Business Ethics

© De Vee E. Dykstra, J.D., 2004 1

Business Ethics Ethics is the study of right and wrong behavior;

whether an action is fair, right or just. In business, ethical decisions are the application

of moral and ethical principles to the marketplace and workplace.

“What’s Good for Business is Good for the Country” – This former attitude of business is no longer adequate

to insure ethical conduct


Business Stakeholders

Shareholders Employees Community Customers

The interests/needs of these stakeholders need to be balanced in ethical decision making to

ensure a firm’s long-term survival.


Ethical Conflicts to be Balanced

Shareholders - want profits Employees - want safe and secure jobs Community - wants economic benefit or the

business and the environment protected Customers - want quality product for good/fair

price


Business Ethics and the Law

Legal compliance is the moral/ethical minimum. Simply obeying the law does not necessarily make

the business practice ethical. “Gray” areas in the law.

– Business leaders must contemplate the ethical implications of a business decision.


Ethics and LawE T H I C A L

YES NO

YES

NO

L

E

G

A

L

Ethics, Economics, and Law


Why is Business Ethics Important?

Directors and Officers – owe a complex set of ethical duties to various stakeholders– When these duties conflict, ethical dilemmas are created

Importance of Values in Business Success– Profits - Ethics Resource Center Study

– Costs of Unethical Behavior

Ethics as a Strategy Good Reputation Personal Reasons Seen as a leader and regulation may be prevented


EXECUTIVES COMMENT ON REPUTATION

“A reputation, good or bad, is tough to shake.”– Richard Teerlink, CEO, Harley-Davison

“If we were making that decision now in light of the press scrutiny we have been receiving, we probably would not have taken that risk.”

– Robert C. Winters, Chairman, Prudential Insurance

“A bad reputation is like a hangover. It takes a while to get rid of, and it makes everything else hurt.”

– James Preston, CEO, Avon


Setting the Right Ethical ToneSetting the Right Ethical Tone

Importance of Ethical Leadership and Creating Ethical Codes of Conduct– Clear Communications to Employees– E.g., Costco and Johnson and Johnson’s web-based

ethical training Corporate Compliance Programs Conflicts and Trade-Offs

– Stakeholder interest’s differ

Importance of Ethical Leadership and Creating Ethical Codes of Conduct– Clear Communications to Employees– E.g., Costco and Johnson and Johnson’s web-based

ethical training Corporate Compliance Programs Conflicts and Trade-Offs

– Stakeholder interest’s differ

© 2000 by West Legal Studies in Business 10

Ethics and Leadership

STAYING AHEAD OF THE REGULATORY CURVE


How does a firm promote the importance of ethical behavior?

Adopt a code of ethics Initial and ongoing employee training Employee hotline for anonymous reporting of ethical

violations Distribute ethical bulletins Management (from the top down) provides a role model Continued review of company policies to determine their

effect on ethical behavior


Beware!!!

Watch for Dangers of Unethical Environment– Intense competition and issues of survival– Managers making poor judgments– Employees with no personal values

ETHICS

Ethical Dilemma

Ethical Dilemma– A situation that, although offering potential benefits,

is unethical.– One of the most common ethical dilemmas occurs

when a company’s culture conflicts with an employee’s personal ethics.

Ethical Dilemmas in Business

Two Types Private Interest Conflicts with CorporateBusiness Interest Conflicts with Public



Language of Ethical Dilemmas

“Everybody else does it.” “If we don’t do it, someone else will.” “That’s the way it has always been done.” “We’ll wait until the lawyers tell us it’s wrong.” “It doesn’t really hurt anyone.” “The system is unfair.” “I was just following orders.”


ETHICAL DILEMMA CATEGORIES Taking things that don’t belong

to you Saying things you know aren’t

true Giving or allowing false

impressions Buying influence or engaging

in conflict of interest Hiding or divulging

information Taking unfair advantage

Committing personal decadence

Perpetrating interpersonal abuse

Permitting organizational abuse

Condoning unethical actions

Violating rules Balancing ethical dilemmas

ORGANIZATIONAL ETHICS

MANAGEMENT TIPS

Checklist for dealing with ethical dilemmas – Step 1. Recognize the ethical dilemma. – Step 2. Get the facts. – Step 3. Identify your options. – Step 4. Test each option: Is it legal? Is it right? Is it beneficial? – Step 5. Decide which option to follow. – Step 6. Ask the “Spotlight Questions”: To double check your

decision. » “How would I feel if my family found out about my decision?” » “How would I feel if the local newspaper printed my decision?”

– Step 7. Take action.

ETHICS Ethics and Work

The Wall Street Journal reports: • 36% of workers calling in sick are lying.

• 35% keep quiet about co-worker misconduct.

• 12% of job resumes contain falsehoods.

• Managers are more likely than other workers to report wrongdoing.

• Managers with 0–3 years experience feel most pressure to violate personal ethics.

ETHICS

Rationalizing Unethical Behavior

Four reasons: 1. “What I’m doing is not really illegal.” 2. “My behavior is in everyone’s best

interests.” 3. “Nobody will ever find out what I’ve

done.” 4. “The organization will protect me.”

ETHICS AND ETHICAL BEHAVORIAL

Organizational EthicsMODULE GUIDE 4.2

Personal and contextual factors influence ethical conduct Training in ethical decision making may improve ethical

conduct Protection of whistleblowers may encourage ethical

conduct Managers acting as positive role models may motivate

others toward ethical conduct Formal codes of ethics set standards for ethical conduct


Ethics Training

Ethics Training– Seeks to help people understand the ethical aspects

of decision making and to incorporate high ethical standards into their daily behavior.

Code of Ethics– A formal statement of values and ethical standards


Ethical Dilemma Resolution Models

Blanchard and Peale– Is it legal?– Is it balanced?– How does it make me feel?

Front Page of the Newspaper Test– How would the story be reported?– Objective and informed reporter’s point of

view


Ethical Dilemma Resolution Models

Laura Nash– Put yourself in the other’s shoes.– Can I discuss my decision with family, friends?– What am I trying to accomplish?– Long-term comfort level

Wall Street Journal Model– Comply with the law– Contribution to stakeholders– Consequences-short and long term


Business Ethics on a Global Level

American companies must be trained in cross-cultural business practices

Monitoring the Employment Practices of Foreign Suppliers– Corporate Watch groups can disseminate information

instantly around world Foreign Corrupt Practices Act

– Bribes and Accounting Practices


Foreign Corrupt Practices Act

Prohibits making, authorizing or promising a gift to a foreign official with the intent to corrupt

Applies to business concerns with their principal office in the United States

Grease payments are permitted– secure permit or license, obtain paper processing,

secure police protection, phone, water, power supply, etc..


FCPA Elements

Instrumentality of interstate commerce used; Payment or something of value given to:

– foreign official with discretionary authority– foreign political candidate– foreign political party;

Purpose of payment is to get the recipient to act or to not act; and

Intended result is assisting giver’s business


Managers

Management Behavior– In order to have a positive impact on ethical conduct

throughout an organization, those at the top must walk the talk.


Whistleblowers

Whistleblowers– Persons who expose organizational misdeeds in

order to preserve ethical standards and protect against wasteful, harmful, or illegal acts.

– Many whistleblowers were / are fired for their actions.

– State and federal laws now offer some protection

Whistleblowing

Act of disclosing wrongdoing in an organization Like blowing a whistle to call attention to a thief Types

Internal External

Can Cause Bitterness in Organization

Dissent - Must speak out against others in organization

Breach of Loyalty - Perceived as one who violates confidentiality and loyalty

Accusation - Singles out specific individuals as threats to organization or the public

Possible Retaliation

Fired Blacklisted Transferred to undesirable locations Lifestyles, sex lives and mental stability

questioned Physical abuse and murder possible

Failure to Reveal Wrongdoing

Severe problems for society or organization

Can be implicated as an accessory before or after the fact

Ethics of Whistleblowing

When is it ethical to reveal wrongdoing ?

When is it ethical to remain silent?

Whistleblowing Example

In charge of Quality Control Company makes parts for automobile brakes Find defect in brake part Could cause failure in brakes Failure not certain May take many years to develop

Whistleblowing Example (cont.)

Go to VP of Production, your boss He tells you to overlook defect - company may

loose too much money

What would you do?

Challenger Disaster

Morton-Thiokol “O” rings Cold in Florida Engineers warned “O” Rings could fail NASA management made decision to launch

Space Shuttle anyway

Cautious Approach to Whistleblowing

1. Make sure situation involves an imminent threat to society or to the business

2. Document all allegations

3. Examine internal whistleblowing first

4. Should you remain anonymous?

5. Get another job first!!!

Bribery

A payment, usually to a public official, to induce that person to either do something improper or to influence decisions or actions

Extortion - same as bribery - recipient of payment initiates transaction

Case

International consulting firm - designs and supervises construction of hydroelectric power generating systems

Your proposal is far superior to any othertechnically

lowest bid To get job, must deposit $250,000 in official’s

personal Swiss bank account

Should you pay the money?

Foreign Corrupt Practices Act of 1997 Grease payment allowed Standard Practice in most foreign countries Results in lost business opportunities for US

companies American tax dollars may be used to pay bribe

Bluffing and Deception

Negotiating a labor contract Plant has experienced losses over past several years

- not clear why Want concessions from labor Tell labor that plant will be closed if no concessions

are made. In reality , no such plans contemplated Is This Ethical?

Managerial Implications

Top Management LeadershipOrganizational Culture

Realistic Goal Setting Ethics Audit Code of Ethics Ethics Committee

Business Ethics

Documents

ethical conflicts

ethical decision

ethical conduct

business practice ethical

ethical principle

business ethics ethics

commo ethical dilemmas

language of ethical