Business Ethics

1. Business Ethics a. Ethics- the study of what constitutes right or wrong behavior b. Business ethics- judges whether the decisions businesses make are right or wrong c. 9-1a: why is studying business ethics important? i. Profit maximization as a goal 1. All firms adhere to this goal 2. Corporations focus on their strengths 3. Other entities that are better suited to perform charitable acts focus on that 4. The government can shift resources to those other entities 5. Profit maximization can lead to the most efficient allocation of scarce resources ii. The rise of corporate ownership 1. Triple bottom line- a corporation’s profits, its impact on people, and its impact on the planet d. 9-1b: the importance of ethics in making business decisions i. When making decisions, a business should evaluate: 1. Legal implications 2. Public relations impact 3. Safety risks for consumers and employees 4. Financial implications ii. Short run vs long run profit maximization 1. Business ethics is only consistent with long-run profit maximization because of lawsuits, bad publicity, etc 2. An overemphasis on short-term profit maximization is the most common reason that ethical problems occur iii. The internet can ruin reputations 1. Cyberspace provides a forum where disgruntled employees and unhappy customers can post derogatory remarks a. Bad reputation or loss or profits iv. Image is everything 1. Unethical corporate decision making can negatively affect suppliers, consumers, the community, and society as a whole e. 9-1c: the relationship of law and ethics i. Compliance with the law is not always sufficient to determine “right” behavior ii. Legal requirements 1. Laws have to be general to apply in a variety of circumstances iii. The moral minimum 1. Moral minimum- those who merely comply with the law are acting at the lowest ethical level society will tolerate iv. Ethical requirements 1. An action that is legal is not necessarily ethical v. Ethics and private company codes of ethics 1. Company codes- rules that the company enforces that outline the company’s policies on particular issues and indicate how employees are supposed to act 2. Codes of ethics- give guidance to decision makers facing ethical questions vi. Ethics and “gray areas” of the law 1. Ethics is subjective and less certain than law 2. The law can also be uncertain 3. Helpful to evaluate an action and its consequences from an ethical perspective 2. 9-2: business ethics and social media a. 9-2a: hiring procedures i. Employers conduct internet searches to see what job candidates have posted on social media 1. People believe this is unethical- invasion of privacy b. 9-2b: discussion of work-related issues i. The government acts 1. Some social media guidelines have been made illegal, such as firing people for making certain posts to their social media accounts ii. The ethical responsibilities of employees 1. Ongoing debate on how to balance employees’ right to free expression against employers’ right to prevent inaccurate, negative statements from being spread across the internet 3. 9-3: approaches to ethical reasoning a. Ethical reasoning- the application of morals and ethics to a situation b. Duty-based ethics- rooted in the idea that every person has certain duties to others, including humans and the planet c. Outcome-based ethics- focuses on the impacts of a decision on society or on key stakeholders d. 9-3a: duty-based ethics i. Focuses on the obligations of the corporation ii. Deals with standards for behavior iii. Religious ethical principles 1. For businesses, religious principles can be a unifying force for employees or a rallying point to increase employee motivation 2. Can also present problems because of different religious backgrounds iv. The principle of rights 1. The belief that human beings have certain fundamental rights 2. Key factor in determining whether a business decision is ethical is how that decision affects the rights of others v. Kantian ethical principles 1. Belief that human beings are qualitatively different from other physical objects and are endowed with moral integrity and the capacity to reason and conduct their affairs rationally 2. The categorical imperative a. When a business makes unethical decisions, it rationalizes by saying it would only have a small impact b. Categorical imperative- individuals should evaluate their actions in light of the consequences that would follow if everyone in society acted in the same way e. 9-3b: outcome based ethics: utilitarianism i. Focuses on the consequences of an action, not on the nature of the action itself ii. Utilitarianism- an action is evaluated in terms of its consequences for those whom it will affect iii. Cost-benefit analysis 1. An action is morally right when it produces the greatest amount of good for the greatest amount of people 2. Applying the utilitarian theory requires: a. A determination of which individuals will be affected by the action in question b. Cost benefit analysis, which involves an assessment of the negative and positive effects c. A choice among alternative actions that will produce maximum societal utility iv. Problems with the utilitarian approach 1. An action that produces the greatest good for the most people may not be the most ethical f. 9-3c: corporate social responsibility i. (CSR)- combines a commitment to good citizenship with a commitment to making ethical decisions, improving society, and minimizing environmental impact ii. Social aspects of CSR 1. Requires that corporations demonstrate that they are promoting goals that society deems worthwhile and are moving towards solving social problems iii. Corporate aspects of CSR 1. Corporations that are viewed as good citizens may see increases in sales 2. Corporate responsibility is most successful when a company undertakes activities that are significant and related to its business operations iv. Stakeholders 1. Corporations also have a duty to stakeholders 2. Stakeholders- groups that are affected by corporate decisions a. Employees, customers, etc 3. A corporation considers the impact of its decisions on the community in which it operates 4. 9-4: making ethical business decisions a. 9-4a: a systematic approach i. Step 1: inquiry 1. Understand the problem ii. Step 2: discussion 1. List possible actions iii. Step 3: decision 1. Come up with a plan of action iv. Step 4: justification 1. Give reasons v. Evaluation 1. Analyze if it was effective for future decisions b. 9-4b: the importance of ethical leadership i. Attitude of the top management 1. Top management needs to demonstrate its commitment to ethical decision making 2. Managers who set unrealistic production or sales goals increase the probability that employees will act unethically a. High pressure 5. 9-5: global business ethics a. Conflicts arise because of various cultures and religions throughout the world b. 9-5a: monitoring the employment practices of foreign suppliers i. Some foreign companies exploit workers by hiring women and children at below minimum wage rates ii. Few companies can assume that their actions in other nations will go unnoticed by “corporate watch” groups that discover and publicize unethical corporate behavior c. 9-5b: the foreign corrupt practices act i. Prohibits US businesspersons from bribing foreign officials to secure advantageous contracts