Business Ethics
Workshop
2010 Summer Entrepreneurship Institute
Prof. Gonzalo Freixes
1
What is Ethics?
"Art, like morality, consists of drawing the
line somewhere."
— G.K. Chesterton, English essayist and poet (1874-1936)
“Ethics is a code of values which guide our
choices and actions and determine the
purpose and course of our lives.”
— Ayn Rand, Russian-American novelist/philosopher (1905-1982)
2
Who is an Ethical Person?
"A moral being is
one who is capable
of comparing his
past and future
actions or motives,
and of approving
or disapproving of
them."
— Charles Darwin,
English biologist (1809-1882)
3
Theory of Moral Development
(Lawrence Kohlberg)
Level One:
Pre-Conventional
Morality
Level Two:
Conventional
Morality
Level Three:
Post-Conventional
Morality
Stage 1: Punishment - Obedience Orientation
Stage 2: Instrumental Relativist Orientation
Stage 3: Good Boy - Good Girl Orientation
Stage 4: Law and Order Orientation
Stage 5: Social Contract Orientation
Stage 6: Universal Ethical Principle Orientation
4
Character Counts
Six Pillars of Character






Trustworthiness
Respect
Responsibility
Fairness
Caring
Citizenship
- Michael Josephson, Josephson Institute of Ethics
5
Professional Ethics

Impartiality & Objectivity

Openness, Full Disclosure

Due diligence, Duty of Care

Fidelity to Professional Responsibilities

Avoiding Conflicts of Interest (Actual,
Potential or Apparent)
6
All the Wrong Reasons
“Everybody does it.”
“If we don’t, someone else will.”
“The only thing that matters is the bottom line!”
“It doesn’t really hurt anyone.”
“We’ll wait until the lawyers tell us it’s wrong.”
“I was just following orders.”
7
7 Steps to Better Decisions
An Ethical Approach to Business
1.
2.
3.
4.
5.
6.
7.
Stop & Think
Clarify Goals
Determine Facts
Develop Options
Consider the
Consequences
Choose Wisely
Monitor & Modify
8
Corporate Responsibility

What is the purpose of a corporation?

Monotonic View vs. Pluralistic View

Corporate Constituency Statutes

Dolphins & Baby Formula
(the case of Star Kist & Nestle)
9
Agents & Fiduciaries

Principal  Agent relationship

Agent has fiduciary duties
 Loyalty
 Performance
 To Obey

A can be liable to P or 3rd Parties
10
Fiduciary Duties - Loyalty

Stealing

Secrets

Conflicts

Commingling
11
Fiduciary Duties - Performance

Care & Skill

Reputation

Disclose & Notify

Account

Stay in Scope
12
Fiduciary Duties - Obey
Obey your
Principal, unless…

Illegal

Immoral
13
Principal’s Duties to Agent

Opportunity to Work

Compensation

Indemnity

Cooperation
14
Corporate Executives
Duty of Care

Act as a reasonable executive would

Protected by Business Judgment Rule
 Informed decision
 Rational basis
 No conflict

Protected by Constituency Statutes
15
Corporate Executives
Duty of Loyalty
1.
Avoid Self Dealing
2.
Avoid Common Directorships
3.
Avoid seizing Corporate
Opportunities
16
Ethics in Global Business

Results of International Study
1. Personal Standards: EU
2. Interpersonal Standards (e.g. Loyalty): Japan
3. Organizational Standards: US

MNC’s deal with ethics “ad hoc” viewed as “public relations” issue
17
SARBANES-OXLEY ACT OF 2002
 PUBLIC ACCOUNTING OVERSIGHT BOARD
(PCAOB)
 AUDITOR INDEPENDENCE
 EXECUTIVE RESPONSIBILITY
 FINANCIAL/ETHICAL DISCLOSURES
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