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CHAPTER 2 Defining Business Ethics Chapter Summary

This chapter begins by defining how ethics are applied to business behavior. It describes and explains who the stakeholders are in an organization, their interests in the organization, and the impact on them from unethical behavior. Many people, because of the track record over the past two decades, believe that business ethics is an oxymoron, two contradictory terms. This chapter also discusses the history of business ethics and the dramatic changes that have taken place in the business environment over the last four decades. It continues going into deeper detail about the definition and resolution of ethical dilemmas. It discusses four commonly held rationalizations that can lead to misconduct. In conclusion, this chapter begins looking the aspects in building and operating an ethical business.

Learning Objectives
After studying this chapter, the student should be able to: 1. 2. 3. 4. 5. 6. Define the term business ethics. Identify an organizations stakeholders. Discuss the position that business ethics is an oxymoron. Summarize the history of business ethics. Identify an ethical dilemma in your work environment. Propose a resolution for an ethical dilemma in your work environment.

Extended Chapter Outline


Objective 1: Defining Business Ethics 1.1. The opening Frontline Focus case shows how unethical behavior arises in the workplace and how values differ among employees. 1.1.1. Business ethics involves the application of standards of moral behavior to business situations. 1.1.2. Two distinct perspectives 1.1.2.1. A descriptive summation of the customs, attitudes, and rules that are observed within a business. 1.1.2.2. A normative evaluation of the degree to which the observed customs, attitudes, and rules can be said to ethical. 1.1.3. Stakeholders include anyone with a share or interest in a business enterprise. Objective 2: Who Are the Stakeholders? 2.1 Not every stakeholder will be relevant in every business situation.

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2.2

Of great concern is the involvement of stakeholders with the actions of the organization and the extent to which they would be impacted by unethical behavior. 2.1.1 Stakeholders include: 2.1.1.1 Stockholders or Shareholders 2.1.1.2 Employees 2.1.1.3 Customers 2.1.1.4 Suppliers/vendor partners 2.1.1.5 Retailers/wholesalers 2.1.1.6 Federal government 2.1.1.7 Creditors 2.1.1.8 Community

Objective 3: An Ethical Crisis: Is Business Ethics an Oxymoron? 3.1 Over the last two decades, the ethical track record of many organizations would lead us to believe that no ethical policies or procedures have been in place. 3.1.1 Corporate governance is the system by which business corporations are directed and controlled. 3.1.2 Corporate governance appears to be at the lowest level in business history: 3.1.2.1 Several prominent organizations (Enron, WorldCom, HealthSouth) have been found to have hidden the true state of their precarious finances from their stakeholders. 3.1.2.2 Others Adelphia, Tyco have been found to have senior officers who appeared to regard the organizations funds as their personal bank accounts. 3.1.2.3 Financial reports are released that are then restated at a later date. 3.1.2.4 Products are rushed to market that have to be recalled due to safety problems at a later date. 3.1.2.5 Organizations are being sued for monopolistic practices, race and gender discrimination, and environmental contamination. 3.1.2.6 CEO salary increases far exceed those of the employees they lead. 3.1.2.7 CEO salaries have increased while shareholder returns have fallen. 3.1.2.8 CEOs continue to receive bonuses while the stocks of their companies underperform the market average and thousands of employees are being laid off. 3.1.3 Many observers believe that the business world lacks any sense of ethical behavior and refer to business ethics as an oxymoron the combination of two contradictory terms. 3.1.4 Code of ethics A companys written standards of ethical behavior that are designed to guide managers and employees in making the decisions and choices they face every day. 3.1.4.1 Code of ethics can serve dual purpose: 3.1.4.1.1 As a message to the organizations stakeholders, the code should represent a clear corporate commitment to the highest standards of ethical behavior.

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3.1.4.1.1.1 As an internal document, the code should represent a clear guide to managers and employees in making the decisions and choices they face every day. Objective 4: The History of Business Ethics 4.1 Several dramatic changes that have taken place in the business environment over the past four decades: 4.1.1 The increased presence of an employee voice has made individual employees feel more comfortable speaking out against actions of their employers that they feel to be irresponsible or unethical. 4.1.2 The issue of corporate social responsibility has advanced from an abstract debate to a core performance-assessment issue with clearly established legal liabilities. 4.1.3 Corporate ethics has moved from the domain of legal and human resources departments into the organizational mainstream with the appointment of corporate ethics officers with clear mandates. 4.1.4 Codes of ethics have matured from cosmetic public relations documents into performance-measurement documents that an increasing number of organizations are now committing to share with all their stakeholders. 4.1.5 The 2002 Sarbanes-Oxley Act has introduced greater accountability for chief executive officers and boards of directors in signing off on the financial performance records of the organizations they represent. 4.2 The extent of guidance provided by organizations is often nothing more than a series of clichs: 4.2.1 Consult the company code of ethics 4.2.2 Do whats right for the organizations stakeholders 4.2.3 Do whats legal 4.2.4 Do what you think is best 4.2.5 Do the right thing Objective 5: Identify an ethical dilemma in your work environment 5.1 Ethical dilemma A situation in which there is no obvious right or wrong decision, but rather a right or right answer. 5.2 Types of conflict 5.2.1 Truth versus loyalty 5.2.2 Short-term versus long-term 5.2.3 Justice versus mercy 5.2.4 Individual versus community Objective 6: Propose a resolution for an ethical dilemma in your work environment 6.1 First recognize the type of conflict before determining a resolution 6.2 Three resolution principles 6.2.1 Ends-based Which decision would provide the greatest good for the greatest number of people 6.2.2 Rules-based What would happen if everyone made the same decision as you?

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6.3

6.2.3 The Golden Rule Do unto others as you would have them do unto you. Ethical justifications: 6.3.1 A belief that the activity is within reasonable ethical and legal limits that is, that it is not really illegal or immoral 6.3.2 A belief that the activity is in the individuals or corporations best interests that the individual would somehow be expected to undertake the activity. 6.3.3 A belief that the activity is safe because it will never be found out or publicized the classic crime-and-punishment issue of discovery. 6.3.4 A belief that because the activity helps the company, the company will condone it and even protect the person who engages in it.

Key Terms
Business Ethics: The application of ethical standards to business behavior. Code of Ethics: A companys written standards of ethical behavior that are designed to guide managers and employees in making the decisions and choices they face every day. Corporate Governance: The system by which business corporations are directed and controlled. Ethical Dilemma: A situation in which there is no obvious right or wrong decision, but rather a right or right answer. Oxymoron: The combination of two contradictory terms, such as deafening silence or jumbo shrimp. Stakeholder: Someone with a share or interest in a business enterprise.

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