Module 4 MGMT

Business ethics

The application of moral principles and values in a business context

Categorical imperative

An ethical guideline developed by Immanuel Kant under which an action is evaluated in terms of what would happen if everybody else in the same situation, or category, acted the same way

Corporate Social Responsibility (CSR)

The idea that corporations can and should act ethically and be accountable to society for their actions

Cost-benefit analysis

A decision making technique that involves weighing the costs of a given action against the benefits of that action

Duty based ethics

An ethical philosophy rooted in the idea that every person and every business has certain duties to others, including both humans and the planet

Ethical reasoning

A reasoning process in which individuals link their moral convictions or ethical stands to the situation at hand

Ethics

Moral principles and values applied to social behavior

Moral minimum

The minimum level of ethical behavior expected by society, which is usually defined as compliance with the law

Outcome based ethics

An ethical philosophy that focuses on consequences of any given action in order to maximize benefits and minimize harms

Outsourcing

The practice by which a company hires an outside firm or individual to perform work rather than hiring employees to do it

Principle of rights

The belief that human beings have certain fundamental rights

Stakeholders

Groups that are affected by corporate decisions. Stakeholders include employees, customers, creditors, suppliers, and the community in which the corporation operates

Triple bottom line

A measure that includes a corporation’s profits, its impact on people, and its impact on the planet

Utilitarianism

An approach to ethical reasoning in which an action is evaluated in terms of its consequences for those whom it will affect. A good action is one that results in the greatest good for the greatest number of people.

The relationship of law and ethics

• The government has created some ethical rights and duties through the passage of laws and regulations

• Many laws are designed to prevent fraudulent conduct, including the Dodd-Frank Wall Street Reform & Consumer Protection Act, and SOX Act

Gray areas in the law

• Sometimes legislation includes language that is overly broad of provisions that are ambiguous

• Such gray areas make it difficult to predict how law will apply or should be applied to a situation, complicating determinations of what is legal or ethical

The moral minimum

• Lawful behavior is the moral minimum

• The law has its limits, though, and some actions may be legal but not ethical

• The study of ethics goes beyond legal requirements to evaluate what is right for society

Codes of ethics

• Most large firms have internal ethical codes

• Many industry associations also have codes of ethics for their members

• Because these internal codes are not laws, their effectiveness is determined by the commitment of the company leadership or industry to enforcing the codes

The role of business in society

• The public perception of corporations has changed from entities that primarily generate profits for their owners to entities that participate in society as corporate citizens

• From either profit maximization or corporate citizenship perspective, ethics is important in making business decisions

• One ethical perspective looks to the triple bottom line, where decision makers evaluate…

  • The legal implications

  • PR impact

  • Safety risks

  • Financial implications of a decision

Ethical issues in business

• A fundamental ethical issue for business is developing integrity and trust

• Businesspersons should exhibit integrity in their dealings with other people in the company, other businesses, clients, and the community

Importance of ethical leadership

• Management’s commitment and behavior are essential in creating an ethical workplace

• Management’s behavior, more than anything else, sets the ethical tone of a firm and influences the behavior of employees

Duty based ethics

• Ethics based on religious beliefs; the basic rights of human beings; and philosophical reasoning, such as that of Immanuel Kant

• A potential problem for those who support this ethical approach is deciding which rights are more important in a given situation

• Management constantly faces ethical conflicts and trade-offs when considering all those affected by a business decision

Outcome based ethics (utilitarianism)

• Ethics based on philosophical reasoning, such as that of Jeremy Bentham and John Stuart Mill

• Applying this theory requires a cost-benefit analysis, weighing the negative effects against the positive and deciding which course of action produces the better outcome

Corporate social responsibility (CSR)

• Combines a commitment to good citizenship with a commitment to making ethical decisions, improving society, and minimizing environmental impact

• Although there are different theories, the basic idea is that corporations can and should act ethically and be accountable to society for their actions

• One view stresses that corporations have a duty to shareholders AND stakeholders (other groups affected by corporate decisions)

Short-term profit maximization

• Execs should distinguish between short-run and long-run profit goals and focus on maximizing profits over the long run

• Overemphasis on short-run profit maximization is perhaps the most common reason that ethical problems occur in business

Social media

• Advances in technology have created new ethical problems for companies

• Issues involving social media include how to use social media in the hiring process and how to monitor employee’ online activities

Awareness

• Whatever the context, businesspersons must be aware of the possibility that ethical issues will arise

Rationalization

• Sometimes businesspersons make a decision that they know is not ethical but that will benefit them or their company

• After the fact, they will rationalize their unethical decision

Uncertainty

• When making a business decision, businesspersons may be uncertain as to what they should do, should have done, or whether an ethical issue or breach is even involved

• Such uncertainty is unavoidable, but it should be treated as an indicator of a potential ethical problem

IDDR

I Desire to Do Right

Inquiry IDDR

Identify the ethical problem and all the stakeholders

Discussion IDDR

Make a list of all possible actions and evaluate the strengths and weaknesses of each option (including ethical and legal consequences)

Decision IDDR

Crafting a consensus decision or a company’s plan of action and articulate the reasons behind the decision

Review IDDR

Review the decision outcome to determine whether the solution was effective and satisfied the stakeholders

Business ethics on a global level

Global businesses need to be conscious of the impact of different religious principles and cultural norms on ethics

• Ethical concerns may arise in the areas of outsourcing, avoiding corruption, and monitoring the employment practices of foreign suppliers