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Chapter 1: The Importance of Business Ethics
- 1. Chapter 1:
The Importance of Business
Ethics
Part One:
An Overview of Business Ethics
© 2013 Cengage Learning. All Rights Reserved. 1
- 2. Business Ethics
Ethics is a part of decision making at all
levels of work and management
Just as important as functional areas of
business
Deals with questions of whether practices are
acceptable
No universally accepted approach for resolving
issues
© 2013 Cengage Learning. All Rights Reserved. 2
- 3. Business Ethics Defined
Comprises principles, values, and standards
that guide behavior in the world of business
Ethical decisions occur when accepted rules no
longer serve and decision makers must weigh
values and reach a judgment
Values and judgments are critical in ethical decisions
Principles: Specific boundaries for behavior
that are universal and absolute
• Freedom of speech, civil liberties
Values: Used to develop socially enforced
norms
• Integrity, accountability, trust
© 2013 Cengage Learning. All Rights Reserved . 3
- 4. A Crisis in Business Ethics
Nearly half of employees observe
misconduct in the workplace
After the financial crisis, business decisions
and activities have come under scrutiny
The financial sector has not regained
stakeholder trust
© 2013 Cengage Learning. All Rights Reserved. 4
- 5. Americans’ Trust in Business Sectors
(% of respondents who say they trust the following business
categories)
© 2013 Cengage Learning. All Rights Reserved 5
- 6. Specific Issues
Misuse of company resources
Abusive behavior
Harassment
Accounting fraud
Conflicts of interest
Defective products
Bribery
Employee theft
© 2013 Cengage Learning. All Rights Reserved. 6
- 7. The Reasons for Studying Business Ethics
Having good individual values/morals is not
enough to stop ethical misconduct
Ethics training helps provide collective
agreement in diverse organizations
Business ethics decisions can be complicated
Studying business ethics helps identify ethical
issues to key stakeholders
© 2013 Cengage Learning. All Rights Reserved. 7
- 8. A Timeline of Ethical and Socially
Responsible Concerns
1960s 1970s 1980s 1990s 2000s
Environmental Employee Bribes and Sweatshops and unsafe Cybercrime
issues militancy illegal working conditions in
contracting third-world countries
prices
Civil rights Human rights Influence Rising corporate liability Financial
issues issues peddling for persona damages misconduct
(for example, cigarette
Source: Adapted from “Business companies)
Increasing Covering up Deceptive Financial Global issues,
employee- rather than advertising mismanagement and Chinese product
employer correcting fraud safety
tension issues
Changing work Disadvantaged Financial fraud Organizational ethical Sustainability
ethic consumers (for example, misconduct
savings and
loan scandal)
Rising drug use Transparency Intellectual
issues property theft
Ethics Timeline,” Ethics Resource Center, http://www.ethics.org/resources/business-ethics-timeline.asp (accessed May 27, 2009). Copyright ©
2006, Ethics Resource Center (ERC). Used with permission of the ERC, 1747 Pennsylvania Ave. N.W., Suite 400, Washington, DC, 2006, www.ethics.org.
© 2013 Cengage Learning. All Rights Reserved. 8
- 9. 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 theology schools
The Protestant work ethic encouraged hard work
© 2013 Cengage Learning. All Rights Reserved. 9
- 10. The 1960s: The Rise of Social Issues
in Business
Social consciousness emerged
Increased anti-business sentiment
JFK’s Consumer Bill of Rights— a new era of
consumerism
Right to safety, to be informed, to choose, and to
be heard
Consumer protection groups fought for
legislation changes
Ralph Nader
© 2013 Cengage Learning. All Rights Reserved. 10
- 11. The 1970s: Business Ethics as an
Emerging Field
Business professors began to write about
social responsibility
An organization’s obligation to maximize
positive impact and minimize negative impact
on stakeholders
• Philosophers involved
• Businesses concerned with public image
• Conferences held and centers developed
• Issues:
Bribery Deceptive advertising
Price collusion Product safety
Environment
© 2013 Cengage Learning. All Rights Reserved 11
- 12. The 1980s: Consolidation
Increased membership in business ethics
organizations
Ethics centers provided publications, courses,
conferences, and seminars
Firms established ethics committees
Defense Industry Initiative on Business Ethics
and Conduct (DII)
The foundation for the Federal Sentencing
Guidelines for Organizations
Corporate support for ethics
© 2013 Cengage Learning. All Rights Reserved . 12
- 13. The 1990s: Institutionalization of
Business Ethics
Continued support for self-regulation,
deregulation, and free trade
Health-related issues more regulated
The Federal Sentencing Guidelines for
Organizations (FSGO) in 1991
Set tone for compliance
Preventative actions against misconduct
A company could avoid/minimize potential
penalties
© 2013 Cengage Learning. All Rights Reserved. 13
- 14. The Federal Sentencing Guidelines
for Organizations
Standards and procedures for preventing
misconduct
High level of oversight
Care in delegation of authority
Effective communication
Employee training
Systems to monitor, audit, and report
misconduct
Consistent enforcement and continuous
improvement
© 2013 Cengage Learning. All Rights Reserved. 14
- 15. The 21st Century: A New Focus
Continued issues with corporate non-compliance
Public/political demand for improved ethical standards
Sarbanes-Oxley Act (2002)
Most extensive ethics reform
Increased accounting regulations
FSGO reforms (2004, 2008, 2010)
Requires governing authorities to be informed of business
ethics programs
Dodd-Frank Wall Street Reform and Consumer
Protection Act (2009)
Aimed at making the financial industry more
transparent/responsible
A firm’s greatest danger is not discovering
misconduct early
© 2013 Cengage Learning. All Rights Reserved 15
- 16. Organizational Ethical Culture
Ethical culture: The component of
corporate culture that captures the values
and norms that an organization defines as
appropriate
Creates shared values
Goal is to:
Minimize need for enforced compliance
Maximize utilization of principles/ethical reasoning
© 2013 Cengage Learning. All Rights Reserved. 16
- 17. Global Ethical Culture
Nations working together to establish
standards of ethical behavior
NAFTA
MERCOSUR
WTO
Companies can demonstrate their
commitment to social responsibility through
adopting international standards
Global Sullivan Principles
Coalition for Environmentally Responsible Economies
(CERES)
United Nations Global Compact
© 2013 Cengage Learning. All Rights Reserved. 17
- 18. The Role of Organizational Ethics in
Performance
Source: Adapted from “Business
© 2013 Cengage Learning. All Rights Reserved. 18
- 19. Ethics Contributes to Employee
Commitment
Commitment comes from employees who
are invested in the organization
Employees willing to make personal sacrifices
for the organization
The more company dedication to ethics, the
greater the employee dedication
Concerns include a safe work environment,
competitive salaries and benefits packages, and
fulfillment of contractual obligations
© 2013 Cengage Learning. All Rights Reserved. 19
- 20. Ethics Contributes to Investor
Loyalty
Companies perceived by their employees as
being honest are more profitable
Ethical climates in organizations provide a
platform for
Efficiency
Productivity
Profitability
© 2013 Cengage Learning. All Rights Reserved. 20
- 21. Ethics Contributes to Customer
Satisfaction
Consumers respond positively to socially
concerned businesses
Being good can be profitable
Customer satisfaction dictates business success
A strong organizational ethical climate places
customers’ interests first
Research shows a strong relationship between
ethical behavior and customer satisfaction
© 2013 Cengage Learning. All Rights Reserved. 21
- 22. Ethics Contributes to Profits
Corporate concern for ethical planning is being
integrated with strategic planning
Maximizes profitability
Corporate citizenship is positively associated
with
Return on investment and assets
Sales growth
Studies have found a positive relationship
between corporate citizenship and
performance
© 2013 Cengage Learning. All Rights Reserved. 22