1. Chapter 2 Business Ethics

2. 2 o Ethics is the study of right and wrong behavior; whether an action is fair, right or just. o In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace. o Ethics is the study of right and wrong behavior; whether an action is fair, right or just. o In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace.

3. 3 Why is Business Ethics Important? o Directors and Officers owe a complex set of ethical duties to the company, shareholders, customers, community, employees, and suppliers. o Fiduciary duty – trust and loyalty o When these duties conflict, ethical dilemmas are created.

4. 4 Setting the Right Ethical Tone o Importance of Ethical Leadership. o Attitude of Top Management. o “Looking the Other Way”. o Exxon Valdez o Creating Ethical Codes of Conduct. o Clear Communications to Employees. o General Electric

5. 5 Corporate Compliance Programs o Sarbanes-Oxley and Web-based reporting. o Enron - whistleblower o A number of contexts, within the employer- employee relationship, are fraught with ethical considerations, such as: o Having a system in place to detect, prevent, eliminate, and punish behavior of a harassing nature toward employees. o Avoiding wrongful discharge, either actual or constructive. o Adhering to ethical principles during corporate restructuring and downsizing.

6. 6 Companies That Defy The Rules o Enron: Accounting Issues. o “Anticipated” future earnings. o Managers’ salaries based on inflated earnings. o Enron: Off-The-Books Transactions. o Moved losses from one ‘shell’ to another. o Transferred debts to partnerships in Cayman Islands.

7. 7 Defying the Rules o Enron: Self-Dealing. o Executives with their family. o Enron: Corporate Culture. o Rejected outside advice on “house of cards”. o No investigation of internal practices. o Merck and Vioxx. o Merck disregarded known risks. o Waited to be proven wrong ($250 M verdict).

8. 8 Business Ethics and the Law o Legal compliance is the moral/ethical minimum. o Simply obeying the law does not necessarily make the business practice ethical. o “Gray Areas” in the law. o Business leaders must contemplate the ethical implications of a business decision.

9. 9 The Stakeholders in Business Ethics o Who does it affect? o Investors, including owners o Employees o Supply Chain o Customers o Suppliers o Government o Community or public at large