1. The Importance of Business Ethics
University of Bahrain
College of Business Administration
MGT 437 Business Ethics
Chapter 1
The Importance of Business Ethics
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2. Why differentiate between rules/policies/law and ethics?
The difference between an ordinary decision and an ethical one is the point where rules no longer serve.
Values and judgment play a key role in ethics decisions.
Employees need a “buffer zone” of expected ethical behavior.
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3. Copyright © Houghton Mifflin Company. All rights reserved.MGT437
Business Ethics
Comprises principles and standards that guide behavior in the world of business
Whether a specific behavior is ethical or unethical is often determined by stakeholders:
Investors
Employees
Customers
Interest groups
Legal system
Community
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4. American Distrust of Business
Source: Data from Yankelovich Partners Inc., Point, February 2005
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5. Ethics and social responsibility have distinct meanings...
Social responsibility is the obligation a business assumes to maximize its positive effect while minimizing its negative effect on society.
Social responsibility consists of the following responsibilities:
Economic (satisfy investors)
Legal (obey the law)
Ethical (expected activities and behaviors)
Philanthropic (desired activities and behaviors)
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6. Why study business ethics?
Reports of unethical behavior are on the rise.
Society’s evaluation of right or wrong affects its ability to achieve its business goals.
Studying business ethics is a response to FSGO and stakeholder demands for ethics initiatives.
Individual ethics is not enough.
Studying business ethics helps identify ethical issues to key stakeholders.
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7. Ethical Issues on the Rise
Increased awareness of:
Accounting fraud
Insider trading of stocks and bonds
Falsifying of organizational documents
Deceptive advertising
Defective products
Bribery
Employee theft
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8. A Timeline of Ethical and Socially Responsible Concerns
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9. Before 1960: Ethics in Business
Theological discussions of ethics emerged:
Catholic social ethics included a concern for morality in business, workers’ rights and living wages.
Protestants developed ethics courses in their seminaries and schools of theology. (Also, the Protestant work ethic encouraged frugality and hard work.)
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10. The 1960s: The Rise of Social Issues in Business
Societal social consciousness emerged
As well as an anti-business sentiment
JFK’s Consumer Bill of Rights ushered in a new era of consumerism
Right to safety, to be informed, to choose, and to be heard
Consumer protection groups fought for consumer protection legislation
Ralph Nader
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11. The 1970s: Business Ethics as an Emerging Field
Business professors began to write about social responsibility.
Philosophers became involved in business ethics.
Businesses became more concerned with their public image and addressed ethics more directly.
Conferences were held and centers developed.
Issues:
Bribery – Product safety
Deceptive advertising – Environment
Price collusion
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The 1980s: Consolidation
Membership in business ethics organizations increased.
Ethics centers provided:
Publications, courses, conferences and seminars
Firms established ethics committees.
Defense Industry Initiatives emerged and became the foundation for the Federal Sentencing Guidelines for Organizations
Corporate support for ethical conduct
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13. The 1990s: Institutionalization of Business Ethics
The Federal Sentencing Guidelines for Organizations set the tone for ethical compliance.
These took preventative actions against misconduct; a company could avoid or minimize the potential penalties.
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14. The Federal Sentencing Guidelines for Organizations
Standards and procedures capable of detecting and preventing misconduct
High level oversight
Care in delegation of authority
Effective communication (training)
Systems to monitor, audit, and report misconduct
Consistent enforcement
Continuous improvement
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15. The 21st Century: A New Focus
A move from legally based ethics initiatives to culturally or integrity-based programs
However, legislation such as the Sarbanes-Oxley Act was passed to address the lack of confidence in financial reporting and corporate ethics.
Realization that business ethics programs are good for business
Businesses working more closely together, globally, to establish standards of acceptable behavior
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16. Relationship of Business Ethics to Performance
Customers, employees, and investors are major concerns for firms that want to develop loyalty and competitive advantage.
Goals are to increase customer dependence on the company and to provide products in an environment of mutual respect and perceived fairness.
This focus creates satisfying relationships with employees.
It also supports relationships with investors based on trust, dependability, and commitment.
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17. Ethics Contributes to Employee Commitment
Employee commitment comes from employees who believe their future is tied to that of the organization and their willingness to make personal sacrifices for the organization.
The more dedication on the part of the company, the greater the employee dedication.
Concerns include a safe work environment, competitive salaries and benefit packages, and fulfillment of contractual obligations.
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18. Ethics Contributes to Investor Loyalty
Companies perceived by their employees as having a high level of honesty and integrity are more profitable than companies with a low level of honesty and integrity.
Ethical climates in organizations provide platform for:
Efficiency
Productivity
Profitability
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19. Ethics Contributes to Customer Satisfaction
Consumers respond positively to socially concerned businesses.
Being good can be extremely profitable.
Customer satisfaction dictates business success.
A strong organizational ethical climate often places the customer’s interests first.
Research shows a strong relationship between ethical behavior and customer satisfaction.
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20. Ethics Contributes to Profits
Corporate concern for ethical conduct is increasingly being integrated with strategic planning to maximize profitability.
Corporate citizenship is positively associated with:
Return on investment and assets
Sales growth
Many studies have found a positive relationship between citizenship and performance.
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