© 2005 by Nelson, a division of Thomson Canada Limited. 1 Business Ethics Fundamentals Search the Web Ethics Officers Association is a professional association of managers of corporate ethics and compliance. Visit EOA’s web site at::

© 2005 by Nelson, a division of Thomson Canada Limited. 2 Chapter Six Outline Business Ethics and Public Opinion Define business ethics Ethics, Economics, and Law: Venn Model Four Essential Factors at Play in Ethical & Moral Choices Three Models of Management Ethics Making Moral Management Actionable Developing Moral Judgment Summary of Forces

© 2005 by Nelson, a division of Thomson Canada Limited. 3 Introduction to Chapter Six Business Ethics Public’s interest in business ethics increased during the last four decades Public’s interest in business ethics is spurred by the media

© 2005 by Nelson, a division of Thomson Canada Limited. 4 High Profile Ethical Scandals in Business WorldCom / Enron: Accounting Fraud Shell: Proposed sinking of North Sea oil rig Pfizer: Drug Overcharging Sotheby’s: Price-fixing New York Times: Plagiarism NBC: Faking the evidence Walkerton: Falsifying records UofT Law School Students: Lying about grades to employers

© 2005 by Nelson, a division of Thomson Canada Limited. 5 Public’s Opinion of Business Ethics Gallup Poll finds that only 17 percent to 20 percent of the public thought the business ethics of executives to be very high or high To understand public sentiment ask: –Has business ethics really deteriorated? –Has reporting become more frequent and vigorous? –Are past acceptable practices becoming no longer socially acceptable?

© 2005 by Nelson, a division of Thomson Canada Limited. 6 Business Ethics: What Does It Really Mean? Expected and Actual Levels of Business Ethics Ethical Problem Society’s Expectations Actual Business Ethics 1950sEarly 2000sTime Ethics Today vs. The Past

© 2005 by Nelson, a division of Thomson Canada Limited. 7 Business Ethics: What Does It Mean? Definitions Ethics is a set of moral principles and values Moral conduct is behaviour that is right or wrong Business ethics involves good and bad practices and behaviours that takes place within a business context

© 2005 by Nelson, a division of Thomson Canada Limited. 8 Business Ethics Two Key Branches of Ethics Descriptive ethics involves describing, characterizing and studying morality –“What is” Normative ethics involves supplying and justifying moral systems –“What should be”

© 2005 by Nelson, a division of Thomson Canada Limited. 9 Conventional Approach to Business Ethics Conventional approach to business ethics involves comparing a decision or practice to prevailing societal norms –Pitfall: ethical relativism Decision or Practice Prevailing Norms

© 2005 by Nelson, a division of Thomson Canada Limited. 10 Sources of Ethical Norms Fellow Workers Family Friends The Law Regions of Country Profession Employer Society at Large Fellow Workers Religious Beliefs The Individual Conscience

© 2005 by Nelson, a division of Thomson Canada Limited. 11 Ethics and the Law Law often represents an ethical minimum Ethics often represents a standard that exceeds the legal minimum EthicsLaw Frequent Overlap

© 2005 by Nelson, a division of Thomson Canada Limited. 12 Ethics, Economics, and Law

© 2005 by Nelson, a division of Thomson Canada Limited. 13 Making Ethical Decisions

© 2005 by Nelson, a division of Thomson Canada Limited. 14 Four Essentials Factors at Play 1.Forensic Accounting: The 20% Angel Rule 2.Self-interested Consequences: The 60% Rule 3.Social Norms of Fairness: The Last 20% 4.The Domino Effect

© 2005 by Nelson, a division of Thomson Canada Limited. 15 Three Models of Management Ethics Immoral Management A style devoid of ethical principlesand active opposition to what is ethical Moral Management Conforms to high standardsof ethical behavior Amoral Management  Intentional: does not considerethical factors  Unintentional: casual or carelessabout ethical factors  Intentional: does not considerethical factors  Unintentional: casual or carelessabout ethical factors

© 2005 by Nelson, a division of Thomson Canada Limited. 16 Characteristics of Immoral Managers Intentionally do wrong Self-centered and self-absorbed Care only about self or organization’s profits Actively oppose what is right, fair, or just Exhibit no concern for stakeholders Are the “bad guys” An ethics course probably would not help them

© 2005 by Nelson, a division of Thomson Canada Limited. 17 Characteristics of Moral Managers Conform to high level of ethical or right behavior Conform to high level of 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 Are the “good guys”

© 2005 by Nelson, a division of Thomson Canada Limited. 18 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

© 2005 by Nelson, a division of Thomson Canada Limited. 19 Three Models of Management Morality and Emphasis on CSR

© 2005 by Nelson, a division of Thomson Canada Limited. 20 Moral Management Models and Acceptable Stakeholder Thinking

© 2005 by Nelson, a division of Thomson Canada Limited. 21 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 amoral management exists

© 2005 by Nelson, a division of Thomson Canada Limited. 22 Forces That Shape Managerial Ethics Is Decision or Behavior Ethical and Socially Responsible? Beliefs and Values Moral Development Ethical Framework Rituals, Ceremonies Stories, Heroes Language, Slogans Symbols Founder, History Government Regulations Customers Special Interest Groups Global Market Forces Structure Policies, Rules Code of Ethics Reward System Selection, Training External StakeholdersOrganizational Systems Personal EthicsOrganizational Culture