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Chapter 5 notes

by: Lauren Rothbauer

Chapter 5 notes BUSM 35400

Lauren Rothbauer
Purdue University Calumet
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About this Document

Concerning ethics. You guys can use this for the quiz if you didn't already.
Business Law
Professor Irving
Class Notes
business, ethics




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This 8 page Class Notes was uploaded by Lauren Rothbauer on Sunday September 25, 2016. The Class Notes belongs to BUSM 35400 at Purdue University Calumet taught by Professor Irving in Fall 2016. Since its upload, it has received 4 views. For similar materials see Business Law in Business at Purdue University Calumet.

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Date Created: 09/25/16
Chapter 5: Ethics ● Business Ethics ○ Ethics­Standards for right and wrong behaviors ○ Business ethics­ Same as the above, just for the business world and business persons. Businesses have different duties than a normal person would. ○ Why is studying business ethics so important? ■ Profit maximization­ Makes sure that all resources  (materials, money) are properly used and none go to waste. (theory 1) ■ The rise of corporate citizen­ Not everyone is happy with the current allocation of resources.  ● Triple bottom line­ The performance  of a business as rated by three criteria: profits; impact on people,  and impact on the environment. ● Thus, a business is no longer just a money­ making entity, but a sort of citizen with responsibilities for the betterment of society. (theory 2) ○ The importance of ethics in making business decisions.  ■ Evaluate by asking the following: ● Legal implications; public reactions;  safety risks; financial implications ■ Long­run profit maximization ● Short­run isn’t as extreme to long­ run. Short: a bad moment:: Long: a bad reputation. ● Example: Oxycontin. No testing was  done and the drug was still sold, though it was discovered to be  highly addictive. ■ The internet can ruin reputations ● Example: Trolling ● Business example: Thanks to web  2.0 (which means lots of user generated content) things like  reviews and blogs mean that corporations take harder hits if they  “goof up” (Walmart and advocacy groups. Think Michael Moore’s “Capitalism: a love story”) ■ Image in everything ● Don’t take it the wrong way. A good  image entails being a good citizen, bad means you are not  concerned with this. ○ The relationship of law and ethics. ■ Following the law isn’t always “right”, meaning  this: Laws are more for general situations (like how it’s usually wrong to  collude, mess around with stuck prices, or do what Enron did). ■ Moral minimum­ Following the law. ● Legal doesn’t always mean  ethical!!! (There aren’t laws for set salaries, but you should still  pay your employees fairly.) ■ Ethics and Private Law: Company codes are not  law, but you should still follow them. This kind of plays into the statement above. ● Google, “Don’t be evil”; Nurse’s  Association ■ Ethical uncertainty: A subjective field. Ethical  decisions aren’t always so clear cut or concrete like law is. A business  can’t always predict how a court will act on certain issues like it does with law. ■ Ethics is based more on faith. What you think is  right and moral. ● Business ethics in Social Media ○ Hiring procedures ■ Checking social media sites, from Facebook to  Linkedin, to see what they do outside of work. Many people think this is  unethical. On the other end, failing to use social media can disqualify you  from a position. ■ A defense for this practice: Social media kind of  blurs the lines between what is private and what is not. Regardless, the  user ultimately decides what is private and what is not and in turn decides  what is acceptable to share or not. If I were an employer and saw that a  potential employee thought it was acceptable to post photos of drinking  and clubbing, I might be skeptical of whether or not they would fit in a  work­like setting.  ○ The use of social media to discuss work related issues ■ Social media: another means of communicating to  employees. Granted, this opens up doors for a sort for cyberbullying. ○ Ethics in reverse ■ What about employee ethics? Can they make  comments unnecessarily harsh? ■ Well, yeah. Negative comments don’t mean good  thing for the manager, who might not feel comfortable responding. There  needs to be a balance between negativity and freedom of expression. ● Ethical Principles and Philosophies ○ Doing the right thing is not just it’s own virtue­ you are  compensated. ○ Ethical reasoning­ The application of morals and ethics to a given  situation. ○ Duty­based ethics­ Every person has a duty to fulfil, whether for  other humans, the planet, or any other just cause, and is expected to fulfil it. Focus on religion and philosophy, included in mission statements and the like.  ■ Religious Ethical Principles ● For businesses, this usually means  focusing on unity, despite the fact that many come from different  religious backgrounds. Generally focuses on the behaviors of those who practice the faith. 10 commandments, for example. ■ Principles of Rights­ “Right’s theory”. The effect a  decision had on one’s rights determines how ethical or unethical it is (firm owners, employees, users, etc) ● Conflicting rights ○ Which rights are more important?  ● Resolving conflicts ○ You usually go with  the most stringent right, or most strict. Example: Murray  Chemical Corp. Right to live > right to work ■ Kantian Ethical Principles ● Immanuel Kant, 1724­1804.  ● People are not a means to an end ○ Treating people like  objects denies them their humanity and autonomy. Be a  leader, not a boss. ○ This is why child  pornography is wrong, if you were wondering. ● Categorical imperative­  Unconditional moral law applies to all humans. It has nothing to do with personal motives or wants. ○ Outcome based ethics­ The result of your actions on people is what matters the most, like paying your bondholders and shareholders. ■ Utilitarianism­ Concerned only with results, not  intentions. Jeremy Bentham, 1748­1832; John Stuart Mill, 1806­1873 ■ Applying utilitarian theory: ● Figure out who will be affected ● Cost­benefit Analysis­ comparing  liabilities and benefits with a certain business decision, usually in  financial units (money). ● Pick the choice with the greatest  positive outcome ■ Problems with the Utilitarian Approach ● That which maximizes happiness is  not always moral. Example: The dilemma of the fat man; Phasm  company and the 15% in agony from drug side effects.  ○ Corporate Social Responsibility­ A merging of self­regulation and  the business world. You can practice certain methods to make your slice bigger,  but you probably shouldn’t and don’t because it’s unethical.  ■ The social aspects of CSR ● Businesses show that they think the  general public are worth working to help and better. They should  share the wealth and even publish social responsibility reports.  ■ The corporate aspects of CSR ● Sales can go up and other positive  things can happen if the company is viewed as a group of good  citizens. The benefit may not be immediate, though, like attracting  the attention of potential employees.  ● Corporate responsibility is said to be  most effective when the jobs undertaken are relevant to the  business’s processes and are significant. ■ Stakeholders­ A person with or concern with a  business and what it does. Sometimes someone has a bigger stake than  ordinary shareholders ● Stakeholders can include advocacy  groups, but it can be difficult to figure out which group has the  most weight. ● Making Ethical Business Decisions ○ A systematic approach ■ 1.) Inquiry. Understand the problem. ■ 2.) Discussion. List options and goals. ■ 3.) Decisions. Reach a consensus on what to do. ■ 4.) Justification. Repeat why we’re doing this. ■ 5.) Evaluation. Given the solution and result, was  this effective? ○ The importance of ethical leadership ■ Decision making means nothing without  standards!!! ■ Attitude of top management ● Be invested, don’t set unrealistic  expectations, and don’t turn the other cheek when others are doing  unethical things. Doing the opposite of this sends an unfortunate  message to those around you. ■ Behavior of owners and managers ● Positions such as these requires more active involvement. Misconduct in their part could demand court  intervention and those guilty would suffer negative consequences,  but it doesn’t always happen the same way twice.  ○ Example: Hiring a  woman at a law firm to perform sexual acts. The guilty  party was only disciplined for lying because sexual  relations was permissible between coworkers, but no  clients.  ■ The sarbanes­oxley act ● 2002. Requires that companies erect  “confidential systems” so employees can clue higher­ups in on  unethical and/or illegal activity. ● Protects whistle­blowers? Maybe,  maybe not. ● Global Business Ethics ○ Different places have different moral codes with different  bases. Ethical business decisions are thus more difficult to make. ○ The monitoring of employment practices of foreign suppliers ■ Developing nations are more desirable to  businesses, but there are differences between here and there. There is the  potential or offend someone or perform unethically without meaning to. ■ “Corporate watch” ○ The foreign corrupt practices act ■ And then you have the issue of bribery. If you’ve  seen “Black money”, you know what I’m talking about. Money is given to certain foreign officials in return for desirable business deals. ■ Prohibition against bribery of foreign officials ● Says that most instances of bribery  are wrong and holds everyone from shareholders to agents up to  this standard. If it accelerates business process performance, it’s  fine (Payments referred to as “Grease”.). ● Foreign locations do not appear to be safe from the act ■ Accounting requirements ● Says that all financial activities must  be accounted for. No Enron B.S. and keep track of all transactions. ■ Penalties for violations ● Says that violation of the acts is  worthy of up to $2 million in fines. Individual directors get up to  $100,000 in fines


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