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Business Ethics 06

Business Ethics 06



Courseware from the course on Business Ethics that I taught at St. Joseph\'s College of Business Administration in 2009

Courseware from the course on Business Ethics that I taught at St. Joseph\'s College of Business Administration in 2009



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    Business Ethics 06 Business Ethics 06 Presentation Transcript

    • Business  Ethics   Tathagat  Varma   Session  7/12:  27-­‐Aug-­‐09  
    • The  Importance  of  Business  Ethics  •  By  its  very  nature,  the  field  of  business  ethics   is  controversial,  and  there  is  no  universally   accepted  approach  for  resolving  the  issues.  •  Why  ?  
    • The  Importance…  •  One  difference  between  an  ordinary  decision  and   an  ethical  one  lies  in  “the  point  where  the   accepted  rules  no  longer  serve,  and  the  decision   maker  is  faced  with  the  responsibility  for   weighing  values  and  reaching  a  judgment  in  a   situaQon  which  is  not  quite  the  same  as  any  he  or   she  has  faced  before.”  •  Another  difference  related  to  the  amount  of   emphasis  decision  makers  place  on  their  own   values  and  accepted  pracQces  within  their   company.  •  Consequently,  values  and  judgment  play  a  criQcal   role  when  we  make  ethical  decisions.  
    • The  Importance…  •  To  survive,  businesses  must  earn  a  profit.  If   profits  are  realized  through  misconduct,  however,   the  life  of  the  organizaQon  may  be  shortened.    •  Businesses  must  balance  their  desire  for  profits   against  the  needs  and  desires  of  society.   Maintaining  this  balance  oWen  requires   compromises  or  tradeoffs.  To  address  this  unique   aspects  of  the  business  world,  society  has   developed  rules  –  both  legal  and  implicit  –  to   guide  businesses  in  their  efforts  to  earn  profits  in   ways  that  do  not  harm  individuals  or  society  as  a   whole.  
    • The  Importance…  •  Why  Study  Business  Ethics   –  Regardless  of  what  an  individual  believes  about  a   parQcular  acQon,  if  society  judges  it  to  be  unethical  or   wrong,  whether  correctly  o  not,  that  judgment   directly  affects  the  organizaQon’s  ability  to  achieve  its   business  goals.  For  this  reason  alone,  it  is  important  to   understand  business  ethics  and  recognize  ethical   issues.   –  Business  ethics  is  not  merely  an  extension  of  an   individual’s  own  personal  ethics.  Many  people  believe   that  if  a  company  hires  good  people  with  strong   ethical  values,  then  it  will  be  a  “good  ciQzen”   organizaQon.  But…an  individual’s  personal  values  and   moral  philosophies  are  only  one  factor  in  the  ethical   decision-­‐making  process.  
    • The  Importance…  –  Normally,  a  business  doesn’t  establish  rules  or  policies  on  personal   ethical  issues  such  as  sex  or  use  of  alcohol  outside  the  workplace;   indeed,  in  some  cases,  such  policies  would  be  illegal.  Only  when  a   person’s  preferences  or  values  influence  his  or  her  performance  on  the   job  do  an  individual’s  ethics  play  a  major  role  in  the  evaluaQon  of   business  decisions.  –  Many  people  who  have  limited  business  experience  suddenly  find   themselves  making  decisions  about  product  quality,  adverQzing,   pricing,  sales  techniques,  hiring  pracQces,  and  polluQon  control.  The   values  they  learned  from  family,  religion,  and  school  may  not  provide   specific  guidelines  for  these  complex  business  decisions.  In  other   words,  a  person’s  experiences  and  decisions  at  home,  in  school,  and  in   the  community  may  be  quite  different  from  his  or  her  experiences  and   decisions  at  work.  Many  business  ethics  decisions  are  close  calls.  Years   of  experience  in  a  parQcular  industry  may  be  required  to  know  what  is   acceptable.  
    • The  Importance…  •  Benefits  of  Business  Ethics   –  Both  research  and  examples  from  the  business  world   demonstrate  that  building  an  ethical  reputaQon   among  employees,  customers,  and  the  general  public   pay  offs.   –  Among  the  rewards  for  being  more  ethical  and  socially   responsible  in  business  are  increased  efficiency  in   daily  operaQons,  greater  employee  commitment,   increased  investor  willingness  to  entrust  funds,   improves  customer  trust  and  saQsfacQon,  and  beber   financial  performance.  The  reputaQon  of  a  company   has  a  major  effect  on  its  relaQonships  with  employees,   investors,  customer,  and  many  other  parQes  
    • The  Importance…  •  Ethics  contributes  to  employee  commitment   –  Issues  that  may  foster  the  development  of  an  ethical  climate  for   employees  include  a  safe  work  environment,  compeQQve   salaries,  and  the  fulfillment  of  all  contractual  obligaQons  toward   employees.  Social  programs  that  may  improve  the  ethical   climate  range  from  work-­‐family  programs  and  stock  ownership   plans  to  community  service.   –  Because  employees  spend  a  considerable  amount  of  their   waking  Qme  at  work,  a  commitment  by  the  organizaQon  to   goodwill  and  respect  for  its  employees  usually  increases  the   employees  loyalty  to  the  organizaQon  and  their  support  of  its   objecQves.   –  The  ethical  climate  of  a  company  seems  to  maber  to  employees.   According  to  a  report  on  employee  loyalty  and  work  pracQces,   companies  viewed  as  highly  ethical  by  their  employees  were  six   Qmes  more  likely  to  keep  their  workers.  Also,  employees  who   view  their  company  as  having  strong  community  involvement   feel  more  loyal  to  their  employers  and  feel  posiQve  about   themselves.  
    • The  Importance…  •  Ethics  contributes  to  investor  loyalty   –  Companies  perceived  by  their  employees  as  having  a  high  degree  of   honesty  and  integrity  had  an  average  three-­‐year  total  return  to   shareholders  of  101%,  whereas  companies  perceived  as  having  a  low   degree  of  honesty  and  integrity  had  a  three-­‐year  total  return  to   shareholders  of  just  69%   –  Investors  are  also  recognizing  than  an  ethical  climate  provides  a   foundaQon  for  efficiency,  producQvity,  and  profits.  On  the  other  hand,   investors  know  too  that  negaQve  publicity,  lawsuits,  and  fines  can   lower  stock  prices,  diminish  customer  loyalty,  and  threaten  a   company’s  long-­‐term  viability.   –  The  issue  of  drawing  and  keeping  investors  is  a  criQcal  one  for  CEOs,  as   roughly  50%  of  investors  sell  their  stock  in  companies  within  one  year,   and  the  average  household  replaces  80%  of  its  common  stock  porgolio   each  year.  Therefore,  gaining  investors’  trust  and  confidence  is  vital  to   sustaining  the  financial  stability  of  the  firm.  
    • The  Importance…  •  Ethics  contributes  to  Customer  SaQsfacQon   –  The  Millennium  Poll  of  25,000  ciQzens  in  23   countries  found  that  almost  60%  of  people  focus   on  social  responsibility  ahead  of  brand  reputaQon   or  financial  factors  when  forming  impressions  of   companies.   –  When  consumers  learn  about  abuses  in   subcontracQng,  they  may  boycob  the  companies’   products.  
    • Emerging  Business  Ethics  Issues  •  People  make  ethical  decisions  only  when  they   recognize  that  a  parQcular  issue  or  situaQon   has  an  ethical  component.  Thus,  a  first  step   toward  understanding  business  ethics  is  to   develop  ethical-­‐issue  awareness.  Ethical  issues   typically  arise  because  of  conflicts  among   individuals  personal  moral  philosophies  and   values,  the  values  and  culture  of  the   organizaQons  in  which  they  work,  and  those  of   the  society  in  which  they  live.  
    • Emerging…  •  Stakeholders  define  ethical  issues  in  Business   –  Historically,  businesspeople  viewed  the  principle  objecQve   of  business  as  maximizing  profits,  which  resulted  in  the   belief  that  business  is  accountable  primarily  to  investors   and  to  others  involved  in  the  market  and  economic  aspects   of  the  company.   –  The  relaQonship  between  companies  and  their   stakeholders  can  be  viewed  as  a  two-­‐way  street   –  Primary  Stakeholders  are  those  whose  conQnued   associaQon  is  absolutely  necessary  for  a  firm’s  survival;   these  include  employees,  customers,  investors,  and   shareholders,  as  well  as  governments  and  communiQes   that  provide  necessary  infrastructure.   –  Secondary  Stakeholders  do  not  typically  engage  in   transacQons  with  a  company  and  thus  not  essenQal  for  its   survival;  these  include  the  media,  trade  associaQon,  and   special-­‐interest  groups.  
    • Emerging…  –  Both  stakeholders  embrace  specific  values  and   standards  that  dictate  what  consQtutes  acceptable   or  unacceptable  corporate  behaviors  –  While  primary  groups  may  present  more  day-­‐to-­‐ day  concerns,  secondary  groups  can’t  be  ignored   or  given  less  consideraQon  in  the  ethical  decision-­‐ making  process.  
    • Emerging…  •  Stakeholder  OrientaQon     –  The  degree  to  which  a  firm  understands  and   addresses  stakeholder  demands  can  be  referred  to   as  a  stakeholder  orientaQon  •  Comprises  of   –  The  organizaQon  wide  generaQon  of  data  about   stakeholder  groups  and  assessment  of  the  firm’s   effects  on  these  groups   –  The  distribuQon  of  this  informaQon  throughout   the  firm   –  The  organizaQon’s  responsiveness  as  a  whole  to   this  intelligence  
    • Emerging…  •  Conflict  of  Interest   –  A  conflict  of  interest  exists  when  an  individual   must  choose  whether  to  advance  his  or  her  own   interests,  those  of  the  organizaQon,  or  those  of   some  other  group.   –  To  avoid  conflicts  of  interest,  employees  must  be   able  to  separate  their  private  interests  from  their   business  dealings.  
    • Emerging…  •  Fraud   –  In  general,  fraud  is  any  purposeful  communicaQon   that  deceived,  manipulates,  or  conceals  facts  in   order  to  create  a  false  impression.   –  Fraud  costs  US  organizaQons  more  than  $400   Billion  a  year;  the  average  company  loses  about   6%  of  total  revenues  to  fraud  and  abuses   commibed  it  its  own  employees.  Among  the  most   common  fraudulent  acQviQes  employees  report   about  their  coworkers  are  stealing  office  supplies   or  shopliWing,  claiming  to  have  worked  extra   hours,  and  stealing  money  or  products.   –  AccounQng  fraud  is  a  major  issue  
    • Emerging…  •  DiscriminaQon   –  Between  75,000  and  80,000  charges  are  filed  annually   with  the  Equal  Employment  Opportunity  Commission   (EEOC).  Sexual  harassment  filings  with  the  EEOC   average  about  16,000  per  year.   –  To  help  build  work  forces  that  reflect  their  customer   base,  many  companies  have  iniQated  affirmaQve   acQon  programs,  which  involve  efforts  to  recruit,  hire,   train,  and  promote  qualified  individuals  from  groups   that  have  tradiQonally  been  discriminated  against  on   the  basis  of  race,  gender,  or  other  characterisQcs.   –  AffirmaQve  acQon  does  not  permit  or  require  quotas,   reverse  discriminaQon,  or  favorable  treatment  of   unqualified  women  or  minoriQes.  
    • Ethics  as  a  Dimension  of  Social   Responsibility  •  Ethics  and  Social  Responsibility  are  used   interchangeably  but  they  are  not  the  same  •  Social  responsibility  can  be  viewed  as  a   contract  with  society,  whereas  business  ethics   involves  carefully  thought-­‐out  rules  or   heurisQcs  of  business  conduct  that  guide   decision  making.  •  Four  levels  of  social  responsibility  –  economic,   legal,  ethical  and  philanthropic  –  and  they  can   be  viewed  as  steps.  
    • Ethics…  •  Four  levels   –  At  the  most  basic  level,  companies  have  an   economic  responsibility  to  be  profitable  so  they   can  provide  a  ROI  to  their  owners  and  investors,   create  jobs  for  the  community,  and  contribute   goods  and  services  to  the  economy   –  Business  ethics  comprises  principles  and   standards  that  guide  behavior  in  the  world  of   business   –  Philanthropic  responsibility  refers  to  acQviQes  that   are  not  required  of  businesses  but  that  promote   human  welfare  or  goodwill.    
    • Ethics…  •  Laws  and  regulaQons  are  established  by   governments  to  set  minimum  standards  for   responsible  behavior  –  society’s  codificaQon  of   what  is  right  and  wrong.  •  Overall,  the  government  philosophy  is  that   legal  violaQons  can  be  prevented  through   organizaQonal  values  and  a  commitment  to   ethical  conduct.