Business Law Chapter 2: Business Ethics and Social Responsibility

Ethics

The study of what is right or good for human beings; what people ought to do and what goals they should pursue

Business ethics

A branch of applied ethics; the study of what is right and good in a business setting

Law vs. ethics

Law is affected by morals but they are not the same; legal acts can be immoral and illegal acts can seem moral

Seeing-knowing-doing model

See (identify the ethical issues), know (choose the best option), do (implement the chosen option)

Ethical fundamentalism (absolutism)

Individuals look to a central authority or set of rules (e.g., the Bible, the Koran, Marx) to guide ethical decisions

Ethical relativism

Actions are judged by what each individual feels is right or wrong for themselves; both sides of a moral dispute are correct

Situational ethics

Judge a person's actions by first putting yourself in the actor's situation

Situational ethics vs. ethical relativism

Relativism lets the actor decide; situational ethics lets someone else judge the act after viewing it from the actor's perspective

Utilitarianism

Moral actions are those that produce the greatest net pleasure compared with net pain; judged by consequences

Act utilitarianism

Assesses each separate act by whether it maximizes pleasure over pain

Rule utilitarianism

Supports general rules that on balance produce the greatest pleasure for society, even if a rule sometimes produces less

Cost-benefit analysis

Quantifies in money terms and compares the direct and indirect costs and benefits of alternatives to maximize society's wealth

Criticisms of utilitarianism

It can ignore justice (hurting a minority for the majority's benefit), and pleasure and pain are hard to measure

Deontology

Actions are judged by their motives and means as well as their results; from Greek "deon" (duty)

Kant's categorical imperative

(1) Act only by a rule you would make a universal law; (2) never treat another person merely as a means to an end

Criticism of deontology

Rigidity and excessive formalism (e.g., refusing to lie to an abusive husband about where his wife is hiding)

Social ethics theories

Focus on a person's obligations to others in society and on the individual's rights and obligations within society

Social egalitarians

Society should give all members equal goods and services regardless of their contributions

Distributive justice (John Rawls)

Society designed behind a "veil of ignorance"; stresses equality of opportunity, not results, with concern for the least advantaged

Libertarians (Robert Nozick)

Stress liberty and market outcomes as the basis for distributing society's rewards; oppose redistribution

Intuitionism

A rational person has inherent power to assess the correctness of actions

Good persons philosophy

Seek out and emulate people who always seem to do the right thing

Television Test

Imagine your decision is broadcast on national TV; the right choice is one you'd be comfortable having everyone see

Kohlberg's stages of moral development

Preconventional (childhood), conventional (adolescence), postconventional (adult); progress depends on age and education

Preconventional level

Childhood; perspective of self; behavior driven by fear of punishment and desire for reward

Conventional level

Adolescence; perspective of the group; conform to group norms out of loyalty, affection, and trust; most adults are here

Postconventional level

Adult; universal perspective; follow moral principles because you understand why they are right

Corporations as moral agents

Unclear whether corporations, as state-created artificial entities, can be held morally responsible (Velasquez says no; Goodpaster and Matthews say yes)

Adam Smith's six institutions of capitalism

Economic motivation, private productive property, free enterprise, free markets, competition, and limited government

Why government regulates business

Perfect competition doesn't exist and free markets can't achieve all social goals

Four aims of government regulation

Regulate legal and natural monopolies, preserve competition, protect groups like labor and agriculture, and promote other social goals

Corporate governance problem

Wealth and power are concentrated in a few corporations controlled by a small group of officers, not shareholders

Inside vs. outside directors

Inside directors are corporate officers who also sit on the board; outside directors are not officers and now make up most public company boards

Sarbanes-Oxley Act (2002)

Passed after Enron-era scandals to add corporate governance requirements for publicly held corporations

Dodd-Frank Act (2010)

Biggest financial regulation change since the New Deal; improves accountability, transparency, consumer protection, and corporate governance

Arguments against social responsibility

Profitability, unfairness, accountability, and expertise

Profitability argument (Milton Friedman)

Corporations exist to make profits; their only social obligation is to return as much money as possible to shareholders

Unfairness argument

Social spending diverts funds that rightfully belong to shareholders and employees

Accountability argument

Corporations face less public accountability than public bodies, so their social agendas can be abused

Expertise argument

Skill at selling products doesn't mean skill at managing social causes

Arguments in favor of social responsibility

The social contract, less government regulation, and long-run profits

Social contract argument

Society creates corporations and grants them rights like limited liability, so they owe a responsibility to society

Less government regulation argument

Acting responsibly builds trust and reduces the need for government regulation

Long-run profits argument

Social involvement creates goodwill, which leads to stronger profits over time

Stockholder model

A corporation is private property run for the benefit of its stockholders (the historical norm)

Stakeholder model

A corporation has fiduciary duties to all stakeholders: stockholders, employees, customers, suppliers, managers, and communities