C HAPTER 1

The Importance of Business

Ethics
 Chapter Objectives

• To explore conceptualizations of business ethics from

an organizational perspective
• To examine the historical foundations and evolution
of business ethics
• To provide evidence that ethical value systems
support business performance
• To gain insight into the extent of ethical misconduct in
the workplace and the pressures for unethical
behavior
 Chapter Outline

• Why Study Business Ethics?

• The Development of Business Ethics
• Developing an Organizational and Global Ethical
Culture
• The Benefits of Business Ethics
• Our Framework for Studying Business Ethics
 Business Ethics

• Comprises principles and standards that guide behavior

in the world of business

• Right or wrong, acceptable or unacceptable behavior

within the organization

• Determined by you and key stakeholders

 A Crisis in Business Ethics

• Consumer trust of businesses is declining

• No sector is exempt from ethical misconduct
• Stakeholders determine what is ethical/unethical
– Investors
– Employees
– Customers
– Interest groups
– Legal system
– Community
 Why Study Business Ethics?

• Reports of unethical behavior are on the rise

• Society’s evaluation of right or wrong affects its
ability to achieve its business goals
• Studying business ethics is a response to
Sarbanes-Oxley, FSGO, and stakeholder demands
for ethics initiatives
• Individual ethics alone is not sufficient
• Studying business ethics helps identify ethical
issues to key stakeholders
 Before 1960: Ethics in Business

• A living wage

• Theology’s domain

• Philosophy’s domain
The 1960s: The Rise of Social Issues in
Business

• Consumer’s Bill of Rights

• Ralph Nader
 The 1970s: Business Ethics as an
Emerging Field

• Bribery
• Deceptive advertising
• Price collusion
• Product safety
• The environment
 The 1980s: Consolidation

• Organized field of study

• Business ethics centers
• Business ethics courses
• Defense industry initiative
• Multinationals
• Self-regulation (Reagan/Bush)
 The 1990s: Institutionalization of
Business Ethics

• Free trade
• Self-regulation
• Federal Sentencing Guidelines for Organizations
(FSGO)
• More multinationals
 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
 The 21st Century: A New Focus

• Continued issues with corporate non-compliance

• Sarbanes-Oxley Act (2002)
• FSGO reform (2004)
• Firm’s greatest danger is not discovering misconduct
early
• Basic assumptions of capitalism being debated
 Organizational and Global Ethical
Culture

• Ethical culture describes the component of

corporate culture that captures the values and norms
that an organization defines as appropriate conduct
 Benefits of Business Ethics

• Better ethical climate

• Employee commitment and trust
• Investor loyalty and trust
• Customer satisfaction and trust
• Long term profits