Legal Environment of Business
McGraw-Hill
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The Legal & Regulatory Environment of Business 17e
Chapter 2
The Role of Ethics in
Decision Making
Pagnattaro Cahoy Magid Reed Shedd
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Learning Objectives
To compare the connection between law and ethical principles
To analyze why ethical consequentialism and not ethical formalism has been the chief source of values for business ethics
To generate an individual framework for ethical values in business
To evaluate the obstacles and rewards of ethical business practice in our property based legal system
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Our objectives in this chapter are:
To compare the connection between law and ethical principles.
To analyze why ethical consequentialism and not ethical formalism has been the chief source of values for business ethics.
To generate an individual framework for ethical values in business.
To evaluate the obstacles and rewards of ethical business practice in our property based legal system.
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Contemporary Business Ethics
Companies hire a ethics officers to:
Develop ethics policies
Listen to complaints of ethics violations
Investigate ethics abuses
Sarbanes-Oxley Act (SOX) of 2002
Established higher standards for corporate responsibility and governance
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Businesses are hiring ethics officers, and adhering to higher accountability standards. SOX, new listing requirements by stock exchanges, governance standards, and
new accounting rules have created a new operating environment for business.
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Food for Thought…
2014 National Business Ethics Survey found a decline in observed misconduct in the workplace
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Ethics
…and Society
Changing values
Economic interdependence
News media and the Internet
…and Government
Government may take action
Companies can self-regulate
Contemporary Business Ethics
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Changes in society present challenges to addressing ethics. An organization is affected when a decision maker does not share common values with society. Increasing economic interdependence raises concerns about business ethics as executives and managers who control what the stockholders own can manipulate corporate actions for their own benefit. News media and the Internet make it difficult to hide questionable behavior of large organizations. Considering these issues, the government may involve itself or businesses can adopt self-regulation.
Ethics and Morality
Morality: Values that guide one’s behavior
Sharing moral values promotes social cooperation and control
Businesses need to instil shared moral values in employees
Ethics: Formal system for deciding what is right and wrong and to justify moral decisions
The Good: Moral goals and objectives one chooses to pursue
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Morality is one’s values of right and wrong. Ethics involves recognizing what is right and wrong, and understanding why one thinks something is right or wrong.
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Ethics and Law
Society’s ethical values may become law through:
Legislation
Court decisions
Many ethical values are not enforced by the state
Motivation to follow laws and ethics differ
Ethical systems involve a broader-based commitment to behavior than the law
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Ethics and law have similar or complementary purposes. Both deal with what is right or wrong but many ethical values are not enforced by the state, and many laws do not address ethical concerns. Motivation to observe moral rules comes from within while motivation to observe the law is external in the form of state sanctions. Commitment to ethical values is superior to observance of the law in ensuring responsible business behavior.
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Formalism
Affirms absolute morality
Duty based view
Categorical imperative
Social contract
Consequentialism
Concerned with moral consequences of actions
Utilitarianism
Protestant Ethic
Systems of Ethics
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There are two basic systems of ethics, one of which views what is right and wrong to be absolute, existing independently of one’s belief or acceptance of it. Therefore, lying is wrong and there are no justifications for it irrespective of the circumstances. This is formalism and is seen in historical views of Kant’s categorical imperative (one has a moral duty to act in the way he/she believes everyone should act) and John Rawls’s social contract theory (construction of a just society given the many inequalities of wealth, knowledge, and status). On the other end of the spectrum is the view that what is right and wrong is not absolute but is to be determined by weighing the pros and cons of situations and their consequences and determining the usefulness or benefit to society of an action. This is consequentialism. It can be identified in utilitarianism (judgement of actions based on whether they serve to increase the common good) and Protestant ethic (current focus on consequentialism which emphasizes on the importance of an individual).
Figure 2.1 - A Common Result
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Figure illustrates that formalists and consequentialists can arrive at the same conclusion for an ethical course of action but their evaluation process varies.
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QUIZ
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QUIZ
Philosophers call the end result of
ethical examination –
The good
The bad
The ugly
The rule of law
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Answer: A.
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Is there a relationship between
law and ethics?
Yes
No
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Answer: Yes.
Sources of Values for Business Ethics
Legal regulation
Professional codes of ethics
Organizational codes of ethics
Individual values
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Legal Regulation - Ethical Rules Drawn from the Law
Respect liberty and rights of others
Act in good faith
Exercise due care
Honor confidentiality
Avoid conflicts of interest
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Legal regulation is an important source of values for business ethics. Many businesses look to the law when drawing up their codes of ethical conduct.
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Professional Codes of Ethics
Certain professions have long traditions of codes of ethical conduct
More recent professions have developed and adopted their codes
Ethical codes of organizations are a form of self-regulation
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Development of group standards lead to professional codes. Professional organizations that adopt codes employ specific sanctions to back them up. Ethical codes cannot be called laws as they are not enforced by the state.
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Organizational Codes of Ethics
Businesses have adopted ethical codes at the individual organization level
Take varied approaches to suit their organizations
Effective implementation and enforcement of codes is more important than its creation
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All large corporations have their own codes of business ethics, often called codes of conduct.
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Questions to ask yourself to help explore ethical values before making decisions
1. Have I thought if my action
is right or wrong?
2. Will I be proud to
tell of my action?
3. Am I willing for
everyone to act
like me?
4. Will my decision
cause harm?
5. Will my actions violate
the law?
Individual Values: Self-Examination
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As stated above, however, individual value systems are the key source of ethical conduct in business. Individuals should be continually evaluating their own behavior, asking:
Is what I’m doing right or wrong?
Am I proud of it?
Would I want everyone to do it?
Is it hurting anyone?
Is it illegal?
Achieving Ethical Business Corporation
Obstacles
Emphasis on profit conflicts with ethical responsibility
Effect of the group
Individuals feel less responsible
Control of resources by non-owners
Managerial agents can manipulate resources in their own interest
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Steps to Promote Business Ethics in Corporate Life
Involve top management
Top management should act as a role model
Must believe in the expressed values
Openness in communication
Promotes trust
Required due to the complexity of information
Consideration of stakeholders
Stakeholder theory: Directors and managers must take into account its stakeholders whose interests the corporation impacts
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Involvement of top management is important as it acts as a role model for values it wishes employees to share. Interlocking system of loyalties between employment levels of corporate hierarchy ensure that top management’s values filter down effectively. The top management needs to believe in the ethical values expressed in codes of conduct for the values to take hold throughout the corporation.
Openness in communication promotes trust that is vital for an ethical business and is necessary for ethical corporate decision making due to complexity of the information required. A shared corporate commitment to ethical decision making is important to openness in communication.
The business must also take into consideration the stakeholder interests. The stakeholder theory implies that corporations must consider concerns of all stakeholders when making decisions, allow stakeholders to communicate with decision makers and informs about risks to their interests, adopt appropriate communication methods, realize the interdependence of all stakeholders, work to reduce the risk of corporate harm, and acknowledge conflict between managerial self-interest and ethical responsibility.
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Rewards
Popular observations about business ethics
Profits and ethics are not contradictory
Ethical organizational life is a business asset
Ethics are of concern to the business community
Requires constant re-evaluation
Business ethics reflect business leadership
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Businesses should act ethically to coexist with society, be the foundation of the good, and have a firm source of support.
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Can an act be ethical but
not legal?
Yes
No
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Answer: Yes.
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Can an act be legal but
not ethical?
Yes
No
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Answer: Yes.
Can a Business Have a Conscience?
Personhood rights of a corporation have been recognized in the law
Laws that force individuals’ to violate a religious value are problematic
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The Affordable Care Act includes a provision that businesses’ health care insurance plans offered to employees must include coverage of contraceptives. Several corporations filed a lawsuit on the basis that the coverage of contraceptives violates the businesses’ religious conscience.
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