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Business Ethics and Code of Ethics

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1 Business Ethics and Code of Ethics
Chapter 2 Business Ethics and Code of Ethics

2 What is Business Ethics?
Business ethics: are rules that examine ethical principles or ethical problems that arise in a business environment. In summary business ethics consist of the principles, values, & standards that guide behavior in the world of business.

3 Arguments Supporting Business Ethics
Ethics applies to all human activities. Business cannot survive without ethics. Ethics is consistent with profit seeking. Customers, employees, and people in general care about ethics. Studies suggest ethics does not detract from profits and seems to contribute to profits.

4 Business and Managerial Ethics
The standards of behavior that guide individual managers in their work with: Employees. The organization. Other economic agents—customers, competitors, stockholders, suppliers, dealers, and unions. Managerial ethics are the standards of behavior that guide individual managers in their work. Ethics can affect a manager’s behavior toward: Employees: For example, in a case in which an employee is constantly late for work, if a manager’s ethics include perfection in attendance, this could present an issue. The organization: For example, if the organization is very open and wants employee suggestions, this could cause discord for employees reporting to a manager who is not accustomed to this type of input. Other stakeholders or economic agents such as customers, competitors, stockholders, suppliers, dealers, and unions: For example, a manager may have developed a certain communication style across his or her career, and may have a specific manner of dealing with such agents, or may hold them as equals or as outsiders. Ethical concerns that should be considered when addressing business situations can include many issues including conflict of interest. Let’s look at two examples: Ambiguity: When an organization is not performing as well as its investors would like, the manager may consider not disclosing, or hiding, certain financial information. There have been many examples of this during the past ten years. Global variation in business practices: When an organization does business in another country, especially Latin America, it can be quite common to have to bribe a government official or pay a little extra money to an agent to get permits, get shipments through customs, etc. While this is illegal under U.S. law and the Foreign Corrupt Practices Act, this cannot be avoided in some countries, such as the Jeitinho in Brazil, which is more like a personal favor payment to “find a way” to make the transaction move forward more rapidly. Many Latin American countries, such as Paraguay, have taken a hard stance against such practices. The police, for example, used to make extra money by stopping cars on the road just to search for something that might be wrong. In so doing, they would ask for bribes to allow the person to pass. There were strikes and some rebellion, but now this practice has for the most part been eliminated. Teaching Tips: In your same student teams, please choose one of the three areas where a manager’s ethics could have an impact (employees, the organization or other economic agents), and take a few minutes to apply the ethical codes you discovered in our last exercise. Discuss how these might impact the group you choose (i.e., employees, the organization, or other economic agents). We will then discuss this topic as a whole class. Answers will vary based on responses to the last two exercises. Be sure to refer back to the answers from the last two exercises, as well as the examples you provided in this slide when weighing student response. Now that you have an understanding of some of the ethical concerns faced by businesses and organizations, please answer the following question based on your own values and ethics: “What would you do if your manager asked you to force billings for sales of a new product in your territory in order to make the sales numbers look better for this quarter?” Answers will vary based on individual values, but of course the correct answer should be that the sales should only be reported specifically when the sale occurs. Sometimes customers may ask to be pre-billed for consulting work because it is included in their budget for the current fiscal year. In some cases the manager will have to accept the billing and the funds, but can place the funds received into an “escrow” account, and only report the actual sales when the work occurs.

5 Stakeholders and Ethics
A person, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization's actions, objectives, and policies. Key stakeholders include: Customers, directors, employees, shareholders, suppliers ,…… etc. 5

6 Types of Company Stakeholders

7 Stakeholders and Ethics
1. Stockholders: Want to ensure that managers are behaving ethically and not risking investors’ capital by engaging in actions that could hurt the company’s reputation. Want to maximize their return on investment.

8 Stakeholders and Ethics
2. Managers: Responsible for using a company’s financial capital and human resources to increase its performance. Have the right to expect a good return or reward by investing their human capital to improve a company’s performance. Frequently manage multiple interests. Problem has been that in many companies corrupt managers focus not on building the company’s capital and stockholder’s wealth but on maximizing their own personal capital and wealth 8

9 Stakeholders and Ethics
Problem has been that in many companies corrupt managers focus not on building the company’s capital and stockholder’s wealth but on maximizing their own personal capital and wealth.

10 Stakeholders and Ethics
3. Employees: Expect to receive rewards consistent with their performance. Companies can act ethically toward employees by creating an working structure that fairly and rightfully rewards employees for their contributions.

11 Stakeholders and Ethics
4. Suppliers: Suppliers expect to be paid fairly and promptly for their inputs. 5. Distributors: Distributors expect to receive quality products at agreed-upon prices.

12 Stakeholders and Ethics
6. Customers: Most critical stakeholder. Company must work to increase efficiency and effectiveness in order to create loyal customers and attract new ones.

13 Sources of Business Ethics

14 Sources of Ethics 1. Societal (Social) Ethics:
Standards that direct how members of a society should deal with one another in matters involving issues such as fairness, justice, poverty, and the rights of the individual. People behave ethically because they have certain values, beliefs, and norms

15 Sources of Ethics 2. Occupational Ethics:
Standards that direct how members of a profession, trade should conduct themselves when performing work-related activities. Medical & legal ethics.

16 Sources of Ethics 3. Individual Ethics:
Personal standards and values that determine how people view their responsibilities to other people and groups. How they should act in situations when their own self-interests are at risk.

17 Sources of Ethics 4. Organizational Ethics:
Guiding practices and beliefs through which a particular company and its managers view their responsibility toward their stakeholders. Top managers play a crucial role in determining a company’s ethics.

18 Company Practices and Business Ethics
A company can encourage ethical behavior in a number of ways. These include: Adopting written code of conduct. Having top management support of ethical standards. Instituting ethics programs. Establishing ethical hotlines for reporting and discussing unethical behavior and activities.


20 Code of Ethics Code of ethics: is a written document that clearly states what acceptable and unacceptable behaviors are for all of the employees in the organization. Represents the identification and explanation of what the firm considers acceptable behavior Employees working under the code of ethics have a standard by which they can judge their own behavior and that of others within the organization. Worldwide, McDonald's employees follow a standard ethical code.

21 Code of Ethics Factors influencing the development of Code of ethics :
Social factors Personal factors Organizational factors Occupational factors

22 Why Business Code of Ethics
Business code of ethics help define what is acceptable behavior in the workplace. A code that is accepted by employees generally promotes high standards, whether in manufacturing, finance, customer service, or any other functional area of the company. Employees working under code have a benchmark upon which they can judge their own behavior and that of others within the organization..

23 Anticipated benefits — 1
Benefits of a Code of Ethics Why Business Code of Ethics Anticipated benefits — 1 Enhances reputation . Builds trust – internally and externally. Increases awareness of ethics issues. Guides decision-making . Reduces ethics risks . Questionable behavior decreases . Employee relations improve . Competitive positions improve

24 Informal and formal codes
Most small businesses do not have a formal written code of ethics. Employees understand the informal codes by observing how management acts in workplace situations such as how customers are treated. Formal codes : are written documents that outline expected behaviors at work. Formal ethics codes usually include penalties for breaking the code.

25 Informal and formal codes
For example, written ethics concerning company finance may include an claim that all applicable tax law regarding the business be followed.

26 Code of Ethics and Stakeholders
Code allows firm to state its ethical vision to all stakeholders. Companies should consider four ethical values when developing a code of ethics: Integrity . نزاهة Justice . عدالة Proficiency . اتقان Utility . منفعة

27 Steps for Effective Code of Ethics
Create a list of all the standards by which you believe your company should take. Write them down on a piece of paper. This should include : The general values of the company, managers, and workers. The ways in which the company helps with employees' continued education; and how the business complies with all laws and reports all legal issues.

28 Steps for Effective Code of Ethics
Customize your code of ethics to your business. Include examples from your firm into the code. If, for example, you use a code of ethics from another business in your industry, rewrite the code so it has meaning and, therefore, benefit to your goals.

29 Steps for Effective Code of Ethics
Involve employees in the creation of a business code of ethics. Every employee has insight into the day-to-day operations and challenges. If, for example, a department experiences low confidence because of office gossip (نميمة), help employees find productive ways to build a culture of trust and respect.

30 Steps for Effective Code of Ethics
Write down "Code of Ethics". A code of ethics should be to the point, and simple to read. It should have a positive tone and focus on improving the lives of the business' directors, employees, and customers.

31 McDonald's Code of Ethics for Employees
Worldwide, McDonald's employees follow a standard ethical code. With franchises all over the world, McDonald's has developed a uniform standard of conduct that applies to all employees. It requires the employee, upon being hired, to sign a copy of these expectations of ethical conduct, confirming that the employee understands them and agrees to implement them.

32 McDonald's Expectations
McDonald's believes that “the customer is important”. They expect employees to be committed to their jobs and to their customers, and to behave as ambassadors of the company. They also believe that it is important to acknowledge the community that supports each McDonald's restaurant and to return that support to the community.

33 McDonald's Expectations
Employee Responsibilities : To perform to the highest standards set by the company, employees must treat fellow workers, supervisors and customers with respect. An employee cannot bother anyone or threaten them. offensive behavior is not allowed. Employees cannot insult others with words or actions. Employees must practice safety at all times to ensure not only his well-being but that of others. Alcohol or illegal drugs are forbidden.

34 McDonald's Expectations
Responsibility to the Company: During training, employees learn that they cannot use any company assets for personal reasons. Computers should not be used for personal s or for accessing illegal or inappropriate material. McDonald's owns not just the computers but the information entered into them, and is entitled to investigate their contents.

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