©2001 West Legal Studies in Business. All Rights Reserved. 1 Chapter 4: Ethics and Business Decision Making

©2001 West Legal Studies in Business. All Rights Reserved. 2 IntroductionIntroduction Businesses should be careful to do more than comply with the laws. Consumers and shareholders are requiring companies to do what is “ethical” which sometimes may impose additional duties required by law. Historically, law and ethics were synonymous-today they may not be.

©2001 West Legal Studies in Business. All Rights Reserved. 3 §1: Nature of Business Ethics Ethics is the study of right and wrong behavior in the world of business; the fairness, rightness or justness of a course of conduct. In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace.

©2001 West Legal Studies in Business. All Rights Reserved. 4 Defining Business Ethics Morals are universal guidelines or “revealed” truths. Ethics is a reasoned set of principals of conduct derived from morals. Ethical Reasoning - the process by which an individual links her moral and ethical convictions to the choice of actions to be taken in a particular situation.

©2001 West Legal Studies in Business. All Rights Reserved. 5 Conflicting Duties 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 4.1: Varity v. Howe (1996).Varity v. Howe

©2001 West Legal Studies in Business. All Rights Reserved. 6 Public Opinion and Ethics A company’s actions can come under quick scrutiny with the power of and the internet. 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.special interest group 1 in 9 investors have “socially responsible” investments. Gallup Poll.com.Gallup Poll.com

©2001 West Legal Studies in Business. All Rights Reserved. 7 § 2: Approaches to Ethical Reasoning Duty-Based Ethics—derived from religious and philosophical principles: –Religious Ethical Standards. –Kantian Ethics. –Rights Principles. Outcome-Based Ethics (“utilitarianism”) seeks to ensure the greatest good for the greatest number.

©2001 West Legal Studies in Business. All Rights Reserved. 8 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. 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.

©2001 West Legal Studies in Business. All Rights Reserved. 9 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. –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.

©2001 West Legal Studies in Business. All Rights Reserved. 10 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.

©2001 West Legal Studies in Business. All Rights Reserved. 11 UtilitarianismUtilitarianism An action is ethical based on whether it produces the greatest good for the greatest number of people. 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.

©2001 West Legal Studies in Business. All Rights Reserved. 12 §3: Ethical Decision Making A sound ethical decision-making model will include consideration of: –More than the “legal minimum.” –The ethicality of the contemplated action, as determined by reference to the relevant code of ethics, established ethical priorities, and public opinion. –Case 4.2: NY State Society of CPA’s v Eric Louis Associates (1999).

©2001 West Legal Studies in Business. All Rights Reserved. 13 Corporate Compliance A number of contexts, within the employer- employee relationship, are fraught with ethical considerations, such as: –Having a system in place to detect, prevent, eliminate, and punish behavior of a harassing nature toward employees. –Avoiding wrongful discharge, either actual or constructive. –Adhering to ethical principles during corporate restructuring and downsizing.

©2001 West Legal Studies in Business. All Rights Reserved. 14 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.

©2001 West Legal Studies in Business. All Rights Reserved. 15 Ethical “Gray Areas” Sometimes whether an action is legal or ethical depends on how a court or administrative agency interprets a statute. What if different courts disagree? –Case 40.3: Pavlik v. Lane Ltd. (1998).Pavlik v. Lane Ltd. If managers, in good faith, believe they are complying with a statute and later are ruled against, was their action unethical?

©2001 West Legal Studies in Business. All Rights Reserved. 16 §4: Maximum vs. Optimum Profits Ethical priorities of the executive’s institution will have an effect on whether she chooses maximum profits versus “optimum profits.” The sacrifice of some profitability resulting from adherence to an institution’s ethical and legal priorities produces what business ethicists refer to as optimum profits.

©2001 West Legal Studies in Business. All Rights Reserved. 17 §5: The Ever-Changing Ethical Landscape What causes a societies’ ethics to change? Seventy-five years ago a corporation’s ethical duty was only to its shareholders and maximize profits. Only two questions were asked: is it legal? Is it profitable? The globalization of business impacts US companies, suppliers, wages of foreign workers and consumers. Foreign Corrupt Practices Act (1977).Foreign Corrupt Practices Act

©2001 West Legal Studies in Business. All Rights Reserved. 18 Focus on Ethics How can an executive know what is “ethical” in a particular business decision? Obstacles to ethical business behavior. Ethics and the Corporate Environment. Corporate “Social Responsibility”. Does it “pay” to be Ethical today?

©2001 West Legal Studies in Business. All Rights Reserved. 19 Law on the Web Ethics at the Corporate Governance Website.Ethics at the Corporate Governance Website Ethics at DePaul University.Ethics at DePaul University The U.N. Global Compact on Ethics and Human Rights.The U.N. Global Compact on Ethics and Human Rights U.S. Law, Regulations and Agencies (at Lex Mundi).U.S. Law, Regulations and Agencies Legal Research Exercises on the Web.