ethics 1960s2010Time Expected and Actual Levels of Business Ethics

Business Ethics: Meaning, Types, Approaches Ethics The discipline that deals with moral duty and obligation. Moral Conduct Relates to principles of right, wrong, and fairness in behavior. Business Ethics Concerned with morality and fairness in behavior, actions, and practices that take place within a business context. Is the study of practices in organizations and is a quest to determine whether these practices are acceptable or not. 13 © 2012 South-Western, a part of Cengage Learning

Business Ethics: Meaning, Types, Approaches (continued) Descriptive Ethics Involves describing, characterizing, and studying morality. Focuses on what is occurring. Normative Ethics Concerned with supplying and justifying a coherent moral system of thinking and judging. Focuses on what ought or should be occurring. 14 © 2012 South-Western, a part of Cengage Learning

Three Approaches to Business Ethics Conventional Approach Based on how common society today views business ethics and on common sense. Principles Approach Based upon the use of ethics principles to justify and direct behavior, actions, and policies. Ethical Tests Approach Based on short, practical questions to guide ethical decision making and behavior and practices. 15 © 2012 South-Western, a part of Cengage Learning

Conventional Approach The conventional approach to business ethics involves a comparison of a decision or practice to prevailing societal norms. Ethical Egoism An ethical principle based on the idea that the individual should seek to maximize his or her own self interests as a legitimate factor. 16 © 2012 South-Western, a part of Cengage Learning

Sources of Ethical Norms 17 © 2012 South-Western, a part of Cengage Learning

Ethics and the Law The law and ethics can overlap in many respects. The law is a reflection of what society thinks are minimal standards of conduct and behavior. Research focuses on two questions: 1.Why do firms do illegal things? 2.What are the consequences of engaging in illegal behavior? 18 © 2012 South-Western, a part of Cengage Learning

Making Ethical Judgments 19 © 2012 South-Western, a part of Cengage Learning

The Conventional Approach to Business Ethics 1.What is the true nature of the practice, behavior, or decision that occurred? 2.What are society’s (or business’s) prevailing norms of acceptability? 3.What value judgments are being made by someone about the practice or behavior, and what are that person’s perceptions of applicable norms? 20 © 2012 South-Western, a part of Cengage Learning

Ethical Relativism Picking and choosing which source of norms one wishes to use based on what will justify current actions or maximize freedom.  A serious danger of the conventional approach to making ethical judgments. 21 © 2012 South-Western, a part of Cengage Learning

Ethics, Economics, and Law 22 © 2012 South-Western, a part of Cengage Learning

Four Important Ethical Questions 1.What is? 2.What ought to be? 3.How do we get from what is to what ought to be? 4.What is our motivation in all this? 23 © 2012 South-Western, a part of Cengage Learning

Five Levels for Questions 1.Level of the individual 2.Level of the organization 3.Level of the industry or profession 4.Societal level 5.Global or international level 24 © 2012 South-Western, a part of Cengage Learning

What Is? What are your personal ethics? What are your organization's ethics? What are the ethics practice in your industry? What are society’s ethics? What global ethics are in practice today? 25 © 2012 South-Western, a part of Cengage Learning

What Ought to Be? How ought we treat our aging employees? How safe ought we make this product? How clean an environment should we aim for? Should we outsource aspects of production to China or India? 26 © 2012 South-Western, a part of Cengage Learning

Getting From What Is to What Ought to Be 27 © 2012 South-Western, a part of Cengage Learning

Three Models of Management Ethics Immoral Management An approach devoid of ethical principles and an active opposition to what is ethical. The operating strategy of immoral management is focused on exploiting opportunities for corporate or personal gain. Moral Management Conforms to high standards of ethical behavior or professional standards of conduct. Amoral Management Intentional: Does not consider ethical factors. Unintentional: Casual or careless about ethical factors. 28 © 2012 South-Western, a part of Cengage Learning

Characteristics of Immoral Managers Intentionally do wrong Self-centered and self-absorbed Care only about self or organization’s profits/success Actively oppose what is right, fair, or just Exhibit no concern for stakeholders An ethics course probably would not help them The “bad guys” 29 © 2012 South-Western, a part of Cengage Learning

Examples of Immoral Management Stealing petty cash Cheating on expense reports Taking credit for another’s accomplishments Lying on time sheets Coming into work hungover Telling a demeaning joke Taking office supplies for personal use Showing preferential treatment toward certain employees Rewarding employees who display wrong behaviors Harassing a fellow employee 30 © 2012 South-Western, a part of Cengage Learning

Characteristics of Moral Managers Conform to high level of: Ethical or right behavior Personal and professional standards Ethical leadership is commonplace Goal is to succeed within confines of sound ethical precepts High integrity is displayed Embrace letter and spirit of the law Possess an acute moral sense and moral maturity The “good guys” 31 © 2012 South-Western, a part of Cengage Learning

Habits of Moral Leaders 1.They have a passion to do right. 2.They are morally proactive. 3.They consider all stakeholders. 4.They have a strong ethical character. 5.They have an obsession with fairness. 6.They undertake principled decision making. 7.They integrate ethics wisdom with management wisdom. 32 © 2012 South-Western, a part of Cengage Learning

Positive Ethical Behaviors Giving proper credit where it is due Being straightforward and honest with other employees Treating all employees equally Being a responsible steward of company assets Resisting pressure to act unethically Recognizing and rewarding ethical behavior of others Talking about the importance of ethics and compliance on a regular basis 33 © 2012 South-Western, a part of Cengage Learning

Integrity Strategy Related to moral management; is characterized by a conception of ethics as the driving force of an organization. Guiding values and commitments make sense and are clearly communicated. Company leaders are personally committed, credible, and willing to take action on values. Espoused values are integrated into normal channels of management decision making. The organization’s systems support and reinforce its values. All managers have the skills, knowledge, and competencies to make ethically sound decisions daily. 34 © 2012 South-Western, a part of Cengage Learning

Characteristics of Amoral Managers Intentionally Amoral Managers Don’t think ethics and business should “mix.” Business and ethics exist in separate spheres. A vanishing breed. Unintentionally Amoral Managers Don’t consider the ethical dimension of decision making. Don’t “think ethically.” Have no “ethics buds.” Well-intentioned, but morally casual or unconscious. Ethical gears are in neutral. 35 © 2012 South-Western, a part of Cengage Learning

Hypotheses Regarding Moral Management Models Population hypothesis The distribution of the three models approximate a normal curve, with the amoral group occupying the large middle part of the curve and the moral and immoral categories occupying the tails. Individual hypothesis Within the individual manager, these three models may operate at various times and under various circumstances. 36 © 2012 South-Western, a part of Cengage Learning

Three Models of Management Morality and Emphases on CSR 37 © 2012 South-Western, a part of Cengage Learning

Moral Management Models And Acceptance or Rejection of Stakeholder Thinking 38 © 2012 South-Western, a part of Cengage Learning

Making Moral Management Actionable Senior management leads the transition from amoral to moral management Business ethics training Codes of conduct Mission/Vision statements Ethics officers Tighter financial controls Ethically sensitive decision-making processes Leadership by example Recognize that immoral and amoral management exist and can be remedied. 39 © 2012 South-Western, a part of Cengage Learning

Kohlberg’s Model of Moral Development 40 © 2012 South-Western, a part of Cengage Learning

Why Managers and Employees Behave Ethically 41 © 2012 South-Western, a part of Cengage Learning

Ethics of Care Alternative to Kohlberg 42 © 2012 South-Western, a part of Cengage Learning Recognize their own needs and needs of others Establish connections and participate in social life Self is Sole Object of Concern Level 1 Level 2 Level 3

External Sources of a Person’s Values 43 © 2012 South-Western, a part of Cengage Learning

Internal Sources of a Person’s Values Norms prevalent in business include Respect for the authority structure Loyalty to bosses and the organization Conformity to principles and practices Performance counts above all else Results count above all else 44 © 2012 South-Western, a part of Cengage Learning

Elements of Moral Judgment Moral imagination Moral identification and ordering Moral evaluation Tolerance of moral disagreement and ambiguity Integration of managerial and moral competence A sense of moral obligation 45 © 2012 South-Western, a part of Cengage Learning

Key Terms Amoral management Business ethics Compliance strategy Conventional approach to business ethics Descriptive ethics Ethical egoism Ethical relativism Ethics Immoral management Integrity strategy Intentional amoral management Kohlberg’s levels of moral development Moral development Moral management Normative ethics Unintentional amoral management © 2012 South-Western, a part of Cengage Learning 46