Transcript Ethics and Business Decision Making

Ethics and Business Decision
Making
WORLDCOM, ENRON AND OTHERS…
Ethics can be defined as….
 The study of what constitutes right or wrong
behavior.
 Business ethics focuses on what constitutes right or
wrong behavior in the business world and on how
moral and ethical principles are applied by business
persons to situations that arise in their daily
activities in the workplace.
Why is it important?
 An in depth understanding of business ethics is
important to the long run viability of a corporation.
Also important to the well being of the individual
officers of the corporation, as well as to the welfare of
the firm’s employees.
 Officers/partners in the corporations owe a fiduciary
duty (a duty of trust and loyalty ) to each other and
to the firm.
Setting the right ethical tone
 Many unethical decisions are made simply because
they can be. In other words, the decision makers not
only have the opportunity to make such decisions
but also are not too concerned about being seriously
sanctioned for their unethical actions.
The importance of ethical leadership
 Attitude of top management-managers who are not
totally committed to maintaining an ethical
workplace will rarely succeed in creating one.
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Surveys of executives indicate that management’s behavior,
more than anything else, sets the ethical tone of a firm. If
managers act unethically, employees will do the same.
The importance of ethical leadership
 Looking the other way-a manager who looks the
other way when she or he knows about an employees
unethical behavior also sets an example-one
indicating that unethical behavior will be tolerated.
The importance of ethical leadership
 Periodic evaluation-some companies require their
managers to meet individually with employees and
to grade them on their ethical behavior. This serves
two purposes, it demonstrates to employees that
ethical matters and it gives the employees an
opportunity to see how the measured up.
Creating an ethical code of conduct
 Provide ethics training to employees
 Johnson and Johnson uses web based ethics training
 Hershey Corp. was the first corporation in U.S. to
require ethics training.
 Corporate compliance programs
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Sarbanes-Oxley Act of 2002 requires that companies set up
confidential systems so that employees may raise red flags
about suspected illegal or unethical auditing and accounting
practices.
Conflicts and Trade-offs
 Management constantly faces ethical trade-offs,
some of which may lead to legal problems.
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Downsizing-reduce costs but it will harm employees who are
laid off or fired
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Who goes first? Management decides…..
Companies the defy the rules
 See page 105 for Enron case study, in a nutshell….
 Enron was the first company to benefit from the deregulation of electricity
market. By 1998, Enron was the largest energy trader in the market.
Enron diversified into water, power plants, and high speed internet and
fiber optics. Because Enron's managers received bonuses based on whether
they met earnings goals, they had an incentive to inflate the anticipated
earnings on energy contracts, which they did. Enron included anticipated
earning in its current earnings report. Then, to artificially maintain its
reported earnings, Enron created a complex network of subsidiaries that
enabled it to move losses to its subsidiaries and hide its debts. The overall
effect of these actions was to increase Enron's apparent net worth. These
transactions were frequently carried out in the Cayman Islands to avoid
paying federal income taxes. Enron's CEO started a pattern of self dealing
by doing business with companies owned by his children. Enron's
management was informed about these incidents of misconduct on
numerous occasions, yet the company concealed the issues for years until
they were bankrupt.
Companies the defy the rules
 Merck and Company
 Maker of VIOXX, received approval from U.S. Food and Drug
Admin. in 1999 to market Vioxx for the treatment of acute pain
in adults, had fewer side effects than traditional pain meds,
relief for arthritis, etc…
 Trouble began to appear, patients who took it for eight months
or longer had up to 4 times as many heart attacks and strokes
as patients using a different pain med. At its peak, 20,000,000
people used Vioxx.
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Merck pulled the drug from the market in Sept. 2004, after
published reports showed that a cardiologist proposed to show
a study in 2001 proving a link between Vioxx and heart failure.
Merck declined to see the study.
Thousands (139,000+) of reported heart attacks, many ending
in death.
Merck lost its first Vioxx lawsuit, in which the jury awarded
$253 million to Carol Ernst, widow of Robert Ernst.
Award was later reduced to $25 million due to Texas’s cap on
punitive damages.
Business Ethics and Law
 Legal compliance is considered a moral minimum
behavior.
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Laws regulate behavior
Gray areas in the law-legality of some decisions are unclear.
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Pregnant, suddenly job is being eliminated?
Ethical Reasoning
 Each person, when faced with a particular ethical
dilemma, engages in ethical reasoning, a process in
which the individual examines the situation at hand
in light of their own moral standards.
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Duty based-religious ethical standards such as the Ten
Commandments,
Kantian ethics-based upon philosophical reasoning,
fundamental nature of human beings
Principle of Rights-how any decision affects other individuals
rights
Outcome based ethics-utilitarianism
 Based on the premise of “The greatest good for the
greatest number”
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Uses cost-benefit analysis which is looking at the negative and
positive effects of any decision
Globally
 Various cultures and religions throughout the world
create conflicts in ethics frequently between foreign
and U.S. businesspersons.
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Ie: Inviting a business contact out for a drink, role of women
in other countries,
U.S. has laws protecting against sexual harassment, and laws
prohibiting bribery, etc…some countries do not have these
protections.
Research the country you are planning to do business with…..
Protections for global business…
 Foreign Corrupt Practices Act-passed in 1977
prohibits U.S. businesspersons from bribing foreign
officials to secure beneficial contracts, has
accounting requirements, and has penalties for
violations.
 Prior to that, press and government officials
uncovered a number of business scandals which led
to the law being passed.
Other nations
 Are passing laws, in 1997 the Organization for
economic Cooperation and Development created a
treaty that made bribery a serious crime. By 2004,
at least 35 countries had adopted the treaty.
 Ethics Resource Center-non-profit organization
devoted to promoting ethics since 1922.