Business ethics

• Morals


  Personal philosophies that define right and wrong
• Business ethics

  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 boundaries for behavior that often become the basis for rules (e.g. human rights, freedom of speech)
• Values

  Enduring beliefs and ideals that are socially enforced (e.g. trust and integrity)
• Moral dilemma

  Two or more morals in conflict with one another
• Value dilemma

  Two or more beliefs/ideals in conflict with one another
• Ethical culture

  Organizational principles, values, and norms that are adhered to by the company and its personnel
• Corporate social responsibility

  Actions associated by firms with various stakeholder (other than investors) interests as a priority
• Sustainability

  Relates specifically to the environment (air, land, and water)
• Bottom line for business ethics

  • Firm survival
  • Profitability, revenues, sales
  • Stakeholders: customers, employees, channel members (manufacturers, wholesalers, retailers)
  • Contribute to societal goals: community, country, world
• Benefits of business ethics

  • Ethics contributes to employee commitment
  • Ethics contributes to investor loyalty
  • Ethics contributes to customer satisfaction
  • Ethics contributes to profits
• Relationships and business

  Relationships are associated with both organizational success and misconduct<|>Businesses exist because of organizational relationships between employees, customers, shareholders, and the community
• Stakeholder framework

  Identifies the internal and external stakeholders who agree, collaborate, and engage in confrontations on ethical issues<|>Allows organizations to identify, monitor, and respond to the needs and expectations of stakeholder groups
• Approaches to stakeholder theory

  • Normative: Identifies ethical guidelines that dictate how firms should treat stakeholders
  • Descriptive: Focuses on the firm's behavior; addresses how decisions are made for stakeholder relationships
  • Instrumental: Describes what happens if firms behave in a particular way
• Types of stakeholders

  • Primary stakeholders: Those whose continued association and resources are absolutely necessary for a firm's survival (customers, shareholders, employees, suppliers)
  • Secondary stakeholders: Those who are not typically engaged directly in transactions with a company and are therefore not essential to its survival (government agencies and communities)
  • Other stakeholders: Others who have a "stake" or claim in some aspect of a company's products, operations, markets, industry, and outcomes
• Corporate governance provides formalized responsibility and accountability for ethical behavior
• Primary stakeholders

  • Customers
  • Shareholders
  • Employees
  • Suppliers
• Secondary stakeholders

  • Government agencies
  • Communities
• Other stakeholders


  • Others who have a "stake" or claim in some aspect of a company's products, operations, markets, industry, and outcomes
• Corporate governance

  Formalized responsibility to stakeholders
• Stakeholder model

  • Places the board of directors in the position of balancing the interests and conflicts of a company's various constituencies
  • External control of the corporation resides not only with government regulators but also with key stakeholders which exert pressure for responsible conduct
  • Social responsibility activities have a positive impact on consumer identification
• Classic agency problem

  Ownership (investors) and control (managers) are separate<|>Managers act as agents for investors, whose primary goal is increasing the value of the stock<|>Investors and managers are distinct parties with unique insights, goals, and values<|>Corporate governance mechanisms are needed to align investor and management interests
• Board of director responsibilities

  • Ensure the corporations are run in an ethical manner
  • Duty of loyalty - all decisions should be in the best interests of the corporation
  • Address issues such as executive compensation, organizational ethics, audit committee, and accountability
• Demand for accountability and transparency


  Directors chosen for expertise, competence, and ability to bring diverse perspectives<|>Outside directors do not have vested interest<|>Interlocking directorate - board members linked to more than one company
• Executive compensation

  Compensation paid to top executives of the company<|>Ratio of the salaries of the highest-paid executives to the median employee wage should be less<|>Stakeholders support high level of compensation only when it is linked to strong company performance
• Implementing a stakeholder perspective

  1. Assessing the corporate culture

  2. Identifying stakeholder groups

  3. Identifying stakeholder issues

  4. Assessing organizational commitment to stakeholders and social responsibility

  5. Identifying resources and determining urgency

  6. Gaining stakeholder feedback
• Social responsibility disclosures in company annual reports are directly related to the quality of corporate governance
• Ethical awareness

  The ability to perceive whether a situation or decision has an ethical dimension<|>Failure to acknowledge or be aware of ethical issues is hazardous to an organization<|>Ethical issues involve a group, a problem, or an opportunity that requires introspection and investigation before a decision can be made
• Foundational values for identifying ethical issues

  • Integrity
  • Honesty
  • Fairness
• Integrity

  Element of virtue, an unimpaired condition. Integrity relates to product quality, open communication, transparency, and relationships
• Honesty

  Truthfulness or trustworthiness. To tell the truth to the best of your knowledge without hiding anything
• Fairness

  Just, equitable, and impartial<|>Equality - the distribution of benefits and resources<|>Reciprocity - an interchange of giving and receiving in social relationships<|>Optimization - trade-off between equity (equality) and efficiency (maximum productivity)
• Ethical issues in business

  • Misuse of company time and resources
  • Abusive or intimidating behavior
  • Lying
  • Conflicts of interest
  • Bribery
  • Corporate intelligence
  • Discrimination
  • Sexual harassment
  • Fraud
  • Insider trading
  • Intellectual property rights
• Ethical issue intensity

  The relevance or importance of an event or decision in the eyes of the individual, work group, and/or organization<|>Personal and temporal in character to accommodate values, beliefs, needs, perceptions, the special characteristics of the situation, and the personal pressures prevailing at a particular place and time<|>Moral intensity - individuals' perceptions of social pressure and the harm they believe their decisions will have on others
• Individual factors influencing ethical decision making

  Gender - no significant differences between men and women<|>Education - those more familiarized with the ethical decision making process are likely to spend more time examining and selecting different alternatives<|>Nationality - impossible to state that ethical decision making will differ significantly among individuals of different nationalities
• A framework for ethical decision making in business includes ethical awareness, ethical issue intensity, and individual and organizational factors