The Importance of Business Ethics

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Chapter 1

• The Importance of Business Ethics

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Why differentiate between
rules/policies/law 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.

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What to Consider When Applying Ethics to Business

• Businesses must earn a profit
• Businesses must balance profits against the needs
  and desires of society.
• Maintaining this balance often requires
  compromise and tradeoffs.

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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
• the legal system
• the community

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Ethics 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 behaviors)
• philanthropic (desired activities behaviors)

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Why study business ethics?

• Reports of unethical behavior are on the rise.
• Individual ethics is not enough.
• Studying business ethics helps identify ethical
  issues to key stakeholders.

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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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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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The 1960s The Rise of Social Issues
in Business...

• Societal social consciousness emerged
• as well as an anti-business sentiment
• JFKs 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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The 1970s Business Ethics as an Emerging
Field...

• Business professors began to write about social
  responsibility.
• Businesses became more concerned with their
  public image and addressed ethics more directly.
• Conferences were held and centers developed.
• Issues
• bribery, deceptive advertising, price collusion,
  product safety, and the environment

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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.
• The Reagan/Bush era ushered in a belief that
  self-regulation, rather than government
  regulation, was in the best public interest.

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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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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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The 21st Century A New Focus

• A move from legally based ethics initiatives to
  culturally or integrity based programs
• although, 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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Relationship of Business Ethics to Performance

• The benefits of ethical behavior reach to
  employees, investors, and customers.
• 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.
• 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.
• Consumers respond positively to socially
  concerned businesses.
• Being good can be extremely profitable.

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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.