1. The History of Corporate and
Development of Business Ethi
D l t fB i Ethics
NTUST MBA FORUM
Making Ethical Business Decision
Professor Andrew B.C. Huang
National Taiwan University of Science and Technology,
Management School
huang.porf@gmail.com 2008 Summer

2. 2008, How Do You Feel?
8 is a lucky number to Chinese
Chinese,
and how about it to them and other persons?
It will be a year of hard to tell but very painful to most of the
tell,
people worldwide, since a lot of events
being happened out of expectation.
遠見民調中心4月調查報告，台灣民心樂觀指數42.2，上升4.1點。
國際證券投資大師Jim Rogers, Marh Mobius預言
台股不用再「扁」520後看好六大題材股。

3. What Can The History Teach Us?
y
•Is History Repeating Itself? (S-Curve Change, Straightforward or
y p g ( g , g
recycle) (Karl Moore and David Lewis, 2000)
•The First Global Revolution (Environment, Energy, Population,
Food, and Economic Issues) (The Club of Rome, 1996)
•The End of History and The Last Man (Capitalism wins and will
be the only last) (Francis Fukuyama, 1993)
•The Silent Takeover: Global Capitalism and the Death of
p
Democracy. (Noreena Hertz, 2001)
•The Lexus and The Oliver Tree: The World Is Only 10
Years Old? (The World is A Village)

4. The Fools in South Sea Bubble
A Financial Scandal in 1720’s
• The S th S C
Th South Sea Company (1711 – c1850s) was an E li h company
1850 ) English
granted a monopoly to trade with South America under a treaty with Spain.
Following the South Sea Company Act of 1720, it became better known for
the quot;So th Sea B bblequot; an economic b bble that occurred thro gh
quot;South Bubblequot;, bubble occ rred through
overheated speculation in the company shares. The stock price collapsed
after reaching a peak in September 1720 .
Hogarthian image of the quot;South S B bbl quot; b Ed
H thi i f th quot;S th Sea Bubblequot;, by Edward M tth
d Matthew Ward, T t Gallery
W d Tate G ll

5. Buoying the share price
• The company then set to talking up its stock with
quot;the most extravagant rumoursquot; of the value of its
potential trade in the New World which was followed
by a wave of quot;speculating frenzyquot;. The share price
had risen from the time the scheme was proposed:
from £128 in January 1720, to £175 in February,
£330 in March and following the scheme's
and, scheme s
acceptance, to £550 at the end of May.
• What may have supported the company's high
multiples (its P/E ratio) was a fund of credit (known
to the market) of £70 million available for
commercial expansion which had been made
p
available through substantial support, apparently, by
Parliament and the King.
• Shares in the company were quot;soldquot; to politicians at
the current market price; however, rather than
paying for the shares, these lucky recipients simply
held on to what shares they had been offered,
offered
quot;soldquot; them back to the company when and as they
chose, and received as ‘profit’ the increase in
market price. This method, while winning over the
heads of government, the King's mistress, etc., also
had the advantage of binding their interests to the
interests of the Company: in order to secure their
own profits, they had to help drive up the stock.
Meanwhile, by publicizing the names of their elite
stockholders, the Company managed to clothe itself
in an aura of legitimacy, which attracted and kept
other buyers.

6. What These Ancient Walls
Could Tell Us!!
The profit motive and greed
are almost universally
considered synonymous
• The South Sea Bubble 1720 England.
• David Liss, A Conspiracy of Paper: A Novel, New York: Ballantine,
2001.
• Armand Budington Dubois, The English Business Company after
the Bubble Act 1720 1800 New York: Octagon Books 1971
1720-1800, Books, 1971.
• Most of the multinationals make riches by playing the money game
(gambling) of others.

7. Happening Today, and Will Never Fail
to Happen Again in the Future
• Lehman Brothers, AIG, and L
L h B h AIG d Lots of Bi Fi
f Big Financial Organizations,
i lO i i
and the following World Economic Crisis

8. Well, What of the Lehman Brothers?
,
Read Between the Line and the Truth

9. Who Ca es The Pocket o Poor’s ?
o Cares e oc e of oo s
What’s Next After The Drop of Financial Empire?

10. Who Ca es Basel Rules:
o Cares ase u es
The Guide Lines of Credit and Operate Crisis

11. Snowball Effect of Subprime
Who Cares Risk & Crisis? And the Losses of others?

12. The Free Market Incentive:
Self Interest VS. Greed, Who Cares the Publics?

13. The Key is Morality

14. Unbelievable!!!
Do You Have a Mr. Brown Coffer Today?

15. Failure & Failures:
We Have No Choice But to Suffer? The Tragedy of the Public Works

16. Even not complex, but less simple topic in
human s
human’s history and their whole life
Ethics: A Valuable Passport
The key that will light up your life,
and let you feel comfortable and happy
no matter where and when you are.

17. 1776: Mankind’s New Era
Mankind s
1776 could be summarized as “The
ld b i d “Th
Most Influential Years in Recent
History”, 3 events happened:
Independent Free Economic 1.
1 United St t E t bli h d the declaration
U it d States Established: th d l ti
U.S.A. of independence, and “the nature rights”
Adam Smith
Of/For the People
Democracy
“The Wealth of Nations” and “democracy” became the common
belief of politics.天賦人權.
2. Steaming Was Equipped in Textile
Machines: It facilitated the speed of
industrialization.
3. Adam Smith, “The Wealth of Nations” was
,
published, and the world began to enter
into an era of free trade. And the markets
Industrialization was led by the forces as Adam Smith’s
Steaming Engine
describing “the invisible hand”.
g
Applied in
A li d i
Textile Factory

18. Adam S
da Smith
Self interest and the invisible hand
• Every individual necessarily labors to render the annual revenue of the
society as great as he can.. He generally, indeed, neither intends to
promote the public interest, nor knows how much he is promoting it…By
pursuing his own interest he frequently promotes that of society more
effectually
effect all than when he reall intends to promote it (Wealth of Nations
hen really Nations,
P477-8)
• Every individual is continually exerting himself to find out the most
advantageous employment for whatever capital he can command. It is his
g p y p
own advantage, indeed, and not that of the society, which he has in view.
But the study of his own advantage naturally, or rather necessarily, leads
him to prefer that employment which is most advantageous to the society.
• 我們每天所需的食物和飲料，不是來自屠户、釀酒師或麵包師的恩惠，而是
出于他們自利的打算。(國富論第1-3券)
• Profit maximization should be the sole objective of business,
• Shareholders should be given priority over all the groups with whom the firm
without contract

19. Century’s Argument
Individual Profits VS Human Nature
• Before “The Wealth of Nations (1776), Adam Smith
The Nations”(1776)
wrote “The Theory of Moral Sentiment” (1759) ，
stressed “ sympathy is the fundaments of social
behavior” 強調“同情是社會行為的基礎＂, and self
interest is not selfish, but to an extent equal to self
love.
• In Theory of Moral Sentiments, Smith
develops a theory of psychology in
which individuals find it in their self-
interest to develop sympathy as they
seek approval of the quot;impartial
impartial
spectator“ (Outsider). The self-interest
he speaks of is not a narrow
selfishness but something that
involves sympathy.
y p y
• Human nature focuses on situations where man's
morality is likely to play a dominant role among
more personal exchanges.
• 人們的自愛的本性與同情心是相伴相隨的，支配人類
行為的動機有自愛、同情心、追求自由的慾望、正義
感、勞動習慣和交換的傾向等。
感 勞動習慣和交換的傾向等

20. What They Talk About
Company and Businessman ?
Entering Into the Inner World of
Business Ethical Life
一探企業倫理的內在世界

21. A Businessman Is?
• Robber Baron 強盜大亨
強盜大亨：
19世紀後期利用惡劣手段
聚斂財富的資本家;
• Malefactors of Great
Wealth 罪惡的大富豪：美
國老羅斯福總統指責那些
反對政府決策的資產階級
• Most of the public response to
American businessman at the
beginning of 20th century
century.

22. US President Hayes’s Warning
Hayes s
Rutherford B. Hayes (US President 1877-1881)
State and country will never be an entity
of the people, by the people, and for the
people, instead of the company, by the
company, and for the company as well.

23. The Co pa y
e Company:
A short History of a Revolutionary Idea
• 1893 7th O t b A new comedy “Ut i Li it d” (烏托邦股份有限
1893, October, d “Utopia Limited”
公司) OR “The Flowers of Progress” (進化之華)written by William S.
Gilbert and Arthur Sullivan was played at London cinema.
• 這齣喜劇嘲諷了一家家如雨後春筍般興起、處處吹噓要讓人投資致富
的公司。
• A man named Kimbery-Clark who intended to set up a South Sea
Kimbery Clark
Island of Utopia Company, which could allow everyone to issue
stock in market, even the baby could issue the public paper.

24. Agent s
Agent’s Ethical Crisis
• Never ceasing scandals since the company established.
N i d l i h bli h d
• Enron and US Wall-Street Bubble since March 2000-June 2002, the stock
market lost US$ 7,000 billions, equal to one fourth of American’s financial
assets.
t
• 60% people reckon that business illegal actions are a normal existing problem,
Gerald Seib and John Harwood stressed in “Rising Anxiety: What Could Bring
1930s Style
1930s-Style Reform of U S Business Wall Street Journal July 25 2002
U.S. Business, Journal, 25, 2002.

25. What’s Your Opinions ?
Trapped in the “iron cage” Competition
• Max W b (1905) i hi
M Weber (1905),in his analysis of the “protestant ethic“(新教倫理),
l i f th “ t t t thi “(新教倫理)
observes that once a society endorsed profit-making and
competition, economic agents become locked into an “iron cage”(鐵
籠)of this rationality.
• Nobel Prize Economist Milton Friedman(1962) invokes the iron-cage
as a response to those who would have business take on more
social goals.

26. Large, Profits, And Then
Milton Friedman (1962)
Profit maximization secures social welfare
A businessman or an entrepreneur who expresses preference in this
business activities that are not related to productive efficiency is at a
disadvantage compared to other individuals who do not.
Such an individual is in effect imposing higher costs on himself than
are other individuals who do not have such preferences. Hence, in a
free market they will tend to drive him out.

27. Large, Profits, And Then?
a ge, o s, d e
Do the competition work to society’s benefits
• The tragedy of Tusk: Breaking the seafood chain,
then destroying the environment of ocean.
(Tusk-Starfish-Jellyfish)
• Who cares external economies and the costs?
(market failure)
• Who cares the labors’ profits and welfares?
labors
(government or law failure)

28. Uncertainty and Unbelievable
Large, Forbid, And Then
• Uncertainly still remains the most difficult and
controversial costs in business transaction.
• Wh can b t t d? Wh ’ th h
Who be trusted? Where’s the honest coming f
t i from?
?
• Is the law your final fence?

29. Corporate States Now?
When the Corporate Merger Nations
• We
W are much away from Heaven, while the buildings are higher
h f H hil th b ildi hi h
and higher. (Hong Kong people’s response to the unaffordable
price of real estate in 2003)
• Noreena H t scholar of Center f I t
N Hertz, h l f C t for International Business,
ti lB i
Cambridge University, stated in “The Silent Takeover: Global
Capitalism and the Death of Democracy”, When corporate power
is
i over th nation, th globalization i a f t
the ti the l b li ti is fortune or an evil of mankind?
il f ki d?
It is hard to tell.
• Economist John Kenneth Galbraith stressed in “The Culture of
Contentment”, th hi t
C t t t” the history evident a unchangeable truth: th
id t h bl t th the
winners of a time will gradually and to the last incline to protest their
own interests, in spite of the worsen of environment, society, and
economic.
economic

30. So Is it A Unchangeable Truth?
Never-ending B i
N di Business S
Scandals
d l
• Never the less, a series of multinationals fall into the
business scandals such as inside trade, bribery, and
others lot of guile and greedy actions, such as cheating,
actions cheating
corruption, misleading, etc.
• Enron WorldCom and many other multinationals even
Enron, WorldCom,
not always, but could be said often drop in the same hole
of guile (deceit).
• And who will be the next ? Is there an ending?

31. 政務官要件：德才兼備
Cabinet Minister’s Must: Moral and Talent
個人品德
The Individual Ethics
Kind, Wise, and Brave
Professional
仁者不憂 Passion
智者不惑 Vision
勇者不懼 Active
Strategic
Leading
領導
勇於任事 Talent 恭寬信
堅持正義 敏惠
指揮道德 積極奉献
職業道德
Leadership Morality Professional Morality
Integrity, Diligent,
Trust, Honest, Integrity
Responsible, Responsive
R ibl R i
Source: General Tin Yu-Chou, former Secretary-in-general of National Security Council, Taiwan

32. Topics We Will Discuss
In This MBA Ethical Management Forum
• What’s the Reality f th B i
Wh t’ th R lit of the Business World: Th History of C
W ld The Hi t f Corporate, Th
t The
Milestone of Business, The Relations Between Business and Human Life; The
Syndication Among Business, Society, and Human Life;
• What s
What’s the Trend and Cycle of Human and Business Life: What Are the Core
Values of Business and Life, Are They Any Differences and Same; What’s the
Future That You Will Meet in Business and Life, and How Could You Succeed in
Each Period, What’s the Human Life and How it Will Be;
• What’s the Wealth Mean for A Human Being, What’s the Business Ethics in The
Current Global World, How It Is Work and Worthy;
• The Stories of Business Ethics That The Business Successor Could Tell You;
• How A Business Could Develop Sustainably, Are They Any Difference Between
Business and Private Entities,
• How Could You Make the Right Ethical Decisions in The Conflictive and
Attractive Business W ld
Att ti B i World;
• The Dilemma of Corporate and Working Ethics, How could You Make the Right
Decisions;

33. Topics We Will Discuss
• G
Governance: regulation, corporate governance
l ti t
committees, Sarbanes-Oxley, auditing, etc.
• C
Creating an Ethi l Culture: strategic planning,
ti Ethical C lt t t i l i
human resources, organizational ethics, etc.
• L d
Leadership: executive compensation, t
hi ti ti tone at
t
the top, the role of the CEO in ethics, etc.
• C
Corporate S i l Responsibility: sustainability,
t Social R ibilit t i bilit
stakeholder theory, triple bottom line, etc.
• W k l
Workplace Issues: l b and employment
I labor d l t
practices, monitoring, work/life balance, etc.

34. Topics We Will Discuss
• P d t and Brand: consumer safety, reputation,
Product d B d f t t ti
intellectual property, and strategic marketing
• Corporate Wrongdoing: corruption, bribery scandals
corruption bribery, scandals,
whistleblowing, etc.
• Professional Ethics: the behavior of managers and
g
employees in matters such as loyalty, honesty, etc.
• Global Business Ethics: cross-cultural issues that arise
in countries such as China and India
India.
• The Business Ethics Field: the history and teaching of
business ethics.

35. John Lott:
Good Name is a verifiable assets, especially in today’s information era

36. The Theory of Optimal Punishment
David Friedman, Law’s Order, Princeton University, 2000

37. The Company: A Short Summary
The Most Important Organization in the World
• John Micklethwait d Adrian W ld i
J h Mi kl th it and Ad i Wooldrige, Editor of Economist, authors
Edit fE i t th
of “The Company: a short history of a revolutionary idea”
• Ultimately, the mankind will find that the company is the most
important organization in the world; the elemental engine of national
growth, and the future dream of whole world.
• Building Reputational Capital
• Lawlessness and Economics: Alternative Models of Corporate
Governance and Ethic Management.
• The Normative Foundations of Business , What is the appropriate role
for business in a capitalist society

38. The Second and Third Industrial Revolution
The Time of Ethical Management to Come
• Since the last half of the 19th century i th U it d States, saw the
Si th l t h lf f th t in the United St t th
emergence of “management and strategy” as a way to sharp market
forces and affect the competitive environment.
• The construction of key roads after 1850 made United States possible
to build mass markets for the first time. Along with improved access
to capital and credit, mass markets encouraged large-scale investment
to
t exploit economies of scale in production and in distribution.
l it i f l i d ti d i di t ib ti
• In some capital-intensive industries, Adam Smith’s “invisible hand”
came to be supplemented by what Alfred D. Chandler, a famous
historian, has termed the “visible hand” of professional managers.
hi i h d h “ i ibl h d” f f i l
• First United States, then Europe, the large, vertically integrated
companies that invested heavily in manufacturing and marketing, and
in management hierarchies to coordinate those functions. Over time,
the largest companies began to alter the competitive environment
within their industries and even to cross the boundaries.

39. What’s The Recent Movement
UN has developed a voluntary Global Compact for Corporations. The
Compact,
Compact which was endorsed by all governments contains nine guiding
governments,
principles, which focus on human rights, labor standards, and the
protection of the environment.
Over 1,500 companies world wide have joined the compact and it seems
1 500 compact,
likely that more and more will feel the pressure to become signatories and
to abide by the required standards.
The concern for ethics in business continues. Business
ethics as an academic field contributes discussion
forums,
forums research and teaching that inform both ethics
in business and the business ethics movement.

40. The quot;ethics in businessquot;
sense of business ethics
• In this broad sense ethics in business is simply the application of everyday
moral or ethical norms to business. Perhaps the example from the Bible that
comes to mind most readily is the Ten Commandments, a guide that is still
used by many today. In particular, the injunctions to truthfulness and
honesty
honest or the prohibition against theft and en are directl applicable
envy directly applicable.
• If we move from religion to philosophy we have a similar long tradition. Plato
is known for his discussions of justice in the Republic, and Aristotle explicitly
discusses economic relations, commerce and trade under the heading of
, g
the household in his Politics.
• Aristotle’s discussion of trade, exchange, property, acquisition, money and
wealth have an almost modern ring, and he makes moral judgments about
greed,
greed or the unnatural use of one's capacities in pursuit of wealth for its
one s
own sake, and similarly condemns usury because it involves a profit from
currency itself rather than from the process of exchange in which money is
simply a means.
• He l
H also gives th classic d fi iti of j ti as giving each hi d
i the l i definition f justice i i h his due, t ti
treating
equals equally, and trading equals for equals or quot;having an equal amount
both before and after the transaction.quot;

41. The quot;ethics in business
ethics businessquot;
• In the West, after the fall of Rome, Christianity held sway and although
West Rome sway,
there were various discussions of poverty and wealth, ownership and
property, there is no systematic discussion of business except in the context
of justice and honesty in buying and selling. We see this, for instance, in
Thomas Aquinas's discussion of selling articles for more than the are worth
Aq inas's disc ssion they orth
and selling them at a higher price than was paid for them3 and in his
discussion of, and, following Aristotle's analysis, his condemnation of
usury.4 Nonetheless he justified borrowing for a good end from someone
ready t l d at i t
d to lend t interest.t
• Luther, Calvin, and John Wesley, among other Reformation figures also
discussed trade and business and led the way in the development of the
Protestant work ethic.5 R. H. Tawney's Religion and the Rise of Capitalism6
y g p
argues persuasively that religion was an essential part in the rise of
individualism and of commerce as it developed in the modern period. The
modern period, however, sought the divorce of the religious from the
secular and politics from religion. In the process, economics and economic
activity were similarly divorced from religion and joined with politics to form
what was known as political-economy.

42. Key Persons and Theories
• John Locke developed the classic defense of property as a natural right For him
right. him,
one acquires property by mixing his labor with what he finds in nature.
• Adam Smith is often thought of as the father of modern economics with his An
Inquiry into the Nature and Causes of the Wealth of Nations. Smith develops
Locke s
Locke's notion of labor into a labor theory of value. In modern times commentators
value
have interpreted him as a defender of laissez-faire economics, and put great
emphasis on his notion of the invisible hand. Yet the commentators often forget that
Smith was also a moral philosopher and the author of The Theory of Moral
Sentiments. For him the two realms were not separate. p
• John Stuart Mill, Immanuel Kant, G. W. F. Hegel all wrote on economic matters
and just distribution. Karl Marx, however, stands out as the most trenchant critic of
capitalism as it had developed up through the Nineteenth Century, and Marx's
critique in one form or another continues up to today, even when not attributed to
Marx.
• Marx claimed that capitalism was built on the exploitation of labor. Whether this was
for him a factual claim or a moral condemnation is open to debate; but it has been
taken as a moral condemnation since 'exploitation' is a morally charged term and for
him
hi seems clearly t i
l l to involve a charge of i j ti
l h f injustice. M ' claim i b
Marx's l i is based on hi
d his
analysis of the labor theory of value, according to which all economic value comes
from human labor.

43. Moral Man and Immoral Society
• Perhaps the most influential protestant figure in this regard was Reinhold Niebuhr
whose trenchant critique of capitalism in Moral Man and Immoral Society, became
the basis for courses in seminaries and schools of theology. In 1993 the Parliament
of the World's Religions adopted a Declaration of a Global Ethic that
condemned quot;the abuses of the Earth s ecosystems,quot; poverty, hunger, and the
the Earth's ecosystems,
economic disparities that threaten many families with ruin.
• The idea of ethics in business continues until the present day. In general, in the
United States this focuses on the moral or ethical actions of individuals. It is in this
sense also that many people, in discussing business ethics, immediately raise
yp p , g , y
examples of immoral or unethical activity by individuals. Included with this notion,
however, is also the criticism of multinational corporations that use child labor or
pay pitifully low wages to employees in less developed countries or who utilize
suppliers that run sweat shops.
• This t d f th t
Thi strand of the story is perhaps the most prominent in the thinking of the ordinary
i h th t i t i th thi ki f th di
person when they hear the term business ethics. The media carries stories about
Enron officials acting unethically and about the unethical activities of Arthur
Andersen or WorldCom, and so on, and the general public takes this as
representative of business ethics or of the need for it What they mean is the
it.
need for ethics in business.

44. Business Ethics Movement 1
• The U. S. Civil Rights Act of 1964 was the first piece of legislation to help jump start the business
U S
ethics movement. The Act prohibited discrimination of the basis of race, color, religion or national
origin in public establishments connected to interstate commerce, as well as places of public
accommodation and entertainment.
• Many corporations added equal opportunity offices to their human resources department to
ensure compliance, and i general th consciousness of b i
li d in l the i f business about di i i ti
b t discrimination, equal
l
opportunity, and equal pay for equal work came to the fore. This in turn led to more consciousness
of workers' rights in general, and of corporate America's need to respect them. The U. S.
Occupational Safety and Health Act of 1970 enforced the mandate to take those aspects of
workers' rights seriously. In the same year the Environmental Protection Act forced business to
start internalizing th costs of what had previously b
t ti t li i the t f h th d i l been considered externalities—such as th
id d t liti h the
discharge of toxic effluents from factory smokestacks.
• In 1977, following a series of scandals involving bribery by U. S. firms abroad including the
Lockheed $12 million bribery case that led to the fall of the Japanese government at the time, the
U. S. government p
g passed the Foreign Corrupt Practices Act. The Act was historic because it was
g p
the first piece of legislation that attempted to control the actions of U.S. corporations in foreign
countries. The Act prohibited U. S. companies from paying large sums of money (or their
equivalent) to high level government officials of other countries to obtain special treatment.
• A number of companies prior to the Act had already adopted the policy of refusing to pay bribes
as a matter of ethical principle. IBM, among others, was known for adherence to this policy, as
was Motorola. The Act forced all companies to live up to the already existing ethical norm. Its
critics complained, however, that it put U. S. companies at an unfair disadvantage vis-à-vis
companies from other countries that were permitted to pay bribes. The U. S. government applied
what pressure it could to encourage other countries to follow its lead, and finally twenty years later
t e O C countries ag eed
the OECD cou t es agreed to adopt s similar legislation.
a eg s at o

45. Business Ethics Movement 2
• In 1978 General Motors and a group of other U S companies adopted what are known as the
U. S.
Sullivan Principles, which governed their actions in South Africa. The signatories agreed that they
would not follow the discriminatory and repressive apartheid legislation in South Africa and would
take affirmative action to try to undermine apartheid not only by not following the existing South
African apartheid statutes, but also by lobbying the South African government for change.
Adherence to the Principles was seen as a way by which American companies could ethically
justify doing business in South Africa. They were adopted in part as a response to public pressure
on the companies to leave South Africa. The Principles have become a model for other voluntary
codes of ethical conduct by companies in a variety of other ethically questionable circumstances.
• By the 1980s many companies had started reacting to calls for ethical structures, and more and
more started adopting ethical codes and instituting ethics training for their employees. Each wave
t t d d ti thi l d d i tit ti thi t i i f th i l E h
of scandals, which seemed to occur every ten years or so, resulted in more pressure for
companies to incorporate ethics into their structures.
• In 1984 the Union Carbide disaster at its plant in Bhopal, India, which killed thousands of people
and injured several hundred thousand, focused world attention on the chemical industry. This led
j y
to the chemical industry's adopting a voluntary code of ethical conduct known as Responsible
Care, which became a model for other industries.
• In 1986, in response to a series of reported irregularities in defense contracts, a special
Commission Report on the situation led to the establishment of the Defense Industry Initiative (DII)
on Business Ethics and Conduct, signed by thirty-two (it soon increased to fifty) major defense
thirty two
contractors. Each signatory agreed to have a written code of ethics, establish appropriate ethics
training programs for their employees, establish monitoring mechanisms to detect improper
activity, share their best practices, and be accountable to the public.

46. Business Ethics Movement 3
• The 1960s marked a changing attitude towards society in the United States and towards business The Second
business.
World War was over, the Cold War was ever present, and the War in Viet Nam fostered a good deal of opposition
to official public policy and to the so-called military-industrial complex, which came in for increasing scrutiny and
criticism. The Civil Rights movement had caught the public imagination. The United States was becoming more
and more of a dominant economic force. American-based multinational corporations were growing in size and
importance. Big business was coming into its own, replacing small and medium-sized businesses in the societal
image of business The chemical industry was booming with innovation and in its wake came environmental
business. innovation,
damage on a scale that had not previously been possible. The spirit of protest led to the environmental movement,
to the rise of consumerism, and to criticism of multinational corporations.
• Corporations, finding themselves under public attack and criticism, responded by developing the notion of social
responsibility. They started social responsibility programs and spent a good deal of money advertising their
p g
programs and how they were p
y promoting the social g
g good. Exactly what quot;social responsibilityquot; meant varied
y p y
according to the industry and company.
• But whether it was reforestation or cutting down on pollution or increasing diversity in the workforce, social
responsibility was the term used to capture those activities of a corporation that were beneficial to society and
usually, by implication, that made up for some unethical or anti-social activity with which the company had been
charged. The business schools responded by developing courses in social responsibility or social issues in
management courses
management—courses which continue to thrive today. today
• For the most part, in the 1960s such courses put an emphasis on law, and the point of view of managers prevailed,
although soon that of employees, consumers and the general public were added. The textbooks paid no
systematic attention to ethical theory, and tended to be more concerned with empirical studies than with the
development or defense of norms against which to measure corporate activity. The history of the social
responsibility movement is a story in itself and one that different people are writing somewhat differently. One
version, b A hi C
i by Archie Carroll, d
ll describes social responsibility as a pyramid that encompasses the f
ib i l ibilit id th t th four t
types off
responsibility that businesses have: At the bottom is economic, then legal, then ethical and then philanthropic. And
although some representatives of corporate social responsibility claim that they did business ethics before
business ethics became popular and although some claim that what they do is business ethics, that is not the
story of business ethics I am going to tell today.

47. Business Ethics Movement 4
• The
Th DII became the model for what has been the most significant governmental impetus to the
b th d lf h th b th t i ifi t t li t t th
business ethics movement, namely, the 1991 U. S. Federal Sentencing Guidelines for
Corporations. That law took the approach of providing an incentive for corporations to incorporate
ethical structures within their organizations. If a company could show that it had taken appropriate
measures t prevent and detect illegal and unethical b h i it sentence, if f
to t d d t t ill l d thi l behavior, its t found guilty of
d ilt f
illegal behavior, would be reduced considerably. Appropriate measures included having a code of
ethics or of conduct, a high-placed officer in charge of oversight, an ethics training program, a
monitoring and reporting system (such as a quot;hotlinequot;), and an enforcement and response system.
Fines that could reach up to $290 million could b reduced b up t 95 percent if a company could
Fi th t ld h t illi ld be d d by to t ld
show bona fide institutional structures that were in place to help prevent unethical and illegal
conduct.
• The result was a concerted effort on the part of most large companies to incorporate into their
organizations the structures required. This led to the development of a corporate position known
as the Corporate Ethics Officer, and in 1992 to the establishment of the Corporate Ethics Officer
Association.
• The most recent legislative incentive to incorporate ethics in the corporation came in the
Sarbanes-Oxley Act of 2002, passed as a result of a rash of scandals involving Enron, WorldCom,
Arthur Andersen and other prominent corporations. The Act requires, among other things, that the
CEO and CFO certify the fairness and accuracy of corporate financial statements (with criminal
penalties for knowing violations) and a code of ethics for the corporation's senior financial officers,
as well as requiring a great deal more public disclosure.