1. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-1 A Critical Thinking Approach Fourth Edition Nancy K. Kubasek Bartley A. Brennan M. Neil Browne Nancy K. Kubasek Bartley A. Brennan M. Neil Browne ©

2. ©2006 Prentice Hall CHAPTER 8 Ethics, Social Responsibility, and the Business Manager Ch. 8-2 THE LEGAL ENVIRONMENT OF BUSINESS

3. © 2006 Prentice Hall Ch. 8-3 3 Business Ethics and Social Responsibility Notorious Cases: Union Carbide Bhopal Disaster Bridgestone-Firestone & Ford Explorer Cases Ethics is involved when decisions are made that affect the lives of others.

4. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-4 4 The Social Responsibility of Business DEFINITION Concern about business activities and their intended and unintended impact on groups and individuals other than owners or managers. DEFINITION Concern about business activities and their intended and unintended impact on groups and individuals other than owners or managers. The Shareholder vs. Stakeholder Debate

5. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-5 5 Theories of Ethical Thought Ethics: the study of good and bad behavior Business ethics: the same study directed to business conduct Theories Consequential or Utilitarian – focus on consequences Deontological – focus on duties Humanist – focus on improving human life

6. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-6 6 Utilitarianism Act Utilitarianism: Does the act bring net happiness? If not, don’t do it. Rule Utilitarianism: If the act were a general rule, would it bring net happiness?

7. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-7 7 Deontologists Immanuel Kant: “Categorical Imperative” Actions are judged on the basis of their universal application: good or bad? Everyone is rational, has free will, and is to be treated equally—never as a means to an end Actions are intrinsically good or bad, regardless of any consequences

8. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-8 8 Humanists Human Capacities: IntelligenceWisdomSelf-restraint Actions that advance these are ethical Example: Bribery

9. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-9 9 Code of Ethics IndividualCorporateIndustry Professional Accounting Insurance and Finance Law

10. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-10 10 Corporate Codes Widely used Apply to management Include sanctions

11. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-11 11 Industry Codes Adopted by associations Aspirational statements ISSUE : Most associations are formed primarily to advance economic and political opportunities for their members, not to regulate themselves.

12. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-12 12 Professional Codes Professionals defined: Educational requirements Licensing requirements Written and enforceable ethical standards Formal status as organization Formally recognized as such by public Professionals defined: Educational requirements Licensing requirements Written and enforceable ethical standards Formal status as organization Formally recognized as such by public

13. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-13 13 Professional Codes Professional codes may conflict with company or association codes Management must recognize that conformity with professional code will have priority

14. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-14 14 Examples of Professional Codes Accounting AICPA Code of Professional Ethics and Interpretive Rules Insurance ASCLU Guides to Professional Conduct Law ABA Model Rules of Professional Responsibility and State Bar Associations

15. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-15 15 Schools of Social Responsibility Profit-Oriented School Managerial School Institutional School Professional Obligation School Regulation School

16. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-16 16 Profit-Oriented School The purpose of business is to increase value for shareholders Managers who serve this goal are demonstrating social responsibility Unintended negative consequences are external to corporate financial results “Social costs” are matters for government, not corporate, action

17. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-17 17 Managerial School Many large businesses have stakeholders as well as stockholders Management should strive to serve both internal and external groups Management should also strive to maximize long-term as well as short-term goals

18. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-18 18 Institutional School Business has responsibility to benefit all of society Business should be held responsible for all actions, just as individuals presently are

19. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-19 19 Professional Obligation School Business managers should be ‘professionalized’ Licensing based on state/national test Codified responsibilities License revocation sanction for violations

20. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-20 20 Regulation School Business is accountable to government regulators Issue: How much regulation is enough? Government seat on board of directors Independent audits Increased reporting requirements Issue: How much regulation is enough? Government seat on board of directors Independent audits Increased reporting requirements

21. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-21 21 Global Dimensions U.N. Code of Conduct for Transnational Corporations Respect for sovereignty Adherence to sociocultural values Respect for human rights Anticorruption Foreign Corrupt Practices Act OECD Anti-Bribery Convention

22. THE LEGAL ENVIRONMENT OF BUSINESS © 2006 Prentice Hall Ch. 8-22 22 Summary Ethics and business ethics defined Ethical theories Schools of Social Responsibility Global dimensions and responses