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1 Legal Environment
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 Quotes of the Day
“The one and only social responsibility of
business is to increase its profits.”
Milton Friedman (b. 1912),
Nobel laureate in economics

“The business of business is serving

society, not just making money.”
Dayton Hudson corporate constitution
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4 Legal Environment 
 Ethics
Ethics is the study of how people ought
to act.

Law and ethics may not always agree...

Sometimes it is ethical to commit an illegal act...

And some legal acts are unethical!

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 Why Bother With Ethics?
There is little evidence that ethical behavior increases profits
or that unethical behavior decreases profits… so why
bother?

 Society as a whole benefits by encouraging

economic competition; no one wants to
compete with unfair competitors.
 People feel better when they behave
ethically.
 Unethical behavior can be costly, if there is
public outrage leading to a boycott. 2
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 What is Ethical Behavior?
Questions to Ensure Ethical Behavior
 What are the facts?
 What are the critical issues?
 Who are the stakeholders?
 What are the alternatives?
 What are the implications of each choice?
• Are the alternatives legal?
• Do they “look bad?”

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• What are the consequences of this choice?
• Does this action violate important values?

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 Is more than one alternative right?

8 Legal Environment
 Responsibility To Society
Businesses must take a stand on sexual
and racial exploitation in advertising.
 Alternatives in advertisement ethics
• Ignore ethics and try to create ads that sell the
most product, no matter the underlying
message.
• Try generally to minimize exploitation.
• Include a systematic, focused review of
underlying messages as part of the

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development process.
• Refuse to create any ads that are even

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potentially offensive.

9 Legal Environment
 Other Responsibilities
 To customers
• Is a business responsible if its decisions create a
financial hardship for someone else? What if a
decision leaves someone homeless?
 To employees
• Should employers be required to treat all
employees the same in regard to benefits?
 To shareholders
• Questions are often raised about uses of a
company’s profits -- distributed to shareholders,
raising executives’ salaries, improving business?
• Should a company be allowed to intentionally lower 2
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profits to improve in other areas?

10 Legal Environment
 Other Responsibilities (cont’d)
 To -- and in -- foreign countries
• Companies with operations in foreign countries are
often criticized for deplorable working conditions
and low wages.
• Response to these criticisms is often that even low-
wage jobs are better than destitution and that these
jobs are the beginnings of economic growth.
 Employees’ responsibility to company
• Should employees report unethical behavior among
co-workers? Should promotion decisions be made
based on friendships?
• These questions show the difficult choices that 2
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have to be made every day in the work place.

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 The Best Insurance
Even employees who are ethical in their
personal lives may find it difficult to
uphold their standard at work if those
around them behave differently.

The surest way to infuse ethics

throughout an organization is for top
executives to behave ethically
themselves.
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Click here to view an online discussion of ethical issues.

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 “Ethical behavior offers significant
advantages: society as a whole
benefits; executives who behave
ethically have happier, more
fulfilled lives; and unethical
behavior can destroy a company.”

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