Transcript Ethics, Government, & Law Chapter

Chapter 5
Ethics and
Ethical Reasoning
McGraw-Hill/Irwin
Copyright © 2008 The McGraw-Hill Companies, All Rights Reserved.
Ch. 5: Key Learning Objectives
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Defining ethics and business ethics
Evaluating why businesses should be ethical
Knowing why ethical problems occur in business
Identifying managerial values as influencing ethical
decision making
 Recognizing the core elements of ethical character
 Understanding stages of moral reasoning
 Analyzing ethical problems using generally accepted
ethics theories
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The Meaning of Ethics
 Ethics
 A conception of right and wrong conduct
 Tells us whether our behavior is moral or immoral
 Deals with fundamental human relationships—how we think
and behave toward others and want them to think and
behave toward us
 Ethical Principles
 Guides to moral behavior
 Business Ethics
 Application of general ethical ideas to business behavior
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Sources of Ethics
 Notions of right and wrong come from many sources
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Religious beliefs
Family background
Education
Community/neighborhood
Media influences
 These experiences create a concept of ethics,
morality, and socially acceptable behavior in each
person
 Acts as a moral compass to guide him/her when ethical
puzzles arise
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Ethical Relativism
 Concept that holds that ethical behavior should be
defined by various periods in time in history, a society’s
traditions, the special circumstances of the moment, or
personal opinion
 The meaning given to ethics would be relative to time, place,
circumstance, and the person/s involved
 There would be no universal ethical standards on which people
around the globe could agree
 Is an important and controversial issue
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Figure 5.1 Observations of Unethical Behavior at Work
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Five Key Reasons Business Should be Ethical
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To meet demands of business stakeholders
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10 country poll shows 90% of general public placed
business ethics standards above traditional
corporate goals
Meeting demands of stakeholders is good business
2. To enhance business performance
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Research shows linkage between ethically responsible
behavior and favorable corporate financial performance
Imparts trust, promoting positive alliances among
business partners
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Five Key Reasons Business Should be Ethical
3. To comply with legal requirements
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U.S. Corporate Sentencing Guidelines provides
that if an employee of a firm is found guilty
of wrong-doing, the sentence may be reduced if
preventive measures were in place in the
company
Measures judges look for in assessing this
culpability (degree of blame) shown on next slide
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U.S. Corporate Sentencing Guidelines
 Establish standards and procedures to reduce criminal
conduct
 Assign high-level officer(s) responsibility for compliance
 Not assign discretionary authority to “risky” individuals
 Effectively communicate standards and procedures through
training
 Take reasonable steps to ensure compliance—monitor and
audit systems, maintain and publicize reporting systems
 Enforce standards and procedures through disciplinary
mechanisms
 Following detection of offense, respond appropriately and
prevent reoccurrence
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Five Key Reasons Business Should be Ethical
3. To comply with legal requirements (cont.)
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2002 Sarbanes-Oley legislation was approved as
result of corporate accounting scandals like
Enron, and WorldCom
Major provisions of Sarbanes-Oxley shown on
next slide
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Sarbanes-Oxley Act of 2002
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The firm’s audit committee is entrusted with audit or oversight
with all independent directors on the committee
Tighter control on non-audit services, the lead auditor rotated
every five years, and auditors report to the audit committee
The CEO and CFO must sign off on financial statements as
accurate and fair and must repay bonuses if a restatement of
financials is undertaken
A Public Company Accounting Oversight Board is established
Firms are not permitted to offer loans to their executive officers
or board of directors
SEC guidelines for internal controls and financial reporting
procedures; require the adoption of, or waiver for, a code of
ethics for the board; mandate that a financial expert serve on
the board; and compel the firm to state its financial condition in
plain English on a rapid or current basis
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Five Key Reasons Business Should be Ethical
4. To prevent or minimize harm
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Overriding principle that business should
“do no harm”
Examples include not harming society with toxic
waste, protecting business from unethical employees
and unethical competitors
5. To promote personal morality
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Knowing one works in a supportive ethical climate
contributes to sense of psychological security
People want to work for companies that do the right
thing
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Why Ethical Problems Occur in Business
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4 Primary Reasons
Personal gain and self-interest
Competitive pressure on profits
Conflicts of interest
Cross-cultural contradictions
 Chart on next page provides background for each
reason
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Figure 5.3 Why Ethical Problems Occur in Business
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Core Elements of Ethical Character:
Managers’ Values
 Managers’ values set the ethical tone for the company
 Corporate scandals has led to a crisis of confidence in
business leadership
 Differences in ethical stances of U.S. versus European
managers and employees
 Survey of new U.S. CEO’s shows concern for short-term
profits
 One in four managers emphasizes moral values
 Younger generation of managers more concerned about
ethics/social responsibility
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Virtue Ethics
 Part of business ethics theory derived from Philosophy
(Aristotle)
 Posits that a person with good character traits will use
these values to show good behavior
 Virtue ethics holds that ethics is not rule determined
but based on a way of being and valuable
characteristics
 Stated differently – moral virtues are habits that enable
a person to live according to reason and avoid
extremes
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Personal Spirituality
 Personal belief in a supreme being, religious
organization, power of nature or some other lifeguiding force
 In past 10 years has been a rise in spirituality at work
 McKinsey survey of Australian companies showed
increase in productivity and reduced turnover for
companies that provided spirituality outlets for
employees
 Is controversial, given separation of church and state
and common view that business is secular
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Issues include which religion should be promoted, and need
for recognizing diversity of religious beliefs
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Stages of Moral Development
 Well researched model by Dr. Lawrence Kohlberg of
how individuals grow and mature in relation to moral
reasoning and decision-making
 From childhood to mature adulthood people move up
in their moral reasoning
 Earliest stages of reasoning are ego-centered
 Most developed stages are principle-centered
 Most managers make decisions based on criteria in
levels 3 and 4
 Company executives’ reasoning has wide
implications both inside and outside the organization
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Figure 5.4
Stages of Moral Development and
Ethical Reasoning
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Analyzing Ethical Dilemmas in Business
 Model presented in next set of slides is powerful tool
for reasoning through ethical problems that occur in
business
 Based on three standards of ethical reasoning
borrowed from philosophy
 Presents guidelines to
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Identify and analyze the nature of an ethical problem, and
Decide which course of action is likely to produce an ethical
result
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Three Approaches to Ethical Reasoning
 Utilitarian
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Compares benefits and costs of a decision, policy or action
Costs and benefits can be economic, social or human
 Rights
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Person or group is entitled to something or to be treated in a
certain way
Examples of basic human rights are right to life, safety, and due
process
 Justice
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Means benefits and burdens are distributed equally, according
to some accepted rule
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Figure 5.5
Three Methods of Ethical Reasoning
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Applying Ethical Reasoning to Business Activities
 Can use the Utility, Rights and Justice framework as
a tool to analyze real business ethics dilemmas
 For each possible action or decision, ask the three
critical questions
 If all the answers are “Yes”, the proposed action is
ethical
 If all the answers are “No”, the action is not ethical
and needs to be reconsidered
 If “Yes” and “No” answers are mixed, you must
decide which takes priority
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Figure 5.6 Analytical Approach to Ethical Problems
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What is Whistle-blowing?
 When an employee in an organization uncovers
wrongdoing, attempts to get it resolved within the
organization and is unable to (either because mechanisms
are not in place or there is no response), they then choose
to report the situation outside of the organization (e.g.
media or government agency) to achieve resolution
 Becoming a whistle-blower is challenging and potentially
hazardous to one’s career
 Examples of government protection for whistleblowers
around the world shown in next slide
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Exhibit 5.B Whistle-blowing Protection Around the World
Summary of some legislative efforts to protect whistle-blowers in various countries:
 European Union —The EU published a charter for whistle-blower protection,
identifying the terms under which commission staff may blow the whistle, imposing a
duty upon officials to report suspected wrongdoing, and outlining the channels for
reporting malpractice.
 Ghana —A whistle-blower protection act has been proposed to offer rewards and
protection to people who volunteer information leading to the prosecution of whitecollar criminals.
 Israel —This country adopted whistle-blowing protection legislation that protects
corporate and government workers.
 South Africa —The Protected Disclosures Act 26 prohibits employers from subjecting
an employee to an occupational detriment (e.g., disciplinary action, suspension,
dismissal, demotion, harassment, etc.) for raising concerns about unlawful or irregular
conduct.
 South Korea —The Anti-Corruption Act established the Korea Independent
Commission Against Corruption, whose mission includes the encouragement,
protection, and compensation of whistle-blowers.
 United Kingdom —The U.K. Public Interest Disclosure Act protects most workers from
retaliation by their employers, including dismissal, disciplinary action, or transfer.
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Stigmas Against Whistle-blowers
 Divided loyalties
 In some Asian countries, members of the company are
treated as family members and it is considered wrong to
report on family members
 History
 The country may have a tragic history of reporting on others
 Logistics
 Employees of global companies may be faced with
numerous time zones and language differences that could
prevent whistle-blowing or make it more difficult
 Fear of retribution
 Despite government laws to protect whistle-blowers, many
employees of global businesses fear retaliation
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