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The Importance of Business Ethics

The document discusses the importance of business ethics and provides a timeline of the development of business ethics from the 1960s to the present. It notes that consumer trust in businesses is declining and reports of unethical behavior are rising, demonstrating the need to study business ethics.

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Black Unicorn
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© © All Rights Reserved
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47 views

The Importance of Business Ethics

The document discusses the importance of business ethics and provides a timeline of the development of business ethics from the 1960s to the present. It notes that consumer trust in businesses is declining and reports of unethical behavior are rising, demonstrating the need to study business ethics.

Uploaded by

Black Unicorn
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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CHAPTER 1

The Importance of Business


Ethics
Why Study Business Ethics?
• Business decisions under great
scrutiny
– Global financial crisis created
diminished stakeholder trust
• Deals with questions about
whether practices are
acceptable
• No universally-accepted
approach for resolving issues
Source: © Jack Hollingsworth/Corbis
Business Ethics
• Comprises principles, values, and standards that guide
behavior in the world of business

• Principles: Specific boundaries for behavior that are


universal and absolute
– Freedom of speech, civil liberties

• Values: Used to develop socially enforced norms


– Integrity, accountability, trust
Americans’ Trust in Business
(% of respondents who say they trust the
following business categories a great deal)
A Crisis in Business Ethics

• Consumer trust of businesses is declining


• No sector is exempt from ethical misconduct
• Stakeholders determine what is ethical/unethical
– Investors
– Employees
– Customers
– Interest groups
– Legal system
– Community

Source: Stockbyte
Why Study Business Ethics?

• Reports of unethical behavior are on the rise


• Society’s evaluation of right or wrong affects its
ability to achieve its business goals
• Studying business ethics is a response to
Sarbanes-Oxley, FSGO, and stakeholder
demands for ethics initiatives
• Individual ethics alone is not sufficient
• Studying business ethics helps identify ethical
issues to key stakeholders
A Timeline of Ethical and Socially
Responsible Concerns
Before 1960: Ethics in Business

• Theological discussions of ethics emerged


– Catholic social ethics included a concern for
morality in business, workers’ rights and living
wages
– Protestants developed ethics courses in their
seminaries and schools of theology
• The Protestant work ethic encouraged hard work
The 1960s: The Rise of Social Issues in
Business
• Societal social consciousness emerged
– Anti-business sentiment rose
• JFK’s Consumer Bill of Rights-
A new era of consumerism
– Right to safety, to be
informed, to choose,
and to be heard
• Consumer protection groups
fought for consumer
protection legislation
– Ralph Nader Source: Hisham Ibrahim
The 1970s: Business Ethics as an
Emerging Field
• Business professors began to write about social
responsibility
– An organization’s obligation to maximize positive
impact and minimize negative impact on stakeholders
• Philosophers became involved
• Businesses became concerned with public image
• Conferences were held and centers developed
• Issues:
– Bribery – Product safety
– Deceptive advertising – Environment
– Price collusion
The 1980s: Consolidation

• Membership in business ethics organizations


increased
• Ethics centers provided:
– Publications, courses, conferences and seminars
• Firms established ethics committees
• Defense Industry Initiative on Business Ethics and
Conduct (DII) emerged
– Foundation for the Federal Sentencing Guidelines
for Organizations
• Corporate support for ethics
The 1990s: Institutionalization of
Business Ethics

• The Federal Sentencing Guidelines for Organizations


(FSGO)
– Set tone for compliance
• Preventative actions against misconduct
– A company could avoid/minimize potential
penalties
The Federal Sentencing Guidelines for
Organizations
• Standards and procedures capable of detecting and
preventing misconduct
• High level oversight
• Care in delegation of authority
• Effective communication (training)
• Systems to monitor, audit, and report misconduct
• Consistent enforcement
• Continuous improvement
The 21st Century: A New Focus

• Continued issues with corporate non-compliance


– Growing public/political demand for improved ethical standards
• Sarbanes-Oxley Act (2002)
– Most extensive ethics reform
– Increased accounting regulations
• FSGO reform (2004)
– Requires governing authorities to be well-informed regarding
business ethics programs
• Firm’s greatest danger is not discovering misconduct
early
• Basic assumptions of capitalism being debated
– Fears in the wake of global recession and financial meltdown
Organizational and Global Ethical
Culture
• Ethical culture describes the component of
corporate culture that captures the values and norms
that an organization defines as appropriate conduct
• Creates shared values
• Goal is to:
• Minimize need for
enforced compliance
• Maximize utilization of
principles/ ethical
reasoning
Source: Triangle Images
Prevalence of Misconduct by Industry
Ethics Contributes to Employee
Commitment
• Comes from employees who believe their future
is tied to the organization’s
• Are willing to make personal sacrifices for the
organization
– The more dedication on the part of the company,
the greater the employee dedication
– Concerns include a safe work environment,
competitive salaries and benefit packages, and
fulfillment of contractual obligations
Ethics Contributes to Investor
Loyalty
• Companies perceived by their employees as
having a high level of honesty and integrity are
more profitable than companies with a low level
of honesty and integrity
• Ethical climates in organizations provide platform
for:
– Efficiency
– Productivity
– Profitability
Ethics Contributes to Customer
Satisfaction
• Consumers respond positively to socially concerned
businesses
– Being good can be extremely profitable
• Customer satisfaction dictates business success
• A strong organizational ethical climate
places customers’ interests first
• Research shows a strong relationship between ethical
behavior and customer satisfaction
Ethics Contributes to Profits
• Corporate concern for ethical
conduct is being integrated with
strategic planning
– Maximize profitability
• Corporate citizenship is
positively associated with:
– Return on investment and
assets
– Sales growth Source: PhotoLink

• Studies have found a positive


relationship between citizenship
and performance

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