1. © 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 4 Ethics and Business Decision Making

2. © 2004 West Legal Studies in Business A Division of Thomson Learning 2 §1: Business Ethics Ethics is the study of right and wrong behavior; whether an action is fair, right or just. 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. In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace. Ethics is the study of right and wrong behavior; whether an action is fair, right or just. 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. In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace.

3. © 2004 West Legal Studies in Business A Division of Thomson Learning 3 Why is Business Ethics Important? Directors and Officers owe a complex set of ethical duties to the company, shareholders, customers, community, employees, and suppliers. 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. When these duties conflict, ethical dilemmas are created. Case 4.1: Time Warner Entertainment Co. v. Six Flags Over Georgia, LLC. (2002). Case 4.1: Time Warner Entertainment Co. v. Six Flags Over Georgia, LLC. (2002). Directors and Officers owe a complex set of ethical duties to the company, shareholders, customers, community, employees, and suppliers. 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. When these duties conflict, ethical dilemmas are created. Case 4.1: Time Warner Entertainment Co. v. Six Flags Over Georgia, LLC. (2002). Case 4.1: Time Warner Entertainment Co. v. Six Flags Over Georgia, LLC. (2002).

4. © 2004 West Legal Studies in Business A Division of Thomson Learning 4 § 2: Setting the Right Ethical Tone Importance of Ethical Leadership and Creating Ethical Codes of Conduct. Importance of Ethical Leadership and Creating Ethical Codes of Conduct.  Costco.  Clear Communications to Employees.  Johnson and Johnson: web-based ethical training. Corporate Compliance Programs. Corporate Compliance Programs.  Sarbanes-Oxley and Web-based reporting. Conflicts and Trade-Offs. Conflicts and Trade-Offs.  Case 42.2: Varity Corp. v. Howe (1996). Importance of Ethical Leadership and Creating Ethical Codes of Conduct. Importance of Ethical Leadership and Creating Ethical Codes of Conduct.  Costco.  Clear Communications to Employees.  Johnson and Johnson: web-based ethical training. Corporate Compliance Programs. Corporate Compliance Programs.  Sarbanes-Oxley and Web-based reporting. Conflicts and Trade-Offs. Conflicts and Trade-Offs.  Case 42.2: Varity Corp. v. Howe (1996).

5. © 2004 West Legal Studies in Business A Division of Thomson Learning 5 Corporate Compliance Programs A number of contexts, within the employer- employee relationship, are fraught with ethical considerations, such as: 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. A number of contexts, within the employer- employee relationship, are fraught with ethical considerations, such as: 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.

6. © 2004 West Legal Studies in Business A Division of Thomson Learning 6 § 3: Defying the Rules: Enron Accounting Issues. Accounting Issues.  “Anticipated” future earnings.  Managers’ salaries based on inflated earnings. Off-The-Books Transactions. Off-The-Books Transactions.  Moved losses from one ‘shell’ to another.  Transferred debts to partnerships in Cayman Islands. Accounting Issues. Accounting Issues.  “Anticipated” future earnings.  Managers’ salaries based on inflated earnings. Off-The-Books Transactions. Off-The-Books Transactions.  Moved losses from one ‘shell’ to another.  Transferred debts to partnerships in Cayman Islands.

7. © 2004 West Legal Studies in Business A Division of Thomson Learning 7 Defying the Rules: Enron Self-Dealing. Self-Dealing.  Executives with their family. Corporate Culture. Corporate Culture.  Rejected outside advice on “house of cards”.  No investigation of internal practices. Whistle-Blowers named 2002 “Persons of the Year” by Time Magazine. Whistle-Blowers named 2002 “Persons of the Year” by Time Magazine. Whistle-Blowers named 2002 “Persons of the Year” by Time Magazine Whistle-Blowers named 2002 “Persons of the Year” by Time Magazine Self-Dealing. Self-Dealing.  Executives with their family. Corporate Culture. Corporate Culture.  Rejected outside advice on “house of cards”.  No investigation of internal practices. Whistle-Blowers named 2002 “Persons of the Year” by Time Magazine. Whistle-Blowers named 2002 “Persons of the Year” by Time Magazine. Whistle-Blowers named 2002 “Persons of the Year” by Time Magazine Whistle-Blowers named 2002 “Persons of the Year” by Time Magazine

8. © 2004 West Legal Studies in Business A Division of Thomson Learning 8 § 4: Business Ethics and the Law Legal compliance is the moral/ethical minimum. Legal compliance is the moral/ethical minimum. Simply obeying the law does not necessarily make the business practice ethical. Simply obeying the law does not necessarily make the business practice ethical. “Gray” areas in the law. “Gray” areas in the law.  Business leaders must contemplate the ethical implications of a business decision.  Case 4.3: Pavlik v. Lane Ltd./Tobacco Exporters International (1998). Legal compliance is the moral/ethical minimum. Legal compliance is the moral/ethical minimum. Simply obeying the law does not necessarily make the business practice ethical. Simply obeying the law does not necessarily make the business practice ethical. “Gray” areas in the law. “Gray” areas in the law.  Business leaders must contemplate the ethical implications of a business decision.  Case 4.3: Pavlik v. Lane Ltd./Tobacco Exporters International (1998).

9. © 2004 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 email and the internet. A company’s actions come under quick scrutiny with the power of email and the internet. Case 4.4: Blakey v.Continental Airlines, Inc. (2000). Case 4.4: Blakey 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. 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 groupspecial interest group A company’s actions come under quick scrutiny with the power of email and the internet. A company’s actions come under quick scrutiny with the power of email and the internet. Case 4.4: Blakey v.Continental Airlines, Inc. (2000). Case 4.4: Blakey 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. 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 groupspecial interest group

10. © 2004 West Legal Studies in Business A Division of Thomson Learning 10 § 5: Approaches to Ethical Reasoning Duty Based Ethics - derived from religious and philosophical principles. 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. Outcome-Based Ethics - seek to ensure a given outcome.  Utilitarianism. Duty Based Ethics - derived from religious and philosophical principles. 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. Outcome-Based Ethics - seek to ensure a given outcome.  Utilitarianism.

11. © 2004 West Legal Studies in Business A Division of Thomson Learning 11 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 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. 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. These rules often involve an element of compassion. 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 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. 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. These rules often involve an element of compassion.

12. © 2004 West Legal Studies in Business A Division of Thomson Learning 12 Kantian Ethics Premised on the belief that general guiding principles for moral behavior can be derived from human nature. 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 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. Premised on the belief that general guiding principles for moral behavior can be derived from human nature. 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 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.

13. © 2004 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. 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 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. The ethicality of an action is judged by how the consequences of the action will affect the rights of others. This principle derives from the belief that every duty gives rise to a corresponding right. 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 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. The ethicality of an action is judged by how the consequences of the action will affect the rights of others.

14. © 2004 West Legal Studies in Business A Division of Thomson Learning 14 Outcome-Based Ethics: Utilitarianism An action is ethical based on whether it produces the greatest good for the greatest number of people upon which it has an effect. 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. 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. The best alternative is the one that produces the greatest good for the greatest number. An action is ethical based on whether it produces the greatest good for the greatest number of people upon which it has an effect. 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. 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. The best alternative is the one that produces the greatest good for the greatest number.

15. © 2004 West Legal Studies in Business A Division of Thomson Learning 15 §6: Business Ethics on a Global Level American companies must be trained in cross- cultural business practices. American companies must be trained in cross- cultural business practices. Monitoring the Employment Practices of Foreign Suppliers. Monitoring the Employment Practices of Foreign Suppliers.  Corporate Watch groups can disseminate information instantly around world. Foreign Corrupt Practices Act. Foreign Corrupt Practices Act.  Bribes and Accounting Practices. American companies must be trained in cross- cultural business practices. American companies must be trained in cross- cultural business practices. Monitoring the Employment Practices of Foreign Suppliers. Monitoring the Employment Practices of Foreign Suppliers.  Corporate Watch groups can disseminate information instantly around world. Foreign Corrupt Practices Act. Foreign Corrupt Practices Act.  Bribes and Accounting Practices.

16. © 2004 West Legal Studies in Business A Division of Thomson Learning 16 Law on the Web Enron: An “Inside Look” at West Business Law. Enron: An “Inside Look” at West Business Law. Enron: An “Inside Look” at West Business Law. Enron: An “Inside Look” at West Business Law. Ethics at the Corporate Governance Website. Ethics at the Corporate Governance Website. Ethics at the Corporate Governance Website Ethics at the Corporate Governance Website Legal Research Exercises on the Web. Legal Research Exercises on the Web. Legal Research Exercises on the Web. Legal Research Exercises on the Web. Enron: An “Inside Look” at West Business Law. Enron: An “Inside Look” at West Business Law. Enron: An “Inside Look” at West Business Law. Enron: An “Inside Look” at West Business Law. Ethics at the Corporate Governance Website. Ethics at the Corporate Governance Website. Ethics at the Corporate Governance Website Ethics at the Corporate Governance Website Legal Research Exercises on the Web. Legal Research Exercises on the Web. Legal Research Exercises on the Web. Legal Research Exercises on the Web.