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

Chapter 7 Learning Outcomes Business Ethics Fundamentals Chapter 7 Learning Outcomes Describe how the public regards business ethics. Define business ethics and appreciate the complexities of making ethical judgments. Explain the conventional approach to business ethics. Analyze economic, legal, and ethical aspects by using a Venn Model. Enumerate and discuss the four important ethics questions. Identify and explain three models of management ethics. Describe Kohlberg’s three levels of developing moral judgment. Identify and discuss the elements of moral judgment.

Chapter 7 Outline The Public’s Opinion of Business Ethics Business Ethics Fundamentals 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 Business and Society Business Defined Society Defined The Macroenvironment Role of Pluralism Weaknesses and Strengths of Pluralism Business Versus Multiple Publics and Systems Our Special-Interest Society Business Criticism and Corporate Response Factors in the Social Environment Criticisms: Use and Abuse of Power Response: A Changing Social Environment and Social Contract Focus of the Book Managerial Approach Two Broad Classes of Social Issues The Ethics Theme Structure of the Book Summary

Introduction to Chapter 7 Business Ethics Fundamentals 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”

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

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

The Public’s Opinion of Business Ethics Chapter 7 Business Ethics Fundamentals The Public’s Opinion of Business Ethics Public Agenda Survey Findings 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 Chapter 7 Business Ethics Fundamentals The Public’s Opinion of Business Ethics LRN Ethics Study Survey Findings 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

Media Reporting on Business Ethics Chapter 7 Business Ethics Fundamentals Media Reporting on Business Ethics 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

Business Ethics Today versus Earlier Periods Chapter 7 Business Ethics Fundamentals Business Ethics Today versus Earlier Periods Ethical Problem Society’s Expectations of Business Ethics Actual Business Ethics 1960s Early 2000s Time Expected and Actual Levels of Business Ethics Figure 7-3

Business Ethics: What Does It Really Mean? Chapter 7 Business Ethics Fundamentals Business Ethics: What Does It Really Mean? Ethics The discipline that examines good or bad practices within the context of moral duty and obligation Moral conduct Relates to principles of right and wrong in behavior Business Ethics Concerned with good and bad or right and wrong behavior and practices that take place in business

Business Ethics: What Does It Really Mean? Chapter 7 Business Ethics Fundamentals Business Ethics: What Does It Really Mean? Descriptive Ethics Involves describing, characterizing and studying morality Focuses on “What is” Normative Ethics Concerned with supplying and justifying moral systems Focuses on “What ought / ought not to be”

Three Approaches to Business Ethics Chapter 7 Business Ethics Fundamentals Three Approaches to Business Ethics Conventional Approach Based on how normal society today views business ethics Principles Based upon the use of ethics principles to direct behavior, actions and policies Ethical Tests Based on short, practical questions to guide ethical decision making and behavior

Conventional Approach Chapter 7 Business Ethics Fundamentals 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

Sources of Ethical Norms Chapter 7 Business Ethics Fundamentals 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 Is mandatory vaccinations ethical? See Link: http://www.healthfreedomusa.org/?p=3074 Figure 7-4

Ethics and the Law Why do firms behave illegally? Chapter 7 Business Ethics Fundamentals Ethics and the Law Why do firms behave illegally? What are the consequences of behaving illegally?

Making Ethical Judgments Chapter 7 Business Ethics Fundamentals 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

The Conventional Approach to Business Ethics Chapter 7 Business Ethics Fundamentals The Conventional Approach to Business Ethics What is the true nature of the practice, behavior, or decision that occurred? What are society’s (or business’s) prevailing norms of acceptability? What value judgments are being made by someone about the practice or behavior, and what are that person’s perceptions of applicable norms?

Ethics, Economics, and Law Chapter 7 Business Ethics Fundamentals Ethics, Economics, and Law Figure 7-6

Four Important Ethical Questions Chapter 7 Business Ethics Fundamentals Four Important Ethical Questions What is? What ought to be? How to we get from what is to what ought to be? What is our motivation in all this?

Five Levels for Questions Chapter 7 Business Ethics Fundamentals Five Levels for Questions Level of the individual Level of the organization Level of the industry or profession Societal level Global or international level

What Is? What are your personal ethics? Chapter 7 Business Ethics Fundamentals 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?

What Ought to Be? How ought we treat our aging employees? Chapter 7 Business Ethics Fundamentals 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?

The Practical Question Chapter 7 Business Ethics Fundamentals The Practical Question What are we able to accomplish? What circumstances permit us to accomplish? What do we intend to accomplish?

Three Models of Management Ethics Chapter 7 Business Ethics Fundamentals Three Models of Management Ethics Immoral management Moral management Amoral management

Three Models of Management Ethics Chapter 7 Business Ethics Fundamentals Three Models of Management Ethics Immoral Management An approach devoid of ethical principles and active opposition to what is ethical 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

Characteristics of Immoral Managers Chapter 7 Business Ethics Fundamentals 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

Illustrative Cases of Immoral Management Chapter 7 Business Ethics Fundamentals 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

Characteristics of Moral Managers Chapter 7 Business Ethics Fundamentals 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

Chapter 7 Business Ethics Fundamentals 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

Chapter 7 Business Ethics Fundamentals 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

Habits of Moral Leaders Chapter 7 Business Ethics Fundamentals Habits of Moral Leaders They have a passion to do right They are morally proactive They consider all stakeholders They have a strong ethical character They have an obsession with fairness They undertake principled decision making They integrate ethics wisdom with management wisdom

Positive Ethical Behaviors Chapter 7 Business Ethics Fundamentals 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

Characteristics of Amoral Managers Chapter 7 Business Ethics Fundamentals 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

Hypotheses Regarding Moral Management Models Chapter 7 Business Ethics Fundamentals Hypotheses Regarding Moral Management Models Population Hypothesis Individual Hypothesis

Three Models of Management Morality and Emphases on CSR Chapter 7 Business Ethics Fundamentals Three Models of Management Morality and Emphases on CSR Figure 7-11

Chapter 7 Business Ethics Fundamentals Moral Management Models and Acceptance or Rejection of Stakeholder Thinking Figure 7-12

Making Moral Management Actionable Chapter 7 Business Ethics Fundamentals 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

Developing Moral Judgment Chapter 7 Business Ethics Fundamentals Developing Moral Judgment Kohlberg’s Levels of Moral Development Level 1 Preconventional Level Level 2 Conventional Level Level 3 Postconventional Level

Developing Moral Judgment Chapter 7 Business Ethics Fundamentals Developing Moral Judgment Figure 7-13

Why Managers / Employees Behave Ethically Chapter 7 Business Ethics Fundamentals 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

Feminist Views of Kohlberg’s Research Chapter 7 Business Ethics Fundamentals Feminist Views of Kohlberg’s Research Recognize their own needs and needs of others Level 3 Establish connections and participate in social life Level 2 Sole Concern for Self Level 1

External Sources of a Manager’s Values Chapter 7 Business Ethics Fundamentals External Sources of a Manager’s Values Philosophical values Cultural values Legal values Religious values Professional values The Web of Values

Internal Sources of a Manager’s Values Chapter 7 Business Ethics Fundamentals Internal Sources of a Manager’s Values “Norms” prevalent in business organizations 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

Elements of Moral Judgment Chapter 7 Business Ethics Fundamentals 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

Key Terms Amoral management Amoral management: intentional Chapter 7 Business Ethics Fundamentals Key Terms 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