© 2007 West Legal Studies in Business, A Division of Thomson Learning Chapter 3 Ethics and Business Decision Making

© 2007 West Legal Studies in Business, A Division of Thomson Learning 2 What is ethics? What is business ethics? Why is business ethics important? How can business leaders encourage their companies to act ethically? What are corporate compliance programs? How do duty based ethical standards differ from outcome-based ethical standards? What types of ethical issues might arise in the context of international business transactions? Learning Objectives

© 2007 West Legal Studies in Business, A Division of Thomson Learning 3 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.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 4 Why is Business Ethics Important? Directors and Officers owe a complex set of ethical duties to the company, shareholders, customers, community, employees, and suppliers. When these duties conflict, ethical dilemmas are created. CASE 3.1: Time Warner Entertainment Co. v. Six Flags Over Georgia, LLC. (2002).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 5 Setting the Right Ethical Tone Importance of Ethical Leadership. –CASE 3.2: In re the Exxon Valdez (2004). Creating Ethical Codes of Conduct. –Costco. –Clear Communications to Employees. –Johnson and Johnson: web-based ethical training. Corporate Compliance Programs. –Sarbanes-Oxley and Web-based reporting. Conflicts and Trade-Offs.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 6 Codes Of Ethics Adopted by business entities as a way to: –Provide standard guidance to executives and managers. –Take into account the duties owed by the business to its various stakeholders.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 7 Companies that Defy the Rules Enron’s Growth and Demise. –‘Off the books” transactions. Merck and Company—Vioxx. –Awareness of risks.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 8 Business Ethics and the Law Legal compliance is the moral/ethical minimum. Simply obeying the law does not necessarily make the business practice ethical. “Gray” areas in the law. –Business leaders must contemplate the ethical implications of a business decision.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 9 Technological Developments A company’s actions come under quick scrutiny with the power of and the internet. –CASE 3.3: Blackey v. Continental Airlines, Inc. (2000). When a corporation embarks on a course of business deemed “unethical” by a special interest group, the news will spread around the world in a matter of minutes.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 10 Duty Based Ethics - derived from religious and philosophical principles. –Religious Ethical Standards. –Kantian Ethics. –Rights Principles. Outcome-Based Ethics - seek to ensure a given outcome. –Utilitarianism. Approaches to Ethical Reasoning

© 2007 West Legal Studies in Business, A Division of Thomson Learning 11 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. 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. Religious Ethical Standards

© 2007 West Legal Studies in Business, A Division of Thomson Learning 12 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. –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. Kantian Ethics

© 2007 West Legal Studies in Business, A Division of Thomson Learning 13 Rights Principle This principle derives from the belief that every duty gives rise to a corresponding right. The belief in fundamental rights is a deeply embedded feature of Western culture. The ethicality of an action is judged by how the consequences of the action will affect the rights of others.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 14 An action is ethical based on whether it produces the greatest good for the greatest number of people upon which it has an effect. A cost-benefit analysis must be performed to determine the effects of competing alternatives on the persons affected. The best alternative is the one that produces the greatest good for the greatest number. Utilitarianism

© 2007 West Legal Studies in Business, A Division of Thomson Learning 15 Business Ethics on a Global Level American companies must be trained in cross-cultural business practices. Monitoring the Employment Practices of Foreign Suppliers. –Corporate Watch groups can disseminate information instantly around world. Foreign Corrupt Practices Act. –Bribes and Accounting Practices.