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Chapter 4 Ethics and Business Decision Making

Chapter 4 Ethics and Business Decision Making. §1: 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.

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Chapter 4 Ethics and Business Decision Making

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  1. Chapter 4 Ethics and Business Decision Making

  2. §1: 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.

  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. • When these duties conflict, ethical dilemmas are created. • Case 4.1:Time Warner Entertainment Co. v. Six Flags Over Georgia, LLC. (2002).

  4. § 2: Setting the Right Ethical Tone • Importance of Ethical Leadership. • Attitude of Top Management. • “Looking the Other Way”. • Case 4.2: In re the Exxon Valdez (2004). • Creating Ethical Codes of Conduct. • Costco. • Clear Communications to Employees. • Johnson and Johnson: web-based ethical training.

  5. Corporate Compliance Programs • Sarbanes-Oxley and Web-based reporting. • 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. • Case 4.3: Securities and Exchange Commission v. WorldCom, Inc. (2003).

  6. § 3: Companies That Defy The Rules • Enron: Accounting Issues. • “Anticipated” future earnings. • Managers’ salaries based on inflated earnings. • Enron: Off-The-Books Transactions. • Moved losses from one ‘shell’ to another. • Transferred debts to partnerships in Cayman Islands.

  7. Defying the Rules • Enron: Self-Dealing. • Executives with their family. • Enron: Corporate Culture. • Rejected outside advice on “house of cards”. • No investigation of internal practices. • Merck and Vioxx. • Merck disregarded known risks. • Waited to be proven wrong ($250 M verdict).

  8. § 4: 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.

  9. § 5: Approaches to Ethical Reasoning • 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.

  10. 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.

  11. 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.

  12. 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.

  13. 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. • 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.

  14. §6: 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.

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