Explaining the importance of ethics in business

1. The Importance of Business
Ethics
C H A P T E R 1
Ethical Decision Making For Business 8e Fraedrich/Ferrell/Ferrell
CHAPTER 1

2. Why Study Business Ethics?
• Business decisions under great
scrutiny
– Global financial crisis created
diminished stakeholder trust
• Deals with questions about
whether practices are
acceptable
• No universally-accepted
approach for resolving issues
Source: © Jack Hollingsworth/Corbis

3. Business Ethics
• Comprises principles, values, and standards that guide
behavior in the world of business

4. A Crisis in Business Ethics
• Consumer trust of businesses is declining
• No sector is exempt from ethical misconduct
• Stakeholders determine what is ethical/unethical
– Investors
– Employees
– Customers
– Interest groups
– Legal system
– Community
Source: Stockbyte

5. Before 1960: Ethics in Business
• Theological discussions of ethics emerged
– Catholic social ethics included a concern for
morality in business, workers’ rights and living
wages
– Protestants developed ethics courses in their
seminaries and schools of theology
• The Protestant work ethic encouraged hard work

6. The 1960s: The Rise of Social Issues in
Business
• Societal social consciousness emerged
– Anti-business sentiment rose
• A new era of consumerism
– Right to safety, to be
informed, to choose,
and to be heard
• Consumer protection groups
fought for consumer
protection legislation
Source: Hisham Ibrahim

7. The 1970s: Business Ethics as an
Emerging Field
• Business professors began to write about social
responsibility
– An organization’s obligation to maximize
positive impact and minimize negative impact
on stakeholders
• Businesses became concerned with public image
• Issues:
– Bribery – Product safety
– Deceptive advertising – Environment
– Price collusion

8. The 1980s: Consolidation
• Membership in business ethics
organizations increased
• Ethics centers provided:
–Publications, courses, conferences
and seminars
• Firms established ethics committees
• Corporate support for ethics

9. The 1990s: Institutionalization of
Business Ethics
• Preventative actions against misconduct
– A company could avoid/minimize potential
penalties

10. Ethics Contributes to Employee
Commitment
• Comes from employees who believe their future
is tied to the organization’s
• Are willing to make personal sacrifices for the
organization
– The more dedication on the part of the company,
the greater the employee dedication
– Concerns include a safe work environment,
competitive salaries and benefit packages, and
fulfillment of contractual obligations

11. Ethics Contributes to Investor
Loyalty
• Companies perceived by their employees as
having a high level of honesty and integrity are
more profitable than companies with a low level
of honesty and integrity
• Ethical climates in organizations provide platform
for:
– Efficiency
– Productivity
– Profitability

12. Ethics Contributes to Customer
Satisfaction
• Consumers respond positively to socially concerned
businesses
– Being good can be extremely profitable
• Customer satisfaction dictates business success
• A strong organizational ethical climate
places customers’ interests first
• Research shows a strong relationship between ethical
behavior and customer satisfaction

13. Ethics Contributes to Profits
• Corporate concern for ethical
conduct is being integrated with
strategic planning
– Maximize profitability
• Corporate citizenship is
positively associated with:
– Return on investment and
assets
– Sales growth
• Studies have found a positive
relationship between citizenship
and performance
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