Business Ethics & Regulations Quiz

Business Ethics & Regulations

• Businesses are subject to various regulations, including capital requirements, reserve requirements, corporate governance, financial disclosures, and credit rating requirements.
• In the United States, the Sherman Antitrust Act prohibits monopolies and prevents a single organization from having total control over an industry.
• Major League Baseball (MLB) is exempt from this act, a decision made by the Supreme Court in 1922.
• MLB has a monopoly on professional baseball due to numerous court rulings.
• Industries can face specific regulations governing their activities.

Unethical Behavior in Business

• Numerous examples of misconduct in business result from unethical behavior.
• Notable scandals include Enron, Tyco, and WorldCom, involving inappropriate financial gain.
• Other examples include corporate misconduct regarding product safety issues, such as Bridgestone/Firestone tire blowouts and Takata airbag inflators.
• Environmental damage, such as the BP oil spill and Volkswagen’s emissions testing fraud, are further examples of unethical behavior.
• The Panama Papers revealed billions in assets hidden by government and business leaders, highlighting corrupt collaborations.

Why Unethical Behavior Happens

• Internal factors that influence unethical behavior include:
  • Level of moral development of the individual
  • Willingness to accept and obey authority
  • Ability to control one's own behavior
  • Relationships with others who influence the perpetrator
• External factors influencing unethical behavior include:
  • The culture of the organization
  • Consequences for unethical behavior
  • Ease of acting unethically
  • Characteristics of the work

Ethical Decision Making

• The four steps of ethical decision making suggested by James Rest:
  • Moral awareness: recognizing a moral issue or ethical problem
  • Moral judgment: Determining the appropriate moral course of action by applying moral standards
  • Moral intention: Prioritizing moral values over other personal values to intend to do what is morally right
  • Action or implementation: Implementing a plan of action based on perseverance, strength of conviction, and implementation skills to overcome obstacles and do the "right" thing.

Moral Standards for Ethical Judgment

• Utilitarian approach: Choosing the option that benefits the greatest number of people.
• Individualism approach: Choosing the option that promotes the individual's long-term interests.
• Moral Rights approach: Choosing the option that does not violate fundamental moral rights of individuals, such as free consent, privacy, and freedom of speech.
• Justice approach:
  • Distributive Justice: Choosing based on equity, fairness, and impartiality.
  • Procedural Justice: Choosing based on fair administration of established rules.
  • Compensatory Justice: Compensating individuals who suffer damage due to the decision, with consideration for the costs of those damages.

Additional Approaches for Ethical Decision Making

• Impartial Opinion: Seeking an unbiased view by discussing the situation with an independent and respected third party.
• Full Disclosure: Assuming the decision will be openly presented to the public and assessing the majority of the informed public's perception of the actions.

Core Values in Business

• Core values establish the foundation for responsible and ethical behavior within organizations.
• They represent the underlying norms of behavior and actions expected of all employees.
• Leaders should articulate, exemplify, and reinforce core values to embed them in the organizational culture.
• Recognition and reward for those who demonstrate core values, along with addressing issues created by those who do not, are crucial.

Stakeholders and Cognitive Empathy

• Stakeholders are individuals, organizations, and constituents impacted by organizational actions.
• Developing cognitive empathy with stakeholders helps leaders understand their expectations and find win-win solutions to address potentially conflicting expectations.

Importance of Leadership as a Role Model

• Leaders should demonstrate organizational commitment to core values through actions, not just words.
• Their actions should reinforce the higher purpose of the organization, as demonstrated through funding and management of Corporate Social Responsibility (CSR) initiatives.

Johnson & Johnson's Credo

• This statement articulates the company's responsibilities to its customers, employees, communities, and stockholders.
• It emphasizes that fulfilling responsibilities to the first three constituents leads to a fair return for stockholders.
• The credo guides the company's decision-making.
• The Tylenol crisis exemplifies how J&J prioritizes customer safety over financial considerations, aligning with its Credo.

Overall Summary

• Ethical decision making and core values are critical elements of "Doing What's 'Right'" in business.
• Understanding the factors influencing ethical behavior and applying moral standards in decision-making is crucial for managers.
• Leadership plays a crucial role in articulating, exemplifying, and reinforcing core values to cultivate a positive and ethical organizational culture.

Business Value

• A business's economic value is primarily determined by its profitability and growth.
• Profitability refers to the ability to generate long-term positive net cash flows that provide an appropriate risk-adjusted return on capital employed.
• For a business to be viable, it must generate positive net cash flow.
• The higher the net cash flow in relation to the equity and long-term debt invested, the more valuable the business.
• A risk-adjusted rate of return on equity invested should be at least 7%-10% for a business with average risk.

Growth Strategies

• Growth is essential for business survival and enhancing value.
• Businesses can grow by:
  • Selling more existing products/services to existing customers (market penetration)
  • Gaining new customers while retaining existing ones (market expansion)
  • Selling new products/services to existing and new customers (product development)
  • Selling existing products/services into completely new markets (market expansion)
  • Entering completely new markets with new products/services (market diversification)

Innovation Mechanisms

• Top innovative companies rely on three core mechanisms:
  • Artificial intelligence (AI)
  • Technology platforms (TPs)
  • Collaborative ecosystems

Artificial Intelligence (AI)

• AI enables computer systems to perform tasks that typically require human intelligence.
• Examples include visual perception, speech recognition, decision-making, and language translation.
• AI is used in various industries, including fast food (e.g., McDonalds uses it to optimize digital menus).
• Machine learning (ML) is a subset of AI that allows systems to learn and improve from experience without explicit programming.
• AI and ML are powerful tools for driving innovation, with leading companies expecting AI to significantly impact their businesses in the next 3-5 years.
• While AI primarily focuses on internal process improvements, a significant portion of sales for some leading AI users are AI-generated.
• Many businesses leverage external vendors to assist with AI projects due to the challenge of building internal AI capabilities.

Technology Platforms (TPs)

• TPs act as foundations for developing other business offerings.

Test your knowledge on the critical aspects of business ethics and the various regulations that govern businesses. This quiz covers topics such as antitrust laws, corporate governance, and notable scandals arising from unethical behavior in the business world. Dive in to see how well you understand the ethical landscape of business operations.