Business Law Chapter 3: Business Ethics

Ethics

Moral principles and values applied to social behavior. It concerns an action's fairness, justness, rightness, and wrongness.

Business Ethics

Ethics specifically within a business context. It represents a consensus on right or wrong behavior in business and the application of moral principles to business situations.

Institutionalized Ethics

Governments often codify ethical rights and duties into laws and regulations (e.g., laws preventing fraudulent conduct in contracts, healthcare, financial reporting).

Post-Transgression Legislation

Significant laws may arise following well-publicized ethical failures by industries or companies that harm the public.

Gray Areas in the Law

Laws cannot encompass all ethical requirements. Laws can be difficult to interpret due to broad language, unintended applications, unclear guidance, or ambiguous provisions.

Moral Minimum

The baseline ethical behavior expected of a business, typically defined as compliance with the law. Failing to meet this can have severe repercussions.

Legality vs. Ethics

A crucial distinction: an action that is legal is not automatically ethical.

Company Codes of Ethics

Internal rules set and enforced by companies to link ethics and law. These outline policies and expected employee conduct.

Industry Ethical Codes

Codes developed by various industries, whose violation can lead to employee discipline or sanctions against a company. Their effectiveness depends on leadership commitment.

profit maximizing

Historically, the sole duty was to generate profits for owners. Theory suggests this leads to efficient resource allocation.

Business as a Corporate Citizen

Investors and others consider not just corporate profits, but also the firm's impact on people and the planet.

Triple Bottom Line

A framework that considers social, environmental, and financial impacts of business decisions.

Four-Part Analysis for Decisions

Businesses should evaluate legal implications, public relations impact, safety risks for consumers and employees, and financial implications.

Fundamental Ethical Issues

Developing integrity and trust in dealings with employees, other businesses, clients, and the community.

Challenges in Decision Making

Recognizing ethical issues, obtaining pertinent facts, evaluating alternatives, making and testing decisions, then reflecting on outcomes.

ineffective

Top Management's Attitude sets the ethical tone. Lack of enforcement renders codes ______.

unethical

Managers who set unachievable goals increase the likelihood of _____________employee behavior.

Fostering or promote

Business owners and managers can actively ______unethical or illegal conduct, leading to negative consequences for the business.

Ethical Reasoning

The process of connecting moral convictions or ethical standards to a specific situation, applicable to individuals and businesses.

Duty-Based Ethics

Rooted in the idea that every person has certain duties to others (humans and the planet), derived from religious or philosophical principles.

Religious Ethical Principles

Beliefs about how to treat others, often absolute. Can unify employees but also create problems due to diverse religious backgrounds.

fundamental rights and stakeholders

Principle of rights says: Human beings have __________ (life, freedom, happiness). Ethical decisions consider the impact on the rights of _______ (employees, customers, suppliers, community).

stakeholders

ethical decisions onsider the impact on the rights of ______ (employees, customers, suppliers, community). Stronger rights take precedence when they conflict.

Kantian Ethical Principles

Humans are qualitatively different and possess moral integrity and reason. Treating people merely as a means to an end denies their basic humanity.

Categorical Imperative

Evaluate an action by considering what would happen if everyone in the same situation acted the same way.

Outcome-Based Ethics

Focuses on the consequences of an action, aiming to maximize benefits and minimize harms for society or key stakeholders.

Utilitarianism

Ethically correct behavior is determined by evaluating the consequences of an action on those affected. A 'good' decision provides the greatest good for the greatest number of people.

Cost-Benefit Analysis

Identify affected individuals. Weigh costs against benefits. Choose actions that yield maximum societal utility (greatest positive net benefits).

Corporate Social Responsibility (CSR)

Corporations should act ethically and be accountable to society for their actions. It involves self-regulation beyond legal requirements, aligning with ethical norms and global standards.

Effectiveness of CSR

Most successful when activities are significant and related to business operations (e.g., environmental efforts, ethical labor, charitable donations, volunteer work).

Corporate Aspects of CSR

CSR benefits corporations through increased goodwill, sales, and employee retention, though benefits may not always be immediate.

Social Aspects of CSR

Businesses have a responsibility to use their wealth and power for societal benefit, promoting worthwhile goals and solving social problems.

Stakeholders and CSR

Corporations have duties to both shareholders and stakeholders (groups other than shareholders affected by corporate decisions, including employees, customers, creditors, suppliers, and the community).

Short-Term Profit Maximization

Overemphasis on short-run profits is a common cause of ethical problems.

Social Media Ethical Dilemmas

Ethical dilemmas arise from using social media for hiring decisions (judging candidates based on outside activities) and discussing work-related issues (employees' rights to criticize the company).

Awareness in Ethical Decisions

Businesspersons may not always recognize that a decision has ethical implications.

Rationalization

Justifying ethically questionable decisions. To counteract this, decide the ethical course first, then mitigate costs.

IDDR Approach

A systematic approach to organizing and addressing ethical issues: Inquiry, Discussion, Decision, Review.

Inquiry in IDDR

Identify the ethical problem and all stakeholders. Avoid framing the issue to favor a predetermined answer.

Discussion in IDDR

List possible actions. Prioritize what should be done over what can or will be done.

Decision in IDDR

Craft a consensus decision or action plan. Clearly articulate ethical reasons.

Review in IDDR

Assess the effectiveness of the solution.

Varying Ethical Expectations

Countries and regions have different ethical expectations and priorities based on religious values and cultural norms, complicating global ethical decision-making.

Foreign Corrupt Practices Act (FCPA)

Prohibits U.S. businesses from bribing foreign officials to secure beneficial contracts, with exceptions for payments lawful in the foreign country.

Monitoring Employment Practices of Foreign Suppliers

U.S. businesses hiring contractors in developing nations must be aware of potential unethical labor practices, as allegations of such practices harm a firm's reputation.

Government Institutionalization of Ethical Rights and Duties

The government institutionalizes ethical rights and duties through laws and regulations, such as those preventing fraudulent conduct in various contexts.

Reasons for Difficulty in Interpreting Laws Ethically

This can be due to broad language, the application of a law beyond its intended situation, unclear guidance on its purpose, or ambiguous provisions.

Kantian Ethics

According to Kantian ethics, human beings are endowed with moral integrity and the capacity to reason.

Profit-Making Tools

Treating people merely as __________ is problematic because it treats them as a means to an end, denying their basic humanity and inherent worth.

Primary Goal of Utilitarianism

To make decisions that result in the greatest good for the greatest number of people affected by the decision.

Corporate Social Responsibility (CSR) Activities

Two types of activities businesses might undertake as part of their CSR efforts include environmental initiatives, such as reducing their carbon footprint, and implementing ethical labor practices, ensuring fair wages and safe working conditions.

Short-Term Profit Maximization Ethical Problems

An overemphasis on short-term profit maximization can lead to ethical problems in business.

Principle of Rights

The principle that human beings have certain fundamental rights (to life, freedom, and the pursuit of happiness, for example).

Stakeholders

Groups, other than the company's shareholders, that are affected by corporate decisions, including employees, customers, creditors, suppliers, and the community.

Inquiry

Identify ethical problem and stakeholders.

Discussion

Compile possible actions, prioritizing what should be done.

Decision

Craft a consensus action plan and articulate ethical reasons.

effectiveness

Review: Assess the solution's _________.

Environmental Initiatives

Activities aimed at reducing a business's carbon footprint.

Ethical Labor Practices

Ensuring fair wages and safe working conditions.

Charitable Donations

Contributions made by businesses to support social causes.

Volunteer Work

Activities where employees contribute their time to help the community.