2-1 Chapter 2— The Ethical Basis of Law and Business Management REED SHEDD PAGNATTARO MOREHEAD F I F T E E N T H E D I T I O N McGraw-Hill/Irwin Copyright.

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Chapter 2—The Ethical Basis of

Law and Business Management

REED SHEDDREED SHEDD PAGNATTARO PAGNATTARO MOREHEAD MOREHEAD

F I F T E E N T H E D I T I O NF I F T E E N T H E D I T I O N

TheThe Legal & Legal & RegulatoryRegulatory Environment of of BusinessBusiness

McGraw-Hill/IrwinCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights

reserved.

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IntroductionIntroduction

We suffer from a loss of moral sense, of knowing the difference between right and wrong, and being governed by it.

The law is the witness and external deposit of our moral life. Its history is the

history of the moral development of

the race.Barbara Tuchman Oliver Wendell Holmes

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Learning ObjectivesLearning Objectives

To appreciate the connection between law and ethical principles;

To grasp why ethical consequentialism and not ethical formalism has been the chief source of values for business ethics;

To develop an individual framework for ethical values in business, and

To analyze the obstacles and rewards of ethical business practice in our property based legal system.

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EthicsEthics

…and Society•Diversity/few shared values.•Decline in public education and family structure.•Interdependence•News media.

…and Government•May step in.•Business wants to limit further gov’t regulation.•Self-regulation.

Contemporary Business EthicsContemporary Business Ethics

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Food for thought…

In 2007,

56% of employees surveyed

reported observing ethical misconduct.

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Nature of Ethics Morality – Values that guide our behavior (right vs. wrong)

Sharing moral values promotes social cooperation and control.

Businesses must be sensitive to different moral values

Law – Rules of conduct instituted by state. External Motivator (state sanctions) Law sets minimum standards.

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FormalismAffirms absolute Affirms absolute

morality.morality.•Ethics involves duty.•Categorical Imperative•Social Contract

ConsequentialismConcerned with moral Concerned with moral

consequences of consequences of actionsactions..

•Utilitarianism•Protestant Ethic

Deontology Teleology

Two Systems of Ethics

Ethical SystemsEthical Systems

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Ethical Systems Comparisons

DilemmaDilemma

FormalismFormalism•AbsolutismAbsolutism

•Morality of ActionMorality of Action

ResolutionResolution

ConsequentialismConsequentialism•RelativismRelativism

•Morality of ActionMorality of Action

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pop

QUIZpop

QUIZpop

QUIZPhilosophers call the end result of Philosophers call the end result of ethical examination – ethical examination –

a.a. the goodthe goodb.b. the badthe badc.c. the uglythe uglyd.d. the rule of lawthe rule of law

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think

TANKthink

TANKthink

TANKIs there a relationship between Is there a relationship between law and ethics?law and ethics?

a.a. YesYesb.b. NoNo

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Sources Sources of Valuesof Values

Legal Legal RegulationRegulation

Professional Professional Codes of EthicsCodes of Ethics

Organizational Organizational Codes of Codes of

EthicsEthics

Individual Individual ValuesValues

Value Sources of Business Ethics

Value Sources of Business Ethics

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Ethical Rules Drawn from the Law

• Liberty & Rights

• Good Faith

• Due Care

• Confidentiality

• Conflicts Of Interest

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Professional Codes Of Ethics

Historic tradition

Self-regulation

Examples

American Marketing Association

American Institute of Certified Public

Accountants

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Organizational Codes of Ethics

Self-Regulation requires:Self-Regulation requires:

•EnthusiasmEnthusiasm

•CommitmentCommitment

Provide for sanctions when Provide for sanctions when

violatedviolated

Lack of industry codesLack of industry codes

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Questions to Questions to ask yourself to ask yourself to

help explore help explore ethical values ethical values before making before making

decisions.decisions.

1. Have I thought if action 1. Have I thought if action is right or wrong?is right or wrong? 2. Will I be proud to 2. Will I be proud to

tell of my action?tell of my action?

3. Am I willing for 3. Am I willing for everyone to act everyone to act like me?like me?

4. Will my decision 4. Will my decision cause harm?cause harm?

5. Will my actions violate5. Will my actions violatethe law?the law?

Individual Values:Self-ExaminationIndividual Values:Self-Examination

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Achieving Ethical Business Corporation

Obstacles Emphasis on profit- creates

conflict/pressure Effect of group- no individual

responsibility

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Steps to Promote Business Ethics in Corporate Life

Involve top management Openness in communication Consideration of stakeholders

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Steps to Promote Business Steps to Promote Business

Ethics in Corporate LifeEthics in Corporate Life

Involve Top Involve Top ManagementManagement

•Role models•Must really believe expressed values.

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Openness in Openness in CommunicationCommunication•Promotes trust•Complexity of information.

Steps to Promote Business Ethics in Corporate Life

Involve Top Involve Top ManagementManagement

•Role models•Must really believe expressed values.

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Consideration of Stakeholders

Stakeholder Theory Rewards

Business Ethics = Profitability Ethics = Business Asset Business Community Concern- Sensitive To

Society’s Changes Ethics = Leadership

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pop

QUIZpop

QUIZpop

QUIZSuppose the product you are going to produce will Suppose the product you are going to produce will cause serious injury if not constructed properly. cause serious injury if not constructed properly. State A’s laws are more favorable, imposing a lower State A’s laws are more favorable, imposing a lower product testing standard on your business than does product testing standard on your business than does State B. Your business will need to spend less on State B. Your business will need to spend less on testing the product. If you test at that lower level, more testing the product. If you test at that lower level, more people will be injured than if you test at the level people will be injured than if you test at the level required in State B. As president of the corporation, required in State B. As president of the corporation, which state will you select and why? which state will you select and why?

1.1. State AState A2.2. State BState B

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Criticism•Wealth and poverty

Support•Less wastefulness•Wealth maximization•Justice

Morality of PropertyMorality of Property

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•Underlying values are moral ones.•Property provides ordering of relationships between people.

Property as System of Personal Ethics

Property as System of Personal Ethics