ACT1110

Governance, Business Ethics,

Risk Management and Internal Control
Business Ethics
1. The Importance of Business Ethics
2. Stakeholder Relationships and Corporate
Governance
3. Emerging Business Ethics Issues
4. Ethical Decision Making
The Importance of Business Ethics
Learning Objectives
• Explore conceptualizations of business ethics from an
organizational perspective
• Provide evidence that ethical value systems support business
performance
The Basic Concepts in Business Ethics (1 of 2)
• 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.
• 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).
The Basic Concepts in Business Ethics (2 of 2)
• Moral dilemma: Two or more morals in conflict with one another.
• Value dilemma: Two or more beliefs/ideals in conflict with one
another.
• 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).
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
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.
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.
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.
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.
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.
Stakeholder Relationships and Corporate
Governance
Learning Objectives
• Identify stakeholders’ roles in business ethics
• Explore the role of corporate governance in structuring ethics in
business
Relationships and Business (1 of 2)
• Relationships are associated with both organizational success and
misconduct.
• Businesses exist because of organizational relationships between
employees, customers, shareholders, and the community.
Relationships and Business (2 of 2)
• Stakeholder framework identifies the internal and external
stakeholders who agree, collaborate, and engage in confrontations on
ethical issues.
• Allows organizations to identify, monitor, and respond to the needs and
expectations of stakeholder groups.
Stakeholders Define Ethical Issues in
Business (1 of 3)
• Approaches to stakeholder theory:
1. Normative: Identifies ethical guidelines that dictate how firms should
treat stakeholders.
2. Descriptive: Focuses on the firm’s behavior; addresses how decisions
are made for stakeholder relationships.
3. Instrumental: Describes what happens if firms behave in a particular
way.
Stakeholders Define Ethical Issues in
Business (2 of 3)
• Primary stakeholders
• Those whose continued association and resources are absolutely
necessary for a firm’s survival (customers, shareholders, employees,
suppliers).
• Secondary stakeholders
• Those who are not typically engaged directly in transactions with a
company and are therefore not essential to its survival (government
agencies and communities).
Stakeholders Define Ethical Issues in
Business (3 of 3)
• Other stakeholders
• Others who have a “stake” or claim in some aspect of a company’s
products, operations, markets, industry, and outcomes are known as
stakeholders.
Corporate Governance Provides Formalized
Responsibility to Stakeholders
• The stakeholder model places the board of directors in the position of
balancing the interests and conflicts of a company’s various
constituencies.
• External control of the corporation resides not only with government
regulators but also with key stakeholders which exert pressure for
responsible conduct.
• Social responsibility activities have a positive impact on consumer
identification.
Views of Corporate Governance
• Classic agency problem: Ownership (investors) and control
(managers) are separate.
• Managers act as agents for investors, whose primary goal is increasing
the value of the stock.
• Investors and managers are distinct parties with unique insights, goals,
and values.
• Corporate governance mechanisms are needed to align investor and
management interests.
Emerging Business Ethics Issues
Learning Objectives
• Define ethical issues in the context of organizational ethics
• Examine ethical issues as they relate to the basic values of
honesty, fairness, and integrity
• Delineate misuse of company resources, abusive and
intimidating behavior, lying, conflicts of interest, bribery, corporate
intelligence, discrimination, sexual harassment, fraud, financial
misconduct, insider trading, intellectual property rights, and
privacy as business ethics issues
Ethical Awareness
• People make ethical decisions when they find an ethical component
in a particular issue or situation.
• Failure to acknowledge or be aware of ethical issues is hazardous to
an organization.
• Ethical issues involve a group, a problem, or an opportunity that
requires introspection and investigation before a decision can be made.
Foundational Values for Identifying Ethical
Issues (1 of 2)
• Integrity: Element of virtue, an unimpaired condition. Integrity relates
to product quality, open communication, transparency, and
relationships.
• Honesty: Truthfulness or trustworthiness. To tell the truth to the best
of your knowledge without hiding anything.
• Confucius defined an honest person as junzi, or one who has the virtue
ren.
Foundational Values for Identifying Ethical
Issues (2 of 2)
• Fairness: Just, equitable, and impartial.
• Three fundamental elements that motivate people to be fair:
1. Equality: The distribution of benefits and resources.
2. Reciprocity: An interchange of giving and receiving in social
relationships.
3. Optimization: Trade-off between equity (equality) and efficiency
(maximum productivity).
Ethical Issues in Business
• Misuse of Company Time and Resources
• Abusive or Intimidating Behavior
• Lying
• Conflicts of Interest
• Bribery
• Corporate Intelligence
Ethical Issues in Business
• Discrimination
• Sexual Harassment
• Fraud
• Insider Trading
• Intellectual Property Rights
ADDITIONAL TOPIC
Ethical Decision Making
Learning Objectives
• Provide a comprehensive model for ethical decision making in business
• Examine ethical issue intensity as an important element in the ethical
decision making process
• Introduce individual factors that influence business ethical decision
making
• Introduce organizational factors that influence business ethical decision
making
• Explore the role of opportunity in ethical decision making in business
A Framework for Ethical Decision Making in
Business (1 of 2)
• Ethical awareness: The ability to perceive whether a situation or decision
has an ethical dimension.
• Ethical issue intensity: The relevance or importance of an event or
decision in the eyes of the individual, work group, and/or organization.
• Personal and temporal in character to accommodate values, beliefs, needs,
perceptions, the special characteristics of the situation, and the personal
pressures prevailing at a particular place and time.
• Moral intensity: Individuals’ perceptions of social pressure and the harm
they believe their decisions will have on others.
A Framework for Ethical Decision Making in
Business (2 of 2)
• Gender: In many aspects there are no differences between men and
women with regard to ethical decision making.
• Education: Those more familiarized with the ethical decision making
process due to education or experience are likely to spend more time
examining and selecting different alternatives to an ethics issue.
• Nationality: Impossible to state that ethical decision making in an
organizational context will differ significantly among individuals of
different nationalities.
Framework for Understanding Ethical Decision Making in
Business
Reference
Chapter 1 - The Importance of Business Ethics
Chapter 2 - Stakeholder Relationships and Corporate Governance
Chapter 3 - Emerging Business Ethics Issues
Chapter 5 - Ethical Decision Making
Thank you