chapter 4 - business ethics

8/8/2019 Chapter 4 - Business Ethics

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CHAPTER 4

Business Ethics andEthical DecisionMaking

Objectives

What is business ethics? Examples of ethical dilemmas

What are some of the approaches of dealingwith ethics? Utilitarianism

Universalism

Rights

Why should companies be concerned withethics?

Which theories should be used?

What is business ethics?

Ethics study of what is good and evil, rightand wrong, and just and unjust

Business ethics - study of what is good andevil, right and wrong, and just and unjust inbusiness Principles and standards that guide behavior

Discussions of business ethics frequentlyemphasize unclear situations

However, applying clear guidelines resolves

the majority of them

Some Surveys

International Survey of more than 300companies worldwide top ethical issues Employee conflict of interest 91%,

Inappropriate gifts 91%,

Sexual Harassment 91%,

Unauthorized Payments 85%

Wall Street J survey of 1400 working women Managers lying, expense-account abuses, office

nepotism, taking credit for others work

Surveys - Incidence of unethical behaviorsin areas (from a Wall Street Journal survey):

Government: 66%

Sales 51%

Law 40% Media 38%

Finance 33%

Medicine 21%

Banking 18% Manufacturing

14%

Common examples

Individual values and the company

Receiving or offering k ickbacks

Stealing from the company Padding expense accounts to obtain

reimbursements for questionable businessexpenses

Divulging confidential information or trade secrets

Using company property and materials forpersonal use

Conflict of interest


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Individual Rights and the Company

Firing an employee for whistle-blowing Employee screening and privacy

Sexual Harassment

Affirmative action

Employee rights

Employment at will

Corporate due process

Business Operations

Financial and cash management procedures Conflicts between codes and practices

Practices in foreign countries

Payments to foreign officials

Workplace safety

Environmental issues etc

Determinants of Business Ethics

Individual factors

Organizational factors/relationships

Organizational culture

Ethical climate

Opportunity/environment

What encourages or discourages unethicalbehavior?

Language of Ethical Lapse

Everybody else does it

Not a valid choice specially if law is being broken

If we dont do it, someone else will

Thats the way it has always been done

Well wait until the lawyers tell us its wrong

Whats legal may not be ethical

It doesnt really hurt anyone

The system is unfair

Individual determinants

Religion

Many religions converge in the area of ethics

Belief that the divine reveals the nature of right andwrong in all areas of life

Ex: Reciprocity, promise keeping, fairness, charityand responsibility to others all found in Buddhism,Confucianism, Hinduism, Islam and Christianity

Bible is source of ethics for Christian managers

Other determinants

Moral philosophy

Kohlbergs stages of development

Cultural differences Ethical philosophies


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Common approaches to BusinessEthics

Utilitarianism basic premise is that an actionis judged as right or wrong depending on theconsequences of the action

Universalism the means justify the ends of anaction, not the consequences

Rights based on entitlements andunquestionable claims

Utilitarianism

Moral worth of an action is determined solelyby its consequences

What makes an action right or wrong is thegood or evil that is produced by the act

Action is right if it produces the best possiblebalance of good consequences over badconsequences for all parties affected

It involves the consideration of alternatives andhow they affect all parties concerned

Essential Features

Utilitarianism is committed to the maximizationof the good and minimization of harm and evil

Society ought to produce the greatest balanceof positive value or minimum balance ofnegative value for all affected

Ex: Cost and benefit analysis

Risk assessment

Management by objectives

Efficiency is key

Utilitarianism

Involves the following steps 1. Determining the alternative actions that are

available in any specific decision situation

2. Estimating the costs and benefits that a givenaction would produce for parties affected by theaction

2. Choosing the alternative that produces thegreatest sum of utility or least amount of disutility

Problems with Utilitarianism

Not always possible to calculate utility or to analyzemassive amounts of information consider the case ofoil rigs in Alaska

Ignores distribution of good is it uniformly distributedor favors specific groups?

No common definition of what is good?

Assumes that all can be measured in a commonnumerical scale

Major issues with utilitarianism

Action that produces the greatest balance ofvalue for the greatest number of people

What about the minority? Ex: What if society decides that it is in the best

interest of the public to deny health insurance tothose testing positive for AIDS?


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Why be concerned with ethics?

Laws are insufficient and do not cover allaspects or gray areas of a problem

Free-market and regulated-marketmechanisms do not effectively inform ownersand managers about how to respond tocomplex crises

The cost of unethical business practices?

Consider Food Lion and labor violations or E.F.Hutton and its fraudulent activities or Enron orWorldCom or Martha Stewart

In all cases, companies had to pay fines or aresuffering bad publicity

But do unethical behaviors hurt organizationsfinancially?

Baucus & Baucus (2000)

Singled out 67 companies out of the Fortune 500 thathad at least one illegal act ex: antitrust, productliabilities, discrimination

Performance of the convicted firms were compared tounconvicted firms (five year after the fraud wascommitted)

Convicted firms experienced significantly lower returnon sales (three year lag)

Multiple convictions are more disastrous

Unethical activities can affect long term performance

The nature of ethical decisions Complex and Difficult

Managers confront facts and values whenmaking decisions

Good and evil are not always clear-cut ex:genetic products

Knowledge of consequences are limited

Existence of multiple constituencies conflictsof interest

Multiple constituencies can also use ethical

arguments to justify their position

Conclusion

Nature of ethical problems

Ethical standards change over time

Human reasoning is imperfect Ethical standards and principles are not always

adequate to resolve conflicts

Which theory should be used?

Each approach has strengths and weaknesses

Need to look at situation and apply bestanalysis/judgment

chapter 4 - business ethics

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