Download BLT Essentials 7th Ed. 2005

CHAPTER 2
Ethics and
Professional
Responsibility
© 2005 West Legal Studies in Business
A Division of Thomson Learning
Learning Objectives
• What is ethics? What is business ethics? Why is
business ethics important?
• How can business leaders encourage their
companies to act ethically?
• How do duty-based ethics differ from outcomebased ethics?
• What duties do professionals owe to those who
rely on their services?
• What types of ethical issues might arise in the
context of international business transactions?
© 2005 West Legal Studies in Business
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Business Ethics
• Ethics: the philosophy of morality. Morality
is based on universal rules or guidelines.
• Business Ethics: focuses on application of
morality to business.
• Conflicting Duties to various stakeholders.
• Fiduciary Duties.
– Time Warner Entertainment Co. v. Six Flags
over Georgia, LLC (2002).
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Setting the Right Ethical Tone
• Importance of Ethical Leadership.
• Creating Ethical Codes of Conduct.
– Costco.
– Clear Communications to Employees.
– Johnson and Johnson: web-based ethical training.
– In Re the Exxon Valdez (2004).
• Corporate Compliance Programs.
– Sarbanes-Oxley and Web-based reporting.
• Conflicts and Trade-Offs.
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Business Ethics and the Law
•Relationship between ethics and law.
– Historically a law was always ethical (or
morally correct).
– Today, obeying law does not mean an
action is ethical.
– An action may be legal but unethical or
immoral.
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Technological Developments
• A company’s actions come under quick
scrutiny with the power of email and the
internet.
• Blakey v.Continental Airlines, Inc. (2000).
• When a corporation embarks on a course of
business deemed “unethical” by a special
interest group, the news will spread around
the world in a matter of minutes.
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Approaches to Ethical
Reasoning
• Duty Based Ethics - derived from religious
and philosophical principles.
– Religious Ethical Standards.
– Kantian Ethics.
– Rights Principles.
• Outcome-Based Ethics - seek to ensure a
given outcome.
– Utilitarianism.
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Religious Ethical Standards
• The rightness or wrongness of an action is
usually judged according to its conformity to
an absolute rule that commands a
particular form of behavior.
• The motive of the actor is irrelevant in
judging the rightness or the wrongness of
the action.
• These rules often involve an element of
compassion.
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Kantian Ethics
• Premised on the belief that general
guiding principles for moral behavior can
be derived from human nature.
• The categorical imperative is a central
postulate of Kantian ethics.
– The rightness or wrongness of an action is
judged by estimating the consequences that
would follow if everyone in a society
performed the act under consideration.
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Principle of Rights
• This principle derives from the belief that
every duty gives rise to a corresponding
right.
• The belief in fundamental rights is a deeply
embedded feature of Western culture.
• The ethicality of an action is judged by how
the consequences of the action will affect
the rights of others.
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Outcome-Based Ethics:
Utilitarianism
• An action is ethical based on whether it
produces the greatest good for the greatest
number of people upon which it has an
effect.
• A cost-benefit analysis must be performed
to determine the effects of competing
alternatives on the persons affected.
• The best alternative is the one that
produces the greatest good for the greatest
number.
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Professional Responsibility
• Accountant’s Duty of Care.
– Audit.
– Standard of Care/GAAP/GAAS.
– Violations of GAAP and GAAS.
• Attorney’s Duty of Care.
– Liability for Malpractice.
• Statutory Duties of Accountants.
– Duty under Securities Laws.
– Potential Criminal Liability of Accountants.
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Professional Responsibility
• Defying the Rules: the Enron Case.
– Accounting Issues.
– Off the Books Transactions.
– Self-Dealing.
– Corporate Culture.
• Sarbanes-Oxley Act of 2002.
– Public Company Accounting Oversight Board.
– Applicability to Public Accounting Firms.
– Auditor Independence.
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Approaches to Ethical Reasoning
•Duty-Based Ethics: Derived from
revealed truths.
– Religion: moral precepts are basis for
ethics
– Kantian: the “categorical imperative”
– Rights: a duty cannot exist without a right.
Duties must comply with natural (or
fundamental) rights.
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Approaches to Ethical Reasoning
• Outcome-Based Ethics.
– Utilitarianism (Bentham and Mill).
•An action is ethical when it provides best
outcome to the greatest number of people.
•Requires an economic “Cost-Benefit”
analysis
•Critics argue that it tends to focus on society
instead of individuals.
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Business Ethics on a Global
Level
• Global company is faced with a variety of cultures,
traditions and religions in the different nations it
serves.
– Foreign Corrupt Practices Act (1977).
– Monitoring Foreign Employment Practices.
• Law and the Ethical Manager: How to Create an
Ethical Workplace?
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