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Week 6 notes

  1. 1. Chapter 7 Business EthicsMcGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Bernard Ebberso Bernard Ebbers built WorldCom into a global telecommunications gianto Ebbers used use all of his WorldCom stock as collateral for bank loanso In 2000 Ebbers gave the first in a string of instructions to report false revenues and use accounting tricks to disguise rising expenses 7-2
  3. 3. Bernard Ebberso Ebbers testified that he had no knowledge of the fraud, but five of his subordinates testified against himo Ebbers was sentenced to 25 years in prison for securities fraud, unprecedented for a white-collar crime 7-3
  4. 4. What are Business Ethics?o Ethics: The study of good and evil, right and wrong, and just and unjusto Business ethics: The study of good and evil, right and wrong, and just and unjust actions in business 7-4
  5. 5. What are Business Ethics?o All managers face difficult ethical conflicts o Applying clear guidelines resolves the majority of themo Ethical traditions that apply to business support truth telling, honesty, protection of life, respect for rights, fairness, and obedience to law 7-5
  6. 6. What are Business Ethics?o Eliminating unethical behavior may be difficult, but knowing the rightness or wrongness of actions is easyo Some ethical decisions are troublesome because although basic ethical standards apply, conflicts between them defy resolutiono Some ethical issues are hidden and hard to recognize 7-6
  7. 7. Two Theories of Business Ethicso Theory of amorality: The belief that business should be conducted without reference to the full range of ethical standards, restraints, and ideals in societyo Theory of moral unity: Business actions are judged by the general ethical standards o society, not by a special set of more permissive standards 7-7
  8. 8. Figure 7.1 - Major Sources of Ethical Values in Business 7-8
  9. 9. Religiono The great religions converge in the belief that a divine will reveals the nature of right and wrong behavior in all areas of life, including businesso Christian managers often seek guidance in the Bibleo In Islam the Koran is a source of ethical inspiration 7-9
  10. 10. Philosophyo Even after two millennia, there remains considerable dispute among ethical thinkers about the nature of right actiono The great Catholic theologians St. Augustine and St. Thomas Aquinas both believed that humanity should follow God’s will o Correct behavior in business and in all worldly activity was necessary to achieve salvation and life after death 7-10
  11. 11. Philosophyo Immanuel Kant tried to find universal and objective ethical rules in logico Jeremy Bentham developed the idea of utilitarianism as a guide to ethics, validating two dominant ideologies: democracy and industrialismo John Locke developed and refined doctrines of human rights and left an ethical legacy supporting belief in the inalienable rights of human beings 7-11
  12. 12. The Realist School of Ethicso The realists believed that both good and evil were naturally present in human nature o Human behavior would inevitably reflect this mixtureo Niccolò Machiavelli argued that important ends justified expedient meanso Herbert Spencer supported a harsh ethic that justified vicious competition among companies because it furthered evolution 7-12
  13. 13. The Realist School of Ethicso Friedrich Nietzsche said that “nice” ethics were prescriptions of the timid, designed to fetter the actions of great men whose irresistible power and will were regarded as dangerous by ordinary mortals 7-13
  14. 14. Cultural Experienceo Every culture transmits between generations a set of traditional values, rules, and standards that define acceptable behavioro Civilization is a cumulative cultural experience consisting of three stages: o Hunting and gathering stage o Agricultural stage o Industrial stage 7-14
  15. 15. Ethical Variation in Cultureso Ethical values differ among nations as historical experiences have interacted with philosophies and religions to create diverging cultural values and lawso Ethical universalism: The theory that because human nature is everywhere the same, basic ethical rules are applicable in all cultures o There is some room for variation in the way these rules are followed 7-15
  16. 16. Ethical Variation in Cultureso Ethical relativism: The theory that ethical values are created by cultural experience o Different cultures may create different values and there is no universal standard by which to judge which values are superioro Because of globalization, corporations struggle with the question of how to apply conduct codes across cultures 7-16
  17. 17. Lawo Laws codify, or formalize, ethical expectationso Corporations and their managers face a range of mechanisms set up to: o Deter illegal acts o Punish offenses o Rehabilitate offenders 7-17
  18. 18. Damageso In civil cases courts may assess damages, or payments for harm done to others by a corporation o Compensatory damages: Payments awarded to redress actual, concrete losses suffered by injured parties o Punitive damages: Payments in excess of a wronged party’s actual losses to deter similar actions and punish a corporation that has exhibited reprehensible conduct 7-18
  19. 19. Criminal Prosecution of Managers and Corporationso Managers may be prosecuted for criminal actions undertaken in the course of their employmento Corporations are criminally liable for corrupt actions or omissions of managers if those actions are intended to benefit the corporationo Criminal prosecution of corporations and their executives is exceptionally difficult 7-19
  20. 20. Criminal Prosecution of Managers and CorporationsWhite-collar crime A nonviolent economic offense of cheating and deception done in the course employment for personal or corporate gainDeferred prosecution An agreement between a prosecutor and a corporation toagreement delay prosecution while the company takes remedial actionsNonprosecution An agreement in which U.S. attorneys decline prosecutionagreement of a corporation that has taken appropriate steps to report a crime, cooperate, and compensate victimsMonitor A person hired by a corporation to oversee fulfillment of conditions in an agreement to avoid criminal indictment 7-20
  21. 21. Sentencing and Fineso In 1991 the U.S. Sentencing Commission released guidelines for sentencing both managers and corporationso Managers can go to prison, be fined, put on probation, given community service, make restitution, or be banned from working in their occupationso Corporations cannot be imprisoned, but they can be fined and their actions restricted 7-21
  22. 22. Figure 7.2 - Four Internal Forces Shaping Corporate Ethics 7-22
  23. 23. Leadershipo The example of company leaders is perhaps the strongest influence on integrityo A common failing is for managers to show by their actions that ethical duties can be compromisedo If the leader does something, an opportunistic employee can rationalize his or her entitlement to do it also 7-23
  24. 24. Strategies and Policieso A critical function of managers is to create strong competitive strategies that enable the company to meet financial goals without encouraging ethical compromiseo Unrealistic performance goals can pressure those who must make them worko Reward and compensation systems can expose employees to ethical compromises 7-24
  25. 25. Corporate Cultureo Corporate culture: A set of values, norms, rituals, formal rules, and physical artifacts that exists in a companyo Three levels of corporate culture: o Artifacts o Espoused values o Tacit underlying values 7-25
  26. 26. Individual Characteristicso Personality traits may be more important, but are less studied in the literature of ethicso The only personality trait extensively studied and correlated with unethical behavior is Machiavellianism o The tendency of an individual to use self-centered, immoral, manipulative behavior in a group 7-26
  27. 27. How Corporations Manage Ethicso Establish standards and procedureso Create high-level oversighto Screen out criminalso Communicate standards to all employeeso Monitor and set up a hotlineo Enforce standards, discipline violatorso Assess areas of risk, modify the program 7-27
  28. 28. How Corporations Manage EthicsEthics and compliance program A system of structures, policies, procedures, and controls used by corporations to promote ethical behavior and ensure compliance with laws and regulationsCompliance approach An ethics and compliance program that emphasizes following rules in laws, regulations, and policy.Ethics approach An ethics and compliance program that teaches employees to make decisions based on ethical values 7-28
  29. 29. Concluding Observationso Ethics is the study of good and evilo The most important single factor in good corporate ethics is the example of leaders, who shape strategies and cultures 7-29