Chapter 2

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Ethics and Professional Responsibility

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Chapter 2

  1. 1. CHAPTER 2 Ethics and Professional Responsibility © 2005 West Legal Studies in Business A Division of Thomson Learning
  2. 2. Learning Objectives • What is ethics? What is business ethics? Why is business ethics important? • How can business leaders encourage their companies to act ethically? • How do duty-based ethics differ from outcome- based ethics? • What duties do professionals owe to those who rely on their services? • What types of ethical issues might arise in the context of international business transactions? 2 © 2005 West Legal Studies in Business A Division of Thomson Learning
  3. 3. Business Ethics • Ethics: the philosophy of morality. Morality is based on universal rules or guidelines. • Business Ethics: focuses on application of morality to business. • Conflicting Duties to various stakeholders. • Fiduciary Duties. – Time Warner Entertainment Co. v. Six Flags over Georgia, LLC (2002). 3 © 2005 West Legal Studies in Business A Division of Thomson Learning
  4. 4. Setting the Right Ethical Tone • Importance of Ethical Leadership. • Creating Ethical Codes of Conduct. – Costco. – Clear Communications to Employees. – Johnson and Johnson: web-based ethical training. – In Re the Exxon Valdez (2004). • Corporate Compliance Programs. – Sarbanes-Oxley and Web-based reporting. • Conflicts and Trade-Offs. 4 © 2005 West Legal Studies in Business A Division of Thomson Learning
  5. 5. Business Ethics and the Law • Relationship between ethics and law. – Historically a law was always ethical (or morally correct). – Today, obeying law does not mean an action is ethical. – An action may be legal but unethical or immoral. 5 © 2005 West Legal Studies in Business A Division of Thomson Learning
  6. 6. Technological Developments • A company’s actions come under quick scrutiny with the power of email and the internet. • Blakey v.Continental Airlines, Inc. (2000). • When a corporation embarks on a course of business deemed “unethical” by a special interest group, the news will spread around the world in a matter of minutes. 6 © 2005 West Legal Studies in Business A Division of Thomson Learning
  7. 7. Approaches to Ethical Reasoning • Duty Based Ethics - derived from religious and philosophical principles. – Religious Ethical Standards. – Kantian Ethics. – Rights Principles. • Outcome-Based Ethics - seek to ensure a given outcome. – Utilitarianism. 7 © 2005 West Legal Studies in Business A Division of Thomson Learning
  8. 8. Religious Ethical Standards • The rightness or wrongness of an action is usually judged according to its conformity to an absolute rule that commands a particular form of behavior. • The motive of the actor is irrelevant in judging the rightness or the wrongness of the action. • These rules often involve an element of compassion. 8 © 2005 West Legal Studies in Business A Division of Thomson Learning
  9. 9. Kantian Ethics • Premised on the belief that general guiding principles for moral behavior can be derived from human nature. • The categorical imperative is a central postulate of Kantian ethics. – The rightness or wrongness of an action is judged by estimating the consequences that would follow if everyone in a society performed the act under consideration. 9 © 2005 West Legal Studies in Business A Division of Thomson Learning
  10. 10. Principle of Rights • This principle derives from the belief that every duty gives rise to a corresponding right. • The belief in fundamental rights is a deeply embedded feature of Western culture. • The ethicality of an action is judged by how the consequences of the action will affect the rights of others. 10 © 2005 West Legal Studies in Business A Division of Thomson Learning
  11. 11. Outcome-Based Ethics: Utilitarianism • An action is ethical based on whether it produces the greatest good for the greatest number of people upon which it has an effect. • A cost-benefit analysis must be performed to determine the effects of competing alternatives on the persons affected. • The best alternative is the one that produces the greatest good for the greatest number. 11 © 2005 West Legal Studies in Business A Division of Thomson Learning
  12. 12. Professional Responsibility • Accountant’s Duty of Care. – Audit. – Standard of Care/GAAP/GAAS. – Violations of GAAP and GAAS. • Attorney’s Duty of Care. – Liability for Malpractice. • Statutory Duties of Accountants. – Duty under Securities Laws. – Potential Criminal Liability of Accountants. 12 © 2005 West Legal Studies in Business A Division of Thomson Learning
  13. 13. Professional Responsibility • Defying the Rules: the Enron Case. – Accounting Issues. – Off the Books Transactions. – Self-Dealing. – Corporate Culture. • Sarbanes-Oxley Act of 2002. – Public Company Accounting Oversight Board. – Applicability to Public Accounting Firms. – Auditor Independence. 13 © 2005 West Legal Studies in Business A Division of Thomson Learning
  14. 14. Approaches to Ethical Reasoning • Duty-Based Ethics: Derived from revealed truths. – Religion: moral precepts are basis for ethics – Kantian: the “categorical imperative” – Rights: a duty cannot exist without a right. Duties must comply with natural (or fundamental) rights. 14 © 2005 West Legal Studies in Business A Division of Thomson Learning
  15. 15. Approaches to Ethical Reasoning • Outcome-Based Ethics. – Utilitarianism (Bentham and Mill). •An action is ethical when it provides best outcome to the greatest number of people. •Requires an economic “Cost-Benefit” analysis •Critics argue that it tends to focus on society instead of individuals. 15 © 2005 West Legal Studies in Business A Division of Thomson Learning
  16. 16. Business Ethics on a Global Level • Global company is faced with a variety of cultures, traditions and religions in the different nations it serves. – Foreign Corrupt Practices Act (1977). – Monitoring Foreign Employment Practices. • Law and the Ethical Manager: How to Create an Ethical Workplace? 16 © 2005 West Legal Studies in Business A Division of Thomson Learning

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