623386711-CH01.pptx

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Importance of Business Ethics
Chapter 1

Learning Objectives
By the end of this chapter, you should be able to:
• Explore conceptualizations of business ethics from an organizational
perspective
• Examine the historical foundations and evolution of business ethics
• Provide evidence that ethical value systems support business performance
• Describe the extent of ethical misconduct in the workplace and the
pressures for unethical behavior

Business Ethics Defined
1-1

Business Ethics Defined 1 of 2
• Morals – A person’s personal philosophies about what is right or wrong
• Business ethics – Comprises organizational principles, values, and norms
that may originate from individuals, organizational statements, or from the
legal system that primarily guide individual and group behavior in business
• Principles – Specific and pervasive boundaries for behavior that should not
be violated
– These often become the basis for rules (human rights, freedom of speech).
• Values – Enduring beliefs and ideals that are socially enforced

Business Ethics Defined 2 of 2
• Ethics – Behavior or decisions made within a group’s values or morals
– Right or wrong behavior is defined by the group.
– Within corporate culture there are rules and regulations that determine right/wrong.

Why Study Business Ethics?
1-2

Why Study Business Ethics? 1 of 4
A Crisis in Business Ethics
• Business ethics has become a major concern.
• Workplace integrity – The pressure to compromise organizational
standards, observed misconduct, reporting of misconduct when observed,
and retaliation against reports

TABLE 1-1 Observed Misconduct
in the U.S. Workforce
Response Percentage
Observed misconduct 49%
Abusive behavior 22%
Lying to employees and external stakeholders 25%
Conflicts of interest 23%
Health violations 22%
Pressure to compromise standards 30%
Report observed misconduct 81%
Experience retaliation for reporting 79%

Specific Issues
• There are a number of ethical issues that must be addressed to prevent
misconduct.
• Ethics plays an important role in the public sector as well.
• Every organization has the potential for unethical behavior.
• Most decisions are judged as right or wrong, ethical or unethical.
– Legislation usually follows.

The Reasons for Studying Business Ethics
• Business ethics is more than an extension of an individual’s personal values.
• Professionals must deal with individuals’ personal moral dilemmas.
– Moral dilemma – Two or more morals in conflict with one another
– Value dilemma – Two or more beliefs/ideals in conflict with one another
• Being a good person may not be sufficient to handle ethical issues in
business.

• Studying business ethics will help you:
– Identify ethical issues when they arise
– Recognize approaches for resolving ethical issues
– Cope with conflicts between your own personal values and those of the organization
in which you work
– Gain knowledge to make more ethical business decisions

The Development of Business Ethics
1-3

The Development of Business Ethics 1 of 9
Before 1960: Ethics in Business
• Capitalism dictated business practices.
– 1920s: Provide a living wage—income sufficient for education, recreation, health, and
retirement
– 1930s: The New Deal (President Franklin D. Roosevelt)—blamed business as the cause
for U.S. problems
– 1950s: The Fair Deal (President Harry S. Truman)—defined such matters as
environmental responsibility as ethical issues that businesses had
to address

The 1960s: The Rise of Social Issues in Business
• Antibusiness trend; decay of inner cities; growth of ecological problems
• President John F. Kennedy: Consumers’ Bill of Rights
– Right to safety
– Right to be informed
– Right to choose
– Right to be heard
• President Lyndon B. Johnson: The “Great Society”
– Extended national capitalism with the U.S. government’s responsibility to provide all
citizens with some degree of economic stability, equality, and social justice

The 1970s: Business Ethics as an Emerging Field
• Business ethics became a common expression.
• Corporate social responsibility – An organization’s obligation to maximize
its positive impact on stakeholders and minimize its negative impact
• Academic researchers sought to identify ethical issues and describe how
businesspeople might choose to act in particular situations.
• Limited efforts were made to describe how the ethical decision-making
process in business worked and to identify the many variables that
influenced the process.

The 1980s: Business Ethics Reaches Maturity
• Centers for business ethics provided publications, courses, conferences,
and seminars.
• Stakeholder theory was developed.

• Defense Industry Initiative on Business Ethics and Conduct – An
organization developed to guide corporate support for ethical conduct
– Codes of conduct must be understandable and cover substantive areas in detail.
– Members are expected to provide ethics training and continuous support for employees.
– Defense contractors must create an open atmosphere in which employees feel
comfortable reporting violations without fear of retribution.
– Companies must perform extensive internal audits and develop effective internal
reporting and voluntary disclosure plans.
– Members must preserve the integrity of the defense industry.
– Members must adopt a philosophy of public accountability.
• Reagan–Bush Era: Belief that self-regulation rather than regulation by
government was in the public’s interest

The 1990s: Institutionalization of Business Ethics
• President Bill Clinton: Continued to support self-regulation and free trade
• Government action with health-related social issues such as teenage
smoking
• Federal Sentencing Guidelines for Organizations (FSGO) – Guidelines
that codified into law incentives to reward organizations for taking action to
prevent misconduct, such as developing effective internal legal and ethical
compliance programs

The 2000s: Twenty-First Century Business Ethics
• President George W. Bush: Misconduct at Enron, WorldCom, Halliburton,
and Arthur Andersen caused the government and the public to look for new
ways to encourage ethical behavior.
• Sarbanes–Oxley Act – The most far-reaching change in organizational
control and accounting regulations since the Securities and Exchange Act of
1934, which made securities fraud a criminal offense and stiffened penalties
for corporate fraud
• The Sarbanes–Oxley Act and the FSGO institutionalized the need to
discover and address ethical and legal risk.
• President Barack Obama: Inherited the great global financial recession

The 2010s: New Challenges in Business Ethics
• Dodd–Frank Wall Street Reform and Consumer Protection Act –
Legislation that addressed some of the issues related to the financial crisis
and recession and designed to make the financial services industry more
ethical and responsible
• Enforcement of the FCPA, created in the 70s, became a top priority for the
SEC; outside of the U.S., the United Kingdom instituted the Bribery Act.
• Distrust of corporate America coincided with influx of Millennials into workforce
• Tension between increasing transparency and protecting privacy emerged
• President Donald Trump: Decreased environmental and financial regulations;
questioned sustainability

The 2020s and Beyond
• Environmental social governance (ESG) – A framework for evaluation of
firm performance in the areas of environmental, social, and governance
• Sustainability issues are causing firms and government to find solutions.
• There is increasing demand for responsible ethical conduct to be a part of
organizational culture.
• Future ethical issues will relate to artificial intelligence (AI) and big data.

Developing Organizational
and Global Ethical Cultures
1-4

Developing Organizational and
Global Ethical Cultures 1 of 2
• Ethics and compliance are designed to establish appropriate conduct and
core values.
• Ethical culture – Acceptable behavior as defined by the company and
industry
– Reflects the integrity of decisions made
– Is a function of many factors, including:
o Corporate policies
o Top management’s leadership on ethical issues
o The influence of coworkers
o The opportunity for unethical behavior

Developing Organizational and
Global Ethical Cultures 2 of 2
• Globally, businesses are working closely together to establish standards
of acceptable behavior.
– ISO 19600 is a global compliance management standard that addresses risks, legal
requirements, and stakeholder needs.
• Many companies demonstrate their commitment toward acceptable
conduct by adopting globally recognized principles.
• Global compact – Set of 10 principles concerning human rights, labor,
the environment, and anti-corruption; the purpose is to create openness
and alignment among business, government, society, labor, and the
United Nations

The Benefits of
Business Ethics
1-5

FIGURE 1-2 The Role of Organizational
Ethics in Performance

The Benefit of Business Ethics 1 of 4
Ethics Contributes to Employee Commitment
• There is a willingness to sacrifice for the organization.
• It increases group creativity and job satisfaction and decreases turnover.
• There is less pressure to compromise ethical standards.
• It leads to a greater absence of misconduct.
• Strong community involvement increases loyalty and positive self identity.

Ethics Contributes to Investor Loyalty
• Ethics provides a foundation for efficiency, productivity, and profits.
• Negative publicity, lawsuits, and fines can lower stock prices, diminish
customer loyalty, and threaten a company’s long-term viability.
• The demand for socially responsible investing is increasing.

Ethics Contributes to Customer Satisfaction
• High levels of perceived corporate misconduct decrease customer trust.
• Companies viewed as socially responsible increase customer trust and
satisfaction.
• Consumer respondents stated they would pay more for products from
companies that give back to society in a socially responsible and
sustainable manner.

Ethics Contributes to Profits
• Being ethical leads to better business performance.
• Corporate concern for ethical conduct is becoming a part of strategic
planning toward obtaining the outcome of higher profitability.
• Business ethics is becoming more than just a function of compliance; it’s
becoming an integral part of management’s efforts to achieve competitive
advantage.

623386711-CH01.pptx

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