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Chapter1.TheImportanceofBusinessEthics.pptx

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Part One An Overview of Business Ethics

Chapter 1 The Importance of Business Ethics

Learning Objectives

Explore conceptualizations of business ethics from an organizational perspective

Examine the historical foundations and evolution of business ethics

Provide evidence that ethical value systems support business performance

Gain insight into the extent of ethical misconduct in the workplace and the pressures for unethical behavior

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The Basic Concepts in Business Ethics (1 of 4)

Morals: Personal philosophies that define right and wrong.

Business ethics: Organizational principles, values, and norms that may originate from individuals, organizational statements, or from the legal system that primarily guide individual and group behavior in business.

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The Basic Concepts in Business Ethics (2 of 4)

Principles: Specific boundaries for behavior that often become the basis for rules (human rights, freedom of speech).

Values: Enduring beliefs and ideals that are socially enforced (trust and integrity).

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The Basic Concepts in Business Ethics (3 of 4)

Moral dilemma: Two or more morals in conflict with one another.

Value dilemma: Two or more beliefs/ideals in conflict with one another.

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The Basic Concepts in Business Ethics (4 of 4)

Ethical culture: Organizational principles, values, and norms that are adhered to by the company and its personnel.

Corporate social responsibility: Actions associated by firms with various stakeholder (other than investors) interests as a priority.

Sustainability: Relates specifically to the environment (air, land, and water).

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Bottom Line for Business Ethics

Firm survival

Profitability, revenues, sales

Stakeholders: customers, employees, channel members (manufacturers, wholesalers, retailers)

Contribute to societal goals: community, country, world

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Why Study Business Ethics?

Identify ethical issues.

Recognize approaches for resolving ethical issues.

Cope with conflicts between your own personal values and those of the organization in which you work.

Gain knowledge to make more ethical business decisions.

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TABLE 1-1 Observed Misconduct in the U.S. Workforce

Observed misconduct	30%
Abusive behavior	22%
Lying to stakeholders	22%
Conflict of interest	19%
Pressure to compromise standards	22%
Report observed misconduct	76%
Experience retaliation for reporting	53%

Source: Ethics and Compliance Initiative, 2016 Global Business Ethics Survey™: Measuring Risk and Promoting Workplace Integrity (Arlington, VA: Ethics and Compliance Initiative 2016), 43.

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The Process of Legal to Unethical to Illegal Business Practice

Steps in the process:

A major event occurs that negatively sensitizes the public to a business practice.

The public uses social media to increase awareness.

Legislators (local, state, and federal) become sensitized to the negative business practices.

Bills, laws, and local, state or federal agencies are introduced to make specific items illegal or regulated.

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The Development of Business Ethics in the U.S.—Before 1960

Capitalism dictated business practices.

1920s: Provide a living wage—income sufficient for education, recreation, health, and retirement.

1930s: The New Deal (President Franklin D. Roosevelt)—blamed business as the cause for U.S. problems.

1950s: The Fair Deal (President Harry S. Truman)—defined such matters as environmental responsibility as ethical issues that businesses had to address.

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The Development of Business Ethics in the U.S.—The 1960s: The Rise of Social Issues in Business (1 of 2)

Development of anti-business trend.

Decay of inner cities; growth of ecological problems.

President John F. Kennedy: The Consumers’ Bill of Rights

Right to safety.

Right to be informed.

Right to choose.

Right to be heard.

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The Development of Business Ethics in the U.S.—The 1960s: The Rise of Social Issues in Business (2 of 2)

President Lyndon B. Johnson: The Great Society

Extended national capitalism with the U.S. government’s responsibility to provide all citizens with some degree of economic stability, equality, and social justice.

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The Development of Business Ethics in the U.S.—The 1970s: Business Ethics as an Emerging Field (1 of 2)

Business ethics becomes a common expression.

Academic researchers seek to identify ethical issues and describe how business people might choose to act in particular situations.

Ethical/Illegal issues defined: bribery, deceptive advertising, price collusion, product safety, and ecology.

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The Development of Business Ethics in the U.S.—The 1970s: Business Ethics as an Emerging Field (2 of 2)

Limited success was made to describe how the ethical decision-making process in business worked and to identify the many variables that influenced the process.

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The Development of Business Ethics in the U.S.—The 1980s: Business Ethics Reaches Maturity (1 of 2)

Centers for business ethics provided publications, courses, conferences, and seminars.

Stakeholder theory developed.

Defense Industry Initiative on Business Ethics and Conduct (DII) was developed to guide corporate support for ethical conduct.

Codes of conduct must be understandable and cover substantive areas in detail.

Member companies expected to provide ethics training and continuous support for employees.

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The Development of Business Ethics in the U.S.—The 1980s: Business Ethics Reaches Maturity (2 of 2)

Defense contractors must create an open atmosphere in which employees feel comfortable reporting violations without fear of retribution.

Companies must perform extensive internal audits and develop effective internal reporting and voluntary disclosure plans.

Member companies must preserve the integrity of the defense industry.

Member companies must adopt a philosophy of public accountability.

Reagan–Bush Era: Self-regulation rather than regulation by government was in the public’s interest.

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The Development of Business Ethics in the U.S.—The 1990s: Institutionalization of Business Ethics

President Bill Clinton: Continued to support self-regulation and free trade.

Government action with health-related social issues such as teenage smoking.

Federal Sentencing Guidelines for Organizations (FSGO): Set the tone for organizational ethical compliance programs.

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The Development of Business Ethics in the U.S.—The Twenty-First Century of Business Ethics (1 of 3)

President George W. Bush: Misconduct at Enron, WorldCom, Halliburton, and the accounting firm Arthur Andersen caused the government and the public to look for new ways to encourage ethical behavior.

2002 Congress passed the Sarbanes–Oxley Act, the most far-reaching change in organizational control and accounting regulations since the Securities and Exchange Act of 1934.

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The Development of Business Ethics in the U.S.—The Twenty-First Century of Business Ethics (2 of 3)

Amendments to the FSGO required governing authority be well informed about its ethics program with respect to content, implementation, and effectiveness. Placed responsibility on firm’s leadership (usually the board of directors).

The Sarbanes–Oxley Act and the FSGO institutionalized the need to discover and address ethical and legal risk.

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The Development of Business Ethics in the U.S.—The Twenty-First Century of Business Ethics (3 of 3)

President Barack Obama: Inherited the great global financial recession.

The Dodd–Frank Wall Street Reform and Consumer Protection Act addressed some of the issues related to the financial crisis and recession.

President Donald Trump: Decreased environmental and financial regulations. Questioned sustainability.

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TABLE 1-2 Timeline of Ethical and Socially Responsible Concerns

1960s	1970s	1980s	1990s	2000s
Environmental issues	Employee militancy	Bribes and illegal contracting practices	Sweatshops and unsafe working conditions in third-world countries	Cybercrime
Civil rights issues	Human rights issues	Influence peddling	Rising corporate liability for personal damages (for example, cigarette companies)	Financial misconduct
Increased employee–employer tension	Covering up rather than correcting issues	Deceptive advertising	Financial mismanagement and fraud	Global issues, product safety, bribery
Changing work ethic	Disadvantaged consumers	Financial fraud (for example, savings and loan scandal)	Organizational ethical misconduct	Sustainability
Rising drug use	Transparency issues			Intellectual property theft

Source: Adapted from Ethics & Compliance Initiative, “Business Ethics and Compliance Timeline,” https://www.ethics.org/resources/free-toolkit/ethics-timeline (accessed April 9, 2017).

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The Benefits of Business Ethics (1 of 4)

Ethics Contributes to Employee Commitment

Willingness to sacrifice for the organization.

Increases group creativity and job satisfaction; decreases turnover.

Less pressure to compromise ethical standards,

Greater absence of misconduct.

Strong community involvement increases loyalty and positive self identity.

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The Benefits of Business Ethics (2 of 4)

Ethics Contributes to Investor Loyalty

Provides a foundation for efficiency, productivity, and profits.

Negative publicity, lawsuits, and fines can lower stock prices, diminish customer loyalty, and threaten a company’s long-term viability.

Demand for socially responsible investing is increasing.

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The Benefits of Business Ethics (3 of 4)

Ethics Contributes to Customer Satisfaction

High levels of perceived corporate misconduct decreases customer trust.

Companies viewed as socially responsible increase customer trust and satisfaction.

Consumer respondents stated they would pay more for products from companies that give back to society in a socially responsible and sustainable manner.

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The Benefits of Business Ethics (4 of 4)

Ethics Contributes to Profits

Better business performance.

Part of strategic planning toward obtaining the outcome of higher profitability.

Business ethics is becoming more than just a function of compliance; It’s becoming an integral part of management’s efforts to achieve competitive advantage.

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