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BUSINESS ETHICS:

The term ethics refers to accepted principles of right or wrong that govern the
conduct of a person, the members of a profession, or the actions of an organization.
Business Ethics are the accepted principles of right or wrong governing the conduct
of business people. Ethical decisions are those that are in accordance with those
accepted principles of right and wrong, whereas and unethical decision in one that
violates accepted principles. This is not as straightforward as it sounds

Managers may face ethical dilemmas, which are situations where there is no
agreement over exactly what the accepted principles of right and wrong are, or
where none of the available alternatives seems ethically acceptable.

UNETHICAL BEHAVIOR:

Self-dealing occurs when managers find a way to feather their own nests with
corporate funds. Classic examples of this behavior include:

Senior managers who treat corporate funds as their own personal treasury, raiding
them to support a lavish lifestyle.

Senior managers who use their control over the compensation committee of the
board of directors to award themselves multi-million-dollar pay increases or stock
option grants that are out of proportion with their contribution to the corporation.

Instances where individual managers award business contracts not to the most
efficient supplier but to the one that provide the largest kickback. In these cases
managers are not acting in the best interests of their shareholders and are instead
consuming funds that should legitimately go to shareholders.

Some of this behavior is illegal; some is technically legal but unethical because it
violates the basic right of shareholders to a fair return on their investment.

For an example of self-dealing, consider the former CEO of Tyco International,


Dennis Kozlowski. Kozlowski treated Tyco as his personal treasury, drawing on
company funds to purchase a $30 million Manhattan apartment and a world-class
art collection. Kozlowski even used company funds to help pay for a lavish $2.2
million birthday party for his wife in Italy! Kozlowski ultimately was charged with
securities fraud, found guilty of looting Tyco of $97 million, and was sentenced to
jail term 8 to 25 years.

Information Manipulation
Information manipulation occurs when managers use their control over corporate
data to distort or hide information to-enhance their own financial situations or the
competitive position of the firm. Many of the accounting scandals that swept
through American companies in the early 2000s involved cases of information
manipulation. For example, the now-bankrupt energy trading firm Enron hid
significant debt from shareholders in off-balance sheet partnerships. This practice
misled investors about the level of risk Enron had assumed and supported a much
higher stock price than was justified. When the scale of hidden debts was finally
revealed, Enron quickly collapsed into bankruptcy, resulting in losses of over $100
billion for shareholders. Information manipulation is unethical because it violates
the right of investors to accurate and timely information.

Information manipulation can also take place with nonfinancial data. This occurred
when managers at tobacco companies suppressed internal research that linked
smoking to health problems, violating the right of consumers to accurate
information about the dangers of smoking. When evidence of this came to light,
lawyers brought class action suits against the tobacco companies, claiming they
had intentionally caused harm to smokers. In 1999, the tobacco companies settled
a lawsuit brought by several states, which sought to recover health care costs
associated with tobacco-related illnesses; the total payout to the states was $260
billion!

Anticompetitive Behavior

Anticompetitive behavior includes a range of actions aimed at harming actual or


potential competitors, most often by using monopoly power to enhance the
prospect of the firm. For example, in the 1990s the Justice Department claimed
that Microsoft used its monopoly in operating systems to force PC makers to bundle
Microsoft's Web browser, Internet Explorer, with Windows and to display Internet
Explorer prominently on the computer desktop. Microsoft reportedly told PC makers
that it would not supply them with Windows unless they did this. Because the PC
makers had to have Windows to sell their machines, this was a powerful threat. The
alleged aim of the action, which is an example of tie-in sales (illegal under antitrust
laws), was to drive a competing browser maker, Netscape, out of business. The
courts ruled that Microsoft was indeed abusing its monopoly power in this case, and
in a 2001 consent decree the company agreed to stop the practice.

Putting the legal issues aside, action such as that allegedly undertaken by
managers at Microsoft is unethical in at least three ways. First, it violates the rights
of end consumers by unfairly limiting their choice; second, it violates the rights of
downstream participants in the industry value chain, in this case PC makers, by
forcing them to incorporate a particular product in their design; and third, it violates
the rights of competitors to free and fair competition.
4. Opportunistic Exploitation

Opportunistic exploitation of other players in the value chain in which the firm is
embedded is another example of unethical behavior. Opportunistic exploitation of
this kind typically occurs when the managers of a firm seek to unilaterally rewrite
the terms of a contract with suppliers, distributors, or complement providers in a
way that is more favorable to the firm, often using the firm's power to force the
revision through. For example, in the late 1990s Boeing entered a $2 billion contract
with Titanium Metals Corp. to buy certain amounts of titanium annually for l0 years.
In 2000, after Titanium Metals Corp. had already spent $100 million to expand its
production capacity to fulfill the contract, Boeing demanded that the contract be
renegotiated, asking for lower prices and an end to minimum purchase agreements.
As a major purchaser of titanium, managers at Boeing probably thought they had
the power to push this contract revision through, and the investment by Titanium
Metals meant that firm would be unlikely to walk away from the deal. Titanium
Metals Corp. promptly sued Boeing for breach of contract. The dispute was settled
out of court, and under a revised agreement Boeing agreed to pay monetary
damages to Titanium Metals (reported to be in the $60 million range) and entered
an amended contract to purchase titanium. Irrespective of the legality of this action,
it seems unethical because it violated the rights of a supplier to be dealt with in a
fair and open way.

Substandard Working Conditions

Substandard working conditions arise when managers tolerate unsafe working


conditions or pay employees below-market rates to reduce costs of production. The
most extreme examples of such behavior occur when a firm establishes operations
in countries that lack the workplace regulations found in developed nations such as
United States. The example of Nike, given earlier, falls into this category. In another
recent example, the Ohio Art company ran into an ethical storm when-newspaper
reports alleged that it had moved production of its popular Etch a Sketch toy from
Ohio to a supplier in Shenzhen province, where employees, mostly teenagers,
worked long hours for 24 cents per hour, below the legal minimum wage of 33 cents
an hour there. Moreover, production reportedly started at 7:30 a.m. and continued
until 10 p.m., with breaks only for lunch and dinner. Saturdays and Sundays were
treated as normal workdays. This translated into a workweek of seven 12- hour day,
or 84 hours a week, well above the standard 40-hour week set by authorities in
Shenzhen. Such working conditions clearly violated the rights of employees in China
as specified by local regulations (which were poorly enforced). Is it ethical for the
Ohio Art company to use such a supplier? Many would say not.

Environmental Degradation

Environmental degradation occurs when managers take actions that directly or


indirectly result in pollution or other forms of environmental harm. Environmental
degradation can violate the rights of local communities and the general public to
clean air and water; land that is free from pollution by toxic chemicals or excessive
deforestation that causes land erosion and floods; and so on.

Large open areas called commons were free for all to use as pasture. The poor put
out livestock on these commons to supplement their meager incomes. It was
advantageous for each family to put out more and more livestock, but the
consequence was far more livestock than the commons could handle. The result
was overgrazing and degradation of the commons to the point where they could no
longer support livestock.

In the modern world corporations contribute to the global tragedy of the commons
by moving production to locations in developing nations where environmental
regulations are lacking or less strict than they are at home. There the firms are free
to pump pollutions into the atmosphere or dump them in oceans or rivers, thereby
harming these valuable global commons. Although such action may be legal, is it
ethical? Again, it seems to violate basic societal notions of ethics and clearly harms
important stakeholder groups, including the general public and local communities.

Corruption

Corruption can arise in a business context when managers pay bribes to gain
access to lucrative business contracts. A recent example of corruption concerns the
allegation that the Texas-based energy company Halliburton participated in a
consortium that made $180 million in illegal payments to government officials (that
is, bribes) to secure a $4.9 billion contract to build a liquefied natural gas plant in
Nigeria. Corruption is clearly unethical: It violates several rights, including the right
of competitors to a level playing field when bidding for contracts and, when
government officials are involved, the right of citizens to expect that government
officials will act in the best interest of the local community or nation, and not in
response to corrupt payments that feather their own nests.

According to Transparency International, an independent nonprofit organization


dedicated to exposing and fighting corruption, businesses and individuals worldwide
spend some $400 billion a year on bribes related to government procurement
contracts alone! Transparency International has also measured the level of
corruption among public officials in different countries.

The organization rated countries such as Finland and New Zealand as very clean,
whereas countries such as Russia, India, Indonesia, and Zimbabwe were seen as
corrupt. Bangladesh ranked last out of all 146 countries in the survey, Finland
ranked first.