copyright © houghton mifflin company. all rights reserved.1-1 chapter 1 the importance of business...

Copyright © Houghton Mifflin Company. All rights reserved. 1-1

Chapter 1

The Importance of Business Ethics


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.


Business Ethics

Comprises principles and standards that guide behavior in the world of business Whether a specific behavior is ethical or unethical is often determined by stakeholders:– Investors– Employees– Customers– Interest groups– Legal system– Community


American Distrust of Business

0%

10%

20%

30%

40%

50%

60%

70%

80%American business is tooconcerned about profits andnot concerned about socialresponsibility

If the opportunity arises, mostbusinesses will take advantageof the public if they feel theywill not be found out.

Even long-establishedcompanies cannot be trustedto make safe, durable productswithout governmentintervention.

Source: Data from Yankelovich Partners Inc., Point, February 2005


Ethics and social responsibility have distinct meanings...

Social responsibility is the obligation a business assumes to maximize its positive effect while minimizing its negative effect on society.Social responsibility consists of the following responsibilities:– Economic (satisfy investors)– Legal (obey the law)– Ethical (expected activities and behaviors)– Philanthropic (desired activities and behaviors)


Why study business ethics?

Reports of unethical behavior are on the rise.Society’s 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.


Ethical Issues on the Rise

Increased awareness of:– Accounting fraud– Insider trading of stocks and bonds– Falsifying of organizational documents– Deceptive advertising– Defective products– Bribery – Employee theft


A Timeline of Ethical and Socially Responsible Concerns


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 schools of theology. (Also, the Protestant work ethic encouraged frugality and hard work.)


The 1960s: The Rise of Social Issues in Business

Societal social consciousness emerged– As well as an anti-business sentiment

JFK’s Consumer Bill of Rights ushered in a new era of consumerism– Right to safety, to be informed, to choose, and to be

heardConsumer protection groups fought for consumer protection legislation– Ralph Nader


The 1970s: Business Ethics as an Emerging Field

Business professors began to write about social responsibility.Philosophers became involved in business ethics.Businesses became more concerned with their public image and addressed ethics more directly.Conferences were held and centers developed.Issues: – Bribery – Product safety– Deceptive advertising – Environment– Price collusion


The 1980s: 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 for Organizations– Corporate support for ethical conduct


The 1990s: Institutionalization of Business Ethics

The 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.


The Federal Sentencing Guidelines for Organizations Standards and procedures capable of detecting and preventing misconductHigh level oversightCare in delegation of authorityEffective communication (training)Systems to monitor, audit, and report misconductConsistent enforcementContinuous improvement


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 Act

was passed to address the lack of confidence in financial reporting and corporate ethics.

Realization that business ethics programs are good for businessBusinesses working more closely together, globally, to establish standards of acceptable behavior


Relationship of Business Ethics to Performance

Customers, 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.


Ethics Contributes to Employee Commitment

Employee commitment comes from employees who believe their future is tied to that of the organization and their willingness to make personal sacrifices for the 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.


Ethics Contributes to Investor Loyalty

Companies perceived by their employees as having a high level of honesty and integrity are more profitable than companies with a low level of honesty and integrity.Ethical climates in organizations provide platform for:– Efficiency– Productivity– Profitability


Ethics Contributes to Customer Satisfaction

Consumers respond positively to socially concerned businesses.– Being good can be extremely profitable.

Customer satisfaction dictates business success.A strong organizational ethical climate often places the customer’s interests first.Research shows a strong relationship between ethical behavior and customer satisfaction.


Ethics Contributes to Profits

Corporate concern for ethical conduct is increasingly being integrated with strategic planning to maximize profitability.Corporate citizenship is positively associated with:– Return on investment and assets– Sales growth

Many studies have found a positive relationship between citizenship and performance.

copyright © houghton mifflin company. all rights reserved.1-1 chapter 1 the importance of business...

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