What is business ethics, and why is it important? What is business ethics, and why is it important? How can business leaders encourage their companies to act ethically? How can business leaders encourage their companies to act ethically? How do duty-based ethical standards differ from outcome-based ethical standards?  How do duty-based ethical standards differ from outcome-based ethical standards?  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2

What are six guidelines that an employee can use to evaluate whether his or her actions are ethical? What are six guidelines that an employee can use to evaluate whether his or her actions are ethical? What types of ethical issues might arise in the context of international business transactions? What types of ethical issues might arise in the context of international business transactions? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3

Ethics is the study of right and wrong behavior; whether an action is fair, right or just. Ethics is the study of right and wrong behavior; whether an action is fair, right or just. In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace. In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace. 4 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Why Is Business Ethics Important? Why Is Business Ethics Important? – Directors and Officers owe a complex set of ethical duties to their stakeholders (internal and external). – When these duties conflict, ethical dilemmas are created. 5 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Moral Minimum. The Moral Minimum. – Normally considered as mere compliance with the law. “Gray Areas” in the Law. “Gray Areas” in the Law. – Make it difficult for companies to navigate and forecast. 6 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Short-Run Profit Maximization. Short-Run Profit Maximization. – Some argue a businesses only goal should be to maximize profit. But executives need to distinguish between short-term and long-term maximization. United States v. Skilling – CASE 8.1 United States v. Skilling (2009). What was Skilling’s ethical dilemma? 7 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Importance of Ethical Leadership. Importance of Ethical Leadership. – Attitude of Top Management. – Behavior of Owners and Managers. Krasner v. HSH Nordbank AG CASE 8.2 Krasner v. HSH Nordbank AG (2010). Did the plaintiff prove the incidents and environment of sexual favoritism were related to his gender? 8 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Creating Ethical Codes of Conduct. One of the most effective ways to promote ethical behavior in an organization. Creating Ethical Codes of Conduct. One of the most effective ways to promote ethical behavior in an organization. – Ethics Training for Employees. – The Sarbanes-Oxley Act and Web- Based Reporting Systems (EthicsPoint). 9 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Corporate Stock Buybacks. Corporate Stock Buybacks. – Rationale: Corporate management believes stock is undervalued, so instead of issuing dividends it buys stock in the market, thus boosting share value. 10 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Startling Executive Decisions at American International Group. Startling Executive Decisions at American International Group. Executive Bonuses. Executive Bonuses. – Bonuses and Salaries Before the Crisis. – Some Bonuses Were Paid Early. – Congress Acts to Limit Bonuses. 11 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Duty Based Ethics - derived from religious and philosophical principles. Duty Based Ethics - derived from religious and philosophical principles. – Religious Ethical Standards.  – Kantian Ethics.  – The Principle of Rights.  12 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Duty-Based Ethics. Duty-Based Ethics. – Religious Ethical Standards. The rightness or wrongness of an action is usually judged according to its conformity to an absolute rule that commands a particular form of behavior. The motive of the actor is irrelevant in judging the rightness or the wrongness of the action. Often involves compassion. 13 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Duty-Based Ethics (cont’d). Duty-Based Ethics (cont’d). – Kantian Ethics. Belief that general guiding principles for moral behavior can be derived from human nature (categorical imperative). The rightness or wrongness of an action is judged by estimating the consequences that would follow if everyone in a society performed the act under consideration. 14 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Duty-Based Ethics (cont’d). Duty-Based Ethics (cont’d). – Principle of Rights. Belief that every duty gives rise to a corresponding right, deeply embedded in Western culture. Ethicality of an action is judged by how the consequences of the action will affect the rights of others. 15 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Outcome-based Ethics: Utilitarianism. Outcome-based Ethics: Utilitarianism. – Action is ethical based on whether it produces the greatest good for the greatest number of people. – If it affects the majority adversely, it is morally wrong. – Applying the utilitarian theory requires: Determination of individuals affected; Cost-Benefit analysis, and Choice among alternative actions. 16 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Corporate Social Responsibility. Corporate Social Responsibility. – Those who manage corporations should be accountable to society for their actions. – Stakeholder Approach: corporations have a duty not only to shareholders but other groups (stakeholders) affected by corporate actions.  17 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Corporate Social Responsibility (cont’d). Corporate Social Responsibility (cont’d). – Corporate Citizenship: promote goals that society considers worthwhile and take positive steps towards solving problems. 18 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Corporate Social Responsibility (cont’d). Corporate Social Responsibility (cont’d). – Way of Doing Business: Poll found that 70% of executives polled agreed that corporate citizenship should be a priority. – But not all socially responsible activities benefit a company.  19 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Corporate Social Responsibility (cont’d). Corporate Social Responsibility (cont’d). – Employee Recruiting and Retention. Younger employees look for firms that are committed to socially responsible goals and community projects. 20 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

George S. May company has provided six guidelines: George S. May company has provided six guidelines: – The law. – Rules and procedures. – Values. – Conscience. – Promises. – Heroes (role models). 21 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Corporate-Ethics.us has devised a procedure: Corporate-Ethics.us has devised a procedure: – Inquiry. – Discussion. – Decision. – Justification. – Evaluation. 22 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

American companies must be trained in cross-cultural business practices. American companies must be trained in cross-cultural business practices. Monitoring of Employment Practices of Foreign Suppliers. Monitoring of Employment Practices of Foreign Suppliers. – Corporate Watch groups can hold corporations accountable. 23 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Foreign Corrupt Practices Act. Foreign Corrupt Practices Act. – Prohibition Against Bribery of Foreign Officials. But FCPA does not permit “grease” payments to minor officials. – Nor does FCPA prohibit payments to foreign officials which are lawful in that country. 24 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Foreign Corrupt Practices Act (cont’d): Foreign Corrupt Practices Act (cont’d): – Nor does FCPA prohibit payments to private companies, unless the US firm knows the payments will go to an official.  25 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Foreign Corrupt Practices Act (cont’d): Foreign Corrupt Practices Act (cont’d): – Bribery by Foreign Companies. – Accounting Requirements. – Penalties for Violations: companies up to $2 million in fines, individuals up to $100,000, and up to 5 years in prison. 26 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.