Bus Govt Society Exam #2

Business ethics

application of general ethical ideas to business behavior

Practical reasons to be ethical

1. enhance business performance

2. comply with legal requirements

3. meet demands of business stakeholders

normative reasons to be ethical

1. to prevent or minimize harm

2. promote personal morality

normative

relating to standard of norm

Complying with legal requirements

Practical. 2 legal requirements

1. U.S. Corporate Sentencing Guidelines

2. Sarbanes-Oxley Act

U.S. Corporate Sentencing Guidelines

Come into play when an employe of a firm has been found guilty of criminal wrongdoing and firm is facing sentencing —> responsible for actions taken by its employees.

U.S. Corporate Sentencing Guidelines - Judge computes a degree of blame by assessing whether the company has: 

1. established standards and procedures to reduce criminal conduct

2. assigned high level officer(s) responsibility for compliance

3. not assigned discretionary authority to ‘risky’ individuals 

4. effectively communicated standards and procedures through training

5. taken reasonable steps to ensure compliance (monitor/audit systems, maintain and publicize reporting system) 

6. enforced standards and procedures through disciplinary mechanisms 

7. following detection of the offense, responded appropriately and prevented reoccurrence 

Sarbanes-Oxley Act of 2002

(Born from ethics scandalds at enron, worldcom,, tyco)

law seeks to ensure firms maintain high ethical standards 

Under the Sarbanes-Oxley Act, 

executives must vouch for the accuracy of a firm’s financial reports and requires them to pay back bonuses based on earnings that are later proved fraudulent (clawback)

Corporate culture

blend of ideas, customs, traditional practices, company values, and shared meanings that define normal behavior for everyone who works at the company

Ethical climate

represents what an unspoken understanding among employees of what is and is not acceptable behavior based on these norms

part of broader corporate culture is

that it sets the ethical tone for the company

3 Distinct ethical criteria

egoism (self centeredness)

benevolence (concern for others)

principle (respect for one’s integrity, norms, or laws)

Employee ethics training

most expensive and time consuming element of an ethics program.

Employee ethics training organizational benefits

1. reduces legal liability

2. increases reporting/speaking up

3. improves trust in leadership

4. improves employee morale

5. improves mastery of ethics and compliance issues 

efforts to curtail unethical practices

U.S. Foreign corrupt practices act (banned bribes)

UK Bribery Act

Ethical leadership

demonstration of normatively appropriate conduct through personal actions and interpersonal relationships

ethics and compliance officer

ECO, CCO, CIO helps prevent ethical lapses in large corporations

ethics policies or codes

purpose of such policies/codes is to provide guidance to managers/employees when they encounter such ethical ethical dilemmas

Ethics policies or codes in US & Latin America

primarily instrumental —> provided rules and procedures to follow in order to adhere to company policies or societal laws

ethics policies or codes IN JAPAN

Policies were a mixture of legal compliance and statements of the company’s values and missions

Value and mission policies

also popular with European and Canadian companies

ethics reporting mechanisms

3 uses

1. to provide interpretations of proper ethical behavior involving conflicts of interest and the appropriateness of gift giving

2. to create an avenue to make known to the proper authorities allegations of unethical conduct

3. give employees and other corporate stakeholders a way to discover general information about wide range of work related topics 

Human rights

Rights and privileges accorded to all people simply by virtue of being human

Fundamental human rights have been

codified into various international agreements

Justice

Is it fair or just? (method of ethical reasoning)

Justice or fairness exists

when benefits and burdens are distributed equitably and according to some accepted rule. 

social justice

means a society’s income and wealth are distributed among the people in fair proportions (not necessarily EQUAL)

justice reasoning

not the same as utilitarianism reasoning, virtue ethics, or rights analysis

• JR considers who pays the costs and who gets the benefits to see if its fair 

human rights in alignment with ethics

right means a person is entitled to something, to be treated a certain way

• individuals are to be treated as valuable ends in themselves

limitation of using rights as a basis for ethical reasoning

difficulty of balancing conflicting rights or deciding which right takes precedence 

EXAMPLE : limitation of using rights as a basis for ethical reasoning

employee’s right to privacy may be at odds with an employer’s right to protect the firm’s assets

EXAMPLE 2 : limitation of using rights as a basis for ethical reasoning

US MNE move production to a foreign nation, causing job losses at home, but creating new jobs abroad.

• whose job rights should be respected? 

4 reasons for ethical reasoning

1. virtues

2. utilitarian

3. rights

4. justice

Virtue ethics

focuses on character traits that a good person should possess

Virtue ethics limitations

subjective / incomplete set of good virtues

utilitarianism limitation

difficult to measure some human and social costs —> may disregard rights of the minority

justice limitation

difficult to measure benefits and costs; lack of agreement on fair share

utilitarian reasoning

cost benefit analysis - compares costs and benefits of a decision, policy, or an action

stages of moral reasoning

1. childhood

2. adolescence youth

3. early adulthood, adolescence

4. adulthood

5. mature adulthood

6. mature adulthood (universal) 

stages of moral reasoning basis

1. childhood —- ego centered reasoning 

2. adolescence youth —- ego centered reasoning

3. early adulthood, adolescence —- group centered reasoning

4. adulthood —- society and law centered reasoning

5. mature adulthood —- principle centered reasoning

6. mature adulthood —- principle centered reasoning

age group: childhood

stage 1. punishment avoidance; avoid harm, obedience to power

ego centered

age group: adolescence youth

stage 2: reward seeking: self interest, own needs, reciprocity

ego centered

age group: early adulthood, adolescence

stage 3: social groups: friends, school, coworkers, family

group centered

age group: adulthood

stage 4: society at large: customs, traditions, laws

society and law centered

age group: mature adulthood

stage 5: moral beliefs above and beyond specific social custom: human rights, social contract, broad constitutional principles

principle centered

age group: mature adulthood

stage 6: universal principles: justice, fairness, universal human rights

principle centered

antitrust laws

prohibit unfair, anticompetitive practices by businesses

antitrust laws are used in the US

most other countries use the competition law

predatory pricing

practice of selling below cost to drive rivals out of business.

two main anti-trust enforcement agencies

1. antitrust division of the U.S. Department of Justice

2. Federal trade commission

both anti-trust enforcement agencies may

bring suits against companies they believe to be guilty of violating anti-trust laws

investigate possible violations, issue guidelines, and advisory opinions

identify specific practices

negotiate settlements out of court

deregulation

removal or scaling down of regulatory authroity and regulatory activities of government

proponents of deregulation

challenge the public’s desire to see the government solve problems

reregulation

increase or expansion of of government regulation 

economic regulations

aim to modify the normal operation of the free market and the forces of supply and demand

such modification from economic regulations may come about because

free market is distorted by the size or monopoly power of companies

or because the consequencse of actions in the market place are thought to be undersirable

economic regulations include

those that control prices or wages, allocate public resources, establish service terriroties, set the number of participants, and ration resources

the decisions by the federal trade commission (FTC)

is to prevent anticompetitive business practices illustrate one kind of economic regulation

Dodd-Frank act (2010)

comprehensive financial regulatory reform measure (following 2008 recession)

• oversight and supervision of financial institutions

• created a new agency responsible for implementing and enforcing compliance with consumer financial laws (Consumer Financial Protection Bureau) 

• stringent regulatory capital requirements

• changes to corporate governance and executive compensation practices

social regulations

are aimed at such important social goals —- like protecting consumers and the environment and providing workers with safe and healthy working conditions

social regulation examples

equal employment opportunity, protection of pension benefits, and health care for citizens

unlike economic regulations, social regulations are NOT

limited to one type of business or industry

laws concerning pollution, safety and health, healthcare, and job discrimination are types of

social regulations AND apply to all businesses

consumer protection laws

apply to all relevent businesses producing and selling consumer goods

fiscal policy

type of public policy

refers to patterns of government collecting and spending funds that are intended to simulate or support the government

trade polcy

rules that govern imports from and exports to foreign countries

monetary policy

refers to policies that affect the supply, demand, and value of a nation’s currencies

monetary policy affects

buying power of money, the stability and value of savings, and the confidence of citizens and investors about the nation’s future 

IN TURN: affect country’s ability to attract private capital and borrowing money from other countries