THE LEGAL ENVIRONMENT
OF BUSINESS
A Critical Thinking Approach
Fourth Edition
Nancy K. Kubasek
Bartley A. Brennan
M. Neil Browne
© 2006 Prentice Hall
Ch. 8-1
-1
THE LEGAL ENVIRONMENT OF BUSINESS
CHAPTER 8
Ethics, Social Responsibility, and
the Business Manager
©2006 Prentice Hall
Ch. 8-2
THE LEGAL ENVIRONMENT OF BUSINESS
Business Ethics and Social Responsibility
Notorious Cases:
Union Carbide Bhopal Disaster
Bridgestone-Firestone & Ford Explorer Cases
Ethics is involved when decisions are
made that affect the lives of others.
© 2006 Prentice Hall
3
Ch. 8-3
THE LEGAL ENVIRONMENT OF BUSINESS
The Social Responsibility of Business
DEFINITION
Concern about business activities and their
intended and unintended impact on groups and
individuals other than owners or managers.
The Shareholder vs. Stakeholder Debate
© 2006 Prentice Hall
4
Ch. 8-4
THE LEGAL ENVIRONMENT OF BUSINESS
Theories of Ethical Thought
Ethics: the study of good and bad behavior
Business ethics: the same study directed to
business conduct
Theories
Consequential or Utilitarian – focus on
consequences
Deontological – focus on duties
Humanist – focus on improving human life
© 2006 Prentice Hall
5
Ch. 8-5
THE LEGAL ENVIRONMENT OF BUSINESS
Utilitarianism
Act Utilitarianism:
Does the act bring net
happiness? If not, don’t do it.
Rule Utilitarianism:
If the act were a general rule,
would it bring net happiness?
© 2006 Prentice Hall
6
Ch. 8-6
THE LEGAL ENVIRONMENT OF BUSINESS
Deontologists
Actions are intrinsically good or bad,
regardless of any consequences
Immanuel Kant: “Categorical Imperative”
Actions are judged on the basis of their
universal application: good or bad?
Everyone is rational, has free will, and is to
be treated equally—never as a means to an
end
© 2006 Prentice Hall
7
Ch. 8-7
THE LEGAL ENVIRONMENT OF BUSINESS
Humanists
Human Capacities:
Intelligence
Wisdom
Self-restraint
Actions that advance these are
ethical
Example: Bribery
© 2006 Prentice Hall
8
Ch. 8-8
THE LEGAL ENVIRONMENT OF BUSINESS
Code of Ethics
Individual
Corporate
Industry
© 2006 Prentice Hall
Professional
Accounting
Insurance and Finance
Law
9
Ch. 8-9
THE LEGAL ENVIRONMENT OF BUSINESS
Corporate Codes
Widely used
Apply to management
Include sanctions
© 2006 Prentice Hall
10
Ch. 8-10
THE LEGAL ENVIRONMENT OF BUSINESS
Industry Codes
Adopted by associations
Aspirational statements
ISSUE: Most associations are formed primarily to
advance economic and political opportunities for
their members, not to regulate themselves.
© 2006 Prentice Hall
11
Ch. 8-11
THE LEGAL ENVIRONMENT OF BUSINESS
Professional Codes
Professionals defined:
Educational requirements
Licensing requirements
Written and enforceable ethical standards
Formal status as organization
Formally recognized as such by public
© 2006 Prentice Hall
12
Ch. 8-12
THE LEGAL ENVIRONMENT OF BUSINESS
Professional Codes
Professional codes may conflict with
company or association codes
Management must recognize that conformity
with professional code will have priority
© 2006 Prentice Hall
13
Ch. 8-13
THE LEGAL ENVIRONMENT OF BUSINESS
Examples of Professional Codes
Accounting
AICPA Code of Professional Ethics and
Interpretive Rules
Insurance
ASCLU Guides to Professional Conduct
Law
ABA Model Rules of Professional Responsibility
and State Bar Associations
© 2006 Prentice Hall
14
Ch. 8-14
THE LEGAL ENVIRONMENT OF BUSINESS
Schools of Social Responsibility
Profit-Oriented School
Managerial School
Institutional School
Professional Obligation School
Regulation School
© 2006 Prentice Hall
15
Ch. 8-15
THE LEGAL ENVIRONMENT OF BUSINESS
Profit-Oriented School
The purpose of business is to
increase value for shareholders
Managers who serve this goal are
demonstrating social responsibility
Unintended negative
consequences are external to
corporate financial results
“Social costs” are matters for
government, not corporate, action
© 2006 Prentice Hall
16
Ch. 8-16
THE LEGAL ENVIRONMENT OF BUSINESS
Managerial School
Many large businesses have
stakeholders as well as
stockholders
Management should strive to
serve both internal and external
groups
Management should also strive
to maximize long-term as well as
short-term goals
© 2006 Prentice Hall
17
Ch. 8-17
THE LEGAL ENVIRONMENT OF BUSINESS
Institutional School
Business has responsibility to
benefit all of society
Business should be held
responsible for all actions,
just as individuals presently
are
© 2006 Prentice Hall
18
Ch. 8-18
THE LEGAL ENVIRONMENT OF BUSINESS
Professional Obligation School
Business managers should be
‘professionalized’
Licensing based on state/national
test
Codified responsibilities
License revocation sanction for
violations
© 2006 Prentice Hall
19
Ch. 8-19
THE LEGAL ENVIRONMENT OF BUSINESS
Regulation School
Business is accountable to
government regulators
Issue: How much regulation is enough?
© 2006 Prentice Hall

Government seat on board of directors

Independent audits

Increased reporting requirements
20
Ch. 8-20
THE LEGAL ENVIRONMENT OF BUSINESS
Global Dimensions
U.N. Code of Conduct for Transnational
Corporations
Respect for sovereignty
Adherence to sociocultural values
Respect for human rights
Anticorruption
Foreign Corrupt Practices Act
OECD Anti-Bribery Convention
© 2006 Prentice Hall
21
Ch. 8-21
THE LEGAL ENVIRONMENT OF BUSINESS
Summary
Ethics and business ethics defined
Ethical theories
Schools of Social Responsibility
Global dimensions and responses
© 2006 Prentice Hall
22
Ch. 8-22