C HAPTER 1
The Importance of Business
Ethics
Chapter Objectives
• To explore conceptualizations of business ethics from
an organizational perspective
• To examine the historical foundations and evolution
of business ethics
• To provide evidence that ethical value systems
support business performance
• To gain insight into the extent of ethical misconduct in
the workplace and the pressures for unethical
behavior
Chapter Outline
• Why Study Business Ethics?
• The Development of Business Ethics
• Developing an Organizational and Global Ethical
Culture
• The Benefits of Business Ethics
• Our Framework for Studying Business Ethics
Business Ethics
• Comprises principles and standards that guide behavior
in the world of business
• Right or wrong, acceptable or unacceptable behavior
within the organization
• Determined by you and key stakeholders
A Crisis in Business Ethics
• Consumer trust of businesses is declining
• No sector is exempt from ethical misconduct
• Stakeholders determine what is ethical/unethical
– Investors
– Employees
– Customers
– Interest groups
– Legal system
– Community
Why Study Business Ethics?
• Reports of unethical behavior are on the rise
• Society’s evaluation of right or wrong affects its
ability to achieve its business goals
• Studying business ethics is a response to
Sarbanes-Oxley, FSGO, and stakeholder demands
for ethics initiatives
• Individual ethics alone is not sufficient
• Studying business ethics helps identify ethical
issues to key stakeholders
Before 1960: Ethics in Business
• A living wage
• Theology’s domain
• Philosophy’s domain
The 1960s: The Rise of Social Issues in
Business
• Consumer’s Bill of Rights
• Ralph Nader
The 1970s: Business Ethics as an
Emerging Field
• Bribery
• Deceptive advertising
• Price collusion
• Product safety
• The environment
The 1980s: Consolidation
• Organized field of study
• Business ethics centers
• Business ethics courses
• Defense industry initiative
• Multinationals
• Self-regulation (Reagan/Bush)
The 1990s: Institutionalization of
Business Ethics
• Free trade
• Self-regulation
• Federal Sentencing Guidelines for Organizations
(FSGO)
• More multinationals
The Federal Sentencing Guidelines for
Organizations
• Standards and procedures capable of detecting and
preventing misconduct
• High level oversight
• Care in delegation of authority
• Effective communication (training)
• Systems to monitor, audit, and report misconduct
• Consistent enforcement
• Continuous improvement
The 21st Century: A New Focus
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Continued issues with corporate non-compliance
Sarbanes-Oxley Act (2002)
FSGO reform (2004)
Firm’s greatest danger is not discovering misconduct
early
• Basic assumptions of capitalism being debated
Organizational and Global Ethical
Culture
• Ethical culture describes the component of
corporate culture that captures the values and norms
that an organization defines as appropriate conduct
Benefits of Business Ethics
• Better ethical climate
• Employee commitment and trust
• Investor loyalty and trust
• Customer satisfaction and trust
• Long term profits