1. © 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 42 Ethics and Business Decision Making Chapter 42 Ethics and Business Decision Making

2. © 2004 West Legal Studies in Business A Division of Thomson Learning 2 §1: Business Ethics 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. 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.

3. © 2004 West Legal Studies in Business A Division of Thomson Learning 3 Why is Business Ethics Important? Directors and Officers owe a complex set of ethical duties to the company, shareholders, customers, community, employees, and suppliers. When these duties conflict, ethical dilemmas are created. Case 42.1: Time Warner Entertainment Co. v. Six Flags Over Georgia, LLC. (2002). Directors and Officers owe a complex set of ethical duties to the company, shareholders, customers, community, employees, and suppliers. When these duties conflict, ethical dilemmas are created. Case 42.1: Time Warner Entertainment Co. v. Six Flags Over Georgia, LLC. (2002).

4. © 2004 West Legal Studies in Business A Division of Thomson Learning 4 § 2: Setting the Right Ethical Tone Importance of Ethical Leadership and Creating Ethical Codes of Conduct.  Costco.  Clear Communications to Employees.  Johnson and Johnson: web-based ethical training. Corporate Compliance Programs.  Sarbanes-Oxley and Web-based reporting. Conflicts and Trade-Offs  Case 42.2: Varity Corp. v. Howe (1996). Importance of Ethical Leadership and Creating Ethical Codes of Conduct.  Costco.  Clear Communications to Employees.  Johnson and Johnson: web-based ethical training. Corporate Compliance Programs.  Sarbanes-Oxley and Web-based reporting. Conflicts and Trade-Offs  Case 42.2: Varity Corp. v. Howe (1996).

5. © 2004 West Legal Studies in Business A Division of Thomson Learning 5 Corporate Compliance A number of contexts, within the employer- employee relationship, are fraught with ethical considerations, such as:  Having a system in place to detect, prevent, eliminate, and punish behavior of a harassing nature toward employees.  Avoiding wrongful discharge, either actual or constructive.  Adhering to ethical principles during corporate restructuring and downsizing. A number of contexts, within the employer- employee relationship, are fraught with ethical considerations, such as:  Having a system in place to detect, prevent, eliminate, and punish behavior of a harassing nature toward employees.  Avoiding wrongful discharge, either actual or constructive.  Adhering to ethical principles during corporate restructuring and downsizing.

6. © 2004 West Legal Studies in Business A Division of Thomson Learning 6 Codes Of Ethics Adopted by business entities as a way to:  Provide standard guidance to executives and managers.  Take into account the duties owed by the business to its various stakeholders. Adopted by business entities as a way to:  Provide standard guidance to executives and managers.  Take into account the duties owed by the business to its various stakeholders.

7. © 2004 West Legal Studies in Business A Division of Thomson Learning 7 § 3: Defying the Rules: Enron Accounting Issues.  “Anticipated” future earnings.  Managers’ salaries based on inflated earnings. Off-The-Books Transactions.  Moved losses from one ‘shell’ to another.  Transferred debts to partnerships in Cayman Islands. Accounting Issues.  “Anticipated” future earnings.  Managers’ salaries based on inflated earnings. Off-The-Books Transactions.  Moved losses from one ‘shell’ to another.  Transferred debts to partnerships in Cayman Islands.

8. © 2004 West Legal Studies in Business A Division of Thomson Learning 8 Defying the Rules: Enron Self-Dealing.  Executives with their family. Corporate Culture.  Rejected outside advice on “house of cards”.  No investigation of internal practices. Enron Whistle-Blower “Person of the Year” by Time Magazine. Self-Dealing.  Executives with their family. Corporate Culture.  Rejected outside advice on “house of cards”.  No investigation of internal practices. Enron Whistle-Blower “Person of the Year” by Time Magazine.

9. © 2004 West Legal Studies in Business A Division of Thomson Learning 9 § 4: Business Ethics and the Law Legal compliance is the moral/ethical minimum. Simply obeying the law does not necessarily make the business practice ethical. “Gray” areas in the law.  Business leaders must contemplate the ethical implications of a business decision.  Case 42.3: Pavlik v. Lane Ltd./Tobacco Exporters International (1998). Legal compliance is the moral/ethical minimum. Simply obeying the law does not necessarily make the business practice ethical. “Gray” areas in the law.  Business leaders must contemplate the ethical implications of a business decision.  Case 42.3: Pavlik v. Lane Ltd./Tobacco Exporters International (1998).

10. © 2004 West Legal Studies in Business A Division of Thomson Learning 10 Technological Developments A company’s actions come under quick scrutiny with the power of email and the internet. Case 42.4: Blakey v.Continental Airlines, Inc. (2000). When a corporation embarks on a course of business deemed “unethical” by a special interest group, the news will spread around the world in a matter of minutes.special interest group A company’s actions come under quick scrutiny with the power of email and the internet. Case 42.4: Blakey v.Continental Airlines, Inc. (2000). When a corporation embarks on a course of business deemed “unethical” by a special interest group, the news will spread around the world in a matter of minutes.special interest group

11. © 2004 West Legal Studies in Business A Division of Thomson Learning 11 § 5: Approaches to Ethical Reasoning Duty Based Ethics - derived from religious and philosophical principles.  Religious Ethical Standards.  Kantian Ethics.  Rights Principles. Outcome-Based Ethics - seek to ensure a given outcome.  Utilitarianism. Duty Based Ethics - derived from religious and philosophical principles.  Religious Ethical Standards.  Kantian Ethics.  Rights Principles. Outcome-Based Ethics - seek to ensure a given outcome.  Utilitarianism.

12. © 2004 West Legal Studies in Business A Division of Thomson Learning 12 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. These rules often involve an element of compassion. 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. These rules often involve an element of compassion.

13. © 2004 West Legal Studies in Business A Division of Thomson Learning 13 Kantian Ethics Premised on the belief that general guiding principles for moral behavior can be derived from human nature. The categorical imperative is a central postulate of Kantian ethics.  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. Premised on the belief that general guiding principles for moral behavior can be derived from human nature. The categorical imperative is a central postulate of Kantian ethics.  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. © 2004 West Legal Studies in Business A Division of Thomson Learning 14 Rights Principle This principle derives from the belief that every duty gives rise to a corresponding right. The belief in fundamental rights is a deeply embedded feature of Western culture. The ethicality of an action is judged by how the consequences of the action will affect the rights of others. This principle derives from the belief that every duty gives rise to a corresponding right. The belief in fundamental rights is a deeply embedded feature of Western culture. The ethicality of an action is judged by how the consequences of the action will affect the rights of others.

15. © 2004 West Legal Studies in Business A Division of Thomson Learning 15 Utilitarianism An action is ethical based on whether it produces the greatest good for the greatest number of people upon which it has an effect. A cost-benefit analysis must be performed to determine the effects of competing alternatives on the persons affected. The best alternative is the one that produces the greatest good for the greatest number. An action is ethical based on whether it produces the greatest good for the greatest number of people upon which it has an effect. A cost-benefit analysis must be performed to determine the effects of competing alternatives on the persons affected. The best alternative is the one that produces the greatest good for the greatest number.

16. © 2004 West Legal Studies in Business A Division of Thomson Learning 16 §6: Business Ethics on a Global Level American companies must be trained in cross- cultural business practices. Monitoring the Employment Practices of Foreign Suppliers.  Corporate Watch groups can disseminate information instantly around world. Foreign Corrupt Practices Act.  Bribes and Accounting Practices. American companies must be trained in cross- cultural business practices. Monitoring the Employment Practices of Foreign Suppliers.  Corporate Watch groups can disseminate information instantly around world. Foreign Corrupt Practices Act.  Bribes and Accounting Practices.

17. © 2004 West Legal Studies in Business A Division of Thomson Learning 17 Law on the Web Enron: An “Inside Look” at West Business Law. Enron: An “Inside Look” at West Business Law. Ethics at the Corporate Governance Website. Ethics at the Corporate Governance Website Global Exchange.com. Legal Research Exercises on the Web. Enron: An “Inside Look” at West Business Law. Enron: An “Inside Look” at West Business Law. Ethics at the Corporate Governance Website. Ethics at the Corporate Governance Website Global Exchange.com. Legal Research Exercises on the Web.