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Copyright Houghton Miff lin Company. All rights reserved. 1-1

Chapter 1

The Importance of BusinessEthics


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Why differentiate between

rules/policies/law and ethics?The difference between an ordinary decision and an

ethical one is the point where rules no longer serve.

Values and judgment play a key role in ethics

decisions.

Employees need a buffer zone of

expected ethical behavior.


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Business Ethics

Comprises principles and standards that guide behavior inthe world of business

Whether a specific behavior is ethical or unethical is oftendetermined by stakeholders: Investors

Employees

Customers

Interest groups

Legal system

Community


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Copyright Houghton Mifflin Company. All rights reserved. 1-

Ethics and social responsibility

have distinct meanings...Social responsibility is the obligation a business assumesto maximize its positive effect while minimizing its negativeeffect on society.

Social responsibility consists of the followingresponsibilities: Economic (satisfy investors)

Legal (obey the law)

Ethical (expected activities and behaviors)

Philanthropic (desired activities and behaviors)


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Why study business ethics?

Reports of unethical behavior are on the rise.

Societys evaluation of right or wrong affects its

ability to achieve its business goals.Studying business ethics is a response to FSGO

and stakeholder demands for ethics initiatives.

Individual ethics is not enough.Studying business ethics helps identify ethical

issues to key stakeholders.


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A Timeline of Ethical and Socially

Responsible Concerns


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Before 19 : Ethics in Business

Theological discussions of ethics emerged:

Ethics could be found in religious books.Catholic social

ethics included a concern for morality in business

workers rights and living wages.

Protestants developed ethics courses in their seminaries

and schools of theology. (Also the Protestant work ethicencouraged frugality and hard work.)


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The 19 s: The Rise of Social

Issues in BusinessSocietal social consciousness emerged

As well as an anti-business sentiment

There come a new era of consumerism Consumer have rights to safety to be informed to

choose and to be heard

Consumer protection groups fought forconsumer protection legislation

Ralph Nader


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The 19 s: Business Ethics as an

Emerging FieldBusiness professors began to write about socialresponsibility.

Philosophers became involved in business ethics.Businesses became more concerned with their public imageand addressed ethics more directly.

Conferences were held and centers developed.

Issues: Bribery Product safety

Deceptive advertising Environment

Price collusion


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The 19 s: Consolidation

Membership in business ethics organizations increased.

Ethics centers provided:

Publications courses conferences and seminars

Firms established ethics committees.

Defense Industry Initiatives emerged and became the

foundation for the Federal Sentencing Guidelines forOrganizations

Corporate support for ethical conduct


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The 199 s: Institutionalization

of Business EthicsThe Federal Sentencing Guidelines for

Organizations set the tone for ethical

compliance.

These took preventative actions against

misconduct; a company could avoid or minimize

the potential penalties.


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The Federal Sentencing

Guidelines for OrganizationsStandards and procedures capable of detecting and

preventing misconduct

High level oversightCare in delegation of authority

Effective communication (training)

Systems to monitor audit and report misconductConsistent enforcement

Continuous improvement


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The 21st Century: A New Focus

A move from legally based ethics initiatives to

culturally or integrity-based programs

However legislation such as the Sarbanes-Oxley Actwas passed to address the lack of confidence in financial

reporting and corporate ethics.

Realization that business ethics programs are good

for business

Businesses working more closely together globally

to establish standards of acceptable behavior


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Relationship of Business

Ethics to PerformanceCustomers employees and investors are major

concerns for firms that want to develop loyalty and

competitive advantage. Goals are to increase customer dependence on the

company and to provide products in an environment of

mutual respect and perceived fairness.

This focus creates satisfying relationships with employees. It also supports relationships with investors based on trust

dependability and commitment.


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Ethics Contributes to

Employee CommitmentEmployee commitment comes from employees who

believe their future is tied to that of the organization

and their willingness to make personal sacrifices forthe organization.

The more dedication on the part of the company the

greater the employee dedication. Concerns include a safe work environment

competitive salaries and benefit packages and

fulfillment of contractual obligations.


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Ethics Contributes to Investor

LoyaltyCompanies perceived by their employees as having ahigh level of honesty and integrity are more profitablethan companies with a low level of honesty and

integrity.Ethical climates inorganizations provideplatform for:

Efficiency

Productivity

Profitability


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Ethics Contributes to Profits

Corporate concern for ethical conduct isincreasingly being integrated with strategicplanning to maximize profitability.

Corporate citizenship is positivelyassociated with: Return on investment and assets

Sales growth

Many studies have found a positiverelationship between citizenship andperformance.

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