Chapter 4: Business Ethics, Corporate Social Responsibility, Corporate Governance, and Critical Thinking

Ethics

The study of how people should act; the values and beliefs related to the nature of human conduct

Business Ethics

Business conduct that seeks to balance the values of society with the goal of profitable operations

Sarbanes-Oxley Act

Requires public companies to disclose whether ethics codes exist.

Shareholders, Employees, and Consumers

Stakeholders in a company

Independent Board of Directors

Change internal management structure; eliminate perverse incentives

Teleological Ethical Theories

Ethical theories that focus on the consequences of decision

Deontological Ethical Theories

Ethical theories that focus on decisions or actions alone

Rights Theory

Basic deontological view: Certain rights are fundamental.

Strength: Protects fundamental rights unless a greater right takes precedence

Criticism: Near absolute yet relative value of rights protected is difficult to articulate

Kantianism

Judge an action by applying it universally; applies to Rights Theory

Modern Rights Theory

Soften Kant’s approach to absolute duty approach, yet protect fundamental rights (a strength of the theory)

Justice Theory

Basic teleological view: A society’s benefits and burdens should be fairly allocated among its members; from John Rawls

Strength: Protects the least advantaged members of society

Criticism: Treats equality as absolute

Greatest Equal Liberty Principle

Each person has an equal right to basic rights and liberties; applies to Justice Theory

Difference Principle

Inequities acceptable only if elimination would harm the poorest class; applies to Justice Theory

Utilitarianism

Basic teleological view: Maximize utility for society as a whole with cost-benefit analysis; developed by Jeremy Bentham and Stuart Mill

Strength: Simplicity of a cost-benefit analysis

Criticism: How does a person measure all the costs and benefits?

Shareholder Theory

Aims to maximize the firm’s long-run profits within the limits of the law; if an action is legal, then it is ethical; from economists Adam Smith, Milton Friedman, and Thomas Sowell

Strength: Focus on profits as a mechanism for creating social benefit

Criticism: Underlying assumptions may be flawed

Virtue Theory

Highlights the importance of character for both individuals and organizations; demands that individuals and organizations know their values and how they correlate to identity, habits, and ways of engaging with others

Strength: Acting with regard to one’s self-interest is a hallmark of the human condition

Criticisms: Too subjective, too limited in scope, and too difficult to be useful, especially in the corporate context

Critical Thinking

The ability to evaluate arguments logically, honestly, and objectively

Non Sequitur Fallacy

A conclusion that does not follow the facts, often misses the point (ex: because you borrowed my notes from Math, I failed my Spanish exam)

Appeals to Pity

Gains support for an argument by focusing on a victim’s predicament (often also a non sequitur)

False Analogy Fallacy

Argues that since a set of facts are similar to another set of facts, the two are alike in other ways

Circular Reasoning Fallacy (Begging the Question)

A person assumes the thing the person is trying to prove (ex: we should tell the truth because lying is wrong)

Argumentum ad populum

An emotional appeal to popular beliefs; essentially the same flaw in reasoning as the bandwagon fallacy

Argumentum ad baculum

Uses threats or fear to support a position; often occurs in unequal bargaining situations

Argumentum ad hominem (Argument Against the Man)

Attacks the person, not their reasoning

Argument from Authority

Relies on an opinion because of a speaker’s status a an expert or position of authority, rather than the quality of their argument

False Cause Fallacy

A speaker observes two events and concludes there is a causual link between them when there is no such link

Gambler’s Fallacy

Results from the mistaken belief that independent prior outcomes affect future outcomes

Appeal to Tradition

A speaker declares that something should be done a certain way because that is the way it has been done in the past

Reductio ad absurdum (Slippery Slope Fallacy)

Carries an argument to its logical end, but does not consider whether it is an inevitable or probable result

Lure of the New

Since something is new it must be better; opposite of Appeals to Tradition