Ch. 2 Ethics and Business Decision Making

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Ethics
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the study of what constitutes right or wrong behavior
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Business Ethics
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focuses on what is right and wrong behavior in the business world.
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Profit maximization
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Ultimately leads to the most efficient allocation of scarce resources. Short-run vs. Long-run profit maximization = long-run profit maximization keep business ethics consistent, whereas short-run only maximizes profits for the time being.
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THE IMPORTANCE OF ETHICAL LEADERSHIP
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Management’s behavior sets the ethical tone of the firm; attitude of mgmt affects attitude of employees.
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Ethical Reasoning
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a reasoning process in which the individual examines the situation at hand in light of his or her moral convictions or ethical standards.
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DUTY-BASED ETHICS
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Religious Ethical Standards, Kantian Ethics, The Principle of Rights.
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Religious Ethical Standards
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In the Judeo-Christian tradition (which is the dominant religion in U.S.), the ethics are based on theTen Commandments. ex. “Thou shalt not steal” = morally unethical to steal.
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Kantian Ethics
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ethics derived from philosophical reasoning. Named after the German philosopher Immanuel Kant. “When human beings are treated as a means to an end, they are being treated as the equivalent of objects and are being denied their basic humanity.”
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Categorical Imperative
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A Kantian ethics concept, developed as a basis for deciding whether an action is right or wrong, and desirable/undesirable, a person should evaluate an action in terms of what would happen if everybody else in the same situation, or category, acted the same way.
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The Principle of Rights
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Duty-based ethical standards imply that human beings have basic rights. –>A key factor in determining whether the business decision is ethical is how that decision affects the rights of others. (firm’s owners, employees, consumers, suppliers, the community in which it does business, and society as a whole).
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OUTCOME-BASED ETHICS
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Utilitarianism: outcome oriented, focuses on the consequences of an action, not on the nature of the action itself or on any set of preestablished moral values or religious beliefs. An action is morally correct, when, among the people it affects, it produces the greatest amount of good for the greatest number.
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Applying Utilitarian theory requires:
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1) a determination of which individuals will be affected by the action in question 2) A cost-benefit-analysis, which involves an assessment of the negative and positive effects of alternative actions on these individuals; and 3) a choice among alternative actions that will produce maximum societal utility (the greatest positive net benefits for the greatest # of individuals).
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CORPORATE SOCIAL RESPONSIBILITY
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the idea that those who run corporations can and should act ethically and be accountable to society for their actions.
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Stakeholder Approach
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Corporations have a duty not just to shareholders but to other groups affected by corporate decisions (“stakeholders”). A corporation should consider the impact of its decision on the firm’s employees, customers, creditors, suppliers, and the community in which it operates.
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Corporate Citizenship
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Corporations should behave as good citizens by promoting goals that society deems worthwhile and taking positive steps towards solving social problems. Under a corporate citizenship view, companies are judged on how much they donate to social causes, as well as how they conduct their operations with respect to employment discrimination, human rights, environmental concerns, etc.
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CREATING ETHICAL CODES OF CONDUCT
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– Providing ethics training to employees, policies and importance of ethical conduct must be clearly communicated to the employees at the hire stage; some companies hold periodic ethics seminars during which employees can openly discuss any ethical problems they face. – The Sarbanes-Oxley Act and Web-based reporting system = Sarbanes-Oxley act of 2002 requires companies to set up confidential systems for employees and others ability to “raise red flags” about suspected illegal or unethical auditing and accounting practices. Online reporting systems allow employees to report unethical behavior anonymously through Ethicspoint organization to the management.
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The Moral Minimum
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the minimum degree of ethical behavior expected of a business firm, usually defined as “compliance with the law”. Businesspersons should operate in the area where what is legal and what is ethical intersect.
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Making Ethical Business Decisions: 6 factors:
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1. The law = is the action legal? If dont know find out the legality. 2. Rules and procedures. = Do only what is consistent with your company’s procedures and policies. 3. Values. = laws and internal company policies reinforce society’s values. 4. Conscience. = let your conscience be your guide. 5. Promises = live up to the commitments you have made to others, both inside and outside of the business. 6. Heroes = how would your hero act?
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Foreign Corrupt Practices Act (FCPA)
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1977, prohibits U.S. businesspersons from bribing foreign officials to secure beneficial contracts. The FCPA does NOT prohibit payments (“grease”/or/facilitating payments) of substantial sums to minor officials whose duties are ministerial, b/c they are meant to accelerate the performance of administrative services that might otherwise be processed way slower. The act also does not prohibit payments to private foreign companies or other third parties, unless U.S. knows that the payments will be passed on to a foreign govt in violation of the FCPA.

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