Courseware from the course on Business Ethics that I taught at St. Joseph\'s College of Business Administration in 2009

1. Business
Ethics
Tathagat
Varma
Session
7/12:
27-­‐Aug-­‐09

2. The
Importance
of
Business
Ethics
• By
its
very
nature,
the
field
of
business
ethics
is
controversial,
and
there
is
no
universally
accepted
approach
for
resolving
the
issues.
• Why
?

3. The
Importance…
• One
difference
between
an
ordinary
decision
and
an
ethical
one
lies
in
“the
point
where
the
accepted
rules
no
longer
serve,
and
the
decision
maker
is
faced
with
the
responsibility
for
weighing
values
and
reaching
a
judgment
in
a
situaQon
which
is
not
quite
the
same
as
any
he
or
she
has
faced
before.”
• Another
difference
related
to
the
amount
of
emphasis
decision
makers
place
on
their
own
values
and
accepted
pracQces
within
their
company.
• Consequently,
values
and
judgment
play
a
criQcal
role
when
we
make
ethical
decisions.

4. The
Importance…
• To
survive,
businesses
must
earn
a
profit.
If
profits
are
realized
through
misconduct,
however,
the
life
of
the
organizaQon
may
be
shortened.
• Businesses
must
balance
their
desire
for
profits
against
the
needs
and
desires
of
society.
Maintaining
this
balance
oWen
requires
compromises
or
tradeoffs.
To
address
this
unique
aspects
of
the
business
world,
society
has
developed
rules
–
both
legal
and
implicit
–
to
guide
businesses
in
their
efforts
to
earn
profits
in
ways
that
do
not
harm
individuals
or
society
as
a
whole.

5. The
Importance…
• Why
Study
Business
Ethics
– Regardless
of
what
an
individual
believes
about
a
parQcular
acQon,
if
society
judges
it
to
be
unethical
or
wrong,
whether
correctly
o
not,
that
judgment
directly
affects
the
organizaQon’s
ability
to
achieve
its
business
goals.
For
this
reason
alone,
it
is
important
to
understand
business
ethics
and
recognize
ethical
issues.
– Business
ethics
is
not
merely
an
extension
of
an
individual’s
own
personal
ethics.
Many
people
believe
that
if
a
company
hires
good
people
with
strong
ethical
values,
then
it
will
be
a
“good
ciQzen”
organizaQon.
But…an
individual’s
personal
values
and
moral
philosophies
are
only
one
factor
in
the
ethical
decision-­‐making
process.

6. The
Importance…
– Normally,
a
business
doesn’t
establish
rules
or
policies
on
personal
ethical
issues
such
as
sex
or
use
of
alcohol
outside
the
workplace;
indeed,
in
some
cases,
such
policies
would
be
illegal.
Only
when
a
person’s
preferences
or
values
influence
his
or
her
performance
on
the
job
do
an
individual’s
ethics
play
a
major
role
in
the
evaluaQon
of
business
decisions.
– Many
people
who
have
limited
business
experience
suddenly
find
themselves
making
decisions
about
product
quality,
adverQzing,
pricing,
sales
techniques,
hiring
pracQces,
and
polluQon
control.
The
values
they
learned
from
family,
religion,
and
school
may
not
provide
specific
guidelines
for
these
complex
business
decisions.
In
other
words,
a
person’s
experiences
and
decisions
at
home,
in
school,
and
in
the
community
may
be
quite
different
from
his
or
her
experiences
and
decisions
at
work.
Many
business
ethics
decisions
are
close
calls.
Years
of
experience
in
a
parQcular
industry
may
be
required
to
know
what
is
acceptable.

7. The
Importance…
• Benefits
of
Business
Ethics
– Both
research
and
examples
from
the
business
world
demonstrate
that
building
an
ethical
reputaQon
among
employees,
customers,
and
the
general
public
pay
offs.
– Among
the
rewards
for
being
more
ethical
and
socially
responsible
in
business
are
increased
efficiency
in
daily
operaQons,
greater
employee
commitment,
increased
investor
willingness
to
entrust
funds,
improves
customer
trust
and
saQsfacQon,
and
beber
financial
performance.
The
reputaQon
of
a
company
has
a
major
effect
on
its
relaQonships
with
employees,
investors,
customer,
and
many
other
parQes

8. The
Importance…
• Ethics
contributes
to
employee
commitment
– Issues
that
may
foster
the
development
of
an
ethical
climate
for
employees
include
a
safe
work
environment,
compeQQve
salaries,
and
the
fulfillment
of
all
contractual
obligaQons
toward
employees.
Social
programs
that
may
improve
the
ethical
climate
range
from
work-­‐family
programs
and
stock
ownership
plans
to
community
service.
– Because
employees
spend
a
considerable
amount
of
their
waking
Qme
at
work,
a
commitment
by
the
organizaQon
to
goodwill
and
respect
for
its
employees
usually
increases
the
employees
loyalty
to
the
organizaQon
and
their
support
of
its
objecQves.
– The
ethical
climate
of
a
company
seems
to
maber
to
employees.
According
to
a
report
on
employee
loyalty
and
work
pracQces,
companies
viewed
as
highly
ethical
by
their
employees
were
six
Qmes
more
likely
to
keep
their
workers.
Also,
employees
who
view
their
company
as
having
strong
community
involvement
feel
more
loyal
to
their
employers
and
feel
posiQve
about
themselves.

9. The
Importance…
• Ethics
contributes
to
investor
loyalty
– Companies
perceived
by
their
employees
as
having
a
high
degree
of
honesty
and
integrity
had
an
average
three-­‐year
total
return
to
shareholders
of
101%,
whereas
companies
perceived
as
having
a
low
degree
of
honesty
and
integrity
had
a
three-­‐year
total
return
to
shareholders
of
just
69%
– Investors
are
also
recognizing
than
an
ethical
climate
provides
a
foundaQon
for
efficiency,
producQvity,
and
profits.
On
the
other
hand,
investors
know
too
that
negaQve
publicity,
lawsuits,
and
fines
can
lower
stock
prices,
diminish
customer
loyalty,
and
threaten
a
company’s
long-­‐term
viability.
– The
issue
of
drawing
and
keeping
investors
is
a
criQcal
one
for
CEOs,
as
roughly
50%
of
investors
sell
their
stock
in
companies
within
one
year,
and
the
average
household
replaces
80%
of
its
common
stock
porgolio
each
year.
Therefore,
gaining
investors’
trust
and
confidence
is
vital
to
sustaining
the
financial
stability
of
the
firm.

10. The
Importance…
• Ethics
contributes
to
Customer
SaQsfacQon
– The
Millennium
Poll
of
25,000
ciQzens
in
23
countries
found
that
almost
60%
of
people
focus
on
social
responsibility
ahead
of
brand
reputaQon
or
financial
factors
when
forming
impressions
of
companies.
– When
consumers
learn
about
abuses
in
subcontracQng,
they
may
boycob
the
companies’
products.

11. Emerging
Business
Ethics
Issues
• People
make
ethical
decisions
only
when
they
recognize
that
a
parQcular
issue
or
situaQon
has
an
ethical
component.
Thus,
a
first
step
toward
understanding
business
ethics
is
to
develop
ethical-­‐issue
awareness.
Ethical
issues
typically
arise
because
of
conflicts
among
individuals
personal
moral
philosophies
and
values,
the
values
and
culture
of
the
organizaQons
in
which
they
work,
and
those
of
the
society
in
which
they
live.

12. Emerging…
• Stakeholders
define
ethical
issues
in
Business
– Historically,
businesspeople
viewed
the
principle
objecQve
of
business
as
maximizing
profits,
which
resulted
in
the
belief
that
business
is
accountable
primarily
to
investors
and
to
others
involved
in
the
market
and
economic
aspects
of
the
company.
– The
relaQonship
between
companies
and
their
stakeholders
can
be
viewed
as
a
two-­‐way
street
– Primary
Stakeholders
are
those
whose
conQnued
associaQon
is
absolutely
necessary
for
a
firm’s
survival;
these
include
employees,
customers,
investors,
and
shareholders,
as
well
as
governments
and
communiQes
that
provide
necessary
infrastructure.
– Secondary
Stakeholders
do
not
typically
engage
in
transacQons
with
a
company
and
thus
not
essenQal
for
its
survival;
these
include
the
media,
trade
associaQon,
and
special-­‐interest
groups.

13. Emerging…
– Both
stakeholders
embrace
specific
values
and
standards
that
dictate
what
consQtutes
acceptable
or
unacceptable
corporate
behaviors
– While
primary
groups
may
present
more
day-­‐to-­‐
day
concerns,
secondary
groups
can’t
be
ignored
or
given
less
consideraQon
in
the
ethical
decision-­‐
making
process.

14. Emerging…
• Stakeholder
OrientaQon
– The
degree
to
which
a
firm
understands
and
addresses
stakeholder
demands
can
be
referred
to
as
a
stakeholder
orientaQon
• Comprises
of
– The
organizaQon
wide
generaQon
of
data
about
stakeholder
groups
and
assessment
of
the
firm’s
effects
on
these
groups
– The
distribuQon
of
this
informaQon
throughout
the
firm
– The
organizaQon’s
responsiveness
as
a
whole
to
this
intelligence

15. Emerging…
• Conflict
of
Interest
– A
conflict
of
interest
exists
when
an
individual
must
choose
whether
to
advance
his
or
her
own
interests,
those
of
the
organizaQon,
or
those
of
some
other
group.
– To
avoid
conflicts
of
interest,
employees
must
be
able
to
separate
their
private
interests
from
their
business
dealings.

16. Emerging…
• Fraud
– In
general,
fraud
is
any
purposeful
communicaQon
that
deceived,
manipulates,
or
conceals
facts
in
order
to
create
a
false
impression.
– Fraud
costs
US
organizaQons
more
than
$400
Billion
a
year;
the
average
company
loses
about
6%
of
total
revenues
to
fraud
and
abuses
commibed
it
its
own
employees.
Among
the
most
common
fraudulent
acQviQes
employees
report
about
their
coworkers
are
stealing
office
supplies
or
shopliWing,
claiming
to
have
worked
extra
hours,
and
stealing
money
or
products.
– AccounQng
fraud
is
a
major
issue

17. Emerging…
• DiscriminaQon
– Between
75,000
and
80,000
charges
are
filed
annually
with
the
Equal
Employment
Opportunity
Commission
(EEOC).
Sexual
harassment
filings
with
the
EEOC
average
about
16,000
per
year.
– To
help
build
work
forces
that
reflect
their
customer
base,
many
companies
have
iniQated
affirmaQve
acQon
programs,
which
involve
efforts
to
recruit,
hire,
train,
and
promote
qualified
individuals
from
groups
that
have
tradiQonally
been
discriminated
against
on
the
basis
of
race,
gender,
or
other
characterisQcs.
– AffirmaQve
acQon
does
not
permit
or
require
quotas,
reverse
discriminaQon,
or
favorable
treatment
of
unqualified
women
or
minoriQes.

18. Ethics
as
a
Dimension
of
Social
Responsibility
• Ethics
and
Social
Responsibility
are
used
interchangeably
but
they
are
not
the
same
• Social
responsibility
can
be
viewed
as
a
contract
with
society,
whereas
business
ethics
involves
carefully
thought-­‐out
rules
or
heurisQcs
of
business
conduct
that
guide
decision
making.
• Four
levels
of
social
responsibility
–
economic,
legal,
ethical
and
philanthropic
–
and
they
can
be
viewed
as
steps.

19. Ethics…
• Four
levels
– At
the
most
basic
level,
companies
have
an
economic
responsibility
to
be
profitable
so
they
can
provide
a
ROI
to
their
owners
and
investors,
create
jobs
for
the
community,
and
contribute
goods
and
services
to
the
economy
– Business
ethics
comprises
principles
and
standards
that
guide
behavior
in
the
world
of
business
– Philanthropic
responsibility
refers
to
acQviQes
that
are
not
required
of
businesses
but
that
promote
human
welfare
or
goodwill.

20. Ethics…
• Laws
and
regulaQons
are
established
by
governments
to
set
minimum
standards
for
responsible
behavior
–
society’s
codificaQon
of
what
is
right
and
wrong.
• Overall,
the
government
philosophy
is
that
legal
violaQons
can
be
prevented
through
organizaQonal
values
and
a
commitment
to
ethical
conduct.