Chapter
2
The Ethical Basis of Law
and Business Management
McGraw-Hill/Irwin
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
SEC Investigations (2002)
Accounting
Arthur Andersen
Deloitte & Touche
Ernst & Young
KPMG
Price Waterhouse
Coopers
Energy
CMS Energy
Dynergy
Enron
Halliburton
Reliant Resources
Source: Business Week, June 10, 2002
Software
Computer Associates
Network Associates
Telecom
Global Crossing
Lucent Technologies
Qwest
Communications
WorldCom
Wall Street
Credit Suisse First
Boston
Hedge Funds
Capital Markets
Merrill Lynch
2-2
Corporate Scandal Fines
Company
Fine
Arthur
Andersen
$500,000
Citigroup
$5,000,000
Merrill Lynch $100,000,000
Reason
Obstruction of
Justice Shredding
Enron Documents
Analyst Issued
Misleading
Information
Conflict of Interest
Between
Investment Bank &
Research Dept.
Credit Suisse
IPO Shares Unfairly
First Boston $100,000,000
Distributed
Source: Business Week, Nov. 4, 2002
2-3
Unethical Behavior
 Unethical behavior in
business is not just a
recent phenomenon
• In the sixth century, B.C., the
philosopher Anacharsis once
said, “The market is a place
set apart where men may
deceive one another.”
Unethical Behavior
• Two centuries later,
Diogenes was spotted
carrying around a
lighted lamp, up and
down the city streets,
in the middle of the
day. When asked
what he was doing,
he replied, that he
was looking for an
honest man.
Business Ethics
 Business Ethics is about:
• Decision-Making
• By People in Business
• According to Moral Principles
or Standards
Decision-Making
Conflicting duties,
loyalties or interests create
moral dilemmas requiring
decisions to be made
Decision-Making
 Ethical decision-making
involves the ability to discern
right from wrong along with the
commitment to do what is right.
Decision-Making
 Some factors affecting decision-making (from Integrity
Management, by D. T. LeClair et al, Univ. of Tampa
Press, 1998):
• Issue Intensity
 (i.e. how important does the decision-maker
perceive the issue to be?
 Can be influenced by company/management
emphasis)
• Decision-Maker’s Personal Moral Philosophy
• Decision-Maker’s Stage of Moral Development
• Organizational Culture
Decision-Making
 8 Steps to Sound, Ethical Decision-Making
• 1. Gather as many relevant & material facts as circumstances
•
•
•
•
•
•
•
permit.
2. Identify the relevant ethical issues (consider alt. viewpoints)
3. Identify, weigh & prioritize all the affected parties (i.e.
stakeholders) (see Johnson & Johnson Credo)
4. Identify your existing commitments/obligations.
5. Identify various courses of action (dare to think creatively)
6. Identify the possible/probable consequences of same (both
short & long-term)
7. Consider the practicality of same.
8. Consider the dictates and impacts upon your character &
integrity.
Decision-Making
 Disclosure Test
• How comfortable would I feel if
others, whose opinion of me I
value, knew I was making this
decision?
Decision-Making
 The higher the level of a
decision-maker
• the greater the impact of the
decision
• and the wider the range of
constituencies that will be
affected by the decision.
By People In Business
 The moral foundation of
the decision-maker
matters
 “He doesn’t have a
moral compass.”
Whistleblower Sherron
Watkins describing
Andrew Fastow, former
CFO of Enron. (Watkins
gets frank about days at
Enron, Edward Iwata,
USA Today, March 25,
2003, p. 3B.)
By People in Business
 Ultimately, one's own motivation for ethical
behavior must be internal to be effective.
External motivation has a limited value -punishment and fear is only effective in the
short-run. If people believe that they are above
the law, they will continue to act unethically.
Organizations that have a clear vision, and
support individual integrity are attractive
places of employment. - Teri D. Egan, Ph.d,
Associate Professor, The Graziadio School of
Business at Pepperdine University, Corporate Ethics,
Washington Post Live Online, Friday, Aug. 2, 2002;
Ethics
 Values: guiding constructs or ideas, representing deeply held
generalized behaviors, which are considered by the holder, to be of
great significance.
 Morals: a system or set of beliefs or principles, based on values,
which constitute an individual or group’s perception of human
duty, and therefore which act as an influence or control over their
behavior. Morals are typically concerned with behaviors that have
potentially serious consequences or profound impacts. The word
“morals” is derived from the Latin mores (character, custom or
habit)
 Ethics: the study and assessment of morals. The word "ethics" is
derived from the Greek word, ethos (character or custom).
Morality
 The historian Arnold Toynbee
observed: "Out of 21 notable
civilizations, 19 perished not by
conquest from without but by
moral decay from within."
Absolutism vs. Relativism
 Ethical Absolutism
What is right or wrong is consistent in all places or
circumstances. There are universally valid moral principles.
(“… only by obedience to universal moral norms does man
find full confirmation of his personal uniqueness and the
possibility of authentic moral growth.” - Pope John Paul II,
see also Rom. 12:2; Heb. 13:8)
Ethical Relativism (also called “Situational Ethics”)
What is right or wrong varies according to the
individual/society/culture or set of circumstances. There are
no universally valid moral principles. (Related Biblical
reference "everyone did what was right in his own eyes"
(Deut. 12:8, Judges 17:6; 21:25) (see also Isa. 5:20 & 24, Jer.
2:13, Rom. 1:18-32, 1 Cor. 5:6-7, 2 Cor. 6:14-15, 1 John 1:8)
2-17
Absolutism vs. Relativism
 “The demise of America’s legal foundations
occur when society rejects laws that are
based on solid, irrevocable, moral, universal,
absolute values, to a society that bases it’s
laws on an arbitrary system of relativism,
situational ethics, materialism, individualism,
hedonism, paganism, or in any secularist
ideology. This secularization of law has
influenced all branches of knowledge – law,
philosophy, business, religion, medicine,
education, science, the arts, and mass
media.” Harold Berman, The Interaction of
Law and Religion 21 (1974).
2-18
Absolutism vs. Relativism
 According to a recent poll of college
seniors, 73% agreed with the statement
that “What is right or wrong depends on
differences in individual values and
cultural diversity.” Only 25% agreed
with the statement that “There are clear
and uniform standards of right and
wrong by which everyone should be
judged."
2-19
Absolutism vs. Relativism
• Relativism undermines moral criticism
of practices of particular individuals or
in particular societies where those
practices conform to their own
standards. For instance, it could be
used to permit slavery in a slave society
or it could be used to justify trade and
investment with basically evil regimes,
e.g. Apartheid governments.
Absolutism vs. Relativism
• Relativism allows for oppression of those with minority views
by allowing the majority in any particular circumstance to
define what is morally right or wrong.
 “In Germany they first came for the Communists,
 and I didn't speak up because I wasn't a Communist.
 Then they came for the Jews,
 and I didn't speak up because I wasn't a Jew.
 Then they came for the trade unionists,
 and I didn't speak up because I wasn't a trade unionist.
 Then they came for the Catholics,
 and I didn't speak up because I was a Protestant.
 Then they came for me —
 and by that time no one was left to speak up.”
• - German anti-Nazi activist, Pastor Martin Niemöller
Absolutism vs. Relativism
• Relativists speak in terms that “soften” harsh
realities.
• "Intelligent, educated, religious people embrace
illogical absurdities that set aside not only God's
truth, but also our responsibility for the well-being
of others. When words are warped and twisted
perversely, they're eventually emptied of their true
meaning. When you shine the light of common
sense on deceptive language couched in medical,
philosophical or intellectual terms, the logic
evaporates. Moral choices require that we use
language to describe reality.” - Jean Staker Garton,
Author/Lecturer, Co-Founder of Lutherans for Life
Absolutism vs. Relativism
• Relativists never need bother to
examine why something is moral
or immoral, they merely
accept/tolerate alternative
determinations.
Absolutism vs. Relativism
 Most ethicists reject the theory
of ethical relativism. Some claim
that while the moral practices of
societies may differ, the
fundamental moral principles
underlying these practices do
not. - Markkula Center for Applied
Ethics
Absolutism vs. Relativism
 Commenting on the idea that legal reforms can
compel corporate morality, Michael Prowse, in
the Financial Times, stated that "The
underlying problem is that we are living in
times that might aptly be called 'post-ethical.'"
People are now "emotivists," who relativize
moral judgments and "obey the law, help
others and respect customs and mores only if
they calculate that this will benefit them
personally in some way. ... The root problem is
a loss of belief in objective ethical standards.”
Values
 “To ensure that employees can and will act with
integrity … organizations need a strong and
consistent set of values that dictate appropriate
individual actions.” - Conclusion of study
conducted by Professor Pratima Bansal, cited
in” Rebuilding trust, The integral role of
leadership in fostering values, honesty and
vision,”by Carol Stephenson in the Ivey Business
Journal, Jan/Feb. 2004, Vol. 68, Issue 3.
Values
 Navigating the complexities of a situation ... requires a
reliable compass. We can plot that "north" by
determining clearly our own core values. We have to
identify - and articulate - what we believe is important
to us and to our companies. Our core values drive our
behaviors, and our behaviors tell the world who we
are and what we stand for. ...Identifying and adhering
to a core-values compass point provides a standard
that will make decisions easier, consistent and
justified.” - Parkinson, J. Robert, Thinking clearly,
remembering values key to making the call, Milwaukee
Journal Sentinel, March 22, 2004.
Values
 “Without commonly shared and
widely entrenched moral values
and obligations, neither the law,
nor democratic government, nor
even the market economy will
function properly.”-- Vaclav
Havel ("Politics, morality, and
Civility" Summer Meditations)
Values
 What are the core values that are
fundamental to the success of
any individual or organization?
Values
 Honesty, respect, responsibility,
fairness, compassion,
perseverance and courage.
Values - Honesty
 Honesty - Being straightforward, sincere, truthful, free
of fraud, deception or misrepresentation.
 Transparency - To be open, honest and available, to
provide clear, accurate, and understandable
information (e.g. in the context of financial
disclosures). Some ethicists have argued that ethical
business practices are best measured by a company's
character and commitment to transparency than by
their social vision or rhetoric (e.g. Jon Entine)
Values - Honesty
 Honesty
• Builds/Maintains Trust
• Fosters Community
• Makes Communication more
Efficient & Effective
• Demonstrates Respect for the
Dignity of Others
Values - Honesty
 Moral Leaders welcome transparency
and truth as opposed to secrecy and
deception.
 Respondents to a recent Victor
James ethical leadership survey, by a
wide margin, cited honesty as the
quality most admired in a leader.
Values - Honesty
 Richard Sears—founder of Sears
Roebuck and Company—started the
modern mail order industry, supplying a
burgeoning nation with innovative
products and building a business that
gave employment to hundreds of
thousands of people. In his zeal to sell
merchandise, Sears occasionally would
get carried away with catalogue
descriptions, praising products far
beyond the literal truth. This in turn led
to returned merchandise and reduced
profits. But Sears learned his lesson. In
later years, he was fond of saying,
"Honesty is the best policy. I know
because I've tried it both ways.” - from
Integrity at Work, ed. By Ken Shelton.
Values - Honesty
 At the age of 24, Abraham Lincoln served as the
postmaster of New Salem, Illinois, for which he
was paid an annual salary of $55.70. Even then,
twenty-four years before he entered the White
House, the rail splitter was showing the
character that earned him the title of "Honest
Abe." The New Salem post office was closed in
1836, but it was several years before an agent
arrived from Shington to settle accounts with
ex-postmaster Lincoln, who was a struggling
lawyer not doing very well. The agent informed
him that $17 was due the government. Lincoln
crossed the room, opened an old trunk and took
out a yellow cotton rag, bound with a string.
Untying it, he spread out the cloth and there
was the $17. He had been holding it untouched
for all these years. "I never use any man’s
money but my own," he said.
Values - Honesty
 Honesty and transparency make you
vulnerable. Be honest and
transparent anyway. - Mother Teresa
Values - Honesty
 Some scriptural references
regarding honesty in business:
• (Exodus 22:10; 23:1–3; Leviticus
19:11–12, 35-36, Deuteronomy
25:13–16, Proverbs 6:16-19, 11:1,
12:17-19 & 22, Ephesians 4:25)
Values - Respect
 Respect: To give particular
attention to, show consideration
for, or hold in high or special
regard (Merriam-Webster's Online
Dictionary, 10th Edition)
Values - Respect
 “Every man is to be respected as an
absolute end in himself; and it is a crime
against the dignity that belongs to him
as a human being, to use him as a mere
means for some external purpose.” Immanuel Kant, Prussian geographer
and philosopher (1724-1804)
Values - Respect
 Human Dignity is “the intrinsic worth that inheres in every human being.
From the Catholic perspective (among other Christian perspectives),
the source of human dignity is rooted in the concept of Imago Dei, in
Christ’s redemption and in our ultimate destiny of union with God.
Human dignity therefore transcends any social order as the basis for
rights and is neither granted by society nor can it be legitimately
violated by society. In this way, human dignity is the conceptual basis
for human rights. While providing the foundation for many normative
claims, one direct normative implication of human dignity is that every
human being should be acknowledged as an inherently valuable
member of the human community and as a unique expression of life,
with an integrated bodily and spiritual nature. In Catholic moral thought,
because there is a social or communal dimension to human dignity
itself, persons must be conceived of, not in overly-individualistic terms,
but as being inherently connected to the rest of society.” - from the
Ascension Health Code of Ethics
Values - Respect
 “Never look down on anybody
unless you're helping him up.” Jesse Jackson, American political
activist and preacher
Values - Respect - Tolerance?
 What about tolerance?
Values - Respect - Tolerance?
 "Our culture has fallen into a kind of moral
vertigo – we value tolerance so much that
we don't know how to talk to each other
about what is right and good,” - Rev. Kevin
Phillips, director of the Business
Leadership and Spirituality Network (BLSN)
quoted in “Competing Values”, by Jane
Lampman, Christian Science Monitor,
August 1, 2002.
Values - Respect - Tolerance?
 Did you know that the term “ tolerance” (or in some

translations “sufferance” Gk. eao) is rarely used in the
New Testament, and that where it is used it is generally
used in a negative sense? For example:
• “Notwithstanding I have a few things against thee,
because you tolerate that woman Jezebel, who calls
herself a prophetess, to teach and to seduce my
servants to commit fornication, and to eat things
sacrificed unto idols.” Rev. 2:20
By contrast, the New Testament uses the term “ love”
Gk. agapeo nearly 150 times in a positive sense.
• So what’s the difference between love and tolerance?
Values - Respect - Tolerance?
 Tolerance: Demonstrating sympathy for, indulging, or
making allowances for, beliefs or practices differing
from, or conflicting with, one's own.
 Love: In the Christian context, from the Greek, agapeo,
an active and beneficent interest in, and concern for, the
well-being of another. It is given unconditionally and
unselfishly. It involves a clear determination of will and
judgment (i.e. a responsible choice). A loving person,
honestly (Rom. 12:9) gives respect and demonstrates
compassion. Demonstrating such love often requires
courage. The source of such love comes “from above”
(James 1:17).
 Would you rather be loved or tolerated?
Values - Compassion
 Compassion: "sympathetic consciousness
of another's distress together with a desire
to alleviate it" [Webster's 7th New
Collegiate Dictionary], fellow feeling, the
emotion of caring concern; the opposite of
cruelty, in Hebrew rahamanut, from the
word rehem, 'womb', based on the idea of
sibling love (coming from from the same
womb).
Values - Compassion
 "The word 'care' finds its roots in the
Gothic 'Kara' which means lament.
The basic meaning of care is: to
grieve, to experience sorrow, to cry
out with.. . . A friend who cares
makes it clear that whatever happens
in the external world, being present
to each other [now] is what really
matters." [Henri Nouwen, Here and Now,
p. 105]
Values - Compassion
 “Southwest Airlines CEO Herb Kelleher has openly demonstrated
a willingness to go the extra mile for Southwest employees. He
has made it a priority to learn their names and to chip in and
work alongside them when the situation has demanded his help.
He has been observed lugging baggage and greeting customers
in an Easter Bunny costume. He has repeatedly demonstrated a
truly exceptional level of caring and compassion for his
employees, and his employees have responded in kind. Perhaps
the most dramatic example of their commitment to their beloved
leader occurred when they pooled their own money and ran a
$60,000 ad in USA Today recognizing him on Bosses Day. In the
ad they thanked Kelleher for being a friend, not just a boss.” from The Leadership Wisdom of Jesus, Charles C. Manz, 1998.
Values - Compassion
 Too often we underestimate the
power of a touch, a smile, a kind
word, a listening ear, an honest
compliment, or the smallest act
of caring, all of which have the
potential to turn a life around.-Leo Buscaglia
Values - Compassion
 Leo Buscaglia discovered that the capacity for
compassion is not limited to wise elders. He
was once asked to judge a contest to find the
most caring child. The winner was a four year
old whose next door neighbor was an elderly
gentleman who had recently lost his wife.
Upon seeing the man cry, the little boy went
into the old gentleman's yard, climbed onto
his lap, and just sat there. When his mother
asked him what he had said to the neighbor,
the little boy said, "Nothing, I just helped him
cry."
Values - Compassion
 “I expect to pass through the world but once.
Any good therefore that I can do, or any
kindness I can show to any creature, let me do
it now. Let me not defer it, for I shall not pass
this way again.” - Stephen Grellet,
French/American religious leader (1773-1855)
 "Men are only great as they are kind.” - Elbert
Hubbard, American entrepreneur and
philosopher (founder of Roycroft) (1856-1915)
Values - Compassion
 "No act of kindness, no matter how small, is ever
wasted." - Aesop, 6th Century B.C. Writer of Greek
fables
 "If the world seems cold to you, kindle fires to warm
it.” - Lucy Larcom, American poet (1826-1893)
 "The individual is capable of both great compassion
and great indifference. He has it within his means to
nourish the former and outgrow the latter.”- Norman
Cousins, American essayist & editor (1912-1990)
Values - Compassion
 "There are two ways of spreading light: to be the
candle or the mirror that reflects it.” - Edith Wharton,
American novelist (1862-1937) -
 “Compassion is the basis of morality.'' - Arthur
Schopenhauer, German philosopher (1788-1860)
 All we need in order to be moral human beings is
compassion. - Nina Rosenstand summarizing the view
of David Taylor in Good and Evil, from The Moral of the
Story: An Introduction to Ethics, McGraw-Hill, 2004.
Values - Compassion
 Some scriptural references
regarding compassion:
• (Matthew 18:27, Luke 10:30-37
(Parable of the Good Samaritan), 1
John 3:17, Jude 1:22)
Values - Responsibility
 Responsibility/Accountability/Reliability: Moral Leaders take
responsibility for their own actions/failures and those of their
companies and they demand accountability from their
subordinates. (e.g. at Dell there’s no ‘‘The dog ate my
homework.” Dell ruthlessly exposes weak spots during grueling
quarterly reviews and execs know they had better fix the problem
before the next meeting. - What You Don’t Know About Dell,
Business Week, Nov. 30, 2003, p.79) Involves a commitment to
competent quality performance. Implies fidelity to promises and
other commitments and not making promises that cannot be kept,
such as committing to unrealistic delivery dates. Also calls for
acknowledgment of implicit commitments, such as the protection
of confidences.
Values - Responsibility
 “I am only one, but still, I am one. I cannot do
everything but I can do something. And, because I
cannot do everything, I will not refuse to do what I
can.” - Edward Everett Hale, American clergyman and
writer (1822-1909)
 “The question for each man to settle is not what he
would do if he had the means, time, influence and
educational advantages, but what he will do with the
things he has.” - Hamilton Wright Mabee
Values - Responsibility
 “Any man’s life will be filled with constant and
unexpected encouragement if he makes up his mind
to do his level best each day.” - Booker T.
Washington, American educator (1856-1915)
 “I long to accomplish some great and noble task, but
it is my chief duty to accomplish small tasks as if they
were great and noble.” - Helen Keller, American social
activist, public speaker and author (1880-1968)
Values - Fairness
 Fair: just, equitable, impartial, unbiased,
objective. Involves a elimination (or at least a
minimalization) of one's own feelings,
prejudices and desires, so as to achieve a
proper balance of conflicting interests. Implies
an equitable distribution of burdens and
benefits. John Rawls argues in A Theory of
Justice that rules are fair if they are rules that
the people operating under them would have
agreed to, had they been given an opportunity
to accept or reject them beforehand.
Values - Fairness
 "The precepts of the law are these: to live
honestly, to injure no one, and to give every
man his due.” - Justinian I, Byzantine emperor
(483-565)
 “This country will not be a good place for any
of us to live in unless we make it a good place
for all of us to live in.” - Theodore Roosevelt,
American adventurer and 26th president (18581919)
Values - Fairness
 Justice: demonstrating fairness, equity,
impartiality, righteous action, conformity
to truth, conformity to law
 “justice occurs on earth when power and
authority between people are exercised in
conformity with God’s standards of moral
excellence.” - Gary Haugen, in The Good
News About Injustice, Intervarsity Press,
1999.
Values - Perseverance
 Perseverance/Fortitude steadfast determination to
continue on despite adversity
usually over a long period of
time.
Values - Perseverance
"When the morning’s freshness has
been replaced by the weariness of
midday, when the leg muscles quiver
under the strain, the climb seems
endless, and suddenly nothing will
go quite as you wish--it is then that
you must not hesitate.” - Dag
Hammarskjöld, former U.N. Secretary
General
Values - Perseverance
 “Nothing in the world can take the place
of perseverance. Talent will not;
nothing is more common than
unsuccessful men with talent.
Education will not; the world is full of
educated derelicts. Genius will not;
unrewarded genius is almost a proverb.
Persistence and determination alone are
omnipotent.” - Calvin Coolidge
Values - Perseverance
 Some Biblical References: Job 17:9a, the righteous one holds fast
to his way; Hos. 12:6b, endure to the end, John 8:31-32, 2 Cor.
13:5, keep proving yourself; Gal. 5:1–4, stand fast; Gal. 6:9, do not
give up in doing what is fine; Phil. 1:27, stand firm, striving side by
side; Phil. 4:1, stand firm; 1 Thes. 5:21, hold fast to what is fine; 2
Thes. 2:15–17, stand firm, maintain your hold; 1 Tim. 6:11–12,
pursue endurance; 2 Tim. 2:12, go on enduring; 2 Tim. 3:14,
continue in the things you have learned; 2 Tim. 4:7–8, fight the fine
fight, finish the course; Heb. 2:1, pay attention to what you have
heard that you not drift away; Heb. 3:14, make fast your hold to the
end; Heb. 10:23, 35–36, hold fast to the declaration of our hope,
you have need of endurance; James 1:2-4, perseverance must
finish its work, 2 Pet. 3:17, do not fall from steadfastness.
 God helps those who persevere. - The Koran
Values
 Which of the core values is the
most important?
Values - Courage
 The first place to start is for every
individual to become aware of their
core values and to have the courage
and discipline to live out of them in
all aspects of their lives. (The rising tide
won't lift this economy: Unless we're willing to
confront the trust problem we've helped to
create, Bill Grace, Founder & Executive Director,
Seattle's Center for Ethical Leadership, Guest
Columnist, Seattle Post-Intelligencer, June 16,
2003.)
Values - Courage
 “Courage is the greatest of all virtues; because, unless




a man has that virtue, he has no security for preserving
any other.” - Samuel Johnson
“Courage is the ladder on which all the other virtues
mount.” - Clare Booth Luce (1903 - 1987), in Reader's
Digest, 1979
“Courage is the footstool of the virtues, upon which
they stand.” - Robert Louis Stevenson
“Courage is not simply one of the virtues, but the form
of every virtue at the testing point.” - C.S. Lewis
“Courage is strength of mind, capable of conquering
whatever threatens the attainment of the highest
good.” - St. Thomas Aquinas
Values - Courage
 “Courage is a perfect sensibility
of the measure of danger and a
mental willingness to endure it.”
- General William T. Sherman
(for whom the Sherman tank
was named).
 “Courage is being scared to
death . . . and saddling up
anyway.” - John Wayne
Values - Courage
 “Whenever you see a successful business, someone
once made a courageous decision.” - Peter Drucker
 “We must constantly build dykes of courage to hold
back the flood of fear.” - Martin Luther King, Jr.
 “One isn't necessarily born with courage, but one is
born with potential. Without courage, we cannot
practice any other virtue with consistency. We can't be
kind, true, merciful, generous, or honest.” - Maya
Angelou (1928 - )
Values - Courage
 “The credit belongs to the man who is actually
in the arena... who strives valiantly... who
spends himself for a worthy cause; who, at the
best, knows, in the end, the triumph of high
achievement, and who, at the worst, if he fails,
at least he fails while daring greatly, so that
his place shall never be with those cold and
timid souls who knew neither victory nor
defeat.” - Theodore Roosevelt
Values - Courage
 Courage: the ability to disregard fear; bravery.

The Latin root of this word is cur, which
means heart. Courage literally means to “take
heart”. Fear exists along a continuum.
Courage involves recognizing a reasonable
amount of fear or nervousness, facing it and
then taking an intelligent risk.
Moral courage: involves standing up for one’s
principles, in spite of possible adverse
consequences to such things as reputation or
emotional well-being.
Values - Universal Rule?
 The “Golden Rule” , i.e. to “do unto others as you would

have them do unto you” is an example of a value
common to many cultures/religions (Mahabharata
5:1517, Hinduism, Talmud, Shabbat 31a & Leviticus
19:18, Judaism, Matthew 7:12, Christianity, UdanaVarga 5:18, Buddhism, Analects 15:23, Confucianism,
Number 13 of Imam "Al-Nawawi's Forty Hadiths.",
Islam)
Note: Several Corporations have directly incorporated
some form of this rule in their codes of ethics
including Coachman, Mary Kay, Progressive, Merrill
Lynch and USAA
Corporate Culture
 Both individuals and organizations hold “values”
• A corporation is said to manifest its “values” in its “corporate
culture”
 Corporate culture is loosely defined as the attitudes,
behaviors and personalities that make up a company and
that shape its behavior and reputation, or as Elizabeth
Kiss of the Kenan Institute for Ethics puts it, corporate
culture is “how we perceive, think, feel and do things
around here.”
 Most employees take their cues from the company culture
and behave accordingly.
 A business derives its character from the character of the people
who conduct the business. - Ricky W. Griffin, Management.
Boston: Houghton Mifflin Company (2002)
Corporate Culture
 The Pressure to Conform
• We are all a kind of Chameleon,
taking our hue - the hue of our
moral character, from those who
are about us. - John Locke (1632 1704)
Corporate Culture
 The Pressure to Conform
• Some years ago, a social scientist named Solomon Asch
wanted to see how people dealt with social pressure so he
designed an experiment to measure the results. He came up
with a simple test that showed a series of lines on a board in
front of the room, with one of the lines matching another in
being the same length. The others were either much shorter or
much longer. A person was brought into the room, along with
others in a group, which unbeknown to the subject, were
helpers to the professor. The whole group was asked to match
the two lines that were the same length together. The helpers
intentionally gave the wrong answer and it was found that in
almost 75% of the time, the subjects would go along with the
wrong answer, knowing full well it was wrong, but not wanting
to stand out. - “Opinion and Social Pressure”, Scientific
American, Nov. 1955, 31-35.
Corporate Culture
 The Pressure to Conform
• “Culture shapes behavior. There are plenty of perfectly decent
people who go astray because they're in a culture that creates
an environment in which they can't get their jobs done unless
they engage in unethical activities.” - Harvard Business
School professor and business ethicist Barbara Toffler,
former partner at Arthur Andersen. Toffler left Andersen in
1999, well before the Enron and Global Crossing scandals
destroyed the company. Her book, Final Accounting:
Ambition, Greed, and the Fall of Arthur Andersen (Random
House/Broadway Books, 2003), describes the process of
ethical erosion in grim detail. – Postcards from an Ethical
Wasteland, CIO, June 1, 2003
Corporate Culture
 In Moral Man and Immoral Society,
Reinhold Niebuhr proposed that
individual persons are always more
moral functioning alone than when they
function in a social group. - Institutional
Ethics: An Oxymoron, By Joe E. Trull, Editor,
Christian Ethics Today, Journal of Christian
Ethics, Issue 035 Volume 7 No 4 August 2001 .
 Do you agree with this?
Corporate Culture
 Rarely do the character flaws of a lone
actor fully explain corporate misconduct.
More typically, unethical business
practice involves the tacit, if not explicit,
cooperation of others and reflects the
values, attitudes, beliefs, language, and
behavioral patterns that define an
organization’s operating culture. - Lynn
Sharp Paine, Harvard Business School
Corporate Culture
 “A strong corporate culture founded on ethical

principles and sound values is a vital driving
force behind strategic success.” - Thompson
& Strickland
One company stressed its commitment to
RICE : respect, integrity, communication, and
excellence. The words have been on T-shirts,
paperweights, and on signs. The firm printed a
61-page booklet with its code of ethics and
every employee had to sign a certificate of
compliance. That company was Enron!
According to Ethical or Moral,
Values, Principles or Standards
 Whose Values?
According to Ethical or Moral,
Values, Principles or Standards
• Personal
• Family
• Peers
• Religious
• Company
• Community, Regional, National,
International
According to Ethical or Moral,
Values, Principles or Standards
 Learned Where?
According to Ethical or Moral, Values,
Principles or Standards
•
•
•
•
•
•
•
•
Home
School
Church (or other place of worship)
Life Experience
Work Experience
Books
News Media
Entertainment Media
According to Ethical or Moral, Values,
Principles or Standards
 The average American, by the age of 65, will
have spent the equivalent of 15 years of their
life watching television.
 By contrast, over the same time period, the
average weekly church-going American will
have spent only 8 months of their life
receiving spiritual instruction.
According to Ethical or Moral, Values,
Principles or Standards
 So fearful were the ancient Chinese of their enemies
on the north that they built the Great Wall of China,
one of the 7 wonders of the ancient world. It was so
high they knew no one could climb over it, & so thick
that nothing could break it down. Then they settled
back to enjoy their security. But during the first 100
years of the wall’s existence, China was invaded 3
times. Not once did the enemy break down the wall or
climb over its top. Each time they bribed a gatekeeper
& marched right through the gates. According to the
historians, the Chinese were so busy relying upon the
walls of stone that they forgot to teach integrity to
their children.
According to Ethical or Moral, Values,
Principles or Standards
 In the 1950s a psychologist, Stanton Samenow, and a
psychiatrist, Samuel Yochelson, sharing the conventional
wisdom that crime is caused by environment, set out to prove
their point. They began a 17-year study involving thousands of
hours of clinical testing of 250 inmates here in the District of
Columbia. To their astonishment, they discovered that the cause
of crime cannot be traced to environment, poverty, or
oppression. Instead, crime is the result of individuals making, as
they put it, wrong moral choices. In their 1977 work The Criminal
Personality, they concluded that the answer to crime is a
"conversion of the wrong-doer to a more responsible lifestyle." In
1987, Harvard professors James Q. Wilson and Richard J.
Herrnstein came to similar conclusions in their book Crime and
Human Nature. They determined that the cause of crime is a lack
of proper moral training among young people during the morally
formative years, particularly ages 1 to 6.
According to Ethical or Moral, Values,
Principles or Standards
 33% of teens would act unethically to get
ahead or to make more money if there was no
chance of getting caught, according to a new
Junior Achievement/Harris Interactive Poll of
624 teens between the ages of 13 and 18. 25%
said they were “not sure” and only 42% said
they would not. “These results confirm our
belief that ethics education must begin in
elementary school.” said Barry Salzberg, U.S.
Managing Partner of Deloitte & Touche.
According to Ethical or Moral, Values,
Principles or Standards
 Daniel R. Levine notes that "honesty and integrity have been replaced in

many classrooms by a win-at-any-cost attitude that puts grades,
expediency and personal gain above all else.
"Moral standards have become so eroded that many children can no
longer tell right from wrong," says Kevin Ryan, founding director of the
Center for the Advancement of Ethics and Character at Boston
University.
 According to Stephen F. Davis, a professor of psychology, "There's no
remorse. For students, cheating is a way of lire.”
 Ryan further comments that "kids have no moral compass other than
enlightened self-interest"; Ryan blames the nation's schools for
abandoning their traditional role of providing students with moral
guidance.- "Cheating in Out Schools: A National Scandal," Daniel R.
Devine, Reader's Digest, October 1995, p. 66.), quoted in PERSONAL
ETHICS VERSUS PROFESSIONAL ETHICS , Jerry E. White,, Airpower
Journal, 08970823, Summer96, Vol. 10, Issue 2
According to Moral Principles or
Standards
 Does society require a moral
code to survive and prosper?
According to Moral Principles or
Standards
 17th Century
Philosopher Thomas
Hobbes postulated that
life in an amoral society
would be “ poor, nasty,
brutish and short”,
lacking in industry and
commerce, as well as
knowledge and arts, and
that its people would live
in a constant state of
fear and insecurity.
According Moral Principles or
Standards
 “Men qualify for freedom
in exact proportion to
their disposition to put
moral chains on their
own appetites. Society
cannot exist unless a
controlling power is put
somewhere on will and
appetite, and the less of
it there is within, the
more of it there must be
without.” - Edmund
Burke(1774)
According to Moral Principles or
Standards
 “Without civic morality
communities perish;
without personal
morality their survival
has no value.” —
Bertrand Russell, 20thcentury British
mathematician and
philosopher
According to Moral Principles or
Standards
• Martin Luther King,
Jr. once noted, " The
most dangerous
criminal may be the
man gifted with
reason but with no
morals."
According to Moral Principles or
Standards
 We have grasped the
mystery of the atom and
rejected the Sermon on
the Mount. The world
has achieved brilliance
without wisdom, power
without conscience.
Ours is a world of
nuclear giants and
ethical infants. --General
of the Army, Omar
Bradley
According to Moral Principles or
Standards
 There are seven sins in
the world: Wealth
without work, Pleasure
without conscience,
Knowledge without
character, Commerce
without morality,
Science without
humanity, Worship
without sacrifice and
politics without
principle. - Mahatma
Gandhi (1869 - 1948)
Ethics
 R. H. Tawney, the
British historian, once
wrote: ''To argue, in the
manner of Machiavelli,
that there is one rule
for business and
another for private life,
is to open the door to
an orgy of
unscrupulousness
before which the mind
recoils.''
Ethics
 Truett Cathy, founder
of Chick-fil-A, argues
there is no such
thing as business
ethics - only ethics.
Ethics

Duty-Based v. Outcome-Based Ethics
• Duty (Deontology)
 Duty is an act done simply for the sake of what is right.
 Duty is determined by “revealed truths” and involves universal
principles
 Often religion-based
 e.g. Kant’s Categorical Imperative
• "Everyone is obligated to act only in ways that respect the intrinsic
value, human dignity and moral rights of all persons."
 Places High Value on Individual Rights
• Outcome (Consequentialism)
 Ethical if best outcome for the majority
 Involves cost-benefit analysis
 e.g. Bentham & Mill’s Utilitarianism
• "Of any two actions, the most ethical one is that which will produce
the greatest balance of benefits over harms."
 De-emphasizes individual rights
Ethics
 Strategic v. Real Ethics
• What is the motivation/purpose for
acting ethically?
Integrity
 Integrity: from the Latin integritas, meaning wholeness,
completeness, or purity. To courageously hold to what
one believes is right and true, without compromise. To
stand undivided, immovable, consistent in both heart
and action, word and deed. Involves the maintenance of
virtue and the pursuit of moral excellence. Integrity is
demonstrated by not only espousing your values, but by
living according to them. Integrity describes both who
you are and what you do. People of integrity are
conscientious, trustworthy, accountable, committed and
consistent. A key to maintaining integrity is “counting
the cost” before committing yourself.
Integrity
 “Psychologists have found integrity to be essential to
an individual's sense of identity and self-worth,
enabling the successful navigation of change and
challenge. Links between integrity and the ability to
gain and maintain the trust of others have often been
noted. Many purveyors of practical advice, including
Cicero and Benjamin Franklin, have counseled that
integrity is the cornerstone of worldly success.
According to Franklin, "no Qualities [are] so likely to
make a poor Man's Fortune as those of Probity &
Integrity" (quoted in Beebe, 1992, p. 8)” - from
Blackwell’s Encyclopedic Dictionary of Business
Ethics.
Integrity
 In Living a Life That Matters Rabbi
Harold Kushner describes the kind
of people who are able to
overcome the negativity in their
lives as shalem, people who are
“whole, united within themselves,
their internal conflicts ended.”
Because of this, he says, they are
“persons of integrity.” Integrity,
says Kushner, is a quality just as
essential to human well-being as is
the pursuit of peace and justice.
Integrity
 The Bible/Talmud says that:
• The man of integrity walks securely, but he who takes crooked
•
•
•
•
paths will be found out. (Prov. 10:9)
The integrity of the upright guides them, but the unfaithful are
destroyed by their duplicity. (Prov. 11:3)
Integrity brings peace (i.e. a clear conscience) and marks the
perfect man (Hebrew Word: Tam = Man of Integrity) (Ps. 37:37,
1 Kings 9:4)
The just [man] walketh in his integrity: his children [are]
blessed after him. (Prov. 20:7)
A good name is better than precious ointment. (Ecc. 7:1)
Integrity
 Some Biblical Examples of Integrity:
• Joseph, Gen. 39:1-12
• Jacob/Israel (Gen 32:29) known as a “simple man” (tam, Gen
•
•
•
•
25:27) that is to say, that “his mouth was like his heart.”
Job (Book of Job, see in particular description of Job at 2:3,
27:5)
Daniel, Shadrach, Meshach & Abednego (Daniel Chapters 3
& 6)
David (Ps. 7:8)
Solomon (1 Kgs. 9:4)
 Contrast: Ananias & Sapphira, Acts 5:1-11 and Acts 20:16-36
Integrity
 According to Michael Useem,
Director of the Center for
Leadership and Change
Management, Warren Buffett's
“influence derives from his
moral stature and integrity. In the
aftermath of scandals that have
rocked U.S. companies in the
past few years, it is difficult to
overemphasize the importance
of ethics as a factor in
leadership.” -Leadership and
Change: Becoming the Best:
What You Can Learn from the 25
Most Influential Leaders of Our
Times , Knowledge @ Wharton
Newsletter, Jan.28-Feb.4, 2004
Character
 Character: The
notable/conspicuous/
distinguishing moral/ethical
traits or characteristics of a
person that give evidence of
their essential nature and which
ultimately shape their
reputation.
Character
 Our character...is an
omen of our destiny, and
the more integrity we
have and keep, the
simpler and nobler that
destiny is likely to be. George Santayana (1863
- 1952), "The German
Mind: A Philosophical
Diagnosis"
Character
 President Harry
Truman used to say:
"Fame is a vapor,
popularity an
accident, riches take
wings, those who
cheer today may
curse tomorrow, only
one thing endures -character.”
Character
 "What you are
stands over you...
and thunders so
that I cannot hear
what you say to
the contrary.” Ralph Waldo
Emerson
Character
 In his book The Death of Character, James

Hunter, a noted sociologist from the University
of Virginia, concludes that while Americans
are innately as capable of developing
character as they ever were in the past, there
are now few cultural or institutional guidelines
in our society that call for its cultivation or
maintenance. The reason, he suggests, is
because there is no consensus of moral
authority.
Do you agree with this?
Character


Compartmentalization: Many people believe that
what individuals do in their private lives is their
own business as long as it does not adversely
impact the performance of their duties to the
organization and they are able to “deliver the
goods” professionally. Under this way of
thinking even serious moral failures may be
excused. Some refer to this kind of thinking as
“compartmentalization.” (e.g. Bill
Clinton/Monica Lewinsky situation)
Do you agree with this?
Character
 Character vs. Reputation: It has
been said that an individual’s
character can be illustrated by a
barrel of apples. The apples
seen on top by all represent
one’s reputation, and the apples
that lie hidden underneath are
his character.
Reputation
 A railroad executive burst into Arthur Andersen’s office one day
in 1914, demanding that the firm’s founder approve the railroad’s
books. Accountants had discovered that the railroad was
inflating its profits by failing to properly record expenses.
Andersen refused, saying that there wasn’t enough money in the
city of Chicago to make him approve the fraudulent accounting.
Andersen’s independence cost him the client, but it gained him
something far more valuable, a reputation for integrity that gave
investors confidence in Arthur Andersen audits, a reputation that
helped the firm become one of the top 5 accounting firms in the
U.S. After nearly 90 years in business, Andersen imploded in
2002 after acknowledging that its auditors had shredded
documents relating to its audits of Enron.
Reputation
 Warren Buffett, CEO of
Berkshire Hathaway,
warns his executives
once a year not to do
anything that year they
would be ashamed to
read about in their local
newspaper. “You can
lose a reputation that
took 37 years to build in
37 seconds. And it might
take more than 37 years
to build it back.”
The Role of Leadership in Developing a
Culture of Integrity
 According to Marshall Schminke, who teaches
business ethics at the University of Central
Florida, “A person’s individual moral
framework is only the third-most important
factor in deciding what they’ll do. The most
important is what does their boss do. Workers
look to their boss first for cues on what
constitutes moral behavior. Second, they look
at their peers, and finally at their own moral
code.” -Experts: Ethics not Just Codes, Marshall
Schminke, Raleigh News & Observer, June 8, 2003,
p.12E, based on an article by Harry Wessel in the
Orlando Sentinel.)
The Role of Leadership in Developing a
Culture of Integrity
 “ A company's commitment to integrity flows from the
commitment, action, and credibility of its leaders.” Responsibility Lies In Leadership , By: Ruettgers,
Mike, Chairman of the Board of EMC Corporation, Vital
Speeches of the Day, 0042742X, 12/15/2003, Vol. 70,
Issue 5, Delivered to The Fall 2003 Raytheon
Lectureship in Business Ethics, Bentley College,
Center for Business Ethics, Waltham, Massachusetts,
October 8, 2003
The Role of Leadership in Developing a
Culture of Integrity
 Edgar Schein argues that leaders
shape culture through what they
notice, measure, reward and dislike.
• e.g. At Enron and Worldcom,
executives and Board members
elevated growth and short-term profits
above all other considerations and
nurtured a culture of cut-throat
competition within the company.
The Role of Leadership in Developing a
Culture of Integrity
 President George W.
Bush observed
recently, "Ultimately
the ethics of
American business
depend on the
conscience of
America's business
leaders."
The Role of Leadership in Developing a
Culture of Integrity
 The “closer” the enterprise the
greater the correlation between
the corporate culture and the
personal ethics of its leaders
(e.g. small, family business
(note: Malden Mills was a family
business), contrast: a
multinational corporation)
The Role of Leadership in Developing a
Culture of Integrity
 In a recent study by the Southern Institute for
Business and Professional Ethics, 97% of
respondents said that the leader of an
enterprise must also be the moral leader, but
many executives don’t see or appreciate their
power as role models in this regard.
Employees take their cue from superiors on
how to conduct themselves, and written codes
of conduct rarely carry as much weight as the
actual actions of those in command.
Role of Leadership in Developing a
Culture of Integrity
 Perhaps Skilling and Lay couldn't know all the
goings-on at Enron, as they claim. However,
"people at the top tend to set the target, the
climate, the ethos, the expectations that fuel
behavior," says Thomas Donaldson, a
business ethics professor at the Wharton
School at the University of Pennsylvania.
(Corporate Ethics: Right Makes Might,
Business Week, 4/11/02)
Role of Leadership in Developing a
Culture of Integrity
 Malden Mills/Aaron Feuerstein
 A Profile in Ethical Business

Leadership
Feuerstein was thrust into the
national spotlight in December
1995 when fire nearly completely
destroyed his 130-year-old textile
company. Demonstrating an alltoo-uncommon loyalty to his
2,400 workers, he continued
paying them for 90 days at a cost
of $1.5 million per week while the
factories were being rebuilt. He
also gave generously to support
charities that helped the families
of nine critically injured workers
who have since recovered.
Spiritual Foundation
 Is it necessary to believe in God
to be moral?
Spiritual Foundation
 In a recent poll, 58% of Americans said yes.
This is not the view in most developed
countries. For example, in France, only 13%
said yes. (Nicholas D. Kristof, N.Y. Times}
Spiritual Foundation
 "Where there is no
religion, there will
be no morals.” Benjamin Rush,
Speech in
Pennsylvania
Ratifying Convention
(Dec. 12, 1787)
Spiritual Foundation
 “[T]he most important of all
lessons [from the Scriptures] is
the denunciation of ruin to every
State that rejects the precepts of
religion. . . . I believe that religion
is the only solid base of morals
and that morals are the only
possible support of free
governments”. - Gouverneur
Morris, who spoke on floor of the
Constitutional Convention 173
times, more than any other
delegate.
Spiritual Foundation
 “I have read your manuscript with some attention. By the argument it
contains against a particular Providence [Christianity], though you allow a
general Providence, you strike at the foundation of all religion. For without
the belief of a Providence that takes cognizance of, guards, and guides, and
may favor particular persons, there is no motive to worship a Deity, to fear
his displeasure, or to pray for his protection. I will not enter into any
discussion of your principles, though you seem to desire it. At present I
shall only give you my opinion that . . . the consequence of printing this
piece will be a great deal of odium [hate] drawn upon yourself, mischief to
you, and no benefit to others. He that spits into the wind, spits in his own
face. But were you to succeed, do you imagine any good would be done by
it? . . . [T]hink how great a portion of mankind consists of weak and
ignorant men and women and of inexperienced, inconsiderate youth of both
sexes who have need of the motives of religion to restrain them from vice,
to support their virtue. . . . I would advise you, therefore, not to attempt
unchaining the tiger, but to burn this piece before it is seen by any other
person. . . . If men are so wicked with religion, what would they be if
without it.” - Benjamin Franklin’s 1790 reply to Thomas Paine
regarding Paine’s request of Franklin to review his new book, The Age
of Reason:
Spiritual Foundation
 " … our ancestors established their
system of government on morality and
religious sentiment. “[T]he cultivation
of the religious sentiment represses
licentiousness . . . inspires respect for
law and order, and gives strength to
the whole social fabric. Moral habits,
they believed, cannot safely be trusted
on any other foundation than religious
principle, nor any government be
secure which is not supported by
moral habits. . . . Whatever makes
men good Christians, makes them
good citizens " - Daniel Webster,
December 22, 1820 at Plymouth,
Mass.
Of all the dispositions and
habits which lead to political
prosperity, religion and
morality are indispensable
supports… Reason and
experience both forbid us to
expect that national morality
can prevail in the exclusion
of religious principle.
George Washington’s Farewell
Address, September 17, 1796
2-129
Spiritual Foundation
 "We have no
government capable of
contending with human
passions unbridled by
morality and religion.
Our constitution was
made only for a moral
and religious people. It
is wholly inadequate to
the governing of any
other.” - John Adams
Spiritual Foundation
 “If we are to go forward, we
must go back and rediscover
those precious values - that all
reality hinges on the moral
foundations and that all reality
has spiritual control.” - Martin
Luther King, Jr.
Spiritual Foundation
 “Business and religion are not separate
worlds. Business is people … they take
their religion to work with them … True
religion is the life we lead, not the creed
we profess … A character standard is
more important to a stable world than an
international gold standard.” - The
Spiritual Responsibility of American Business
and Industry. By: Johnson, Clement D.. Vital
Speeches of the Day, 12/15/55, Vol. 22 Issue 5,
p151, 3p; (AN 9867986)
Spiritual Foundation
 In Business and Religion: Odd Couple or Bosom
Buddies? Evan Gahr reports that:
• Among leaders of the nation's top 100 businesses,
65 % attend church or synagogue regularly-compared to 40 % of the general population.
• IBM chairman Louis Gerstner, Jr., a graduate of an
all-boys Catholic high school, attends mass daily.
• Dallas-based Interstate Battery company, the top
replacement-battery manufacturer in North
America, boasts a full-time corporate chaplain who
leads voluntary prayer sessions and Bible study
groups.
Spiritual Foundation
 In Business and Religion: Odd Couple or Bosom
Buddies? Evan Gahr reports that:
• Illinois-based ServiceMaster was founded by 2
evangelicals. Originally just a rug-cleaning
operation, it has since blossomed into the nation's
top provider of cleaning workers. The company's
motto is, "To honor God in all we do."
• Thomas Monaghan, the founder of Domino's Pizza,
also founded Legatus, an international organization
for Catholic business leaders that holds seminars
on business ethics and sponsors conferences
featuring prominent Catholics from the pope on
down. Monaghan calls Legatus his "number-one
priority.
Spiritual Foundation
 Does a leader’s strong spiritual
foundation guarantee that he
will lead his company in
developing a culture of
integrity?
Spiritual Foundation
 Note that in Business as a Calling Michael Novak reports that:
• Kenneth Lay, Chairman and CEO of Enron Corp., confided
that "I grew up the son of a Baptist minister. From this
background, I was fully exposed to not only legal behavior but
moral and ethical behavior and what that means from the
standpoint of leading organizations and people. I was, and
am, a strong believer that one of the most satisfying things in
life is to create a highly moral and ethical environment in
which every individual is allowed and encouraged to realize
their God-given potential. There are few things more
satisfying than to see individuals reach levels of performance
that they would have thought was virtually impossible for
themselves."
Role of Leadership in Developing a
Culture of Integrity
 Vision - Moral leaders tend to maintain a clear, strong

and positive vision and purpose for themselves and
their organizations that takes into account their
organization’s impact on society, and they must
inspire others to become invested in the pursuit of
that vision. (Related Scriptures, Prov. 29:18, Hab. 2:23)
According to Wess Roberts, author of Leadership
Secrets of Attila the Hun, vision is the “North star” for
any organization.
3 Theories of Social
Responsibility
 Classical Theory
 Stakeholder Theory
 Corporate Social Responsibility
Theory (CSR)
Classical Theory
 Definition: The role
of business is to
maximize profits
within the law (see
Milton Friedman,
"The Social
Responsibility of
Business Is to
Increase Its Profits.",
New York Times
Magazine, 1970)
Classical Theory
 Serve the interests of the shareholders
 Social obligations limited to “ordinary moral


expectations”.
Views obligations to non-shareholders as a
constraint
Trusts in Adam Smith’s “Invisible Hand” (The
Wealth of Nations) - The assumption that
society benefits most when individuals are
allowed to define and pursue their own selfinterests, with minimal interference from
governments or other authorities.
Classical Theory - Contra
 Problems with:
Market Failures
(e.g. pollution &
resource
depletion, see
Pacific Lumber
Case, successful,
balanced
enterprise ruined)
Classical Theory - Contra
 When the 1990’s Tech Stock
Bubble “burst” it sent layoffs
soaring, 401(k) assets tanking.
According to the Center on
Budget and Policy Priorities,
between 1997 and 1999 the
bottom 20% of earners saw their
income decline, while the
richest 1% saw their income
more than double. The invisible
hand is a bit partial in the way it
dispenses favors. (Marjorie
Kelly, The Divine Right of
Capital)
Stakeholder Theory
 Definition: The primary
consideration in business
decision-making is
preserving/promoting the rights
of stakeholders
 Takes into consideration the
moral principle of mutual
respect.
Stakeholder Theory
 Goal: to maintain the benefits of the free
market while minimizing the potential
ethical problems created by capitalism
(Phillips, Wharton School)
 Primary difference from Classical
Theory: elevation of nonshareholding
interests to the level of shareholder
interests in formulating business
strategy and policy.
Stakeholder Theory
 Stakeholder: an individual or
group, inside or outside the
organization, who has a
meaningful stake in its
performance.
 Who are the stakeholders of a
business?
 Narrow view vs. Wide View
Stakeholder Theory
 Some Possible Stakeholders of a
Business:
• Customers
• Department/Employees
• Owners/Shareholders
• Creditors
• Suppliers
• Distributors
• Competitors
Stakeholder Theory
 Some Additional Possible
Stakeholders:
• Local Community
• National Citizens
• Global Inhabitants
• Non-Human Life
• the Environment
Stakeholder Theory
 Corporate citizenship: the extent
to which a business meets its
responsibilities, to its various
stakeholders, or to society at
large.
Stakeholder Theory
 Problems with wider view?
• Discourages Investment Undermines/Dilutes shareholder
property rights
• Interest Group Politics - Leads to
waste and inefficiency
Corporate Social
Responsibility Theory
 Definition: A voluntary assumption
of responsibilities, beyond the legal
and economic, that take into
account moral/ethical/socially
desirable goals and outcomes.
 Concept originated in the 1950’s
and began to gain a significant
following in the 1960”s.
Corporate Social
Responsibility Theory
Example
 Merck: moved to
develop Mectizan, a
drug that would treat
river blindness, a
disease that primarily
affected the poor. Merck
knew that it would cost
millions to develop and
that they would most
likely not realize a direct
profit from the effort.
But this resulted in a
public relations windfall!
Corporate Social
Responsibility Theory
 “Man … ought to regard
himself, not as
something separated
and detached, but as a
citizen of the world, a
member of the vast
commonwealth of nature
… to the interest of this
great community, he
ought at all times to be
willing that his own little
interest should be
sacrificed.” - Adam
Smith
Corporate Social
Responsibility
 Social Contract Theory: Business does not exist in a vacuum. It involves a
series of interdependent, intertwined, symbiotic relationships and
coexists with many other institutions in society, including the family, the
church, and the political, criminal justice, and educational systems. Each
of these institutions contributes toward making capitalism possible: The
court system enforces contracts; the political system provides monetary
stability; and the educational system trains future employees and
prepares them for the workforce. Therefore, the firm is obligated to "give
something back" to those that make its success possible. Business
exists only because society allows it and therefore it must satisfy the
demands of society. This creates an implicit social contract (see
“Changing the Social Contract: A Role for Business”, by Melvin Anshen,
Columbia Journal of World Business 5 (Nov.-Dec. 1070)
2-153
Corporate Social
Responsibility Theory
 Problems with CSR in general?
• Viewed as fundamentally
antagonistic to the Capitalist
Enterprise
• Often influenced by simplistic
political and social agendas
Corporate Social
Responsibility Theory
 “Rain Forest Chic” - Socially
responsible image as a marketing
tool, source of free, positive
publicity (e.g. The Body Shop, both
customers and franchisees
attracted by progressive reputation)
Corporate Social
Responsibility Theory
 Anita Roddick/Body
Shop
• Supports various
social causes
(e.g.-Save the
Whales)
• But may of stolen
store concept and
unfairly deals with
franchisees?
Corporate Social
Responsibility Theory
 Ben & Jerry’s • Fight global warming
with Ice Cream
• Annual one world one
heart festival
• Pint for a pint with
International Red
Cross
• Rainforest Crunch
Fiasco/Mistreatment
of Employees/Sale to
Unilever (4/12/2000)
3 Theories of Social
Responsibility
 If you were trying to decide
which type of company to invest
in, which would you choose and
why? (Classical, Stakeholder,
CSR)
Self-Regulation of Business
Ethics
 Types of Codes of
Ethics/Conduct
• Compliance Oriented: Statement of business
standards or practices
• Visionary: Statement of beliefs, core values,
mission, principles (e.g. Johnson and Johnson
Credo) or corporate philosophy (e.g. the “HP
Way”)
• Combination: (e.g. G.E.’s Integrity Program
called “The Spirit and the Law”.
Types of Codes
Forbes 500 Companies (237 respondents):
Date Introduced
Revised in ‘90s
< 5 yrs.
>20 yrs.
Code of Ethics
91%
18.5%
15.5%
82%
Values Statement
53%
51.0%
8.0%
83%
Corporate Credo
34%
41.0%
22.0%
81%
All Three Documents
49 cos.
Source: Patrick E. Murphy, “Corporate Ethics Statements: Current Status and Future Prospects,”
Journal of Business Ethics 14: 727-740 (1995).
2-160
Self-Regulation of Business
Ethics
 Why have a Code of Ethics?
• to define accepted/acceptable
behaviors;
• to promote high standards of practice;
• to provide a benchmark for members
to use for self evaluation;
• to establish a framework for
professional behavior and
responsibilities;
Self-Regulation of Business
Ethics
 Why have a Code of Ethics?
• as a vehicle for occupational identity &
maturity;
• to increase ethical sensitivity &
judgement;
• to enhance the sense of community
among members, of belonging to a
group with common values and a
common mission;
Self-Regulation of Business
Ethics
 Why have a Code of Ethics?
• to compel people to think through
their mission and obligations, as a
group & as individuals;
• to strengthen support for individuals’
moral courage;
• because a written document reinforces
an intention.
• to act as a vehicle to address public
concerns.
Self-Regulation of Business
Ethics
 Why have a Code of Ethics?
• to discourage corruption, fraud
and other malfeasance
• to enhance credibility with
stakeholders
• to provide a guidepost for
addressing potential problems
such as potential conflicts of
interest
Self-Regulation of Business
Ethics
 Some Typical Components
• Preamble (Aspirations)
• Rules and principles.
• An Articulation of Core Values
Self-Regulation of Business
Ethics
 Some Elements of “Best Codes”
• Clear, Coherent, Understandable
Language
• Involves sanctions and rewards
• Is more about values than compliance
• Involves “Ownership” (i.e. People from
every level of the company should be
involved in its development.
Self-Regulation of Business
Ethics
 Some Elements of “Best Codes”
• Provides a set framework for making
ethical decisions
• Demonstrates respect for all
employees as unique, valuable
individuals
• Supports each individual employee's
freedom, growth, and development
• Promotes a “balanced life” & respect
for employee family concerns
Self-Regulation of Business
Ethics
 Some Elements of “Best Codes”
• Promotes employee health &
safety
• Promotes tolerance & an
atmosphere free of harassment
• Promotes honesty
• Promotes fairness?
• Cultivates a positive
Self-Regulation of Business
Ethics
 Some Elements of “Best Codes”
• Promotes openness/transparency
(no cover-ups)
• Promotes accountability/personal
responsibility
• Promotes risk-taking, within limits
• Promotes excellence
Self-Regulation of Business
Ethics
 Some Elements of “Best Codes”
• Promotes tolerance of errors &
learning from same
• Promotes unquestioned integrity
• Promotes consistency
• Promotes
cooperation/collaboration
• Promotes courage & persistence
Self-Regulation of Business
Ethics
Self-Regulation of Business
Ethics
 But as Joshua Joseph, research
manager at the Ethics Resource Center
in Washington, D.C. says, corporate
ethics codes alone have little effect on
employee behavior. Organizations must
communicate what’s in the code, provide
training on what it means and put
systems into place that allow workers to
ask questions and report possible
misconduct without fear of reprisals.
Self-Regulation of Business
Ethics
 Some Implementation Methods
• Integration
• Endorsement
• Breach Response Plan (Gaps between
values and practices must be
addressed)
• Personal Feedback
• Affirmation
• Regular Review
Self-Regulation of Business
Ethics
 Some Implementation Methods
• Training (Role-Playing) (including
outside specialty firms, e.g. Baker
Hughes signed a 3-year contract
renewal and extension with LRN® ,
The Legal Knowledge Company™ to
provide online education, training and
testing in ethics, legal and compliance
issues to its global workforce through
the LRN Legal Compliance and Ethics
Self-Regulation of Business
Ethics
 Some Implementation Methods
• Translation (e.g. Merck & Co.’s
code has been translated into 22
languages)
• Distribution (Pamphlets, On-Line,
etc.)
• Annual Report
• Ethics Officer/Department
Self-Regulation of Business
Ethics
 Some Monitoring/Compliance
Methods
• Required annual
acknowledgement/review
• Periodic surveys
• Anonymous 24-hour contact point
with real and immediate
investigation/follow-up
Self-Regulation of Business
Ethics
 Other Forms of Self-Regulation:
• Industry Codes
• Support character based
education in your community (e.g.
Boy Scouts)
• Hiring Ethical People: hire people
who can uphold the company's
high ethical standards
Self-Regulation of Business
Ethics
 Set your
expectations high;
find men and women
whose integrity and
values you respect;
get their agreement
on a course of
action; and give
them your ultimate
trust. - John Fellows
Akers, Chairman of
IBM
Self-Regulation of Business
Ethics
 I am sure that in
estimating every
man’s value either in
private or public life,
a pure integrity is the
quality we take first
into calculation, and
that learning and
talents are only the
second.- Thomas
Jefferson
Self-Regulation of Business
Ethics
 In looking for
people to hire, you
look for three
qualities: integrity,
intelligence, and
energy. And if they
don't have the
first, the other two
will kill you.-Warren Buffet
Chapter
2
End of Chapter 2
McGraw-Hill/Irwin
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.