BUSINESS LAW & ETHICS

Business Law and Ethics BUS 3013

Summer 2023 Professor Joseph Henderson

[email protected]

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The following are some of the high points and concepts that are important from the reading.

Again, these slides are meant to supplement, not replace the reading.

With that said, let’s dive in……

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Briefly, think a little more about law. What does a law do in terms of behavior?

It sets the boundaries of acceptable behavior and is backed by a means to enforce it.

Does this mean that a law will always set such standards at the highest level?

No - of course not. In fact, laws usually set a minimum standard of behavior.

So how do people know what the best way to behave is? Ethics are one of the ways used to provide such guidance

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Ethical Behavior: Question - So what are ethics? It is a standard of normative behavior that provides guidance as to the best way to behave in a given situation based on the relevant ethical system. The standard can come from a variety of places. There are numerous schools of thought on ethical systems. For example, a person might look to their idea of the idyllic person and use that as a standard to determine their behavior in a given situation. (This is known as Virtue Ethics)

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Ethical Behavior: Again, so are ethics the same as the law?

No. Positive law (written laws made by the appropriate body) is the minimum standard, not an ethical standard. Further, it is common for there to be no law governing a situation while a system of ethics could still apply to it.

Do you see how the two are different? Let’s turn towards some of the various standards and look at them in more depth…

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Ethical Standard Sources: Natural Law: The easiest way to think of this standard is that there are rules of behavior that are naturally binding by nature (or divine guidance) and that they are universally understood by all human beings and generally relate to the idea that humans should live good and happy lives. Under this theory, what is “right” and what is “wrong” is the same for everyone and are inherently known – i.e. natural.

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Ethical Standard Source Continued: Moral Relativism: This is the idea that there is no universal standard that dictates a behavioral standard for every person faced with the same situation. Rather, this theory holds that the situation dictates the correct standard of behavior and it could be different for different people. Under this theory, a person should look to the local culture to determine how to behave in a given situation. i.e. – “When in Rome, do as the Romans do.” Religion and Ethics: This is self-explanatory as a source. However, realize that not all religions preach the exact same behavioral norms. Can you see any limitations to this concept?

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Ethical Dilemmas: The number of possible ethical dilemmas is very large. The book does a good job of addressing this portion of the chapter directly and I do not have anything to add to it at this time.

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Resolution of Ethical Dilemmas: Blanchard and Peale: Three questions must be answered in an affirmative manner in order to resolve a dilemma under this model. They are: 1 – Is it legal?; 2 – Is it balanced?; and 3 – How do I feel about it? If a person is able to answer these questions positively, then the decision is ethical. If not, then it is not and they should not take the action, or should move to correct the situation.

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Resolution of Ethical Dilemmas Continued: Front-Page-of-the-Newspaper: Under this model, a person should ask how the action, and resulting consequences, will be written about by the press. This is also known as the headline test. If a person believes that the disclosure of the act would result in a negative public perception, then they should not do it. Laura Nash: This model uses a series of questions to force the decision maker to view the dilemma from more than one perspective. Using this model, a person should ask how other people who might be indirectly affected by the decision will feel. The questions might be: How would others views this?; Am I comfortable if the public knows I directed the company to take this action?; etc.…..

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Resolution of Ethical Dilemmas Continued: Wall Street Journal Method: Similar to the Blanchard and Peale model, this method requires the decision maker to evaluate a decision through three questions. They are: 1 – Is it compliant with the law?; 2 – How does it contribute to the business?; and 3 – Are the consequences of this decision positive, or negative?

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Ethical Failures: Do you think that people will always pick one of the models, use it, and then reach the best, most ethical, decision? If your answer is no, then why do you think that is?

People can use different rationalizations to ignore making an ethical decision.

Usually, a person will rationalize their actions in a number of ways. Sometimes, the person making the decision is indifferent, or just does not care about the consequences of their actions.

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Social Responsibility: Let’s start this section with a question: What do you think the role of a business is in society?

Is it to purely generate wealth?; Is it to purely benefit society?; or Is it to generate wealth and benefit society?

The answers to these questions determine how a company might view social responsibility when deciding on a course of action.

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Social Responsibility: The four perspectives discussed in the book – Inherence, Enlightened Self- Interest; Invisible Hand; and Social Responsibility – make it plain that really there are two viewpoints to this issue. They are: 1 - A company should only focus on profits and following the law. All other considerations are unimportant to the decision-making process; or 2 – The impact of a company’s actions on society are important and should be weighed before a company decides on a course of action. Can you see the positives and negatives of both schools of thought? How do you reconcile this with the article that I posted the first week of the semester?

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The Importance of Ethics: Regardless of your views up to this point, do you think a business having an ethical framework to make decisions is a good thing?

Sure, if a company acts in an ethical manner, then it might reap benefits above and beyond mere profits that still increase its profitability.

For example, Exxon employed a ship that was involved in a large, damaging oil spill in Alaska in the 1989. The spill impacted over 1,300 miles of shore and did millions of dollars in damage to the area effecting both commercial and natural interests. After the resulting investigation, Exxon was faulted for the spill and had terrible publicity. Calls to boycott the company lasted for decades and negatively impacted its sales long afterwards. Furthermore, substantial regulatory burdens were implemented after the disaster which increased Exxon’s operating costs. If Exxon had acted in an ethical manner then these negative consequences may not have happened.

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The Importance of Ethics: Using the previous example, it is obvious how properly implemented business ethics are important. As the book notes, they can positively impact profits, leadership, reputation, and strategy. So, how then does a company implement good ethical practices?

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Implementing Ethical Practices: Leadership Commitment: Senior leadership sets the tone for an entire company. If they are committed to ethical behavior then it will have an effect on the entire company. If the converse is true, then it will be much more likely that a company has ethical problems. Code of Ethics: This seems self-evident, but is important nonetheless. A company should adopt a set of ethical standards in order to guide its employees as they make decisions. This is important as doing so eliminates several of the typical rationales that people give when making an unethical decision. Reporting Hotlines: Assuming a company has done the first two, implementing a control process to ensure that ethical guidelines are followed is important. Something like a reporting hotline can serve to eliminate unethical conduct since employees know that their actions are being monitored and the company cares about compliance with its adopted code of ethics.

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That is it for this week.

Please let me know if you have any questions.