Importance Business Ethics i

8/12/2019 Importance Business Ethics i

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The Importance ofBusiness Ethics


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Business Ethics means conducting all aspects

of business and dealing with all stakeholdersin an ethical manner


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Aim of Business Ethics

It is neither defense of the status quo nor its

radical change. Rather, it should serve to remedy those

aspects or structures that need to change,

and it should protect those that are moral.


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CASE

THE COLLAPSED MINE


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Ethical Behavior

Conducting ones life in complete accord

with a firmly held set of values andprinciples

These principles may be derived from religiousbeliefs, philosophical understanding, etc.

Application should be in all areas of ones life:personal, family, business, social, etc.

.


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Foundations of Ethical Behavior

Treat others as you would be treated

Respect

Honesty

Trust


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Taught in All Cultures

Judaism:What you hate, do not do to anyone.

Islam:No one of you is a believer until he loves for his brother what he lovesfor himself.

Hinduism:Do nothing to thy neighbor which thou wouldst not have him do tothee.

Sikhism: Treat others as you would be treated yourself.

Buddhism: Hurt not others with that which pains thyself.

TREAT PEOPLE THE WAY

YOU WANT THEM TO TREAT YOU


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Bad Ethics Increases Transaction Costs

Party

A

Party

BTrade

Security

Lawyers

Regulators

Delays

Interest

Duplication

Testing

Etc, etc!


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Societal Costs of Unethical Behavior1. Law enforcement and other security personnel2. Physical protection (locks, electronic security, fences,

vaults, etc.)

3. A substantial portion of attorney and court system costs

4. Costs of collecting taxes

5. Wasted/misused investment funds

6. A substantial portion of accounting/auditing costs

7. A large fraction of costs for regulators and examine


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Ethical Issues Relating to Business Honestycommunication and behavior consistent with facts

Disclosure of information

Promises/commitments

Laws and professional standards

Representation of others like shareholders (applies to board members)

Unfair competition Refrain from bribes and excessive gifts (that sway judgment)

Just compensation Respect intellectual property (product piracy)

Treat employees fairly

Respecting rights of others Treat others with fairness and respect regardless of age, religion, ethnic group,

sex, economic status, etc

Respect others and future generations by treating the environmentwell


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Why Ethical Behavior Adds Value Better information Trust from investors

Lower costs for audits, controls, investigations

Better allocation of resources Customers will be more loyal

Lower costs from suppliers

Attracting and retaining better employees

Fair competition Lowers cost of business in economy Leads to better decision-making (do whats best for

firm, not one individual)


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Short-Term vs. Long-Term

One party may gain temporary advantage

by unethical behavior But in the long-term, individuals,

companies are hurt


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Deterioration in Honesty over Time

Year Year

College students who cheated in H.S. 1940 (20%) 2002 (75-98%)

Self-reported cheating 1983 (11%) 1993 (49%)Believe cheating is common 1940 (20%) 1997 (88%)

Used cheat sheets 1969 (34%) 1989 (68%)

Let others copy work 1969 (58%) 1989 (98%)

Willing to lie to get job 2000 (28%) 2002 (39%)

Students who had stolen 2000 (35%) 2002 (38%)

(Based on several different ethics studies)


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Another Study of Student Honesty Responses 50,000 college students at 69 schools 26% of business majors admitted to serious cheating on

exams

54% admitted to cheating on written assignments

Journalism majors were worse with 27% admitting tocheating on exams.

The most honeststudents in the sciences (19% reportedcheating on tests)

Author observes cheating has increased since he begandoing surveys 15 years ago

He partly blames technologymakes it easier to cheat

Biz Majors Get an F for Honesty by Donald McCabe published on February

6, 2006, by the Center for Academic Integrity


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Will Our Ethics Improve?Survey of High School Students

74% (71%) cheated on an exam in the last year;45% (45%) said they did it at least twice in the last

year 93% (92%) lied to their parents in the past year;

79% (79%) say they lied twice

78% (78%) have lied to their teachers

37% (27%) said they would lie to get a job 38% (35%) took something from a store in the last

year

Josephson (2002)(2001)

2002 2001


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Why is Dishonesty Increasing?

Modeling Labeling

Honesty


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Why Is Dishonesty Increasing?

Bad Modeling/Lack of

Good Modeling

Focus of TV/movies

Dishonest leaders

Sports, business,

entertainment heroes

Good models are rare

Lack of Positive

Labeling

Home.average

family spends 10 hoursless time together a

week than 20 years ago

Schools


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Can Ethical Values be Taught?Level 1: The Foundation

Personal Ethical UnderstandingRight/wrong, Fairness, Honesty, Personal Integrity, Respect for Others


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Application of Ethics to Business SituationsFraudulent Practices, Misleading Advertising, Unfairness

Level 2: Application to Business

Personal Ethical UnderstandingRight/wrong, Fairness, Honesty, Personal Integrity, Respect for Others


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Application of Ethics to Business

Situations

Fraudulent practices, misleading advertising,unfairness

Can be taught in management education andorganizationsprovided students have a personalunderstanding of ethics

Taught by modeling (cases and personal example

are helpful) Can be reinforced by policies, codes of ethics,

training


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Good Ethics Means

Good Business


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Questions

Importance Business Ethics i

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