Chapter

Ethics & Business

McGraw-Hill/Irwin Business Ethics: Decision-Making for Personal Integrity & Social Responsibility

Copyright 2008

1-1 1-1 The McGraw-Hill Companies, Inc. All rights reserved.

Ethics is tougher than you think . . .

a business leader makes intelligent, ethical decisions...
(radio advert playing right now in Maine for a MBA program in the US)

What does this quote say about the market value of ethics and ethics training has today? Why?
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Ethics is tougher than you think . . .

What are some of the reasons which cause people to resist the idea of actively teaching business ethics? What are some of the reasons which cause people to actively promote the teaching of business ethics?
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Ethics is tougher than you think . . .

If the purpose of studying business subjects is primarily to empower students to ultimately $$$ make money $$$ Does practicing Business Ethics have the potential to increase the amount of money you make for yourself or your company????
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Chapter Objectives

Chapter One Introduces the subject of business ethics, answers some basic questions about the field, and establishes understanding of some fundamental ideas and vocabulary.

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Chapter Objectives

After exploring this chapter, you will be able to:

1. Explain why ethics is important in the business environment; 2. Explain the nature of business ethics as an academic discipline; 3. Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Distinguish ethical norms and values from other business-related norms and values 5. Distinguish legal responsibilities from ethical responsibilities 6. Explain why ethical responsibilities go beyond legal compliance 7. Distinguish ethical decision-making from other practical decision situations

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Business ethics is a process of responsible decision-making

The scandals and ruin experienced since the Enron collapse were brought about by ethical failures. We will discuss a decision-making model that can help individuals to understand such failures and avoid future business and personal tragedies. Why explore ethics in business? Because Ethics Failures = Business Failures
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Business ethics is a process of responsible decision-making

The scandals and ruin experienced since the Enron collapse were brought about by ethical failures. We will discuss a decision-making model that can help individuals to understand such failures and avoid future business and personal tragedies. $$$ Ethics has financial repercussions $$$ That is what gives it relevance even in the most secular and cynical business discussions!
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Why care about ethics?

Unethical behavior creates financial and marketing risks. A company can go out of business, and its employees can go to jail, if no one is paying attention to the ethical standards of the firm. A firms ethical reputation can provide a competitive advantage, or disadvantage. Consumer boycotts give even the most skeptical business leader reason to pay attention to ethics. Managing ethically can also pay significant dividends in organizational structure and efficiency. Trust, loyalty, commitment, creativity, and initiative are just some of the organizational benefits that are more likely to flourish within ethically stable and credible organizations
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REALITY CHECK
Why be good? The Institute for Business, Technology and Ethics suggests the following Nine Good Reasons to run a business ethically:

Litigation/indictment avoidance Regulatory freedom Public acceptance Investor confidence Supplier/partner trust Customer loyalty Employee performance Personal pride Its right

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Why is ethics important in the business environment?

Who was Enron?

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Why is ethics important in the business environment?

Who was Enron?

Over 100 Billion in Stated Revenues in 2000... 7th largest Company in the US Fortune 500 top 10 Americas Most Innovative Company (Fortune) every year from 1996 until 2001 Company Payroll of 22,000 Employees
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Why is ethics important in the business environment?

Who was Enron?

News breaks that Enron's financial health is really an elaborate web of accounting lies. Stock price goes from over $90 to pennies. The largest bankruptcy proceedings in the history of the US begin. Jeffery Skilling 24 years / Kenneth Lay died before sentencing (faced up to 45 year)

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Why is ethics important in the business environment?

Consider the range of people who were harmed by the collapse of Enron.

Stockholders lost over $1 billion in stock value. Thousands of employees lost their jobs, their retirement funds, and their health care benefits. Consumers in California suffered from energy shortages and blackouts that were caused by Enrons manipulation of the market. Hundreds of businesses that worked with Enron as suppliers suffered economic loss with the loss of a large client. Enrons accounting firm, Arthur Andersen, went out of business as a direct result. The wider Houston community was also hurt by the loss of a major employer and community benefactor. Families of employees, investors, suppliers were also hurt. Many of the individuals directly involved will themselves suffer criminal and civil punishment, including prison sentences for some.

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Enron was just one of dozens of similar situations...

Worldcom Tyco Sunbeam Nortel Bre-X Curragh

Chapter Objectives

After exploring this chapter, you will be able to:

1. Explain why ethics is important in the business environment; 2. Explain the nature of business ethics as an academic discipline; 3. Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Distinguish ethical norms and values from other business-related norms and values 5. Distinguish legal responsibilities from ethical responsibilities 6. Explain why ethical responsibilities go beyond legal compliance 7. Distinguish ethical decision-making from other practical decision situations

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Business Ethics as a Discipline

Decisions which follow from a process of thoughtful and conscientious reasoning will be more responsible and ethical decisions. Responsible decision-making and deliberation will result in more responsible behavior. The point of a business ethics course?

To teach the theories of the great ethicists of history (secular and sacred) - the informational content of the class To apply these theories as we explore ethical behavior, to consider how human beings properly should live their lives.

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Business Ethics as Ethical Decision-Making

An ethics class strives to produce more ethical behavior among the students who enroll. But the only academically and ethically legitimate way to do this is through careful, and reasoned decision-making. A process of rational decision-making, a process that involves careful thought and deliberation, can and will result in behavior that is both more reasonable and more ethical.

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Business Ethics as Ethical Decision-Making

The antithesis of Ethical Decision-Making :

I try not to think about that...

The ethical person must ask themselves the question: What

does what I do, do?

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So, what do we mean by Ethics?

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Ethics is not this:

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What is ethics?
At its most basic level, ethics is concerned with how we act and how we live our lives.

What is ethics?

Ethics involves what is perhaps the most monumental question any human being can ask:

How should we live?

Ethics is, in this sense, practical, having to do with how we act, choose, behave, do things. Philosophers often emphasize that ethics is normative, in that it deals with our reasoning about how we should act.
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What is ethics?
How should we live?

This fundamental question of ethics can be interpreted in two ways. "We" can mean each one of us individually, or it might mean all of us collectively. In the first sense, this is a question about how I should live my life, how I should act, what I should do, what kind of person I should be. This meaning of ethics is sometimes referred to as morality, and it is the aspect of ethics that we refer to by the phrase personal integrity.
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Chapter Objectives

After exploring this chapter, you will be able to:

1. Explain why ethics is important in the business environment; 2. Explain the nature of business ethics as an academic discipline; 3. Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Distinguish ethical norms and values from other business-related norms and values 5. Distinguish legal responsibilities from ethical responsibilities 6. Explain why ethical responsibilities go beyond legal compliance 7. Distinguish ethical decision-making from other practical decision situations

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Personal Responsibility vs. Social Responsibility?

There will be many times within a business setting where an individual will need to step back and ask:
What should I do? How should I act?

In the second sense, How should we live? refers to how we live together in a community. In this sense, business ethics is concerned with how business institutions ought to be structured, about corporate social responsibility, about making decisions that will impact many people other than the individual decision-maker.
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Personal Responsibility vs. Social Responsibility?

This aspect of business ethics asks us to examine business institutions from a social rather than an individual perspective. We refer to this broader social aspect of ethics as decision-making for social responsibility.

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Personal Responsibility vs. Social Responsibility?

"No man is an Island, entire of itself; every man is a piece of the Continent, a part of the main; if a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friends or of thine own were; any man's death diminishes me, because I am involved in Mankind; And therefore never send to know for whom the bell tolls; It tolls for thee." John Donne
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Stakeholders

This discussion of the range of people impacted by the Enron collapse evidences how one case can dramatically affect the lives of thousands of people: employees, stockholders, management, suppliers, customers, and surrounding communities. For better or for worse, the decisions made within a business firm will affect many more people than only the individual themselves. Ethically responsible business decision-making therefore must move beyond a narrow concern with stockholders, and consider the impact that decisions will have on a wide range of stakeholders. In a general sense, a business stakeholder will be anyone affected, for better or worse, by decisions made within the firm.
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Stakeholder Theory

Stakeholder theory is a model of corporate social responsibility that holds that business managers have ethical responsibilities to this more broad range of stakeholders, as opposed to a more narrow view that the primary responsibility of managers is limited to stockholders.

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Stakeholders: Corporations

Customers/Clients Stockholders Employees Consumer advocates Regulators Media

Government Trade Associations Competitors Local Community Others?????

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Stakeholders: Corporations
When

we allow multiple parties into our ethical decision making, we must face the fact that stakeholder interests can compete and conflict.

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Chapter Objectives

After exploring this chapter, you will be able to:

1. Explain why ethics is important in the business environment; 2. Explain the nature of business ethics as an academic discipline; 3. Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Distinguish ethical norms and values from other businessrelated norms and values 5. Distinguish legal responsibilities from ethical responsibilities 6. Explain why ethical responsibilities go beyond legal compliance 7. Distinguish ethical decision-making from other practical decision situations

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Ethical Norms and Values

Values = Those beliefs that incline us to act or to choose in one way rather than another.

A companys core values, for example, are those beliefs and principles that provide the ultimate guide in its decisionmaking. Individuals can have their own personal values and, importantly, institutions also have values.
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Distinguishing Norms

One way to distinguish these various types of values is in terms of the ends that they serve.

Financial values serve monetary ends, religious values serve spiritual ends, aesthetic values serve the end of beauty, legal values serve law, order, and justice, and so forth. Different types of values are distinguished by the various ends served by those acts and choices.

So, how are ethical values to be distinguished from these other types of values? What ends are served by ethics?

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Distinguishing Norms

In Ethics we strive to come to decisions which express what is the right thing to do.

The Who and What of the right thing in a business setting will occupy most of our time over the next 12 Tuesday nights

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Legal Responsibilities vs. Ethical Responsibilities

The law provides a very important guide to ethical decisionmaking, but legal norms and ethical norms are not identical nor do they always agree. Over the last decade, many corporations have established ethics programs and hired ethics officers who are charged with managing corporate ethics programs. Much good work gets done by ethics officers, but it is fair to say that much of this focuses on compliance issues. In the US The Sarbanes-Oxley Act created a dramatic and vast new layer of legal compliance issues.
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Chapter Objectives

After exploring this chapter, you will be able to:

1. Explain why ethics is important in the business environment; 2. Explain the nature of business ethics as an academic discipline; 3. Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Distinguish ethical norms and values from other business-related norms and values 5. Distinguish legal responsibilities from ethical responsibilities 6. Explain why ethical responsibilities go beyond legal compliance 7. Distinguish ethical decision-making from other practical decision situations

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Cant the law answer the question of right or wrong?

Whats good about this approach? Whats challenging (negative) about this approach?

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The law can be a floor

The law is constantly changing (consider segregation). The law is not necessarily representative of universal (or your) morals. The law is not always right. The law doesnt answer every challenging dilemma. The law is slow to catch up to new quandaries.

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Cant the law answer the question of right or wrong?

Will business flourish best in a social environment where the essential question people ask is...

What

should we do? or What can we get away with?

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Cant the law answer the question of right or wrong?

Do

you want to be the person or company used to prove in court that a particuar decision was not just unethical it was actually illegal?

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Reality Check Ethics goes Mainstream!

A 2003 poll by Deloitte of 5,000 directors of the top 4,000 publicly traded companies reported that 98 percent believed that an ethics and compliance program was an essential part of corporate governance. Over 80 percent had developed formal codes of ethics beyond those required by Sarbanes-Oxley, and over 90 percent included statements concerning the companys obligations to employees, shareholders, suppliers, customers, and the community at large in their corporate code of ethics. [See next slide.]
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Chapter Objectives

After exploring this chapter, you will be able to:

1. Explain why ethics is important in the business environment; 2. Explain the nature of business ethics as an academic discipline; 3. Distinguish the ethics of personal integrity from the ethics of social responsibility 4. Distinguish ethical norms and values from other business-related norms and values 5. Distinguish legal responsibilities from ethical responsibilities 6. Explain why ethical responsibilities go beyond legal compliance 7. Distinguish ethical decision-making from other practical decision situations

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How is ethical decision-making different from other decisionmaking?

Ethics is a part of practical reason, reasoning about what we should do, as opposed to theoretical reason, which is reasoning about what we should believe. Theoretical reason is the pursuit of truth, which is the highest standard for what we should believe.

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Philosophical Ethics and Theories

Is there a comparable methodology or procedure for deciding what we should do and how we should act? There are guidelines that can provide direction and criteria for decisions that are more or less reasonable and responsible: philosophical ethics.

Ethical theories are patterns of thinking, or methodologies, to help us decide what to do.
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Discussion of Opening Decision Point: Aaron Feuerstein

On the surface, Malden Mills provides a clear, if extreme, example of a business leader who was willing to make significant financial sacrifices for the well-being of his employees and community. Aaron Feuerstein could have made many other decisions that would have been financially beneficial, although at a great costs to employees and the surrounding towns. To many people, he was a true hero.

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Chapter One Vocabulary Terms

After examining this Chapter, you should have a clear understanding of the following Key Terms and you will find them defined in the Glossary:

Ethics Morality/Social Justice Values Normative ethics/Descriptive ethics Stakeholders Stakeholder Theory Practical Reasoning
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Discussion of Opening Decision Point

Yet, the case eventually became more complex. Had Feuerstein been CEO of a publicly traded corporation, his responsibilities would have been significantly different. Feuersteins decisions are viewed by some as a simple case of personal generosity, rather than a helpful model for corporate executives. Malden Mills went into bankruptcy. Is this a testament to the error of his decision to rebuild in Lawrence? Did Malden Mills fail for reasons unrelated to the ethics of their inspirational CEO Be ready to express a reasoned opinion next Tuesday!
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Opening Decision Point: Aaron Feuerstein

Malden

Mills and Aaron Feuerstein a classic ethics case:

Privately owned Malden Mills (Polartec) is burned to the ground in a 1995 fire. Aaron Feurestein takes the insurance money and decides to rebuild exactly where he was, rather than use the fire as an opportunity to relocate offshore (as most textile firms have done). Some question his sanity, some think him a saint.
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Opening Decision Point: Aaron Feuerstein

Should Aaron Feuerstein rebuild in Malden and pay his employees in the meantime?

What facts would be helpful as you make your judgments about Feuerstein? How many different ethical values are involved in this situation? What kind of man is Feuerstein? How would you describe his actions after the fire? Can you describe the man and his actions without using ethical or evaluative words? Whose interests should Feuerstein consider in making this decision? How many different people were affected by the fire and the decision? What other options were available for Feuerstein? How would these alternatives have affected the other people involved? Were Feuersteins actions charitable, or was this something he had a duty or obligation to do? What is the difference between acts of charity and obligatory acts?
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Purpose of our discussion: Learning Objectives

Sensitivity: To insure that you are aware of/sensitive to ethical issues in all aspects of the business environment and professional exchanges. Skill-Building: To provide you with reasoning and decision-making tools to help you think through ethical issues and to respond sensibly when faced with such issues. Integration: To enable you to effectively integrate your personal values and reasoning skills into all of what you do and stand for. Practice: To give you opportunities to "practice" values integration and ethical reasoning processes in case experiences. Understanding: To offer you a deep understanding of the role you play in forming organizational culture and the means by which you can impact it in a positive manner. Reinforcement: To reinforce the resources available to you if confronted with ethical situations.
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