Part One

An Overview of
Business Ethics

Chapter 1
The Importance
of Business
Ethics

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Learning Objectives
• Explore conceptualizations of business ethics
from an organizational perspective
• Examine the historical foundations and evolution
of business ethics
• Provide evidence that ethical value systems
support business performance
• Gain insight into the extent of ethical misconduct
in the workplace and the pressures for unethical
behavior

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The Basic Concepts in

Business Ethics (1 of 4)
• Morals: Personal philosophies that define right
and wrong.
• Business ethics: Organizational principles,
values, and norms that may originate from
individuals, organizational statements, or from
the legal system that primarily guide individual
and group behavior in business.

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The Basic Concepts in

Business Ethics (2 of 4)
• Principles: Specific boundaries for behavior that
often become the basis for rules (human rights,
freedom of speech).
• Values: Enduring beliefs and ideals that are
socially enforced (trust and integrity).

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The Basic Concepts in

Business Ethics (3 of 4)
• Moral dilemma: Two or more morals in conflict
with one another.
• Value dilemma: Two or more beliefs/ideals in
conflict with one another.

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 6

The Basic Concepts in

Business Ethics (4 of 4)
• Ethical culture: Organizational principles,
values, and norms that are adhered to by the
company and its personnel.
• Corporate social responsibility: Actions
associated by firms with various stakeholder
(other than investors) interests as a priority.
• Sustainability: Relates specifically to the
environment (air, land, and water).

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Bottom Line for Business Ethics

• Firm survival
• Profitability, revenues, sales
• Stakeholders: customers, employees, channel
members (manufacturers, wholesalers, retailers)
• Contribute to societal goals: community,
country, world

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 8

Why Study Business Ethics?

• Identify ethical issues.
• Recognize approaches for resolving ethical
issues.
• Cope with conflicts between your own personal
values and those of the organization in which you
work.
• Gain knowledge to make more ethical business
decisions.

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TABLE 1-1 Observed Misconduct

in the U.S. Workforce
Observed misconduct 30%

Abusive behavior 22%

Lying to stakeholders 22%

Conflict of interest 19%

Pressure to compromise standards 22%

Report observed misconduct 76%

Experience retaliation for reporting 53%

Source: Ethics and Compliance Initiative, 2016 Global Business Ethics Survey™: Measuring Risk and Promoting Workplace Integrity
(Arlington, VA: Ethics and Compliance Initiative 2016), 43.

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The Process of Legal to Unethical

to Illegal Business Practice
Steps in the process:
1. A major event occurs that negatively sensitizes the
public to a business practice.
2. The public uses social media to increase
awareness.
3. Legislators (local, state, and federal) become
sensitized to the negative business practices.
4. Bills, laws, and local, state or federal agencies are
introduced to make specific items illegal or
regulated.

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The Development of Business

Ethics in the U.S.—Before 1960
• Capitalism dictated business practices.
• 1920s: Provide a living wage—income sufficient
for education, recreation, health, and retirement.
• 1930s: The New Deal (President Franklin D.
Roosevelt)—blamed business as the cause for
U.S. problems.
• 1950s: The Fair Deal (President Harry S. Truman)
—defined such matters as environmental
responsibility as ethical issues that businesses
had to address.

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 The Development of Business Ethics in 12

the U.S.—The 1960s: The Rise of Social

Issues in Business (1 of 2)
• Development of anti-business trend.
• Decay of inner cities; growth of ecological
problems.
• President John F. Kennedy: The Consumers’ Bill
of Rights
• Right to safety.
• Right to be informed.
• Right to choose.
• Right to be heard.

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 The Development of Business Ethics in 13

the U.S.—The 1960s: The Rise of Social

Issues in Business (2 of 2)
• President Lyndon B. Johnson: The Great Society
• Extended national capitalism with the U.S.
government’s responsibility to provide all citizens
with some degree of economic stability, equality,
and social justice.

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The Development of Business Ethics in
the U.S.—The 1970s: Business Ethics
as an Emerging Field (1 of 2)
• Business ethics becomes a common expression.
• Academic researchers seek to identify ethical
issues and describe how business people might
choose to act in particular situations.
• Ethical/Illegal issues defined: bribery, deceptive
advertising, price collusion, product safety, and
ecology.

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The Development of Business Ethics in
the U.S.—The 1970s: Business Ethics
as an Emerging Field (2 of 2)
• Limited success was made to describe how the
ethical decision-making process in business
worked and to identify the many variables that
influenced the process.

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The Development of Business Ethics in
the U.S.—The 1980s: Business Ethics
Reaches Maturity (1 of 2)
• Centers for business ethics provided publications,
courses, conferences, and seminars.
• Stakeholder theory developed.
• Defense Industry Initiative on Business Ethics and
Conduct (DII) was developed to guide corporate
support for ethical conduct.
1. Codes of conduct must be understandable and cover
substantive areas in detail.
2. Member companies expected to provide ethics training
and continuous support for employees.

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The Development of Business Ethics in
the U.S.—The 1980s: Business Ethics
Reaches Maturity (2 of 2)
3. Defense contractors must create an open atmosphere
in which employees feel comfortable reporting
violations without fear of retribution.
4. Companies must perform extensive internal audits and
develop effective internal reporting and voluntary
disclosure plans.
5. Member companies must preserve the integrity of the
defense industry.
6. Member companies must adopt a philosophy of public
accountability.
• Reagan–Bush Era: Self-regulation rather than regulation by
government was in the public’s interest.

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The Development of Business Ethics in
the U.S.—The 1990s:
Institutionalization of Business Ethics
• President Bill Clinton: Continued to support
self-regulation and free trade.
• Government action with health-related social
issues such as teenage smoking.
• Federal Sentencing Guidelines for
Organizations (FSGO): Set the tone for
organizational ethical compliance programs.

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The Development of Business Ethics in
the U.S.—The Twenty-First Century of
Business Ethics (1 of 3)
• President George W. Bush: Misconduct at Enron,
WorldCom, Halliburton, and the accounting firm
Arthur Andersen caused the government and the
public to look for new ways to encourage ethical
behavior.
• 2002 Congress passed the Sarbanes–Oxley Act,
the most far-reaching change in organizational
control and accounting regulations since the
Securities and Exchange Act of 1934.

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The Development of Business Ethics in
the U.S.—The Twenty-First Century of
Business Ethics (2 of 3)
• Amendments to the FSGO required governing
authority be well informed about its ethics
program with respect to content, implementation,
and effectiveness. Placed responsibility on firm’s
leadership (usually the board of directors).
• The Sarbanes–Oxley Act and the FSGO
institutionalized the need to discover and
address ethical and legal risk.

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The Development of Business Ethics in
the U.S.—The Twenty-First Century of
Business Ethics (3 of 3)
• President Barack Obama: Inherited the great
global financial recession.
• The Dodd–Frank Wall Street Reform and
Consumer Protection Act addressed some of the
issues related to the financial crisis and
recession.
• President Donald Trump: Decreased
environmental and financial regulations.
Questioned sustainability.

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TABLE 1-2 Timeline of Ethical and

Socially Responsible Concerns
1960s 1970s 1980s 1990s 2000s
Environmental Employee militancy Bribes and illegal Sweatshops and Cybercrime
issues contracting unsafe working
practices conditions in third-
world countries
Civil rights issues Human rights issues Influence peddling Rising corporate Financial
liability for personal misconduct
damages (for example,
cigarette companies)
Increased Covering up rather Deceptive advertising Financial Global issues,
employee–employer than correcting mismanagement product safety,
tension issues and fraud bribery
Changing work ethic Disadvantaged Financial fraud (for Organizational ethical Sustainability
consumers example, savings and misconduct
loan scandal)
Rising drug use Transparency issues     Intellectual property
theft

Source: Adapted from Ethics & Compliance Initiative, “Business Ethics and Compliance Timeline,” https://www.ethics.org/resources/free-toolkit/ethics-timeline
(accessed April 9, 2017).

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The Benefits of Business

Ethics (1 of 4)
• Ethics Contributes to Employee Commitment
• Willingness to sacrifice for the organization.
• Increases group creativity and job satisfaction;
decreases turnover.
• Less pressure to compromise ethical standards,
• Greater absence of misconduct.
• Strong community involvement increases loyalty
and positive self identity.

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The Benefits of Business

Ethics (2 of 4)
• Ethics Contributes to Investor Loyalty
• Provides a foundation for efficiency, productivity,
and profits.
• Negative publicity, lawsuits, and fines can lower
stock prices, diminish customer loyalty, and
threaten a company’s long-term viability.
• Demand for socially responsible investing is
increasing.

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The Benefits of Business

Ethics (3 of 4)
• Ethics Contributes to Customer Satisfaction
• High levels of perceived corporate misconduct
decreases customer trust.
• Companies viewed as socially responsible
increase customer trust and satisfaction.
• Consumer respondents stated they would pay
more for products from companies that give back
to society in a socially responsible and
sustainable manner.

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The Benefits of Business

Ethics (4 of 4)
• Ethics Contributes to Profits
• Better business performance.
• Part of strategic planning toward obtaining the
outcome of higher profitability.
• Business ethics is becoming more than just a
function of compliance; It’s becoming an integral
part of management’s efforts to achieve
competitive advantage.

© 2019 Cengage. All rights reserved.