CH. 03 - Business Ethics

Ethics

study of what constitutes right or wrong behavior, branch of philosophy focusing on morality and the way moral principles are derived and implemented (has to do with fairness, justness, rightness or wrongness of an action) is something just/fair?

Business Ethics

What constitutes right and wrong behavior in the world of business and how moral and ethical principles are applied by business people to situations that arise in their daily work lives

Why Study Business Ethics?

you cannot separate laws and ethics, specifically you should study business ethics on how to be profitable; focuses of businesses years ago was to simply be profitable; inappropriate behavior now causes companys to lose goodwill and customers

Law does NOT =

Ethical; several gray areas, law can’t codify all ethical requirements

ex: Lead is considered legal, but selling lead free paint exists as to not harm people, legal to sell, however not ethical

Moral Minimum

the minimum degree of ethical behavior expected of a business firm, which is usually defined as compliance with the law (it is the floor, not the ceiling)

Private/Professional Codes of Ethics

Most companies attempt to link ethics and law through the creation of internal codes of ethics, company codes does not equal laws → violation of a company’s code of conduct can result in termination of an employee

Industry Ethical Codes

numerous industries have also developed codes of ethics, which can give guidance to decision makers facing ethical questions

Business as a Profit Maximizer

if all firms strictly adhere to the goal of maximizing profit, resources flow to where they are most highly valued – profit maximization can lead to the most efficient allocation of scarce resources

Even when profit maximization is the goal, how do companies benefit by ethical behavior?

customers are happy → word gets around → business generates for the firm

Business as a Corporate Citizen

investors began to look beyond simply profits and dividends and considered the “triple bottom line” – a corp’s profits, impact on people, and impact on the planet

Four-Part Analysis of Businesses

1. Legal implications of each decision

2. Public relations impact

3. Safety risks for consumers and employees

4. The financial implications

Attitude of Top Management

maintaining an ethical workplace is for top management to demonstrate its commitment to ethical decision making → sets the tone for the company, creates incentives

Unrealistic Goals for Employees

managers creating unrealistic production or sales goals increase probability that an employee will act unethically; if a sales quota can be met only through high pressure, unethical behavior will be done

Massachusetts v. Morgan Stanley Smith Barney (SBL Sales Contest Case) [ case 3.6 ]

key concepts: unethical, unrealistic goals for employees

Morgan Stanley branches ran an unauthorized sales contest offering brokers cash incentives to sell securities-based loans, violating the firm's own internal policy against sales contests. The practice significantly boosted loan sales before being caught by compliance. The state of Massachusetts sued, alleging the contest violated state securities rules, illustrating how unrealistic sales goals and incentive structures can pressure employees into unethical or non-compliant behavior

Fostering of Unethical Conduct

business owners and managers sometimes take more active roles in fostering unethical and illegal conduct with negative consequences for their businesses

Short-Run v. Long-Run Maximization

in a short run, a company may increase its profits by continuing to sell a product even though it knows that the product is defective

in the long run, because of lawsuits, large settlements, and bad publicity, such unethical behavior will cause profits to suffer

Short run =

get money quick scheme, most common reason ethical problems occur in business

Volkswagen Emissions Scandal ("Dieselgate") [ case 3.14 ]

key concepts: short term vs. long term profit maximization

Volkswagen installed "defeat device" software in diesel vehicles that detected emissions testing and altered performance to falsely show low emissions, making the cars appear both environmentally compliant and more marketable. VW ultimately pleaded guilty to criminal charges, paid billions in fines and settlements, and several executives faced criminal charges. The scandal illustrates how prioritizing short-term profit through unethical conduct can result in far greater long-term financial and reputational harm

State of Mississippi v. Watson Laboratories (AWP Fraud Case) [ case in point 3.2 ]

key concepts: corporate fraud, profit maximization through deception

Watson Laboratories manipulated the published average wholesale prices (AWPs) of its generic drugs for over a decade, setting them higher than actual prices to qualify for favorable Medicaid reimbursement rates. This caused Mississippi Medicaid to significantly overpay for the drugs. The state sued for fraud, and a court ordered Watson to pay over $30 million in penalties, damages, and interest. Watson appealed the ruling

Hiring Practices

today employers are likely to conduct internet searches to discover what job candidates have posted

Discussing Work-Related issues

numerous companies have strict guidelines about what is appropriate and inappropriate for employees to say when posting their own or others’ social media accounts → number of social media employees have been fired for criticizing other employees or managers through social media outlets

Responsibility of Employers

as a ruling by the national labor relations board (NLRD) the federal agency that investigates unfair labor practices), has changed the legality of such actions

Responsibility of Employees

knowing what you can and can’t say on social media

NLRB v. Costco (Social Media Policy Case) [ costco example: case 3.15 ]

key concepts: employee free speech, employer policy limits

Costco's social media policy prohibited employees from making statements that could damage the company or harm others' reputations. The NLRB ruled this policy violated federal labor law, which protects employees' right to engage in concerted activities, meaning employees can discuss shared workplace concerns, including through social media, without employer interference. As a result, employers cannot broadly ban employees from criticizing the company, co-workers, or management on social media.