Chapter 1:

The Importance of Business

Ethics

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 Business Ethics

Ethics is a part of decision making at all

levels of work and management
 Just as important as functional areas of
business
 Deals with questions of whether practices are
acceptable
 No universally accepted approach for resolving
issues

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 Business Ethics Defined
Comprises principles, values, and standards
that guide behavior in the world of business
 Ethical decisions occur when accepted rules no
longer serve and decision makers must weigh
values and reach a judgment
 Values and judgments are critical in ethical decisions
Principles: Specific boundaries for behavior
that are universal and absolute
• Freedom of speech, civil liberties
Values: Used to develop socially enforced
norms
• Integrity, accountability, trust
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 A Crisis in Business Ethics

Nearly half of employees observe

misconduct in the workplace
 After the financial crisis, business decisions
and activities have come under scrutiny
 The financial sector has not regained
stakeholder trust

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 Americans’ Trust in Business Sectors
(% of respondents who say they trust the following business
categories)

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 Specific Issues

 Misuse of company resources

 Abusive behavior
 Harassment
 Accounting fraud
 Conflicts of interest
 Defective products
 Bribery
 Employee theft

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The Reasons for Studying Business Ethics

 Having good individual values/morals is not

enough to stop ethical misconduct
 Ethics training helps provide collective
agreement in diverse organizations
 Business ethics decisions can be complicated
 Studying business ethics helps identify ethical
issues to key stakeholders

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 A Timeline of Ethical and Socially
Responsible Concerns
1960s 1970s 1980s 1990s 2000s

Environmental Employee Bribes and Sweatshops and unsafe Cybercrime

issues militancy illegal working conditions in
contracting third-world countries
prices
Civil rights Human rights Influence Rising corporate liability Financial
issues issues peddling for persona damages misconduct
(for example, cigarette
Source: Adapted from “Business companies)
Increasing Covering up Deceptive Financial Global issues,
employee- rather than advertising mismanagement and Chinese product
employer correcting fraud safety
tension issues
Changing work Disadvantaged Financial fraud Organizational ethical Sustainability
ethic consumers (for example, misconduct
savings and
loan scandal)
Rising drug use Transparency Intellectual
issues property theft
Ethics Timeline,” Ethics Resource Center, http://www.ethics.org/resources/business-ethics-timeline.asp (accessed May 27, 2009). Copyright ©
2006, Ethics Resource Center (ERC). Used with permission of the ERC, 1747 Pennsylvania Ave. N.W., Suite 400, Washington, DC, 2006, www.ethics.org.

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Before 1960: Ethics in Business

Theological discussions of ethics emerged

 Catholic social ethics included a concern for
morality in business, workers’ rights, and living
wages
 Protestants developed ethics courses in their
seminaries and theology schools
 The Protestant work ethic encouraged hard work

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The 1960s: The Rise of Social Issues
in Business

Social consciousness emerged

 Increased anti-business sentiment
 JFK’s Consumer Bill of Rights— a new era of
consumerism
 Right to safety, to be informed, to choose, and to
be heard
 Consumer protection groups fought for
legislation changes
 Ralph Nader

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 The 1970s: Business Ethics as an
Emerging Field
Business professors began to write about
social responsibility
 An organization’s obligation to maximize
positive impact and minimize negative impact
on stakeholders
• Philosophers involved
• Businesses concerned with public image
• Conferences held and centers developed
• Issues:
Bribery Deceptive advertising
Price collusion Product safety
Environment

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 The 1980s: Consolidation
Increased membership in business ethics
organizations
 Ethics centers provided publications, courses,
conferences, and seminars
 Firms established ethics committees
 Defense Industry Initiative on Business Ethics
and Conduct (DII)
 The foundation for the Federal Sentencing
Guidelines for Organizations
 Corporate support for ethics
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 The 1990s: Institutionalization of
Business Ethics

Continued support for self-regulation,

deregulation, and free trade
 Health-related issues more regulated
 The Federal Sentencing Guidelines for
Organizations (FSGO) in 1991
 Set tone for compliance
 Preventative actions against misconduct
 A company could avoid/minimize potential
penalties

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The Federal Sentencing Guidelines
for Organizations
Standards and procedures for preventing
misconduct
 High level of oversight
 Care in delegation of authority
 Effective communication
 Employee training
 Systems to monitor, audit, and report
misconduct
 Consistent enforcement and continuous
improvement
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 The 21st Century: A New Focus
Continued issues with corporate non-compliance
 Public/political demand for improved ethical standards
 Sarbanes-Oxley Act (2002)
 Most extensive ethics reform
 Increased accounting regulations
 FSGO reforms (2004, 2008, 2010)
 Requires governing authorities to be informed of business
ethics programs
 Dodd-Frank Wall Street Reform and Consumer
Protection Act (2009)
 Aimed at making the financial industry more
transparent/responsible
A firm’s greatest danger is not discovering
misconduct early
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 Organizational Ethical Culture

Ethical culture: The component of

corporate culture that captures the values
and norms that an organization defines as
appropriate
 Creates shared values
Goal is to:
 Minimize need for enforced compliance
 Maximize utilization of principles/ethical reasoning

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 Global Ethical Culture
Nations working together to establish
standards of ethical behavior
 NAFTA
 MERCOSUR
 WTO
 Companies can demonstrate their
commitment to social responsibility through
adopting international standards
 Global Sullivan Principles
 Coalition for Environmentally Responsible Economies
(CERES)
 United Nations Global Compact

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 The Role of Organizational Ethics in
Performance

Source: Adapted from “Business

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 Ethics Contributes to Employee
Commitment

Commitment comes from employees who

are invested in the organization
 Employees willing to make personal sacrifices
for the organization
 The more company dedication to ethics, the
greater the employee dedication
 Concerns include a safe work environment,
competitive salaries and benefits packages, and
fulfillment of contractual obligations

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 Ethics Contributes to Investor
Loyalty

Companies perceived by their employees as

being honest are more profitable
 Ethical climates in organizations provide a
platform for
 Efficiency
 Productivity
 Profitability

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 Ethics Contributes to Customer
Satisfaction

Consumers respond positively to socially

concerned businesses
 Being good can be profitable
 Customer satisfaction dictates business success
 A strong organizational ethical climate places
customers’ interests first
 Research shows a strong relationship between
ethical behavior and customer satisfaction

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 Ethics Contributes to Profits

 Corporate concern for ethical planning is being

integrated with strategic planning
 Maximizes profitability
 Corporate citizenship is positively associated
with
 Return on investment and assets
 Sales growth
 Studies have found a positive relationship
between corporate citizenship and
performance
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