Chapter 2 Ethics and Social Responsibility of Business

Ethics A set of moral principles or values that governs the conduct of an individual or a group Ethics and the law are intertwined The rule of law and the rule of ethics may demand the same response by a person confronted with a problem In some situations, the law may permit an act that is ethically wrong Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -2

Exhibit 2. 1 - Law and Ethics Copyright © 2013 Pearson Education, Inc. Publishing

Major Theories of Ethics Ethical fundamentalism Utilitarianism Kantian ethics Rawl’s social justice theory Ethical

Ethical Fundamentalism A theory of ethics which says that a person looks to an outside source for ethical rules or commands False Claims Act (Whistleblower Statute): A federal statute that permits private parties to sue companies for fraud on behalf of the government and share in any monetary recovery Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -5

Utilitarianism A moral theory which dictates that people must choose the action or follow the rule that provides the greatest good to society It has faced criticism because: It is difficult to estimate the “good” that will result from different actions It is difficult to apply in an imperfect world It treats morality as if it were an impersonal mathematical calculation Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -6

Kantian Ethics (Duty Ethics) A moral theory which says that people owe moral duties that are based on universal rules It is based on two principles Consistency – all cases are treated alike Reversibility – the actor must abide by the rule he or she uses to judge the morality of someone else’s conduct Criticism It is difficult to reach consensus as to what the universal rules should be Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -7

Rawl’s Social Justice Theory A moral theory which asserts that fairness is the essence of justice Each person is presumed to have entered into a social contract with all others in society to obey moral rules that are necessary for people to live in peace and harmony Criticism Establishing blind “original position” for choosing moral principles is impossible in the real world People in society may choose not to maximize the benefit to the least advantaged persons in society Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -8

Ethical Relativism A moral theory which holds that individuals must decide what is ethical based on their own feelings about what is right and wrong Criticism Action that is usually thought to be unethical would not be unethical if the perpetrator thought it was in fact ethical Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -9

Social Responsibility of Business Maximizing profits • A corporation owes a duty to take actions that maximize profits for shareholders Moral Minimum • A corporation’s duty is to make a profit while avoiding causing harm to others Stakeholder interest • A corporation must consider the effects its actions have on persons other than its shareholders Corporate Citizenship • A business has a responsibility to do good Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -10

Case 2. 1: U. S. SUPREME COURT Business Ethics Walmart Stores, Inc. v. Samara Brothers, Inc. 529 U. S. 205, 120 S. Ct. 1339, 146 L. Ed. 2 d 182, Web 2000 U. S. Lexis 2197 Supreme Court of the United States Issue Must a product’s design have acquired a secondary meaning before it is protected as trade dress? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -11

Section 406 of the Sarbanes-Oxley Act A section that requires a public company to disclose whether it has adopted a code of ethics for senior financial officers Makes certain conduct illegal Establishes criminal penalties for violations Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -12

Case 2. 2: U. S. Supreme Court Corporate Political Speech and Ethics Citizens United v. Federal Election Commission 130 S. Ct. 876, 175 L. Ed. 2 d 753, Web 2010 U. S. Lexis 766 (2010) Supreme Court of the United States Issue Do the challenged federal restrictions on campaign financing and electioneering violate the free speech rights of Citizens United? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -13

Corporate Citizenship A theory of responsibility which says that a business has a responsibility to do good Proponent view Corporations owe a debt to society to make it a better place Criticism Duty of a corporation to do good cannot be expanded beyond certain limits If taken to its maximum limit, potential shareholders might be reluctant to invest in corporations Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 2 -14

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