Chapter Three
Ethics – the study of what
constitutes right or wrong
behavior
• Business ethics – what constitutes
what is right or wrong behavior in the
business world and on how moral and
ethical principles are applied by
business persons to situations that
arise in the workplace.
– Ethics is vital to the long-run viability of a
corporation/business
Stakeholders of a business
include: stockholders,
employees, owners, suppliers
and community
Fiduciary duty – a duty of trust
and loyalty between partners
to each other and their firm,
agents & clients, etc.
Setting the Tone
• Attitude of top management
– Adhering to ethical norms
– Looking the other way
– Setting realistic goals
– Periodic evaluations
• Ethics is a top priority
Employees can be measure in
regard to ethical performance
Clear communication to employees
Seminars
Code of conduct
Training program
• Sarbanes-Oxley Act of 2002 – requires
companies to set up confidential
reporting systems so employees may
report suspected illegal or unethical
auditing and accounting practices.
• Corporate governance – internal
procedures establishing rights and
responsibilities of a corporations
management, board of directors,
shareholders and stakeholders
– Information/transparency
• Ethic programs need to be monitored
by a committee separate from each
department – creates unbiased
monitoring
– Enron, Merck, WorldCom, Exxon Valdez
• Moral minimum – legal compliance –
most companies go beyond the moral
minimum
– Ignorance is not an excuse – most
corporations have attorneys constantly
keeping updated with changes in laws that
affect their industry
Ethical Reasoning
• Duty based ethics
– Religious standards – thou shall not steal
– Kantian – philosophical reasoning –
individuals should evaluate their actions in
light if the consequences if everyone did
the action (also called categorical
imperative) (the end doesn’t justify the
means)
– Principle of Rights – everyone has certain
expected rights and decisions should be
Outcome Based Ethics:
Utilitarianism
(a.k.a. Consequentialism)
• Using cost benefit analysis – choose
the option that will benefit the most
people
• Pros vs. Cons
• Foreign Corrupt Practices Act of 1977 –
prohibits U.S. businesspersons from
bribing foreign officials to secure
advantageous contacts unless it is
lawful in that country
– Also, companies must keep detailed and
accurate financial activities (greasing to minor
officials not included…speeding up a license approval)
• Organization of Economic Cooperation
and Development (1997) – created a
treaty that made bribery of a foreign
official a serious crime…by 2006, 35
countries had adopted it