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Chapter 4
Business Ethics &
Social Reponsibility
Lawyers’ houses are built
on the heads of fools.
Anonymous
Pamela S. Evers, Reindance Productions, LLC 2004
What is Ethics?
• Ethics is the study of how people should act
• Ethics also refers to the values and beliefs related
to the nature of human conduct
– Based on ethical standards or moral orientation
• Business ethics: business conduct that seeks to
balance the values of society with the goal of
profitable operation
Pamela S. Evers, Reindance Productions, LLC 2004
Ethical Corporations 2006
TOP 12
Green Mountain Coffee Roasters
Hewlett-Packard
Advanced Micro Devices
Motorola
Agilent Technologies
Timberland Company
Salesforce.com
Cisco Systems
Dell
Texas Instruments
Intel
Johnson & Johnson
Pamela S. Evers, Reindance Productions, LLC 2004
What are Ethical Standards?
• Positivist view asserts that moral standards
are codified, or stated, in positive law
– Thus, if an act is legal, the act must be ethical
• Natural law theory asserts that moral
standards are universal and cannot be
changed or modified by law
– Thus, these standards should be followed even if
the standards are greater than the law requires
Pamela S. Evers, Reindance Productions, LLC 2004
• Divine Command: Do what the Bible tell you
• Ethics of Conscience: Follow your conscience
• Ethical Egoism: First do what’s best for yourself
– Ayn Rand – “The Ethics of Selfishness”
• Duty Ethics: Do the right thing
– Immanuel Kant’s categorical imperative
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Ethics of Respect: Show respect (don’t dis’ me)
Ethics of Rights: Everyone has inalienable rights
Utilitarianism: Do what is best for the most
Ethics of Justice: Do what is fair
Virtue Ethics: Be a good person
Pamela S. Evers, Reindance Productions, LLC 2004
Compare Views
“The one and only social responsibility of
business is to increase its profits.”
Milton Friedman (b. 1912),
Nobel Laureate in Economics
“The business of business is serving
society, not just making money.”
Dayton Hudson Corporate Constitution
Pamela S. Evers, Reindance Productions, LLC 2004
Recognizing &
Resolving Ethical Dilemmas
Pamela S. Evers, Reindance Productions, LLC 2004
Ethical reasoning
• Utilitarianism (Bentham & Mill) holds that all
decisions should be evaluated to the utility they
create – the good of the many over the good of the
one or the few; a cost/benefit analysis
• Duty-based Ethics (Kant’s categorical imperative)
holds that one should not act unless you would be
willing for all others to act similarly
Pamela S. Evers, Reindance Productions, LLC 2004
Ethical reasoning
• Situational ethics or moral relativism examines
the circumstances of an act to determine whether
the act was, or was not, ethical
• The business stakeholder standard of behavior
determines whether an act is, or is not, ethical by
examining the interests of various stakeholders
with regard to a particular business action
Pamela S. Evers, Reindance Productions, LLC 2004
Too Complicated?
Pamela S. Evers, Reindance Productions, LLC 2004
“Easier” Methods of Resolving
Ethical Dilemmas
• Laura Nash Model:
– Have you defined the problem accurately?
– How would you define the problem if you stood on the
other side of the fence?
– How did this situation occur in the first place?
– What is your intention in making this decision?
– How does the intention compare with probable results?
Pamela S. Evers, Reindance Productions, LLC 2004
• Laura Nash Model (cont):
– Can you discuss your decision with the affected parties?
– Are you confident that your position will be as valid
over a long period of time as it seems now?
– Could you discuss your decision with your supervisor,
coworkers, officers, board, friends, and family?
– Whom could your decision or action injure?
Pamela S. Evers, Reindance Productions, LLC 2004
“Easier” Methods of Resolving
Ethical Dilemmas
• Blanchard & Peale Three-Part Test:
– Is it legal?
– Is it balanced?
– How does it make me feel?
Positive law approach
Stakeholder standard
Moral relativism
• Front Page of the Newpaper Test:
– If considering a business action, would you like to see
it on the front page of the newspaper?
Pamela S. Evers, Reindance Productions, LLC 2004
Think About These Situations
And The Related Ethical Issues
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Discrimination
Stealing food
Stealing a car
Disposing of hazardous waste
Writing an employee policy
Expanding or closing your business
Protecting your biz from competitors
Firing an employee
Pamela S. Evers, Reindance Productions, LLC 2004
Example
• Company Z sells a luxury car to Mr. X. After
only 9 months, an auto detailer told Mr. X that the
car had been repainted. Investigation reveals that
Company Z routinely -- and secretly -- repaints
cars damaged during shipping but sells the cars as
new. Did Company Z act ethically?
• Mr. X filed suit against Co. Z for fraud & won.
• The real case: BMW North America, Inc. v. Gore,
116 S.Ct. 1589 (1996).
Pamela S. Evers, Reindance Productions, LLC 2004
Ethics According to the Text
• Book states: “…to date, there is little evidence that
ethical behavior necessarily pays financially, either in the
short or the long run.”
• Note: there is little research on the theory,
primarily because of inherent problems in
research design
• E.g., defining “ethical conduct” or measuring impact
of ethical conduct on bottom line
Pamela S. Evers, Reindance Productions, LLC 2004
Counterpoint
• “Ethics and competitiveness are inseparable.”
John Akers, former chairman, IBM
• Evidence does exist that good ethical business is
profitable!
– Malden Mills (Polartec), Unilever, Patagonia, Sanrio
(Hello Kitty), Proctor & Gamble, Whole Foods…
• www.accountability.org.uk, www.businessethics.com, www.ethicalcorp.com
Pamela S. Evers, Reindance Productions, LLC 2004
Research in 2003:
• Research by Institute of Business Ethics showed for first
time that companies with a clear commitment to ethical
conduct outperform those which do not
• Study in UK of relationship between business ethics and
business performance in large companies:
– Four indicators of business success - economic value
added (EVA), market value added (MVA),
price/earnings ratio volatility (P/E ratio), and return on
capital employed (ROCE)
– Compared firms 1997-2001 with demonstrable
commitment to ethical behavior through published code
of business ethics to firms without codes
– On three of four indicators (EVA, MVA, P/E) firms
with codes clearly superior, and on ROCE results were
less clear but supported overall trend
Pamela S. Evers, Reindance Productions, LLC 2004
Responsibility to
Employees & Shareholders
• Apply various models for ethical decision-making to
a company’s employment decisions
– Safety requirements (Johnson Controls excluded women
from manufacturing line at battery plant)
– Executive compensation compared to hourly compensation
– Plant closings
– Outsourcing
Whistleblowers
– Whistleblowers
Cooper, Rowley,
and Watkins
Pamela S. Evers, Reindance Productions, LLC 2004
Responsibility to
Customers & Community
• Apply the various models for ethical decisionmaking to a company’s product design decisions
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Product safety and “acceptable risk”
Excess packaging that becomes waste
Using harmful raw materials
Outsourcing
F150 crash test
Pamela S. Evers, Reindance Productions, LLC 2004
Responsibility Overseas
• Apply various models for ethical decision-making
to a company’s international operations
– Union Carbide and the Bhopal disaster
– Texaco’s environmental disaster in Ecuador
– Apparel manufacturers and child labor issues
Texaco’s oil impacts
Ecuadoran child;
Aguinda v Texaco
Pamela S. Evers, Reindance Productions, LLC 2004
Business Ethics is Important
• Trust -- business activity is based upon trust
whether between employer and employee,
company and consumer, supplier and
manufacturer, government and business
• Reputation -- a good reputation is a valuable
commodity (e.g., goodwill)
• Law – unethical business activity ultimately, at
least in theory, is limited by government,
consumers, and other stakeholders who use the
courts and legislation to limit unethical
behavior
Pamela S. Evers, Reindance Productions, LLC 2004
The bar chart shows the percentage of British citizens that engaged in
the activity. About 15% of British citizens are “activists,” doing 5 or
more activities within a year.
Pamela S. Evers, Reindance Productions, LLC 2004
NEXT: International Law
“The time is always right
to do what is right.”
Martin Luther King, Jr.
Credits: Eminem & Eric Clapton
Pamela S. Evers, Reindance Productions, LLC 2004