PBS2243

BUSINESS ETHICS
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 CHAPTER 1
THE IMPORTANCE OF BUSINESS ETHICS

1.1 Definition of Business Ethics

1.2 The Importance of Business Ethics
1.3 The Benefits of Business Ethics

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1.0 INTRODUCTION
• The field of business ethics deals with questions about whether specific
business practices are acceptable. For example, provide some opinions
on the following situation:-
Should a salesperson omit facts about a product’s poor safety record in a sales
presentation to a client?

Should an accountant report inaccuracies that he or she discovered in an audit

of a client, knowing the auditing company will probably be fired by the client
for doing so?

Should an automobile tire manufacturer

intentionally conceal safety concerns to avoid a massive and costly tire recall?

• Regardless of their legality for the above situations, others will certainly judge
the actions taken in such situations as right or wrong, ethical or unethical.
• By its very nature, the field of business ethics is controversial, and there is no
universally accepted approach for resolving its issues.

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 1.1 Business Ethics Defined
►Defined as "inquiry into the nature and grounds of
morality where the term morality is taken to mean moral
judgments, standard and rules of conduct”.
►Defined as the study and philosophy of human conduct,
with an emphasis on determining right and wrong.
►Defined as the study of the general nature of morals and
of specific moral choices; moral philosophy; and the rules
or standards governing the conduct of the members of a
profession. (The American Heritage Dictionary)
►Defined as the principles, values, and standards that
guide behavior in the world of business.

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1.1.1 Why differentiate between rules/policies/law and
ethics?
⮚The difference between an ordinary decision and an
ethical decision is the point where the accepted rules no
longer serve, and the decision maker is faced with the
responsibility for weighing values and reaching a judgment
in a situation which is not quite the same as any he or she
has faced before.
⮚Another difference relates to the amount of emphasis that
decision makers place on their own values and accepted
practices within their company.
⮚Values and judgment play a key role in ethics decisions.
⮚Employees need a “buffer zone” of expected ethical
behavior.

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1.1.2 Business Ethics
►Comprises principles, values and standards that guide behavior in the
world of business
• Principles are specific and pervasive boundaries for behavior that are
universal and absolute. Principles often become the basis for rules.
Some examples of principles include freedom of speech,
fundamentals of justice.
• Values are used to develop norms that are socially enforced. Integrity,
accountability, and trust are examples of values.
►Whether a specific behavior is ethical or unethical is often determined
by stakeholders:
► Investors
► Employees
► Customers
► Interest groups
► Legal system
► Community
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1.1.3 Example of Data on Survey for American Distrust of Business

Source: “New US Consumer Survey Shows High Distrust of Financial Services Companies,” Business Wire,
January 20, 2009, http://findarticles.com/p/
articles/mi_m0EIN/is_2009_Jan_20/ai_n31202849/ (accessed May 27, 2009).
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1.1.4 Ethics and social responsibility
have distinct meanings.
• Social responsibility is the obligation a business
assumes to maximize its positive effect while
minimizing its negative effect on society.
• Social responsibility consists of the following
responsibilities:
• Economic (satisfy investors)
• Legal (obey the law)
• Ethical (expected activities and behaviors)
• Philanthropic (desired activities and behaviors)

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1.1.5 Business Ethics & Social
Responsibility

Laws and regulations encourage businesses to conform to

society’s standards, values, and attitudes. Sarbanes-Oxley
Act - 2002

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 1.2 Why study business ethics?
THE IMPORTANT OF BUSINESS ETHICS
Studying
business ethics Studying
is a response to business ethics
Reports of FSGO and helps identify
unethical stakeholder ethical issues to
behavior are on demands for key
the rise. ethics initiatives. stakeholders.

Society’s Individual ethics

evaluation of is not enough.
right or wrong
affects its ability
to achieve its
business goals.

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1.2.1 Recognizing Ethical Issues
in Business
• Ethical issue – an identifiable problem, situation, or
opportunity that requires a person to choose from
among several actions that may be evaluated as
right or wrong, ethical or unethical.

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 1.2.2 Ethical Issues on the Rise
Accounting fraud
awareness of:
Increased

Insider trading of stocks and

bonds
Falsifying of organizational
documents
Deceptive advertising
Defective products
Bribery
Employee theft

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1.2.3 A Timeline of Ethical and
Socially Responsible Concerns

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1.2.4 Before 1960: Ethics in Business
• Theological discussions of ethics emerged:
• Catholic social ethics included a concern for morality in
business, workers’ rights and living wages.
• Protestants developed ethics courses in their seminaries
and schools of theology. (Also, the Protestant work ethic
encouraged frugality and hard work.)

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 1.2.4 The 1960s: The Rise of Social
Issues in Business
• Societal social consciousness emerged
• As well as an anti-business sentiment
• JFK’s (John F. Kennedy, Former US President) Consumer Bill of
Rights ushered in a new era of consumerism
• Right to safety, to be informed, to choose, and to be
heard
• Consumer protection groups fought for consumer protection
legislation
• The publication of Ralph Nader’s Unsafe at Any Speed
that criticized the auto industry for putting profit and
style ahead of lives and safety.

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1.2.4 The 1970s: Business Ethics as an
Emerging Field
►Business professors began to write about social
responsibility.
►Philosophers became involved in business ethics.
►Businesses became more concerned with their
public image and addressed ethics more directly.
►Conferences were held and centers developed.
►Issues:
►Bribery – Product safety
►Deceptive advertising – Environment
►Price collusion

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1.2.4 The 1980s: Consolidation
►Membership in business ethics organizations
increased.
►Ethics centers provided:
►Publications, courses, conferences and seminars
►Firms established ethics committees.
►Defense Industry Initiatives emerged and became
the foundation for the Federal Sentencing
Guidelines for Organizations
►Corporate support for ethical conduct

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 1.2.4 The 1990s: Institutionalization
of Business Ethics

• The Federal Sentencing Guidelines for

Organizations set the tone for ethical compliance.
• These took preventative actions against
misconduct; a company could avoid or minimize the
potential penalties.

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1.2.4 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

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1.2.4 The 21st Century: A New Focus
• A move from legally based ethics initiatives to culturally or integrity-based
programs
• However, legislation such as the Sarbanes-Oxley Act was passed to
address the lack of confidence in financial reporting and corporate
ethics.
• Realization that business ethics programs are good for business
• Businesses working more closely together, globally, to establish standards
of acceptable behavior

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1.3 Benefits of Business Ethics
• Providing organizational guidelines for business
integrity in turbulent times.
• Helping employees deal with ethical issues they face
daily on the job.
• Building solid company teamwork and productivity.
• Creating an insurance policy – to help ensure that
company policies and procedures are legal.
• Promoting a strong public image.
• Improving society.
• It is the right thing to do.
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1.3.1 Relationship of Business Ethics to Performance

►Customers, employees, and investors are

major concerns for firms that want to
develop loyalty and competitive advantage.
►Goals are to increase customer dependence on
the company and to provide products in an
environment of mutual respect and perceived
fairness.
►This focus creates satisfying relationships with
employees.
►It also supports relationships with investors
based on trust, dependability, and commitment.
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1.3.2 Ethics Contributes to Employee
Commitment
• Employee commitment comes from employees
who believe their future is tied to that of the
organization and their willingness to make
personal sacrifices for the organization.
• The more dedication on the part of the company, the
greater the employee dedication.
• Concerns include a safe work environment, competitive
salaries and benefit packages, and fulfillment of
contractual obligations.

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1.3.3 Ethics Contributes to Investor
Loyalty
• Companies perceived by their employees as having
a high level of honesty and integrity are more
profitable than companies with a low level of
honesty and integrity.
• Ethical climates in
organizations provide
platform for:
• Efficiency
• Productivity
• Profitability

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1.3.4 Ethics Contributes to
Customer Satisfaction
• Consumers respond positively to socially concerned
businesses.
-Being good can be extremely profitable.
• Customer satisfaction dictates business success.
• A strong organizational ethical climate
often places the customer’s interests first.
• Research shows a strong relationship between ethical
behavior and customer satisfaction.

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1.3.5 Ethics Contributes to
Profits
►Corporate concern for ethical conduct is
increasingly being integrated with strategic
planning to maximize profitability.
►Corporate citizenship is positively associated
with:
►Return on investment and assets
►Sales growth
►Many studies have found a positive relationship
between citizenship and performance.

►Profit = bottom line

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 WHAT SAY YOU?
1. Business ethics focuses mostly on personal YES NO
ethical issues.
2. Business ethics deals with right or wrong YES NO
behavior within a particular organization.
3. An ethical culture is based upon the norms YES NO
and values of the company.
4. Business ethics contributes to investor YES NO
loyalty.
5. Investments in business ethics do not YES NO
support the bottom line.

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