© 2005 by Nelson, a division of Thomson Canada Limited. Ethics of Business: The Theory 1

© 2005 by Nelson, a division of Thomson Canada Limited. What would you do if… ? Phyllis Cramer and the new shoplifting policy at her department store If you were Phyllis, what would you do? 2

© 2005 by Nelson, a division of Thomson Canada Limited. 3 High Profile Ethical Scandals in Business Wall Street Meltdown: The ethics of Sub-prime mortgages WorldCom / Enron: Accounting fraud Shell: Proposed sinking of North Sea oil rig New York Times: Plagiarism NBC: Faking the evidence Walkerton: Falsifying records UofT Law School Students: Lying about grades to employers

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 4 Ethical Implications in Business Owners –fair and accurate disclosure Employees –hiring; firing; wages; privacy; discrimination; honesty; conflicts of interest; insider information Consumers –dishonest advertising; product safety Competitors –non-competitive behaviour; industrial espionage Suppliers –kickbacks; gifts; bribes Government –legal compliance; lobbying Society –respect for environment; corporate giving

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 5 Influences on Ethical Behaviour Individual morals National and ethnic cultures Government legislation and regulation The legal system Religion Colleagues or peers Education

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 6 Influences on Ethical Behaviour Media Corporate mission, vision, and values statements Union contracts Competitive behaviour Activists or advocacy groups (NGOs) Business or industry organizations Professional associations

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 6 Business Ethics Ethics of business: rules, standards, codes, or principles that provide guidelines for morally right behaviour and truthfulness in specific situations. Value judgments: subjective evaluations of what is considered important. Moral standards: the means by which individuals judge their actions and the actions of others.

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 8 Economic Efficiency Ethic Judges the moral implications of a decision by its economic consequences and provides the moral justification for a market system. Adam Smith: By focusing on efficient operations, profits are maximized, and society ultimately benefits.

© 2005 by Nelson, a division of Thomson Canada Limited. Government Requirements Ethic The acceptance of a code of laws as the governing rules of society or as a contract with society that determines what is considered right or appropriate behaviour. 9 Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.

© 2005 by Nelson, a division of Thomson Canada Limited. 10 Ethics and the Law Law often represents an ethical minimum Ethics often represents a standard that exceeds the legal minimum EthicsLaw Frequent Overlap

© 2005 by Nelson, a division of Thomson Canada Limited. 11 Ethics, Economics, and Law

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 12 Self-Interest (Ethical Egoism) Individuals or corporations set their own standards for judging the ethical implications of their actions; only the individual’s values and standards are the basis for actions. Self-interest not necessarily the same as: selfishness, greed, disregard for the rights and interests of others, hedonism, or materialism.

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 13 Utilitarian Ethic Focuses on the distribution of benefits and harms to all stakeholders with the view to maximizing benefits. “The greatest good for the greatest number.”

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 14 Universal Rules Ethic Ensures that managers or corporations have the same moral obligations in morally similar situations. Treat people as means in themselves (i.e., with respect) and never as a means to one’s own ends.

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 15 Ethics of Caring Gives attention to specific individuals or stakeholders harmed or disadvantaged and their particular circumstances. Golden rule: Do unto others as you would want done to you.

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 16 Individual Rights Ethic Relies on a list of agreed upon rights for everyone that will be upheld by everyone and that becomes the basis for deciding what is right, just, or fair. Examples: Rights to safety, information, privacy, property. Rule-based?

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 17 Ethics of Justice Considers that moral decisions are based on the primacy of a single value: justice. Different types of justice: –Procedural justice –Corrective justice –Retributive justice –Distributive justice Mostly ends-based?

© 2005 by Nelson, a division of Thomson Canada Limited. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd. 18 Personal Virtues Ethic An individual’s or corporation’s behaviour is based upon being a good person or corporate citizen with traits such as courage, honesty, wisdom, temperance, and generosity. Ask: How would I feel if my actions were explained on television?

© 2005 by Nelson, a division of Thomson Canada Limited. 19 Making Ethical Decisions

© 2005 by Nelson, a division of Thomson Canada Limited. 20 Four Essentials Factors at Play 1.Forensic Accounting: The 20% Angel Rule 2.Self-interested Consequences: The 60% Rule 3.Social Norms of Fairness: The Last 20% 4.The Domino Effect

© 2005 by Nelson, a division of Thomson Canada Limited. 21 Three Models of Management Ethics Immoral Management A style devoid of ethical principlesand active opposition to what is ethical Moral Management Conforms to high standardsof ethical behavior Amoral Management  Intentional: does not considerethical factors  Unintentional: casual or carelessabout ethical factors  Intentional: does not considerethical factors  Unintentional: casual or carelessabout ethical factors

© 2005 by Nelson, a division of Thomson Canada Limited. 22 Characteristics of Immoral Managers Intentionally do wrong Self-centered and self-absorbed Care only about self or organization’s profits Actively oppose what is right, fair, or just Exhibit no concern for stakeholders Are the “bad guys” An ethics course probably would not help them

© 2005 by Nelson, a division of Thomson Canada Limited. 23 Characteristics of Moral Managers Conform to high level of ethical or right behavior Conform to high level of personal and professional standards Ethical leadership is commonplace Goal is to succeed within confines of sound ethical precepts High integrity is displayed Embrace letter and spirit of the law Possess an acute moral sense and moral maturity Are the “good guys”

© 2005 by Nelson, a division of Thomson Canada Limited. 24 Characteristics of Amoral Managers Intentionally Amoral Managers: Don’t think ethics and business should “mix” Business and ethics exist in separate spheres A vanishing breed Unintentionally Amoral Managers: Don’t consider the ethical dimension of decision making Don’t “think ethically” Have no “ethics buds” Well-intentioned, but morally casual or unconscious Ethical gears are in neutral

© 2005 by Nelson, a division of Thomson Canada Limited. 25 Three Models of Management Morality and Emphasis on CSR