Copyright © Houghton Mifflin Company. All rights reserved.1-1 Chapter 1 The Importance of Business Ethics.

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<ul><li><p>Chapter 1The Importance of Business Ethics</p></li><li><p> 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.</p></li><li><p>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:InvestorsEmployeesCustomersInterest groupsLegal systemCommunity</p></li><li><p> American Distrust of BusinessSource: Data from Yankelovich Partners Inc., Point, February 2005</p></li><li><p> 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)</p></li><li><p> 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.</p></li><li><p>Ethical Issues on the Rise Increased awareness of:Accounting fraudInsider trading of stocks and bondsFalsifying of organizational documentsDeceptive advertisingDefective productsBribery Employee theft</p></li><li><p> A Timeline of Ethical and Socially Responsible Concerns</p></li><li><p> Before 1960: Ethics in BusinessTheological 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.)</p></li><li><p> The 1960s: The Rise of Social Issues in Business Societal social consciousness emergedAs well as an anti-business sentimentJFKs Consumer Bill of Rights ushered in a new era of consumerismRight to safety, to be informed, to choose, and to be heardConsumer protection groups fought for consumer protection legislationRalph Nader</p></li><li><p> 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 safetyDeceptive advertising EnvironmentPrice collusion </p></li><li><p>The 1980s: ConsolidationMembership in business ethics organizations increased.Ethics centers provided:Publications, courses, conferences and seminarsFirms established ethics committees.Defense Industry Initiatives emerged and became the foundation for the Federal Sentencing Guidelines for OrganizationsCorporate support for ethical conduct</p></li><li><p> 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.</p></li><li><p> 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</p></li><li><p>The 21st Century: A New FocusA move from legally based ethics initiatives to culturally or integrity-based programsHowever, 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</p></li><li><p> 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.</p></li><li><p>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 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.</p></li><li><p>Ethics Contributes to Investor LoyaltyCompanies 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:EfficiencyProductivityProfitability</p></li><li><p> Ethics Contributes to Customer SatisfactionConsumers 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 customers interests first.Research shows a strong relationship between ethical behavior and customer satisfaction.</p></li><li><p>Ethics Contributes to ProfitsCorporate concern for ethical conduct is increasingly being integrated with strategic planning to maximize profitability.Corporate citizenship is positively associated with:Return on investment and assetsSales growthMany studies have found a positive relationship between citizenship and performance.</p></li></ul>


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