Transcript West`s Legal Environment of Business 6th Ed.

Chapter 2
Business Ethics
Business Ethics
o Ethics is the study of right and wrong
behavior; whether an action is fair,
right or just.
o In business, ethical decisions are the
application of moral and ethical
principles to the marketplace and
workplace.
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Why is Business Ethics Important?
o Directors and Officers owe a complex
set of ethical duties to the company,
shareholders, customers, community,
employees, and suppliers.
o Fiduciary duty – trust and loyalty
o When these duties conflict, ethical
dilemmas are created.
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Setting the Right Ethical Tone
o Importance of Ethical Leadership.
o Attitude of Top Management.
o “Looking the Other Way”.
o Exxon Valdez
o Creating Ethical Codes of Conduct.
o Clear Communications to Employees.
o General Electric
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Corporate Compliance Programs
o Sarbanes-Oxley and Web-based reporting.
o Enron - whistleblower
o A number of contexts, within the employeremployee relationship, are fraught with
ethical considerations, such as:
o Having a system in place to detect, prevent,
eliminate, and punish behavior of a harassing
nature toward employees.
o Avoiding wrongful discharge, either actual or
constructive.
o Adhering to ethical principles during corporate
restructuring and downsizing.
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Companies That Defy The Rules
o Enron: Accounting Issues.
o “Anticipated” future earnings.
o Managers’ salaries based on inflated
earnings.
o Enron: Off-The-Books Transactions.
o Moved losses from one ‘shell’ to another.
o Transferred debts to partnerships in
Cayman Islands.
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Defying the Rules
o Enron: Self-Dealing.
o Executives with their family.
o Enron: Corporate Culture.
o Rejected outside advice on “house of
cards”.
o No investigation of internal practices.
o Merck and Vioxx.
o Merck disregarded known risks.
o Waited to be proven wrong ($250 M
verdict).
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Business Ethics and the Law
o Legal compliance is the
moral/ethical minimum.
o Simply obeying the law does not
necessarily make the business
practice ethical.
o “Gray Areas” in the law.
o Business leaders must contemplate the
ethical implications of a business
decision.
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The Stakeholders in Business Ethics
o Who does it affect?
o Investors, including owners
o Employees
o Supply Chain
o Customers
o Suppliers
o Government
o Community or public at large
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