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Chapter 2

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Business ethics: The fundamental moral values
and behavioral standards that form the foundation
for the people of an organization as they make
decisions and interact with stakeholders

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Key Stakeholders

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 Three Levels of Ethical Standards
The law
Organizational policies and procedures
The moral stance employees take when faced
with decisions not governed by levels 1 and 2

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Levels of Ethical Standards

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 Immoral, Amoral, and Moral Management
Immoral management - driving force is greed
Amoral management - does not consider
ethical impact on others
Moral management - sees the law as a
minimum standard of behavior

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 The Benefits of Moral Management
 Earning a profit does not conflict with maintaining
high ethical standards
1. Avoid the damage to a company’s reputation that
results from unethical behavior
2. Dealing with diverse stakeholders is easier with a
solid ethical foundation
3. Attracting and retaining quality workers is easier
for companies with solid reputations
4. Ethical behavior has a positive impact on the
company’s bottom line

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Reasons to Run a Business Ethically and
the Factors That Drive Business Ethics

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 Establishing an Ethical Framework
1. Identify the personal moral and ethical principles that
shape all business decisions
2. Recognize the ethical dimensions involved in the
dilemma or decision
3. Identify the key stakeholders involved and determine
how the decision will affect them
4. Generate alternative choices and distinguish between
ethical and unethical responses
5. Choose the “best” ethical response and implement it

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 KPMG Integrity Survey
73% of workers say they have observed ethical lapses
in their companies within the last year
56% say that the misconduct would cause a
significant loss of public trust if discovered

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 Causes of ethical lapses:
An unethical employee
An unethical organizational culture
Moral blindness
Competitive pressures
Opportunity pressures
Globalization of business

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Ethics Research Reveals Features of Ethical Cultures

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 Establishing Ethical Standards
The utilitarian principle
Kant's categorical imperative
The professional ethic
The Golden Rule
The television test
The family test

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 Maintaining Ethical Standards
Set the tone
Create a company credo
Establish high standards of behavior
Involve employees in establishing ethical
standards
Create a culture that emphasizes two-way
communication

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 Develop a code of ethics
Slow down
Seek advice and elevate the issue.
Don’t get bullied into making a quick decision that you
might later regret
 Enforce the code of ethics through policies
 Recruit and promote ethical employees
 Conduct ethics training
 Reward ethical conduct
 Separate related job duties
 Perform periodic ethical audits
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Social entrepreneur: people who start businesses
so that they can create innovative solutions to
society’s most vexing problems
Change agents for society

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 Social entrepreneurs:
1. Seek solutions for social problems that neither
the market nor government provide
2. Are motivated primarily by creating social
benefit rather than commercial success
3. Tackle social problems by taking full advantage
of natural market forces

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 Social responsibility - the awareness by a company’s
managers of the social environmental, political, human,
and financial consequences its actions produce
Social steward
Companies that incorporate social responsibility into
their competitive strategies outperform those that fail
to do so

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 Businesses are responsible to:
The environment
Employees
Customers
Investors
The community

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 Socially responsible businesses focus on three Rs:
1. Reduce the amount of materials used in your
company
2. Reuse whatever you can
3. Recycle the materials that you must dispose of

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 Listening to employees and respecting their opinions
 Asking for their input; involving them in the decision-
making process
 Providing regular feedback—positive and negative—to
employees
 Telling them the truth—always
 Letting them know exactly what’s expected of them
 Rewarding employees for performing their jobs well
 Trusting them; creating an environment of respect and
teamwork

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 Entrepreneurs’ responsibilities to employees:
Cultural diversity

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 Cultural Diversity in the Workplace
SPLENDID approach to diversity
Study
Plan
Lead
Encourage
Notice
Discussion
Inclusion
Dedication

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Cultural Diversity in the Workplace

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Composition of U.S. Workforce by Race and Gender
2000, 2010, 2020

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 Managers of a culturally diverse workforce should:
Assess your company’s diversity needs
Learn to recognize and correct your own biases and
stereotypes
Avoid making invalid assumptions
Push for diversity in your management team
Concentrate on communication
Make diversity a core value in the organization
Continue to adjust your company to your workers

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 Entrepreneurs’ responsibilities to employees:
Cultural diversity
Drug testing

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 Drug Testing
An effective, proactive drug program should include:
A written substance abuse policy
Training for supervisors to detect substance-abusing
workers
An employee education program
A drug-testing program, when necessary
An employee assistance program (EAP)

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 Entrepreneurs’ responsibilities to employees:
Cultural diversity
Drug testing
AIDS

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 HIV/AIDS
An AIDS policy should include
Employment
Discrimination
Employee benefits
Confidentiality
Education
“Reasonable accommodations”

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 Entrepreneurs’ responsibilities to employees:
Cultural diversity
Drug testing
AIDS
Sexual harassment

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 Sexual Harassment
Sexual harassment: Any unwelcome sexual advance,
request for sexual favors, or other verbal or physical
sexual conduct made explicitly or implicitly as a
condition of employment
84% of sexual harassment cases are filed by women

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Sexual Harassment Charges Filed

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 Harassment can take several forms:
Quid pro quo (“something for something”)
harassment
Hostile environment
Harassment by non-employees
Burlington Industries vs. Ellerth

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 Preventing sexual harassment:
Education
Policy

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 Policy
Clearly define what behaviors constitute sexual
harassment.
State in clear language that harassment will not be
tolerated in the workplace.
Identify the responsibilities of supervisors and
employees in preventing harassment.
Define the sanctions and penalties for engaging in
harassment.
Spell out the steps to take in reporting an incident of
sexual harassment.

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 Preventing sexual harassment:
Education
Policy
Procedures

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Procedures
Listen without judging
Investigate complaints promptly
Interview parties involved and witnesses
Maintain confidentiality
Follow company policy
Inform both parties of actions taken
Document the investigation

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 Entrepreneurs’ responsibilities to employees:
Cultural diversity
Drug testing
AIDS
Sexual harassment
Privacy

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 Privacy
To avoid ethical (and legal) problems, business owners
should follow these guidelines:
1. Establish a clear policy for monitoring employees’
communications
2. Create guidelines for the proper use of the
company’s communication technology and
communicate them to everyone.
3. Monitor in moderation

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 Customers have the right to:
Safety
Know
Be heard
Education
Choice

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 Investors have the right to:
An attractive return on their investments
Ethical and socially responsible behavior
Timely and accurate financial reports

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 Communities have the right to:
Jobs
Wealth creation
Good corporate citizenship
Giving back

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