Chapter 7 Business Ethics Fundamentals © 2012 South-Western, a part of Cengage Learning 1

Business Ethics The public’s interest in business ethics is at an all-time high, spurred by headline- grabbing scandals. The Enron scandal impacted business to greatly it is called “The Enron Effect.” Business will never be the same. © 2012 South-Western, a part of Cengage Learning 2

High-Profile Ethics Scandals Enron Era Worldcom Tyco Arthur Andersen Wall Street Financial Scandals Era AIG Bear Stearns Lehman Brothers Fannie Mae/Freddy Mac Bernard Madoff 3 © 2012 South-Western, a part of Cengage Learning

The Public’s Opinion of Business Ethics The Marist College Institute for Public Opinion Study Survey Findings Over 3/4ths said the moral compass of Corporate America is pointing in the wrong direction. (58% of business executives feel the same.) A majority gave corporate America D or F grades for honesty and ethics. (Business leaders gave C and B marks.) Around 53% of Americans and two-thirds of executives gave a grade of D or F to the financial sector for honesty and ethical conduct. Around 90 percent of Americans and executives see career advancement, personal financial gain, increasing profits, or gaining competitive advantage as the primary factors driving business decisions. 4 © 2012 South-Western, a part of Cengage Learning

The Public’s Opinion of Business Ethics (continued) National Business Ethics Survey Findings Observed ethical misconduct at work has decreased (from 56% to 49%). Whistle-blowing is on the rise (from 58% to 63%). Ethical cultures have strengthened post-2008 (from 53% to 62%). Pressure to cut corners has decreased (from 10% to 8%). But, retaliation against those who report misconduct has increased.  Business ethics tend to improve in tough economic times. 5 © 2012 South-Western, a part of Cengage Learning

Media Reporting on Business Ethics News media outlets 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, and Frontline. Internet coverage in the form of webpages and blogs has expanded. 6 © 2012 South-Western, a part of Cengage Learning

Business Ethics: Meaning, Types, Approaches Ethics The discipline that deals with moral duty and obligation. Moral Conduct Relates to principles of right, wrong, and fairness in behavior. Business Ethics Concerned with morality and fairness in behavior, actions, and practices that take place within a business context. Is the study of practices in organizations and is a quest to determine whether these practices are acceptable or not. 7 © 2012 South-Western, a part of Cengage Learning

Business Ethics: Meaning, Types, Approaches (continued) Descriptive Ethics Involves describing, characterizing, and studying morality. Focuses on what is occurring. Normative Ethics Concerned with supplying and justifying a coherent moral system of thinking and judging. Focuses on what ought or should be occurring. 8 © 2012 South-Western, a part of Cengage Learning

Sources of Ethical Norms 9 © 2012 South-Western, a part of Cengage Learning

Ethics and the Law The law and ethics can overlap in many respects. The law is a reflection of what society thinks are minimal standards of conduct and behavior. Research focuses on two questions: 1.Why do firms do illegal things? 2.What are the consequences of engaging in illegal behavior? 10 © 2012 South-Western, a part of Cengage Learning

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? Should we outsource aspects of production to China or India? 11 © 2012 South-Western, a part of Cengage Learning

Three Models of Management Ethics Immoral Management An approach devoid of ethical principles and an active opposition to what is ethical. The operating strategy of immoral management is focused on exploiting opportunities for corporate or personal gain. 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. 12 © 2012 South-Western, a part of Cengage Learning

Examples 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 13 © 2012 South-Western, a part of Cengage Learning

Characteristics of Moral Managers Conform to high level of: Ethical or right behavior 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 The “good guys” 14 © 2012 South-Western, a part of Cengage Learning

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. 15 © 2012 South-Western, a part of Cengage Learning

Why Managers and Employees Behave Ethically 16 © 2012 South-Western, a part of Cengage Learning

External Sources of a Person’s Values 17 © 2012 South-Western, a part of Cengage Learning