Block 2 - Business Ethics PDF

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Summary

These are the given slides as well as the necessary information needed from the book. Used to study for semester tests and exams.
This forms the first of the three sections of block 2....

Description

Business Ethics and Corporate Governance BUSINESS ETHICS  Ethics concerns principles of right and wrong conduct  Business ethics deals with the application of general ethical principles to the actions and decisions of businesses and the conduct of their personnel  Ethical behavior in business situations requires adhering to generally accepted norms about right or wrong conduct. Where do ethical standards come from? School of thought = ethical standards travel across cultures and whether multinational companies can apply the same set of ethical standards in any and all locations where they operate. School of thought: Ethical Standards

The school of ethical universalism

The school of ethical relativism

Intergrated social contracts theory

School of thought

Core principle

Example

Strength

Weakness

Ethical universalism

Holds that the most fundamental conceptions of right and wrong are universal and apply to members of all societies, all companies, and all businesspeople. Holds that differing religious beliefs, customs, and behavioral norms across countries and cultures give rise to multiple sets of standards concerning what is ethically right or wrong Hold that universal ethical principles are based on the collective views of multiple societies and form a “social contract” that all individuals and organizations have a duty to observe in all situations.

Honesty

Draws from collective view of multiple societies and culture to put clear boundaries on what constitutes ethical and unethical behavior Contextualization of cultural influences

Assumes that behavioral traits in individuals will always result in good decisions

No absolutes can lead to irrational justificationsof actions

Whether business related actions are right or wrong depends on local ethical standard

Accommodates the best of ethical universalism and ethical relativism

Assumes cultural awareness and sensitivity not to impact on individual decision making

Within the boundaries of this social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible.

Ethical relativism

Integrated social contracts theory

Brown Envelope in Africa

Kickbacks

What it means for business leaders Whether a business-related action is right or wrong is judged by universal standards

The school of ethical universalism  It is entirely appropriate to expect all members of society (including all personnel of all companies worldwide) to conform to these universal ethical standards  Avoids the slippery slope that comes from having different ethical standards for different company personnel and depending on where in the world they are working. The school of ethical relativism  There are observable variations from one society to another as to what constitutes ethical or unethical behavior.  It holds that it is Inappropriate that “one-size-fits-all” template for judging the ethical appropriateness of business actions and the behaviors of company personnel.  However local ethical standards to take precedence over what the ethical standards may be in a company’s home market. I. II. III.

The use of underage labour The payment of bribes and kickbacks Using the principle of ethical relativism to create ethical standards is problematic for multinational companies a. Relying on the principle of ethical relativism to determine what is right or wrong poses major problems for multinational companies trying to decide which ethical standards to enforce companywide. b. It is a slippery slope indeed to resolve conflicting ethical standards for operating in different countries without any kind of higher- order moral compass

Ethics and integrative social contracts theory  Provides a middle position between the opposing views of ethical universalism and ethical relativism.  Ethical standards a company should try to uphold are governed by;



o

A limited number of universal ethical principles that are widely recognized as put- ting legitimate ethical boundaries on behaviors in all situations and

o

The circumstances of local cultures, traditions, and values that further prescribe what constitutes ethically permissible behavior.

Provide multinational companies clear guidance in resolving cross-country ethical differences

Approaches to dealing with ethical dilemmas  Utilitarian rule o Focuses on what will result in the greatest good for the greatest number of people  Moral rights rule o Guided by respect for the fundamental rights and privileges of human beings  Justice rule o Guided by respect for impartial standards of fairness and equity

How and why ethical standards impact the tasks of crafting and executing strategy

Three sets of questions when- ever a new strategic initiative or policy or operating practice is under review: 1. Is what we are proposing to do fully compliant with our code of ethical conduct? Are there any areas of ambiguity that may be of concern? 2. Is there any aspect of the strategy (or policy or operating practice) that gives the appearance of being ethically questionable? 3. Is there anything in the proposed action that customers, employees, suppliers, stockholders, competitors, community activists, regulators, or the media might consider ethically objectionable? Four Sources of Ethics  Societal ethics  Individual ethics  Organizational ethics  Occupational ethics

Why should company strategies be ethical?  The moral case for an ethical strategy o A strategy that is unethical is morally wrong and reflects badly on the character of firm’s personnel  The business case for ethical strategies o An ethical strategy can be both good business and serve the self-interest of shareholders

Drivers of unethical strategies and business behavior

Unethical strategies and business behaviours

Faulty oversight and self dealing

Pressure for short term performance

A weak or corrupt ethical environment

1. Faulty oversight, enabling the unscrupulous pursuit of personal gain and selfinterest = push aside ethical principles in their quest for personal gain.  Self-dealing = occurs when managers take advantage of their position to further their own private interests rather than those of the firm. – good corporate governance can guard against this.

2. Heavy pressures on company managers to meet or beat short-term performances targets = feeling enormous pressure to do whatever it takes in order to protect the reputation for delivering good results.

 A problem is short- termism = is the tendency for managers to focus excessively on short-term performance objectives at the expense of longer-term strategic objectives. It has negative implications for the likelihood of ethical lapses as well as company performance in the longer run 3. A company culture that puts profitability and business performance ahead of ethical behavior. = when a company’s culture spawns an ethically corrupt or amoral work climate, people have a company-approved license to ignore “what’s right” and engage in any behavior or strategy they think they can get away with.

Consequences of ethically questionable strategies When strategies fail the ethical litmis test

sizable civil fines and stockholder lawsuits

devastating image and pulblic relations hits

sharp stock price drops as investors lose confidence

Criminal indictments and convitions

The costs companies incur when ethical wrongdoing is discovered 1. Visible costs  Government fines  Civil penalties  Cost to shareholders in the form of a lower stock price – dividends = less 2. Internal administrative costs  Legal and investigative  Cost of remedy  Ensuring future compliance 3. Intangible or less visible costs  Customer defection  Loss of reputation  Lost employee morel  Higher recruiting costs...