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Chapter 2 Ethics and Social Responsibility Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning Business Ethics • Ethics can be defined as the study of what constitutes right or wrong behavior. • Business ethics focuses on how moral and ethical principles are applied in the business context. • The law reflects society’s convictions on what constitutes right or wrong behavior. • Case 2.1 Time Warner Entertainment Co. v. Six Flags Over Georgia, LLC (2002). Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 2 Setting the Right Ethical Tone • Ethical Leadership. – – – – Attitude of Management. ‘Looking the Other Way’. Creating Realistic Goals. Periodic Evaluation. • Ethical Codes of Conduct. – Costco as an example . – Clear Communications. – Johnson & Johnson – web training. Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 3 Code of Ethics • Notice how PriceCostco’s code uses compliance with the law as the baseline. Compliance with ethical standards may take more. OBEY THE LAW The law is irrefutable! Absent a moral imperative to challenge a law, we must conduct our business in total compliance with the laws of every community where we do business. Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 4 Corporate Compliance Programs • The Sarbanes-Oxley Act. – Employers must set up confidential reporting and auditing systems. – Web-based system by Ethicspoint. • Integrating Compliance Programs. – Ethics programs must be disseminated and coordinated among all departments. Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 5 Conflicts and Trade-Offs • Today’s corporate decision makers must balance profitability against ethical responsibility when making their decisions. • Instead of maximum profits, corporations increasingly aim for optimum profits—profits that can be realized by the firm while pursuing actions that are not only legal and profitable but also ethical. • Case 2.2 Remsburg v. Docusearch, Inc. (2003). Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 6 Defying the Rules: The Enron Case • Growth of Enron. • Accounting Issues. – Fudging and ‘Anticipated’ Earnings. – Bonuses based on whether earnings were met. • Off-The-Book Transactions. – Subsidiaries inflated net worth of Enron. – Most transactions occurred in Cayman Islands. • Self-Dealing. Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 7 Business Ethics and the Law • Legal compliance is the moral minimum, but simply obeying the law does not mean it is ethical. • Laws regulating business. • “Gray” areas in the law. • Technological Developments and Legal Uncertainties. • Case 2.3 Blakey v. Continental Airlines, Inc. (2000). Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 8 Sources of Ethical Standards Duty-based ethics: • Ethics based on religious beliefs and philosophical reasoning, such as that of Immanuel Kant. • Example: Ten Commandments. Miller • Cross 4th Ed. Outcome-based ethics: •Ethics based on philosophical reasoning, such as that of John Stuart Mill. • Example: utilitarianism. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 9 Corporate Social Responsibility • Assumes corporations should conduct their affairs in a socially responsible manner, but there is disagreement as to what constitutes socially responsible behavior. • Views on Corporate Social Responsibility. – Profit Maximization. – Stakeholder Approach. – Corporate Citizenship. Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 10 Corporate Social Responsibility Corporations are perceived to hold duties to the following groups, duties that often come into conflict: Shareholders Consumers Employees Community Society Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 11 Measuring Corporate Social Responsibility • It is difficult to measure corporate social responsibility because different yardsticks are used. • Traditionally, corporate philanthropy has been used as a means of measuring corporate social responsibility. • Increasingly, corporate process, or how a corporation conducts its business on a day-to-day basis, is a key factor in determining whether a corporation is socially responsible. Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 12 Ethics In The Global Context Despite the cultural and religious differences among nations, the most important ethical precepts are common to virtually all countries. Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 13 Ethics in the Global Context • Two notable differences relate to: – The role of women in society. – The practice of giving side payments to foreign officials to secure favorable contracts. Miller • Cross 4th Ed. • The Foreign Corrupt Practices Act of 1977 (FCPA), prohibits the bribery of foreign officials through such side payments, put U.S. businesspersons at a relative disadvantage to businesspersons from other countries who are not subject to such laws. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 14 Ethics in the Global Context What is considered ethical in society may change over time as social customs change and new developments alter our social and business environment. Miller • Cross 4th Ed. © 2005 by West Legal Studies in Business / A Division of Thomson Learning 15