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Bus law today 9th ed ch02

BUSINESS LAW TODAY
Essentials 9th Ed.

Roger LeRoy Miller - Institute for University Studies, Arlington, Texas
Gaylord A. Jentz - University of Texas at Austin, Emeritus

Chapter

2

Ethics and
Business Decision
Making

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

1


Learning Objectives

 What is business ethics and why is it





important?
How can business leaders encourage their
companies to act ethically?
How do duty based ethical standards differ
from outcome-based ethical standards?
What are six guidelines that an employee can
use to evaluate whether his or her actions are
ethical?
What types of ethical issues might arise in the
context of international business transactions?

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2


Business Ethics
 Ethics is the study of right and wrong
behavior; whether an action is fair, right
or just.
 In business, ethical decisions are the
application of moral and ethical
principles to the marketplace and
workplace.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

3


Why is Business Ethics
Important?
 Directors and Officers owe a complex set
of ethical duties to the company,
shareholders, customers, community,
employees, and suppliers.
 When these duties conflict, ethical
dilemmas are created.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4


Business Ethics
 Moral Minimum: minimum standard for
ethical business behavior really means bare
compliance with the law.
 “Gray Areas” in the Law: when the law is
“silent” on an actions legality.
In addition, courts decide on a case by case
basis, looking for “reasonable” acts or
“foreseeable” results.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5


Business Ethics
 Short-Run Profit Maximization.
Some argue that a corporation’s only goal
should be profit maximization.
Corporate executives should distinguish
between short-term and long-term profit
maximization.

 CASE 2.1

United States v. Skilling

(2009). Skilling’s conviction was upheld, Court
rejected exception to the “honest-services fraud”
for keeping the stock prices high.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6


Importance of Ethical
Leadership
 Attitude of Top Management.
Management must be committed to creating
an ethical company.
Management must set realistic goals for
production.
Management must deal with unethical issues
quickly

 (Unethical) Behavior of Owners and
Managers.
 Periodic Evaluation.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

7


Creating Ethical Codes of
Conduct
 Codes Must be Well-Written.
 Companies Should Provide Ethics
Training to Employees.
 Sarbanes-Oxley Act and Web-Based
Reporting.
SO requires confidential ethics reporting
systems to “raise red flags” about practices.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

8


Ethical Transgressions by
Financial Institutions
 Corporate Stock Buybacks.
Many of the greatest financial institutions have
gone bankrupt, taken over by the federal
government, or bailed out by U.S. taxpayers.
Buyback: management believes stock value is
“below fair value.” Instead of issuing dividends,
it buys its own shares on the open market,
boosting the price of the stock.
Executives benefit because the value of their
stock options goes up.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9


Ethical Transgressions by
Financial Institutions
 Bonuses.
A Perverse System.
Bonuses and Salaries before the Crisis.
Some Bonuses were paid Early.
Congress Acts to Limit Bonuses in the American
Recovery and Reinvestment Tax Act of 2009.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10


Approaches to Ethical
Reasoning
 Duty Based Ethics - derived from
religious and philosophical principles.
Religious Ethical Standards
Kantian Ethics
Rights Principles

 Outcome-Based Ethics - seek to ensure a
given outcome.
Utilitarianism.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

11


Religious Ethical Standards
 The rightness or wrongness of an action is




usually judged according to its conformity
to an absolute rule that commands a
particular form of behavior.
The motive of the actor is irrelevant in
judging the rightness or the wrongness of
the action.
These rules often involve an element of
compassion.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12


Kantian Ethics
 Premised on the belief that general
guiding principles for moral behavior
can be derived from human nature.
 The categorical imperative is a central
postulate of Kantian ethics.
The rightness or wrongness of an action is
judged by estimating the consequences that
would follow if everyone in a society performed
the act under consideration.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

13


Principle of Rights
 This principle derives from the belief that
every duty gives rise to a corresponding
right.
 The belief in fundamental rights is a
deeply embedded feature of Western
culture.
 The ethicality of an action is judged by
how the consequences of the action will
affect the rights of others.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

14


Outcome-Based Ethics:
Utilitarianism
 An action is ethical based on whether it




produces the greatest good for the greatest
number of people upon which it has an
effect.
A cost-benefit analysis must be performed
to determine the effects of competing
alternatives on the persons affected.
The best alternative is the one that
produces the greatest good for the greatest
number.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

15


Corporate Social Responsibility
 Corporations should be interested in impact
on civil rights, environment, consumer
protection, employee safety and welfare.
 Stakeholder Approach.
 Corporate Citizenship.

 CASE 2.2

Fog Cutter Capital Group, Inc. vs.
Securities Exchange Commission (2007).
SEC’s decision was not arbitrary, capricious, or
abuse of discretion. Firm just focused on its CEO
and its shareholder profits.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

16


Making Ethical Business
Decisions

 Six Guidelines:
1.
2.
3.
4.
5.
6.

The Law.
Rules and Procedures.
Values.
Conscience.
Promises.
Heroes.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

17


Making Ethical Business
Decisions
 Practical Solutions to Corporate Ethics
Questions.
1. Make Inquiry.
2. Broad Discussion with all stakeholders
represented.
3. Decision: come to consensus.
4. Justification: does the consensus withstand
moral scrutiny?
5. Evaluation: do the solutions satisfy corporate
values and shareholders?
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

18


Business Ethics on A Global
Level
 American companies must be trained in
cross-cultural business practices.
 Monitoring the employment practices of
foreign suppliers.
Corporate Watch groups can disseminate
information instantly around world.

 Foreign Corrupt Practices Act.
Bribes and Accounting Practices.

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

19



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