CHAPTER 1 The Importance of Business Ethics Why

CHAPTER 1 The Importance of Business Ethics

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

Business Ethics • Comprises principles, values, and standards that guide behavior in the world of business • Principles: Specific boundaries for behavior that are universal and absolute – Freedom of speech, civil liberties • Values: Used to develop socially enforced norms – Integrity, accountability, trust

Americans’ Trust in Business (% of respondents who say they trust the following business categories a great deal)

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

Why Study Business Ethics? • Reports of unethical behavior are on the rise • Society’s evaluation of right or wrong affects its ability to achieve its business goals • Studying business ethics is a response to Sarbanes-Oxley, FSGO, and stakeholder demands for ethics initiatives • Individual ethics alone is not sufficient • Studying business ethics helps identify ethical issues to key stakeholders

A Timeline of Ethical and Socially Responsible Concerns

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

The 1960 s: The Rise of Social Issues in Business • Societal social consciousness emerged – Anti-business sentiment rose • JFK’s Consumer Bill of Rights. 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 – Ralph Nader Source: Hisham Ibrahim

The 1970 s: 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 • Philosophers became involved • Businesses became concerned with public image • Conferences were held and centers developed • Issues: – Bribery – Product safety – Deceptive advertising – Environment – Price collusion

The 1980 s: Consolidation • Membership in business ethics organizations increased • Ethics centers provided: – Publications, courses, conferences and seminars • Firms established ethics committees • Defense Industry Initiative on Business Ethics and Conduct (DII) emerged – Foundation for the Federal Sentencing Guidelines for Organizations • Corporate support for ethics

The 1990 s: Institutionalization of Business Ethics • The Federal Sentencing Guidelines for Organizations (FSGO) – Set tone for compliance • Preventative actions against misconduct – A company could avoid/minimize potential penalties

The Federal Sentencing Guidelines for Organizations • Standards and procedures capable of detecting and preventing misconduct • High level oversight • Care in delegation of authority • Effective communication (training) • Systems to monitor, audit, and report misconduct • Consistent enforcement • Continuous improvement

The 21 st Century: A New Focus • Continued issues with corporate non-compliance – Growing public/political demand for improved ethical standards • Sarbanes-Oxley Act (2002) – Most extensive ethics reform – Increased accounting regulations • FSGO reform (2004) – Requires governing authorities to be well-informed regarding business ethics programs • Firm’s greatest danger is not discovering misconduct early • Basic assumptions of capitalism being debated – Fears in the wake of global recession and financial meltdown

Organizational and Global Ethical Culture • Ethical culture describes the component of corporate culture that captures the values and norms that an organization defines as appropriate conduct • Creates shared values • Goal is to: • Minimize need for enforced compliance • Maximize utilization of principles/ ethical reasoning Source: Triangle Images

Prevalence of Misconduct by Industry

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

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

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

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 Source: Photo. Link