BUSINESS ETHICS

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Business Ethics Issues

• Bluffing/Truthtelling• Relativism/Int’l Business• Advertising• Product Safety• Affirmative Action/Gender• Employee Rights/Privacy• Whistleblowers

Business Ethics Issues

• Sexual Harassment• Environmental Ethics• Insider Trading• Mergers/Acquisitions• Accounting Issues

Fundamental Questions

• Is good ethics good business?• Are there two sets of standards

for conduct in business?• To whom do corporations have

responsibilities beyond their shareholders?

• Is business a “calling?”

BUSINESS ETHICS

• Corporate Social Responsibility• To Shareholders--Friedman’s thesis• To Stakeholders--Response to

Friedman• Examples

•McDonald’s Hiring High School Students

•Ben and Jerry’s Corporate Philanthropy

•Taco Bell’s Support of the Arts•Violent Video Games

BUSINESS ETHICS

• Relativism and International Business

• When In Rome, Do Business As the Romans Do?

BUSINESS ETHICS• Would you adopt standards of

host or home country when:•Additives to Glue Sold in Central

America• Pajamas without Fire Retardant•Heap-Leach Mining •Bribery of Officials to Secure a

Contract•Use of Child Labor

BUSINESS ETHICS

• Capitalism and Its Critics• System Based on Greed• Leads to an Unjust Concentration

of Wealth• 1st World Prosperity Causes 3rd

World Poverty• Leads to Overconsumption and

Materialism• Private Accumulation of Wealth

Prohibited by the Bible• Jubilee and Redemption Laws

Business as a Morally Serious Calling

• Business seen as parallel to the professions by Adam Smith

• Service to the community through one’s product/service was the bottom line.

• If one excelled in one’s product/service, he/she could expect a fair standard of living.

• Business had intrinsic value, both to God and the community.

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Cultural Views of Business

• Business often viewed cynically today.

• In the movies and on TV, the most common villain is the business-person, particularly the CEO.

• Short-term greed, not long term service seen as primary.

• “Greed is good” often attributed to Adam Smith, instead of Ivan Boesky.

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Ethics and Business

• Evaluate the following statements:

• 1. “A sudden submission to personal ethics would bring about the greatest economic upheaval in history.”

• 2. “Integrity pays. You don’t have to cheat to win.”

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Two Different Ethical Standards?

• Consider this statement by Ray Kroc:

• “My priorities are God first, family second and McDonald’s hamburgers third…

• And when I go to work on Monday morning, that order reverses.”

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Two Different Ethical Standards?

• Respond to the following statement:

• “My point is that in their office lives they cease to be private citizens; they become game players who must be guided by a somewhat different set of ethical standards.” 25

Ethics and Business

• Is good ethics good business?• If so, what makes good ethics

good business?• If not, why should businessmen

and women be ethical?

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Ethics and Business

• Short-term--There is usually a cost to being ethical in the short term.

• Long-term--good ethics is generally good business, though there are exceptions.

• Issue today--results increasingly viewed through short term lenses.

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Ethics and Trust• Good ethics is critical to establishing

trust, both within the organization and with customers, suppliers, etc.

• Lack of trust is a significant cost factor for companies--increasing need for costly oversight and monitoring mechanisms.

• Lack of trust increases the need for costly regulation from government.

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Ethics and Trust

• Lack of trust may also manifest in:• Employees less committed to their

work• Less receptive to new ideas and

change• Less willing to follow the

organization’s leadership and to “go the extra mile.”

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Ethics and Trust• Trust establishes a “virtuous cycle”• Capitalism has always been

grounded on trust, openness and fairness.

• Adam Smith advocated “enlightened self-interest” as the engine of capitalism.

• Capitalism also requires other virtues such as hard work, initiative, thrift, service and promise-keeping.

• Smith held that “commerce polishes and softens men.”

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Ethics and Trust• Trust, not greed, is the engine that

fuels the market system. • The market has punished the most

egregious examples of corporate fraud.

• Consider all the transactions that occur daily that are premised on trust.

• Also consider how difficult it is to do business in cultures where corruption is high.

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Trust and Culture• Fukuyama’s thesis: economic

growth depends on the degree of “interpersonal trust” that exists in an culture.

• In “low trust” cultures, few outside family are trusted.

• In high trust cultures, there is a high degree of trust outside family.

• In America, trust developed due to widespread voluntary associations that linked non-family members.

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So, What Went Wrong?

• Pressure from investors for short term results (“the tyranny of the Street”)

• Enormous rewards for gaming the system

• “Everyone is doing it.”

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Ethics and the Law• But the real solutions come from

ethics, asking questions that the law cannot.

• Key ethics questions for CEO, CFO, auditors:• If I were an investor in this company,

would I feel misled by these financial statements?

• If I were an investor, is there material information that is “hidden?”

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Ethics and the Law

• Compliance ethos--conformity with externally imposed (legal/regulatory) standards

• Typically grounded in avoiding legal/regulatory sanctions

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Ethics and the Law• Ethics strategy is based on self-

governance in accordance with guiding principles.

• Ethics is the driving force of the organization--ethical values defines and structures what a company stands for.

• CEO should be renamed the “chief ethics officer”

• Example of Merck

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Ethics and the Law

• “A society with no other scale but the legal one is not quite worthy of man…The letter of the law is too cold and formal an atmosphere of moral mediocrity, paralyzing man’s noblest impulses.”--Alexander Solzhenitsyn 40

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Ethics and Character• Ancient Philosophers saw

character as central to ethics. • Ethics was not primarily about

decisions or dilemmas, but about being a good person and living a good life.

• Success was measured by what kind of person you were, not what you accomplished or accumulated.

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Ethics and Character• “Happiness is an activity of soul

in accordance with virtue.”--Aristotle

• “It is not possible to live pleasantly without living prudently, honorably and justly.”--Epicurus

• “What does it profit a man to gain the whole world and forfeit his soul?”--Jesus of Nazareth

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Making Ethical Decisions• Gather the Facts• Clarify the ethical issue• Specify the values/principles that

have a bearing on the case• Outline the alternatives• Compare values/principles with

alternatives• Assess the consequences• Make a decision

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For Further Reading• Rae and Wong, Beyond

Integrity: A Judeo Christian Approach to Business Ethics, Zondervan

• Michael Novak, Business as a Calling, Free Press

• Max Stackhouse, et. al., eds., On Moral Business, Eerdmans

• Justo L. Gonzales, Faith and Wealth, Eerdmans