1 Business Ethics Fundamentals Business and Society: Ethics and Stakeholder Management, 7e Carroll & Buchholtz Copyright ©2009 by South-Western, a division of Cengage Learning. All rights reserved Prepared by Deborah Baker Texas Christian University Chapter 7

2 Chapter 7 Learning Outcomes 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 7 Outline  The Public’s Opinion of Business Ethics  Business Ethics: What Does It Really Mean?  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  Key Terms  Discussion Questions

4 Introduction to Chapter 7 Business Ethics  Public’s interest in business ethics has heightened during the last three decades  Public’s interest in business ethics has been spurred by headline-grabbing scandals  The scandals of the early 2000s, beginning with Enron, created and defined the “ethics industry”

5 Recent Ethics Scandals Introduction to Chapter 7 Enron WorldCom Arthur Anderson Tyco Adelphia Global Crossing Dynegy HealthSouth Boeing Martha Stewart Parmalat (Italy) Computer Associates Figure 7-1

6 Inventory of Ethical Issues in Business Figure 7-2 Employee-Employer Relations Employer-Employee Relations Company-Customer Relations Company-Shareholder Relations Company-Community / Public Interest

7  The most egregious violators of business ethics were corrupt executives who protected their own wealth  Greed for money and power and a weakening sense of personal values have been behind the recent ethics scandals  People define business ethics in broad terms and are concerned with how it has affected them  Many participants thought it was possible for executives to be both ethical and successful  The media and financial press are not regarded as vigilant watchdogs protecting the public interest The Public’s Opinion of Business Ethics Public Agenda Survey Findings

8  Three out of four employees reported encountering ethical lapses on the job  More than one in three respondents said these incidents happen at least once a week  Ten percent believed that a current issue in their company could create a business scandal if discovered  Younger workers reported higher levels of witnessing ethical lapses and being distracted by them The Public’s Opinion of Business Ethics LRN Ethics Study Survey Findings

9  The media 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, Primetime Live, and FRONTLINE  Internet coverage in the form of webpages and blogs has expanded in recent years Media Reporting on Business Ethics

10 Business Ethics Today versus Earlier Periods Ethical Problem Society’s Expectations of Business Ethics Actual Business Ethics 1960sEarly 2000sTime Expected and Actual Levels of Business Ethics Figure 7-3

11 Business Ethics: What Does It Really Mean? Ethics The discipline that examinesgood or bad practices within thecontext of moral duty and obligation Moral conduct Relates to principles of right and wrongin behavior Business Ethics Concerned with good and bad orright and wrong behavior andpractices that take place in business

12 Descriptive Ethics Involves describing, characterizingand studying morality  Focuses on “What is” Normative Ethics Concerned with supplying andjustifying moral systems  Focuses on “What ought / ought not to be” Business Ethics: What Does It Really Mean?

13 Three Approaches to Business Ethics Conventional Approach Based on how normal society todayviews business ethics Principles Approach Based upon the use of ethicsprinciples to direct behavior, actionsand policies Ethical Tests Approach Based on short, practical questionsto guide ethical decision making andbehavior

14 Conventional Approach The conventional approach to business ethics involves a comparison of a decision or practice to prevailing societal norms Decision or Practice Prevailing Norms of Acceptability

15 Sources of Ethical Norms Fellow Workers Family Friends The Law Regions of Country Profession Employer Society at Large Local Community Religious Beliefs The Individual Conscience Figure 7-4

16 Ethics and the Law 1. Why do firms behave illegally? 2. What are the consequences of behaving illegally?

17 Making Ethical Judgments Behavior or act that has been committed Prevailing norms of acceptability Value judgments and perceptions of the observer compared with Figure 7-5

18 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?

19 Ethics, Economics, and Law Figure 7-6

20 Four Important Ethical Questions 1. What is? 2. What ought to be? 3. How to we get from what is to what ought to be? 4. What is our motivation in all this?

21 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

22 What Is?  What are your personal ethics?  What are your organization's ethics?  What are the ethics of your industry?  What are society’s ethics?  What are global ethics?

23 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?  How should we treat long-time employees when the company is downsizing?  Should we outsource aspects of production to China or India?

24 The Practical Question What are we able to accomplish? What circumstances permit us to accomplish? What do we intend to accomplish?

25 Three Models of Management Ethics  Immoral management  Moral management  Amoral management

26 Three Models of Management Ethics Immoral Management An approach devoid of ethical principlesand active opposition to what is ethical Moral Management Conforms to high standardsof ethical behavior or professionalstandards of conduct Amoral Management  Intentional: does not considerethical factors  Unintentional: casual or carelessabout ethical factors  Intentional: does not considerethical factors  Unintentional: casual or carelessabout ethical factors

27 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  Are the “bad guys”  An ethics course probably would not help them Figure 7-7

28 Illustrative Cases 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

29 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” Figure 7-8

30 Integrity Strategy  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

31 Ethics Criteria  Be a leader in the company's field, showing the way ethically  Sponsor programs that demonstrate sincerity and ongoing vibrancy, and reach deep into the company  Be a significant presence on the national scene, so the company’s ethical behavior sends a loud signal  Stand out in at least one area  Demonstrate the ability to face a recent challenge and overcome it with integrity

32 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

33 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

34 Characteristics of Amoral Managers Intentionally Amoral Managers:  Don’t think ethics and business should “mix”  Business and ethics are existing 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 Figure 7-9

35 Hypotheses Regarding Moral Management Models  Population Hypothesis  Individual Hypothesis

36 Three Models of Management Morality and Emphases on CSR Figure 7-11

37 Moral Management Models and Acceptance or Rejection of Stakeholder Thinking Figure 7-12

38 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 and can be remedied

39 Developing Moral Judgment Level 1 Level 2 Level 3 Kohlberg’s Levels of Moral Development Preconventional Level Conventional Level Postconventional Level

40 Developing Moral Judgment Figure 7-13

41 Why Managers / Employees Behave Ethically Most of Us Many of Us Very Few Of Us 1. To avoid some punishment 2. To receive some reward 3. To be responsive to family, friends, or superiors 4. To be a good citizen 5. To do what is right, pursue some ideal Figure 7-14

42 Feminist Views of Kohlberg’s Research Recognize their own needs and needs of others Establish connections and participate in social life Sole Concern for Self Level 1 Level 2 Level 3

43 External Sources of a Manager’s Values Philosophical values Cultural values Legal values Religious values Professional values The Web of Values

44 “Norms” prevalent in business organizations include: Internal Sources of a Manager’s Values  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

45 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

46  Amoral management  Amoral management: intentional  Business ethics  Compliance strategy  Conventional approach to business ethics  Descriptive ethics  Ethical relativism  Ethics  Immoral management  Integrity strategy  Kohlberg’s levels of moral development  Moral development  Moral management  Morality  Normative ethics  Unintentional Key Terms