Ethics and Ethical Reasoning Chapter 4 Ethics and Ethical Reasoning

Ch. 4: Key Learning Objectives Defining ethics and business ethics Evaluating why businesses should be ethical Knowing why ethical problems occur in business Identifying managerial values as influencing ethical decision making Recognizing how people’s spirituality influences their ethical behavior Understanding stages of moral reasoning Analyzing ethical problems using generally accepted ethics theories

The Meaning of Ethics Ethics Ethical Principles Business Ethics A conception of right and wrong conduct Tells us whether our behavior is moral or immoral Deals with fundamental human relationships—how we think and behave toward others and want them to think and behave toward us Ethical Principles Guides to moral behavior Business Ethics Application of general ethical ideas to business behavior

Sources of Ethics Notions of right and wrong come from many sources Religious beliefs Family background Education Community/neighborhood Media influences These experiences create a concept of ethics, morality, and socially acceptable behavior in each person Acts as a moral compass to guide an individual when ethical dilemmas arise

Ethical Relativism Concept which holds that ethical behavior should be defined by various periods in time in history, a society’s traditions, the special circumstances of the moment, or personal opinion The meaning given to ethics would be relative to time, place, circumstance, and the person/s involved There would be no universal ethical standards on which people around the globe could agree

Observations of Unethical Behavior at Work Figure 4.1 Observations of Unethical Behavior at Work

Five Key Reasons Business Should be Ethical To meet demands of business stakeholders About three-fourths of employees surveyed in 2007 believe their firms are considering the environment, employee well-being, and the interests of society and the community. Meeting demands of stakeholders is good business To enhance business performance Research shows linkage between ethically responsible behavior and favorable corporate financial performance Imparts trust, promoting positive alliances among business partners

Five Key Reasons Business Should be Ethical To comply with legal requirements Two legal requirements provide direction for companies interested in being more ethical in their business operations U.S. Corporate Sentencing Guidelines Sarbanes-Oxley Act of 2002 Although they apply only to U.S.-based firms, these legal requirements also provide a model for firms that operate outside the United States

U.S. Corporate Sentencing Guidelines Establish standards and procedures to reduce criminal conduct Assign high-level officer(s) responsibility for compliance Not assign discretionary authority to “risky” individuals Effectively communicate standards and procedures through training Take reasonable steps to ensure compliance—monitor and audit systems, maintain and publicize reporting systems Enforce standards and procedures through disciplinary mechanisms Following detection of offense, respond appropriately and prevent reoccurrence

Sarbanes-Oxley Act of 2002 Born from the ethics scandals at Enron, WorldCom, Tyco Seeks to ensure that firms maintain high ethical standards in how they conduct and monitor business operations Requires executives to vouch for the accuracy of a firm’s financial reports Requires executives to pay back bonuses based on earnings that are later proved fraudulent Established strict rules fro auditing firms In 2006 and 2007 regulation loosening occurred when the SEC provided more relaxed guidelines to parts of the Sarbanes-Oxley Act

Five Key Reasons Business Should be Ethical To prevent or minimize harm Overriding principle that business should “do no harm” Examples include not harming society with toxic waste, protecting business from unethical employees and unethical competitors To promote personal morality Knowing one works in a supportive ethical climate contributes to sense of psychological security People want to work for companies that do the right thing

Why Ethical Problems Occur in Business Four Primary Reasons Personal gain and self-interest Competitive pressure on profits Conflicts of interest Cross-cultural contradictions

Why Ethical Problems Occur in Business Figure 4.3

Core Elements of Ethical Character: Managers’ Values Managers are key to whether a company and its employees will act ethically or unethically The values held my managers will serve as models for others who work at the company Differences in ethical stances of U.S. versus European managers and employees Younger generation of managers more concerned about ethics/social responsibility A company’s CSR performance is a major factor when selecting a new employer for today’s graduating MBAs

Spirituality in the Workplace Personal belief in a supreme being, religious organization, power of nature or some other life-guiding force Organizations have responded to the increased attention to spirituality and religion at work by attempting to accommodate their employees Opponents of spirituality at work point to the myriad of implementation issues as grounds for keeping spirituality out of the workplace Issues include which religion should be promoted, and need for recognizing diversity of religious beliefs

Stages of Moral Development From childhood to mature adulthood people move up in their moral reasoning Earliest stages of reasoning are ego-centered Most developed stages are principle-centered Most managers make decisions based on criteria in levels 3 and 4 Company executives’ reasoning has wide implications both inside and outside the organization

Stages of Moral Development and Ethical Reasoning Figure 4.4

Analyzing Ethical Dilemmas in Business Business managers and employees need a set of decision guidelines that will shape their thinking when on-the-job ethics issues occur These guidelines should help them Identify and analyze the nature of an ethical problem, and Decide which course of action is likely to produce an ethical result

Four Methods of Ethical Reasoning Virtues Values and character are critical determining factors Utilitarian Compares benefits and costs of a decision, policy or action Costs and benefits can be economic, social or human Rights Person or group is entitled to something or to be treated in a certain way Examples of basic human rights are right to life, safety, and due process Justice Means benefits and burdens are distributed equally, according to some accepted rule

Four Methods of Ethical Reasoning Figure 4.5

Applying Ethical Reasoning to Business Activities Can use the virtues, utility, rights, and justice framework as a tool to analyze real business ethics dilemmas Once the ethical analysis is complete, the decision maker should ask the question: Do all of the above ethics approaches lead to the same decision? If all the answers are “Yes”, the proposed action is ethical If all the answers are “No”, the action is not ethical and needs to be reconsidered If “Yes” and “No” answers are mixed, you must decide which takes priority