Business Ethics PDF

CHAPTER 4 BUSINESS ETHICS,CORPORATE SOCIAL RESPONSIBILITY,CORPORATE GOVERNANCE,AND CRITICAL THINKING Whatdefines ethical behavior? Think of a time when you thought that someone or some business did something ethical. Was it someone goi...

CHAPTER 4 BUSINESS ETHICS,CORPORATE SOCIAL RESPONSIBILITY,CORPORATE GOVERNANCE,AND CRITICAL THINKING Whatdefines ethical behavior? Think of a time when you thought that someone or some business did something ethical. Was it someone going out of her way to help another person? Was it,for example,a young man—a customer at a store—helping an elderly woman carry heavy packages to her car? Was it someone entering a building during a pouring rain and giving her umbrella to a father and his small children who were waiting to leave until the rain stopped? Was it a corporate executive speaking for an hour to a friend's daughter—a young college student—Whelping her understand how to seek an internship and prepare for a career in the executive's industry? Was it a business giving a second chance to young man who fell in with the wrong crowd, made a mistake, and served time in prison? Was it a company recalling and repairing an allegedly defective product, even when not required by the gov ernment, at great cost to its profits and shareholders? Was it a business that bought a failing company in the solar industry? Was it a corporation buying a competitor, achieving synergies, improving options and pricing for con sumers. and increasing the company's profits? Was it a business that chose to upgrade its factories in a midwestem town instead of moving manufacturing operations overseas? Was it a business that opened a new plant in Indonesia,creating jobs for 1,000 workers? Was it a corporation with excess cash opting to increase its dividend by 25 percent and buy back 10 percent of its stock, thereby increasing returns to shareholders and the price of the shareholders' stock in the company? In these and other situations in which you observed what you believed was ethical conduct, what made you think the behavior was ethical? Was it that the ethical actor obeyed some fundamental notion of rightness? Was it that the person treated someone the way you would want to be treated? Was it that the actor gave an opportunity to someone who was in greater need than most people? Was it that the company helped someone who deserved aid? Was it that most people thought that it was the right thing to do or that the majority wanted it done, whether right or not? Was it that the business took full advantage of the resources entrusted to it by society? Was it that the business helped society use its scarce resources in a productive or fair way? What defines ethical behavior? 114 Part One Foundations of American Law o After studying this chapter, you should be able to: 4-1 Appreciate the strengths and weaknesses of the 4-3 Recognize critical thinking errors in your own various ethical theories. and others' arguments. 4-2 Apply the Guidelines for Ethical Decision 4-4 Utilize a process to make ethical decisions in the Making to business and personal decisions. face of pressure from others. 4-5 Be an ethical leader. Why Study Business Ethics? It is also tempting to say that current business managers are less ethical than managers historically. But as former General Motors hiding that it sold cars with faulty ignitions. Federal Reserve chair Alan Greenspan said,"It is not that Target failing to protect customers' credit card information. humans have become any more greedy than in generations Enron maintaining its stock price by moving liabilities off past. It is that the avenues to express greed have grown balance sheet. WorldCom using fraudulent accounting to enormously." increase its stock price. ImClone executives and their fam This brings us to the first and most important reason we ily members trading on inside information. These business need to study business ethics: to make better decisions for names and acts from the past two decades conjure images ourselves, the businesses we work for, and the society we of unethical and socially irresponsible behavior by busi live in. As you read this chapter, you will not only study ness executives. The U.S. Congress, employees, investors, the different theories that attempt to define ethical conduct and other critics of the power held and abused by some but, more importantly, learn to u.se a strategic framework corporations and their management have demanded that for making decisions. This framework provides a process corporate wrongdoers be punished and that future wrong for systematic ethical analysis, which will increase the doers be deterred. Consequently shareholders, creditors, likelihood you have considered ail the facts affecting your and state and federal attorneys general have brought several decision. By learning a methodology for ethical decision civil and criminal actions against wrongdoing corporations making and studying common thinking errors, you will and their executives. Congress has also entered the fray, improve your ability to make decisions that build tru.st and passing the Sarbanes-Oxley Act of 2002, which increased solidify relationships with your business's stakeholders. penalties for corporate wrongdoers and established rules Another rea.son we study ethics is to understand our designed to deter and prevent future wrongdoing. The pur selves and others better. While studying the various ethical pose of the statute is to encourage and enable corporate theories, you will see concepts that reflect your own think executives to be ethical and socially responsible. ing and the thinking of others. This chapter, by explor But statutes and civil and criminal actions can go only ing ethical theories systematically and pointing out the so far in directing business managers down an ethical path. strengths and weaknesses of each ethical theory, should And while avoiding liability by complying with the law is help you understand better why you think the way you do one reason to be ethical and socially responsible, there are and why others think the way they do. By studying ethi noble and economic reasons that encourage current and cal theories, learning a process for ethical decision mak future business executives to study business ethics. ing, and understanding common reasoning fallacies, you Although it is tempting to paint all businesses and all should also be better equipped to decide how you should managers with the same brush that colors unethical and ir- think and whether you should be persuaded by the argu re.sponsible corporations and executives, in reality corpo ments of others. Along the way, by better understanding rate executives are little different from you, your friends, where others are coming from and avoiding fallacious and your acquaintances. All of us from time to time fail to reasoning, you should become a more rigorous, critical do the right thing, and we know that people have varying thinker, as well as persuasive speaker and writer. levels ofcommitment to acting ethically. The difference be There are also pragmatic reasons for executives to tween most of us and corporate executives is that they are in study business ethics. By learning how to act ethically and positions of power that allow them to do greater damage to by, in fact, doing so, businesses forestall public criticism, others when they act unethically or socially irresponsibly. reduce lawsuits against them, prevent Congress from pass They also act under the microscope of public scrutiny. ing onerous legislation, and make higher profits. For many n  Chapter Four Business Ethics,Corporate Social Responsibility, Corporate Governance,and Critical Thinking 115 corporate actors, however,these are not reasons to act eth One such standard is the stakeholder theory of corpo ically, but instead the natural consequences of so acting. rate social responsibility. It holds that rather than merely While we are studying business ethics, we will also striving to maximize profits for its shareholders, a cor examine the role of the law and regulations in defining poration should balance the interests of investors against ethical conduct. Some argue that it is sufficient for cor the interests of other corporate stakeholders, such as em porations and executives to comply with the requirements ployees,suppliers,customers, and the community. To pro of the law; commonly, critics of the corporation point out mote such behavior,some corporate critics have proposed that because laws cannot and do not encompass all expres changes that increase the influence of the various stake sions of ethical behavior, compliance with the law is nec holders in the internal governance of a corporation. We essary but not sufficient to ensure ethical conduct. This will study many of these proposals later in the chapter in introduces us to one of the major issues in the corporate the subsection on shareholder theory and its emphasis on social responsibility debate. profit maximization. You will also learn later that an ethi cal decision-making process requires a business executive to anticipate the effects of a corporate decision on the vari The Corporate Social ous corporate stakeholders. Despite concerns about abuses of power, big business Responsibility Debate has contributed greatly to the unprecedented abundance in Although interest in business ethics education has in America and elsewhere. Partly for this reason and partly creased greatly in the last few decades, that interest is because many businesses attempt to be ethical actors, crit only the latest stage in a long struggle to control corpo ics have not totally dominated the debate about control of rate misbehavior. Ever since large corporations emerged the modern corporation. Some defenders of business argue in the late 19th century, such firms have been heroes to that in a society founded on capitalism, profit maximiza.some and villains to others. Large corporations perform tion should be the main goal of businesses: The only ethical essential national and global economic functions, includ norms firms must follow are those embodied in the law or ing raw material extraction, energy production, transpor those impacting profits.In short,they argue that businesses tation, and communication,as well as providing consumer that maximize profits within the limits of the law are act goods, professional services, and entertainment to mil ing ethically. Otherwise, the marketplace would di.scipline lions of people. them for acting unethically by reducing their profits. Critics, however, claim that in their pursuit of profits, Former Fed chair Alan Greenspan wrote in 1963 that corporations ruin the environment, mistreat employees, moral values are the power behind capitalism. He wrote, sell shoddy and dangerous products, produce immoral "Capitalism is based on self-interest and self-esteem; it television shows and motion pictures, and corrupt the po holds integrity and trustworthiness as cardinal virtues and litical process. Critics claim that even when corporations makes them pay off in the marketplace, thus demanding provide vital and important services, business is not nearly that [business persons] survive by means of virtue, not as accountable to the public as are organs of government. of vices." Note that companies that are successful de For example, the public has little to say about the elec cade after decade, like Procter & Gamble and Johnson & tion of corporate directors or the appointment of corpo Johnson, adhere to society's core values. rate officers. This lack of accountability is aggravated by We will explore other aiguments supporting and the large amount of power that big corporations wield in criticizing shareholder theory and its emphasis on profit America and throughout much of the world. maximization later in the chapter, where we will consider These criticisms and perceptions have led to calls for proposals to improve corporate governance and account changes in how corporations and their executives make de ability. For now, however, having set the stage for the cisions. The main device for checking corporate misdeeds debate about business ethics and corporate social responsi has been the law. The perceived need to check abuses of bility, we want to study the definitions of ethical behavior. business power was a force behind the New Deal laws of the 1930s and extensive federal regulations enacted in the 1960s and 1970s. Some critics, however,believe that legal Ethical Theories regulation, while an important element of any corporate For centuries, religious and secular.scholars have explored control scheme, is insufficient by itself. They argue that the meaning of human existence and attempted to define businesses should adhere to a standard of ethical or so a "good life." In this section, we will define and examine cially responsible behavior that is higher than the law. some of the most important theories of ethical conduct. 116 Part One Foundations of American Law Ethics in Action American physicist, mathematician, and futurist Dyson goes on to write, "Nature gave us greed, a robust Freeman Dyson provided insights into why we hu desire to maximize our personal winnings. Without greed we mans may have difficulty determining which ethi would not have survived at the individual level." Yet he points cal viewpoint to embrace. His research also helps explain why out that Nature also gave us the conneetions and tools to sur different people have different ethical leanings. vive at the family level(Dyson ealls this tool love of family), the tribal level(love offriends),the cultural level(love of eon- The destiny of our species is shaped by the imperatives of versation), the species level (love of people in general), and survival on six distinct time scales. To survive means to the planetary level(love of nature). compete successfully on all six time scales. But the unit If Dyson is correct, why are humans sometimes vastly of survival is different for each of the six time scales. On different from each other in some of their ethical values? a time scale of years, the unit is the individual. On a time Why do some of us argue, for example, that universal scale of decades, the unit is the family. On a time scale of health care is a right for each citizen, while others believe centuries, the unit is the tribe or nation. On a time scale health care is a privilege? The answer lies in the degree to of millennia, the unit is the culture. On a time scale of tens which each of us embraces, innately or rationally, Dyson's of millennia,the unit is the species.On a time scale ofeons, six units of survival and the extent to which each of us the unit is the whole web of life on our planet. That is why possesses the connections and tools to survive on each of conflicting loyalties are deep in our nature. In order to sur those levels. vive, we need to be loyal to ourselves, to our families, to our tribes,to our culture,to our species,to our planet Ifour psychological impulses are complicated,it is because they 'Freeman Dyson,From Eros to Gaia(London; Penguin Books, / were shaped by cQmpli(»tediand conflicting demands.' I9