Presentation on theme: "The Importance of Business Ethics"— Presentation transcript:
1The Importance of Business Ethics Ned C. Hill, DeanW. Steve Albrecht, Associate DeanMarriott School of ManagementBrigham Young University
2Outline What is ethical behavior and why is it important to business? The ethical value propositionLaws, policies and ethicsEvidence that good ethics means good businessIs ethical behavior improving?Teaching ethics—the Ethics Maturity Model
3Ethical BehaviorConducting one’s life in complete accord with a firmly held set of values and principlesThese principles may be derived from religious beliefs, philosophical understanding, etc.Application should be in all areas of one’s life: personal, family, business, social, etc.“Integrity” is the consistent application of ethical behavior.
4Foundations of Ethical Behavior Treat others as you would be treatedRespectHonestyTrust
5YOU WANT THEM TO TREAT YOU Taught in All CulturesJudaism: What you hate, do not do to anyone.Islam: No one of you is a believer until he loves for his brother what he loves for himself.Hinduism: Do nothing to thy neighbor which thou wouldst not have him do to thee.Sikhism: Treat others as you would be treated yourself.Buddhism: Hurt not others with that which pains thyself.Confucius: What you do not want done to yourself, do not do to others.Aristotle: We should behave to our friends as we wish our friends to behave to us.Plato: May I do to others as I would that they should do unto me.TREAT PEOPLE THE WAYYOU WANT THEM TO TREAT YOU
7Societal Costs of Unethical Behavior Law enforcement and other security personnelPhysical protection (locks, electronic security, fences, vaults, etc.)A substantial portion of attorney and court system costsSome welfare costsCosts of collecting taxesWasted/misused investment fundsA substantial portion of accounting/auditing costsA large fraction of costs for regulators and examinersSome marketing/advertising costsCosts for institutions like better business bureaus, consumer protection agenciesSome costs of bankruptcyLack of investment from outside investors, tourists
8Business Costs of Unethical Behavior Loss of physical assetsIncreased costs of securityLoss of customers—especially those who value ethicsLoss of employees—especially the more ethicalLoss of reputationIncreased legal costsHigher costs of debtLoss of investor confidence (lower stock price, difficulty in raising funds, problems with lenders)Regulatory intrusionCosts of bankruptcy
9What is the Cost of Lack of Integrity in the US? Employee fraud $400 BTime theft $230 BIndustrial espionage $200 BCounterfeiting $200 BEmployee dishonesty $120 BIdentity theft $ 50 B(Quoted in Stephen R. Covey’s preface to Business with Integrity, p. xx)
10Levels of Constraints on Behavior Ethical Behavior Tied to Set of ValuesProfessional StandardsLegal Requirements
11Ethical Issues Relating to Business Honesty—communication and behavior consistent with factsDisclosure of informationPromises/commitmentsLaws and professional standardsRepresentation of others like shareholders (applies to board members)Unfair competitionRefrain from bribes and excessive gifts (that sway judgment)Avoid quid pro quo transactionComply with “anti-trust” laws (these relate to pricing, monopolistic practices)Just compensationRespect intellectual property (product piracy)Treat employees fairlyRespecting rights of othersTreat others with fairness and respect regardless of age, religion, ethnic group, sex, economic status, etc., especially children, women, and subordinatesRespect the community you operate in by paying fair share of economic costs you createRespect others and future generations by treating the environment well
12Why Ethical Behavior Adds Value Better informationTrust from investorsLower costs for audits, controls, investigationsBetter allocation of resourcesCustomers will be more loyal (RC Willey example)Lower costs from suppliers (automotive company example)Attracting and retaining better employeesFair competitionLowers cost of business in economyLeads to better decision-making (do what’s best for firm, not one individual)Improves competitive nature of a country’s economy
13Why Ethical Behavior Adds Value Just compensationCreates a more vibrant, entrepreneurial economyAttracts and retains better employeesRights of othersDraws upon talents of wider set of individualsDevelops long-term respect from the community (Godfrey study)Maintains the environment for long-term value to all (Costa Rica)It’s the right thing to do!
14Is There Evidence that Ethical Behavior Yields Increased Value? Study of 2,100 firms with very strong, well-governed boards of directors outperformed overall market 15% vs. 12.5% in 2005Firms with high level of “democracy” outperformed “dictatorial” firms by 8% per year in the decade of the 1990’s.Philanthropy: Firms that contribute a higher portion of their assets to the communities in which they reside fare better in an economic downturn.
15How Important is Integrity in a Leader? In a survey of 54,000 people Integrity was by far the number one attribute desired in a leader(Quoted in Stephen R. Covey’s preface to Business with Integrity, p. xx)
16Short-Term vs. Long-Term One party may gain temporary advantage by unethical behaviorEnronLivedoorGhana AirwaysBut in the long-term, individuals, companies and society are hurt
17Questionable State of Our Integrity Did You Cheat to Get Into Graduate School?“Yes”43% Liberal Arts52% Education63% Law and Medicine75% BusinessSource: Rutgers University survey of students
18Questionable State of Our Integrity MBAs76% were willing to understate expenses that cut into their companies’ profitsNearly all believe shareholder value is more important than customer serviceConvicts in 11 minimum security prisons had higher scores on an ethical dilemma exam than MBAs
19Questionable Integrity at Work 76% of employees observed a high level of illegal or unethical conduct at work in the past 12 months49% of employees observed misconduct that, if revealed, would cause their firms to “significantly lose public trust”KPMG 2000 Organizational Integrity Survey
20Source: Society of Human Resource Management Survey of EmployeesMost (65%) don’t report ethical problems they observe96% feared being accused of not being a team player81% feared corrective action would not be taken anyway68% feared retribution from their supervisorsSource: Society of Human Resource Management
21Deterioration in Honesty over Time Year YearCollege students who cheated in H.S (20%) (85%)Self-reported cheating (11%) (49%)Believe cheating is common (20%) (88%)Used cheat sheets (34%) (68%)Let others copy work (58%) (98%)Willing to lie to get job (28%) (39%)Students who had stolen (35%) (38%(Based on several different ethics studies)
22Another Study of Student Honesty Responses 50,000 college students at 69 schools26% of business majors admitted to serious cheating on exams54% admitted to cheating on written assignmentsJournalism majors were worse with 27% admitting to cheating on exams.The most honest—students in the sciences (19% reported cheating on tests)Author observes “cheating has increased since he began doing surveys 15 years ago”He partly blames technology—makes it easier to cheat“Biz Majors Get an F for Honesty” by Donald McCabe published on February 6, 2006, by the Center for Academic Integrity
23Will Our Ethics Improve? Survey of High School Students 200774% cheated on an exam in the last year; 45% 45% said they did it at least twice in the last year93% lied to their parents in the past year78% have lied to their teachers37% said they would lie to get a job38% took something from a store in the last yearJosephson (2007)
24Why is Dishonesty Increasing? Modeling LabelingHonesty
25Why Is Dishonesty Increasing? Bad Modeling/Lack of Good ModelingMakes up our news— more explicit than everFocus of TV/moviesDishonest “leaders”Sports, business, entertainment “heroes”Good models are rareLack of Positive LabelingHome….average family spends 10 hours less time together a week than 20 years agoVocabulary of kindergarten childrenSchoolsChurches
26Confession of Fraudulent Executive Even when put in jail, I didn’t feel like a “criminal.” I somehow felt we were different and I started noticing every white collar guy I did talk to began every sentence with: “all I did was.” Once you’re in jail and you start feeling the animosity the other prisoners have toward white-collar guys, where they say to you, “you’re no different than us,” “you’re just a thief,” “you use other words.” Even the word “embezzlement” is a nice word…they said “you’re a thief, you lie to people and take their money, that’s what I do to” and that hit me like a ton of bricks.Mike Morze, ZZZZ Best
27Can Ethical Values be Taught? Level 1: The Foundation Personal Ethical UnderstandingRight/wrong, Fairness, Honesty, Personal Integrity, Respect for Others
28Personal Ethical Understanding Concepts of right and wrong, fair play, respect for rights of others, honesty, personal integrityBest learned in the home at an early age—and follow-up is needed throughout lifeInstitutions (churches, schools, etc.) can helpDifficult to “back fill” in adulthood
29Level 2: Application to Business Application of Ethics to Business SituationsFraudulent Practices, Misleading Advertising, UnfairnessPersonal Ethical UnderstandingRight/wrong, Fairness, Honesty, Personal Integrity, Respect for Others
30Application of Ethics to Business Situations Fraudulent practices, misleading advertising, unfairnessCan be taught in management education and organizations—provided students have a personal understanding of ethicsTaught by modeling (cases and personal example are helpful)Can be reinforced by policies, codes of ethics, training
31Application of Ethics to Business Situations Businesses can teach through proper modeling:“Companies also have to further strengthen ethics management and social responsibility activities to improve their public image’’Korean Commerce-Industry-Energy Minister Lee Hee-beom
32Level 3: Ethical Courage Willingness to Pay the Price for EthicsApplication of Ethics to Business SituationsFraudulent Practices, Misleading Advertising, UnfairnessPersonal Ethical UnderstandingRight/wrong, Fairness, Honesty, Personal Integrity, Respect for Others
33Ethical CourageIt is not sufficient to simply understand ethical principlesOne must have the courage to pay a price for being ethicalExamples can be helpful—case studies showing people willing to stand up for ethical principlesAgain, it helps to have “practiced” ethical behavior over many years—especially in small things
34Level 4: Ethical Leadership Helping Others to be EthicalEthical CourageWillingness to Pay the Price for EthicsApplication of Ethics to Business SituationsFraudulent Practices, Misleading Advertising, UnfairnessPersonal Ethical UnderstandingRight/wrong, Fairness, Honesty, Personal Integrity, Respect for Others
35Ethical LeadershipThe ability and willingness to encourage others to behave ethicallyCan be taught through cases, problem solving, study of successful organizationsIncludesDeveloping an organizational climate that fosters ethical behaviorStructuring policies that encourages ethicsBehaving ethically while facing the pressures of leadership
36The Importance of Ethical Leadership Swing GroupCould Go Either WayHonest EmployeesWill be Honest AlwaysDishonest EmployeesPolicies Won’t Help MuchEthical Leadership will significantly impact an organization since the vast majority, in this view, can be influenced to behave ethically.
37Importance of Ethical Leadership Swing GroupCould Go Either WayHonest EmployeesWill be Honest AlwaysDishonest EmployeesPolicies Won’t Help MuchStrong Ethical Leadership—induces the middle group to behave as if they were the honest employees.
38Importance of Ethical Leadership Swing GroupCould Go Either WayDishonest EmployeesPolicies Won’t Help MuchHonest EmployeesWill be Honest AlwaysWeak Ethical Leadership—permits the middle group to behave as if they were the dishonest employees.