BGS - Business Ethics

Business Ethics

The study of good and evil, right and wrong, and just and unjust actions in business.

Ethics

The study of what is good and evil, right and wrong, and just and unjust.

Bernard Ebbers/WorldCom

WorldCom's CEO who was convicted of fraud after the company used false accounting practices to hide expenses and inflate profits, leading to bankruptcy, investor losses, and thousands of layoffs.

Theory of Amorality

The belief that business should operate separately from normal ethical standards and that competitive success may justify actions that would be considered unethical in personal life.

Daniel Drew

Railroad stock speculator and supporter of the theory of amorality who believed morality belonged in private life, not business.

Theory of Moral Unity

The belief that the same ethical standards used in everyday life should also be used in business decisions.

James Cash Penney

Founder of J.C. Penney who exemplified moral unity by refusing to continue bribery even when it caused him to lose business.

Reciprocity

A principle of mutual behavior in which people treat others as they would like to be treated; the basis of the Golden Rule.

Four Major Sources of Ethical Values

Religion, philosophy, cultural experience, and law.

Religion as a Source of Ethics

Major religions promote honesty, fairness, responsibility, charity, promise-keeping, and respect for others.

Philosophy as a Source of Ethics

Ethical ideas developed by thinkers such as Socrates, Plato, Aristotle, Kant, Bentham, and Locke that influence modern business behavior.

Utilitarianism

Bentham's ethical theory that the best action is the one that produces the greatest good for the greatest number of people.

John Locke

Philosopher whose ideas supported human rights, liberty, and protection from tyranny.

Realist School of Ethics

The view that human nature contains both good and evil, making perfect ethical behavior unrealistic.

Cultural Experience

The process by which societies pass values, norms, and standards from one generation to another, shaping ethical behavior.

Ethical Universalism

The belief that basic ethical principles apply everywhere because human nature is fundamentally similar across cultures.

Ethical Relativism

The belief that ethical values are determined by culture and that no universal ethical standard exists.

Hypernorms

Fundamental ethical principles, such as respect for life and liberty, that underlie all cultures and moral systems.

Compensatory Damages

Payments awarded to victims to compensate them for actual losses suffered.

Punitive Damages

Additional payments imposed to punish especially harmful or reckless behavior and deter future misconduct.

White-Collar Crime

A nonviolent economic crime involving fraud, deception, or cheating for personal or corporate gain.

Respondeat Superior

The legal doctrine that a corporation can be held responsible for crimes committed by employees acting within the scope of employment and for the company's benefit.

Deferred Prosecution Agreement (DPA)

An agreement in which prosecutors delay criminal charges while a corporation takes corrective actions.

Nonprosecution Agreement (NPA)

An agreement in which prosecutors agree not to bring charges if a corporation satisfies specific conditions.

Monitor

An independent person hired to oversee a corporation's compliance with the terms of a DPA or NPA.

Four Factors Influencing Managerial Ethics

Leadership, strategies and policies, corporate culture, and individual characteristics.

Leadership and Ethics

The behavior of leaders strongly influences employee conduct because workers often imitate what leaders actually do rather than what they say.

Strategies and Policies

Organizational goals, incentives, and performance pressures that can encourage either ethical or unethical behavior.

Corporate Culture

The shared values, norms, rituals, rules, and assumptions that influence behavior within an organization.

Artifacts (Schein)

Visible elements of culture such as dress codes, office layouts, symbols, and observable behaviors.

Espoused Values (Schein)

Official statements of beliefs and principles found in mission statements, ethics codes, and company policies.

Tacit Underlying Assumptions (Schein)

Deep, unwritten beliefs about how things really work in an organization; often the strongest influence on behavior.

Fannie Mae Ethics Lesson

Although the company publicly promoted honesty and integrity, pressure to meet earnings targets created a culture that encouraged unethical accounting practices.

Machiavellianism

A personality trait characterized by manipulation, self-interest, and willingness to use unethical tactics to achieve goals.

Situational Factors and Ethics

Pressures such as authority, conformity, incentives, and opportunity often influence ethical behavior more strongly than personality traits.

Ryberg Case

An example showing how small ethical compromises can gradually escalate into serious fraud through rationalization and opportunity.

Ethics and Compliance Program

A system of policies, procedures, controls, training, and monitoring designed to promote ethical behavior and legal compliance.

Purpose of Ethics and Compliance Programs

To prevent misconduct, reduce legal risk, encourage ethical behavior, and protect corporations from criminal liability.

Corporate Crime Sentencing Factors

Courts consider factors such as seriousness of the offense, management involvement, prior misconduct, cooperation, compliance efforts, and impact on innocent stakeholders.

Difference Between Compensatory and Punitive Damages

Compensatory damages repay victims for losses, while punitive damages punish offenders and deter future wrongdoing.

Difference Between Amorality and Moral Unity

Amorality treats business as separate from ordinary ethics, while moral unity applies the same ethical standards to both business and personal life.

Difference Between Universalism and Relativism

Universalism argues that some ethical principles apply everywhere, while relativism argues that ethics depend on cultural values.

Main Lesson of Chapter 7

Ethical behavior in business is shaped by values, laws, leadership, culture, incentives, and individual choices, and unethical actions can have severe legal, financial, and social consequences.