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AN INTRODUCTION TO BUSINESS ETHICS

CHAPTER ONE: WHY STUDY ETHICS?

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This chapter seeks to• Identify reasons why the study of ethics is important

• Explain the nature and meaning of business ethics

• Explain the difference between ethical values and other values

• Clarify the difference between ethics and the law

• Describe the distinction between ethics and ethos

• Introduce the distinction between personal morality, virtues and social ethics

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Discussion Case: Enron

• December 2, 2001 Enron declares bankruptcy• Disclosure of significant debts concealed by

complicated and fraudulent accounting practices• Top executives were involved and had received

millions of dollars• Arthur Anderson, a top five accounting firm,

implicated• Employees prevented from selling stock;

retirement funds collapse

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Discussion Questions• Identify any ethical issues involved in the Enron

case.• Identify all the people who were harmed by

Enron’s collapse and explain the ways in which they were harmed.

• Do you think that corporate scandals such as Enron are the result mostly of unethical individuals, or do you think that organizations can be responsible? Was this a failure of individuals, or organizational structure, or of government?

• What would you change to try to prevent future Enrons?

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Why study Business Ethics?

• Is it an oxymoron like “jumbo-shrimp”?

• Is it a discipline of sentimentality and personal opinion?

• Who’s to say what is right and what is wrong?

• Is there a place for ethics in business?

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The questions today are less about why or should ethics be a part of business, than about which ethics should guide business decisions and how ethics can be integrated within business.

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7Context: Who was harmed by the collapse of Enron?

• Stockholders• Employees• Consumers in California• Suppliers• Enron’s accounting firm, Arthur Anderson• The Houston, TX community• Families of employees, investors and

suppliers

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8Reasons to be concerned with Ethics

• The Law: In 2002, Congress passed the Sarbanes-Oxley Act

• Financial risks

• Reputation and competitive advantage

• Consumer boycotts

• Efficiency and effectiveness

• Employee trust, loyalty, commitment and initiative

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What do managers think?

• 2003: Deloitte polled 5000 directors of the top 4000 publicly traded companies and reported that 98 percent believed ethics and compliance programs are essential to corporate governance.

• 80% of those surveyed had developed codes of ethics beyond those required by Sarbanes-Oxley

• 90% included statements concerning the company’s obligation to its stakeholders.

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The need to study Business Ethics

• If business managers see the need to focus on ethical behavior, so should business students

• Preparation for career in contemporary business

• Consumers are affected by decisions made by businesses

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11Values and Ethics: Doing Good and Doing Well

• Built to Last: Successful Habits of Visionary Companies by James Collins and Jerry Porras– Key finding: Exceptional and enduring

companies place great emphasis on a set of core values

– These core values are essential and enduring tenets defining the company, and not to be compromised for financial gain.

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12Companies cited by Collins & Porras• IBM• Johnson & Johnson• Hewlett Packard• Procter and Gamble• Wal-Mart• Merck• Motorola• Sony• General Electric

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What are values?

• Those beliefs or standards that incline us to act or to choose in one way rather than another

• A company’s core values are those beliefs and principles that provide the ultimate guide in the company’s decision-making.

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Corporate Culture

• Another way of saying a corporation has a set of identifiable values.

• But there is no “right” set of core values.

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Values vs. Ethical Values

• What are the ends that our core values serve?

• Financial values serve monetary ends.

• Religious values serve spiritual ends.

• Aesthetic values serve the end of Beauty.

• What ends are served by ethics?

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Elements of Ethical Values

• Ethical values serve the ends of human well-being.

• The well-being promoted by ethical values is not personal and selfish well-being.

• No one person’s well-being is to be counted as more worthy or valuable than any other’s.

• Ethical values promote human well-being in an impartial way.

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Disagreements about Ethics

• People disagree about what ethics commits us to and what ends are served by ethical values.

• Ethical values can conflict, and may result in serious illness and death to others.

• So how do you decide if a company is an ethical company?

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Malden Mills

• December 11, 1995 – A fire destroys most of Malden Mills, the manufacturer of Polartec.

• The last major textile manufacturer in town with 2,400 employees; community life’s blood

• Malden Mills provides fabric to L.L. Bean, Land’s End, J. Crew and Eddie Bauer

• Aaron Feuerstein, the owner pledged to rebuild the plant, keep jobs in the community and pay his employees until work resumes.

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Malden Mills continued…

• Factory was rebuilt and reopened in one year.

• Employees came back to work.• The community seemed to recover.• Malden Mills filed for bankruptcy

protection.• Eventually controlled by creditors.• Remaining employees voted to

authorize a strike in December 2004.

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20The Nature & Goals of Business Ethics

• Business ethics refers to those values, standards and principles that operate within business.

• Business ethics is also an academic discipline that studies those standards, values and principles while seeking to articulate and defend the ones that ought or should operate in business.

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But…

• There is a growing body of literature in business ethics about the right ways to teach and learn business ethics.

• There are a set of principles, standards, concepts, and values common to business ethics.

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Ethical Judgment vs. Behavior

• From the time of Aristotle we have noticed a discontinuity between judging some act as right and behaving rightly.

• Knowing what is right is different from doing what is right.

• People vary in strength of character and motivation and fortitude.

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The Goals of Business Ethics

• To treat students as active learners• To engage students in an active process of

thinking and questioning• To allow students to think for themselves• To deal with the mess of relativistic

conclusions

The unexamined life is not worth living (Socrates).

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Reasoning and Business Ethics

• The process of ethical reasoning must be emphasized.

• Reasoning is distinct from answers.

• Begin with an accurate and fair account of the facts from all “sides”.

• Be objective and open-minded.

• Analyze each issue fully and rigorously.

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Business Ethics and the Law

• Compliance with the law will prove insufficient for ethically responsible businesses.

• The Law is rife with ambiguity. Many acts are not illegal until a court rules that they are.

• Court cases demonstrate that you cannot always rely on the law to decide what is right or wrong.

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Whether we examine ethical questions explicitly or not, they are answered by each of us every day in the course of our lives.

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Ethics and Ethos

• The word “ethics” is derived from the Greek ethos, meaning “customary” or “conventional.”

• To be ethical in the sense of ethos is to conform to what is typically done, to obey the conventions and rules of one’s society and religion.

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Philosophical Ethics

• Denies that simple conformity and obedience are the best guides to living

• Rejects authority as the source of ethics

• Defends the use of reason as the foundation of ethics

• Seeks a reasoned analysis of custom and a reasoned defense of how we ought to live

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Philosophical Ethics

• Distinguishes what people do value from what people should value

• Requires we stand back, abstract ourselves from what is typically done and reflect upon whether or not what is done, should be done.

• The difference between what is valued and what ought to be valued is the difference between ethos and ethics.

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Business Ethics

• A branch of philosophical ethics

• Reflect: In what ways do the practices and decisions made within business promote or undermine human well-being?

• How ought we to live?

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Morality, Virtues and Social Ethics

• Morality: How should I live my life? How should I act? What should I do? What kind of person should I become?

• Virtues: character traits that constitute a life worth living

• Social Ethics: How ought society be structured? How ought we live together?

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32Business institutions are human creations• Humans can not avoid responsibility for

something they have created or contributed to.

• Business institutions have a tremendous influence on human lives and the quality of human life.

• As business people we face particular business decisions about our corporations, but as citizens we have to decide whether or not to regulate those businesses for the public good.

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Ethical perspectives

• Managerial ethics: What should a business manager do in various situations?

• The types of questions asked will vary from perspective to perspective.

• All decisions faced by business managers, from finance to marketing to ethics and human resources, exist in a social and legal context.

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Reflections on the chapter

• A wide range of people can be adversely affected by the decision made within contemporary business.

• There are many roles to play within the economic system to insure integrity of that system and to prevent fraud and abuse.

• Business operates within a social context and has duties to a wide range of people beyond those people who own a company’s stock.

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Review Questions

• Describe several reasons why ethics is relevant to business? Can a “good business” be an unethical business?

• What are values? What is the difference between ethical values and other types of values? What is the difference between “value” when used as a verb, and “value” when used as a noun?

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Review Questions continued

• What is the difference between “ethics” and “ethos”?

• How is descriptive business ethics different from normative business ethics?

• This chapter introduced a distinction between morality, virtues, and social ethics. How would you describe each?

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Review Questions continued

• Other than business managers and owners, which other constituencies might have a stake in business decisions?