1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin AN INTRODUCTION TO BUSINESS ETHICS CHAPTER ONE: WHY STUDY ETHICS?

2. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-2 This chapter seeks to Identify reasons why the study of ethics is important Explain the nature and meaning of business ethics Explain the difference between ethical values and other values Clarify the difference between ethics and the law Describe the distinction between ethics and ethos Introduce the distinction between personal morality, virtues and social ethics

3. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-3 Discussion Case: Madoff Madoff pleads guilty to 11 counts of financial fraud and theft in March 2009 Is sentenced to 150 years in prison A Ponzi scheme is a fraud that attracts investors with a promise of high returns The perpetrator benefits either by disappearing with the money or living a wealthy lifestyle by skimming Many would say this is a complete failure of government regulations

4. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-4 Discussion Questions Identify what ethical issues and questions are involved in the Madoff case. Identify all the people you think may have been harmed, and how they were harmed, by the Madoff fraud. Do you think that a scandal such as this is the result mostly of unethical individuals, or are there organizational issues that allowed, encouraged, or were responsible for the harms? To what degree was this case mostly a failure of individuals, or organizational structure, or of government? Can you imagine anything that would have prevented the Madoff fraud?

5. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-5 Why study Business Ethics? Is it an oxymoron like “jumbo-shrimp”? Is it a discipline of sentimentality and personal opinion? Who’s to say what is right and what is wrong? Is there a place for ethics in business?

6. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-6 The questions today are less about why or should ethics be a part of business, than about which ethics should guide business decisions and how ethics can be integrated within business.

7. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-7 Context: Who was harmed by the collapse of Enron? Stockholders Employees Consumers in California Suppliers Enron’s accounting firm, Arthur Anderson The Houston, TX community Families of employees, investors and suppliers

8. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-8 Reasons to be concerned with Ethics The Law: In 2002, Congress passed the Sarbanes-Oxley Act Financial risks Reputation and competitive advantage Consumer boycotts Efficiency and effectiveness Employee trust, loyalty, commitment and initiative

9. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-9 What do managers think? 2003: Deloitte polled 5000 directors of the top 4000 publicly traded companies and reported that 98 percent believed ethics and compliance programs are essential to corporate governance. 80% of those surveyed had developed codes of ethics beyond those required by Sarbanes- Oxley 90% included statements concerning the company’s obligation to its stakeholders.

10. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-10 The need to study Business Ethics If business managers see the need to focus on ethical behavior, so should business students Preparation for career in contemporary business Consumers are affected by decisions made by businesses

11. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-11 Values and Ethics: Doing Good and Doing Well Built to Last: Successful Habits of Visionary Companies by James Collins and Jerry Porras –Key finding: Exceptional and enduring companies place great emphasis on a set of core values –These core values are essential and enduring tenets defining the company, and not to be compromised for financial gain.

12. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-12 Companies cited by Collins & Porras IBM Johnson & Johnson Hewlett Packard Procter and Gamble Wal-Mart Merck Motorola Sony General Electric

13. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-13 What are values? Those beliefs or standards that incline us to act or to choose in one way rather than another A company’s core values are those beliefs and principles that provide the ultimate guide in the company’s decision-making.

14. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-14 Corporate Culture Another way of saying a corporation has a set of identifiable values. But there is no “right” set of core values.

15. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-15 Values vs. Ethical Values What are the ends that our core values serve? Financial values serve monetary ends. Religious values serve spiritual ends. Aesthetic values serve the end of Beauty. What ends are served by ethics?

16. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-16 Elements of Ethical Values Ethical values serve the ends of human well- being. The well-being promoted by ethical values is not personal and selfish well-being. No one person’s well-being is to be counted as more worthy or valuable than any other’s. Ethical values promote human well-being in an impartial way.

17. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-17 Disagreements about Ethics People disagree about what ethics commits us to and what ends are served by ethical values. Ethical values can conflict, and may result in serious illness and death to others. So how do you decide if a company is an ethical company?

18. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-18 Malden Mills December 11, 1995 – A fire destroys most of Malden Mills, the manufacturer of Polartec. The last major textile manufacturer in town with 2,400 employees; community life’s blood Malden Mills provides fabric to L.L. Bean, Land’s End, J. Crew and Eddie Bauer Aaron Feuerstein, the owner pledged to rebuild the plant, keep jobs in the community and pay his employees until work resumes.

19. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-19 Malden Mills continued… Factory was rebuilt and reopened in one year. Employees came back to work. The community seemed to recover. Malden Mills filed for bankruptcy protection. Eventually controlled by creditors. Remaining employees voted to authorize a strike in December 2004.

20. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-20 The Nature & Goals of Business Ethics Business ethics refers to those values, standards and principles that operate within business. Business ethics is also an academic discipline that studies those standards, values and principles while seeking to articulate and defend the ones that ought or should operate in business.

21. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-21 But… There is a growing body of literature in business ethics about the right ways to teach and learn business ethics. There are a set of principles, standards, concepts, and values common to business ethics.

22. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-22 Ethical Judgment vs. Behavior From the time of Aristotle we have noticed a discontinuity between judging some act as right and behaving rightly. Knowing what is right is different from doing what is right. People vary in strength of character and motivation and fortitude.

23. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-23 The Goals of Business Ethics To treat students as active learners To engage students in an active process of thinking and questioning To allow students to think for themselves To deal with the mess of relativistic conclusions The unexamined life is not worth living (Socrates).

24. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-24 Reasoning and Business Ethics The process of ethical reasoning must be emphasized. Reasoning is distinct from answers. Begin with an accurate and fair account of the facts from all “sides”. Be objective and open-minded. Analyze each issue fully and rigorously.

25. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-25 Business Ethics and the Law Compliance with the law will prove insufficient for ethically responsible businesses. The Law is rife with ambiguity. Many acts are not illegal until a court rules that they are. Court cases demonstrate that you cannot always rely on the law to decide what is right or wrong.

26. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-26 Whether we examine ethical questions explicitly or not, they are answered by each of us every day in the course of our lives.

27. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-27 Ethics and Ethos The word “ethics” is derived from the Greek ethos, meaning “customary” or “conventional.” To be ethical in the sense of ethos is to conform to what is typically done, to obey the conventions and rules of one’s society and religion.

28. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-28 Philosophical Ethics Denies that simple conformity and obedience are the best guides to living Rejects authority as the source of ethics Defends the use of reason as the foundation of ethics Seeks a reasoned analysis of custom and a reasoned defense of how we ought to live

29. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-29 Philosophical Ethics Distinguishes what people do value from what people should value Requires we stand back, abstract ourselves from what is typically done and reflect upon whether or not what is done, should be done. The difference between what is valued and what ought to be valued is the difference between ethos and ethics.

30. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-30 Business Ethics A branch of philosophical ethics Reflect: In what ways do the practices and decisions made within business promote or undermine human well- being? How ought we to live?

31. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-31 Morality, Virtues and Social Ethics Morality: How should I live my life? How should I act? What should I do? What kind of person should I become? Virtues: character traits that constitute a life worth living Social Ethics: How ought society be structured? How ought we live together?

32. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-32 Business institutions are human creations Humans can not avoid responsibility for something they have created or contributed to. Business institutions have a tremendous influence on human lives and the quality of human life. As business people we face particular business decisions about our corporations, but as citizens we have to decide whether or not to regulate those businesses for the public good.

33. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-33 Ethical perspectives Managerial ethics: What should a business manager do in various situations? The types of questions asked will vary from perspective to perspective. All decisions faced by business managers, from finance to marketing to ethics and human resources, exist in a social and legal context.

34. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-34 Reflections on the chapter A wide range of people can be adversely affected by the decision made within contemporary business. There are many roles to play within the economic system to insure integrity of that system and to prevent fraud and abuse. Business operates within a social context and has duties to a wide range of people beyond those people who own a company’s stock.

35. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-35 Review Questions Describe several reasons why ethics is relevant to business? Can a “good business” be an unethical business? What are values? What is the difference between ethical values and other types of values? What is the difference between “value” when used as a verb, and “value” when used as a noun?

36. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-36 Review Questions continued What is the difference between “ethics” and “ethos”? How is descriptive business ethics different from normative business ethics? This chapter introduced a distinction between morality, virtues, and social ethics. How would you describe each?

37. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 1-37 Review Questions continued How would you answer someone who asked: Why should I study ethics if I want to be an accountant? Other than business managers and owners, which other constituencies might have a stake in business decisions?