Chapter 1: Legal Ethics 1

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 1.What is business ethics and why is it important? 2.How can business leaders encourage their companies to act ethically? 3.How do duty-based ethical standards differ from outcome- based ethical standards? 2

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 4.What are six guidelines that an employer can use to evaluate whether his or her actions are ethical? 5.What types of ethical issues might arise in the context of international business transactions? 3

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics  Ethics is the study of right and wrong behavior; whether an action is fair, right or just.  In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace. 4

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics  Why Is Business Ethics Important? – Directors and Officers owe a complex set of ethical duties to their stakeholders (internal and external). – When these duties conflict, ethical dilemmas are created. 5

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics  The Moral Minimum. – Normally considered as mere compliance with the law. – Because an action may be legal, however, does not make the action ethical. 6

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics  Short-Run Profit Maximization. – Some argue a businesses only goal should be to maximize profit. But executives need to distinguish between short-term and long-term maximization. – CASE 3.1 S KILLING V. U NITED S TATES (2010). – CASE 3.1 S KILLING V. U NITED S TATES (2010). What did Skilling do that was unethical? 7

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics  “Gray Areas” in the Law. – Make it difficult for companies to navigate and forecast. – CASE 3.2 M ATHEWS V. B AND K F OODS, I NC. (2011). – CASE 3.2 M ATHEWS V. B AND K F OODS, I NC. (2011). What would you have done if you were the manager? If you were the employee? 8

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics  Importance of Ethical Leadership. – Attitude of Top Management. – Behavior of Owners and Managers. CASE 2.3 K RASNER V. HSH N ORDBANK AG (2010). CASE 2.3 K RASNER V. HSH N ORDBANK AG (2010). Did the plaintiff prove the incidents and environment of sexual favoritism were related to his gender? 9

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics  Creating Ethical Codes of Conduct. – Ethics Training for Employees. One of the most effective ways to promote ethical behavior in an organization. – The Sarbanes-Oxley Act and web-based reporting systems (EthicsPoint). 10

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ethical Transgressions by Financial Institutions  Corporate Stock Buybacks. – Rationale: Corporate management believes stock is undervalued, so instead of issuing dividends it buys stock in the market, thus boosting share value. 11

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ethical Transgressions by Financial Institutions  Startling Executive Decisions at American International Group (AIG).  Executive Bonuses. 12

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Approaches to Ethical Reasoning  Duty Based Ethics - derived from religious and philosophical principles. – Religious Ethical Standards.  – Kantian Ethics.  – The Principle of Rights.  13

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Duty-Based Ethics. – Religious Ethical Standards. The rightness or wrongness of an action is usually judged according to its conformity to an absolute rule that commands a particular form of behavior.  Approaches to Ethical Reasoning 14

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Duty-Based Ethics. – Religious Ethical Standards. The motive of the actor is irrelevant in judging the rightness or the wrongness of the action. These rules often involve an element of compassion. Approaches to Ethical Reasoning 15

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Duty-Based Ethics. – Kantian Ethics. Premised on the belief that general guiding principles for moral behavior can be derived from human nature. The categorical imperative is a central postulate of Kantian ethics.  Approaches to Ethical Reasoning 16

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Duty-Based Ethics. – Kantian Ethics (cont’d). The rightness or wrongness of an action is judged by estimating the consequences that would follow if everyone in a society performed the act under consideration. Approaches to Ethical Reasoning 17

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Duty-Based Ethics. – Principle of Rights. Belief that every duty gives rise to a corresponding right, deeply embedded in Western culture. Ethicality of an action is judged by how the consequences of the action will affect the rights of others. Approaches to Ethical Reasoning 18

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Outcome-based Ethics: Utilitarianism. – Action is ethical based on whether it produces the greatest good for the greatest number of people. – If it affects the majority adversely, it is morally wrong.  Approaches to Ethical Reasoning 19

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Outcome-based Ethics: Utilitarianism. – Applying the utilitarian theory requires: Determination of individuals affected; Cost-Benefit analysis, and Choice among alternative actions Approaches to Ethical Reasoning 20

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Corporate Social Responsibility. – Those who manage corporations should be accountable to society for their actions. – Stakeholder Approach: corporations have a duty not only to shareholders but other groups (stakeholders) affected by corporate actions.  Approaches to Ethical Reasoning 21

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Corporate Social Responsibility (cont’d). – Corporate Citizenship: promote goals that society considers worthwhile and take positive steps towards solving problems.  Approaches to Ethical Reasoning 22

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Corporate Social Responsibility (cont’d). – Corporate Citizenship. A Way of Doing Business. Poll found that 70% of executives polled agreed that corporate citizenship should be a priority. But not all socially responsible activities benefit a company.  Approaches to Ethical Reasoning 23

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Corporate Social Responsibility (cont’d). – Corporate Citizenship. Employee Recruiting and Retention. Younger employees look for firms that are committed to socially responsible goals and community projects. Approaches to Ethical Reasoning 24

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Making Ethical Business Decisions  George S. May company has provided six guidelines: 1.The law. 2.Rules and procedures. 3.Values. 4.Conscience. 5.Promises. 6.Heroes (role models). 25

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Practical Solutions to Corporate Ethics Questions  Corporate-Ethics.us has devised a procedure: 1.Inquiry. 2.Discussion. 3.Decision. 4.Justification. 5.Evaluation. 26

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics on a Global Level  American companies must be trained in cross-cultural business practices.  Monitoring of Employment Practices of Foreign Suppliers. – Corporate Watch groups can hold corporations accountable. 27

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics on a Global Level  Foreign Corrupt Practices Act. – Prohibition Against Bribery of Foreign Officials. But FCPA does not permit “grease” payments to minor officials. – Nor does FCPA prohibit payments to foreign officials which are lawful in that country. 28

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics on a Global Level  Foreign Corrupt Practices Act (cont’d). – Nor does FCPA prohibit payments to private companies, unless the US firm knows the payments will go to an official.  29

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Ethics on a Global Level  Foreign Corrupt Practices Act (cont’d). – Bribery by Foreign Companies. – Accounting Requirements. – Penalties for Violations: companies up to $2 million in fines, individuals up to $100,000, and up to 5 years in prison. 30