Chapter 4:

Ethics and Business

Decision Making
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2001 West Legal Studies in Business. All Rights Reserved.

Introduction
Businesses should be careful to do more
than comply with the laws.
Consumers and shareholders are requiring
companies to do what is ethical which
sometimes may impose additional duties
required by law.
Historically, law and ethics were
synonymous-today they may not be.
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2001 West Legal Studies in Business. All Rights Reserved.

1: Nature of Business Ethics

Ethics is the study of right and wrong
behavior in the world of business; the
fairness, rightness or justness of a course of
conduct.
In business, ethical decisions are the
application of moral and ethical principles
to the marketplace and workplace.

2001 West Legal Studies in Business. All Rights Reserved.

Defining Business Ethics

Morals are universal guidelines or
revealed truths. Ethics is a reasoned set of
principals of conduct derived from morals.
Ethical Reasoning - the process by which
an individual links her moral and ethical
convictions to the choice of actions to be
taken in a particular situation.

2001 West Legal Studies in Business. All Rights Reserved.

Conflicting Duties
Directors and Officers owe a complex set of
ethical duties to the company, shareholders,
customers, community, employees, and
suppliers.
When these duties conflict, ethical
dilemmas are created.
Case 4.1: Varity v. Howe (1996).
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2001 West Legal Studies in Business. All Rights Reserved.

Public Opinion and Ethics

A companys actions can come under quick
scrutiny with the power of email and the
internet.
When a corporation embarks on a course of
business deemed unethical by a
special interest group, the news will spread
around the world in a matter of minutes.
1 in 9 investors have socially responsible
investments. Gallup Poll.com.
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2001 West Legal Studies in Business. All Rights Reserved.

 2: Approaches to
Ethical Reasoning
Duty-Based Ethicsderived from religious
and philosophical principles:
Religious Ethical Standards.
Kantian Ethics.
Rights Principles.

Outcome-Based Ethics (utilitarianism)

seeks to ensure the greatest good for the
greatest number.
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2001 West Legal Studies in Business. All Rights Reserved.

Religious Ethical Standards

The rightness or wrongness of an action is
usually judged according to its conformity to
an absolute rule that commands a particular
form of behavior.
The motive of the actor is irrelevant in
judging the rightness or the wrongness of the
action.
These rules often involve an element of
compassion.
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2001 West Legal Studies in Business. All Rights Reserved.

Kantian Ethics
Premised on the belief that general guiding
principles for moral behavior can be derived
from human nature.
The categorical imperative is a central
postulate of Kantian ethics.
The rightness or wrongness of an action is
judged by estimating the consequences that
would follow if everyone in a society
performed the act under consideration.

2001 West Legal Studies in Business. All Rights Reserved.

Rights Principle
This principle derives from the belief that
every duty gives rise to a corresponding
right.
The belief in fundamental rights is a deeply
embedded feature of Western culture.
The ethicality of an action is judged by how
the consequences of the action will affect
the rights of others.
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2001 West Legal Studies in Business. All Rights Reserved.

Utilitarianism
An action is ethical based on whether it
produces the greatest good for the greatest
number of people.
A cost-benefit analysis must be performed
to determine the effects of competing
alternatives on the persons affected.
The best alternative is the one that produces
the greatest good for the greatest number.

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2001 West Legal Studies in Business. All Rights Reserved.

3: Ethical Decision Making

A sound ethical decision-making model will
include consideration of:
More than the legal minimum.
The ethicality of the contemplated action, as
determined by reference to the relevant code of
ethics, established ethical priorities, and public
opinion.
Case 4.2: NY State Society of CPAs v Eric
Louis Associates (1999).
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2001 West Legal Studies in Business. All Rights Reserved.

Corporate Compliance
A number of contexts, within the employeremployee relationship, are fraught with
ethical considerations, such as:
Having a system in place to detect, prevent,
eliminate, and punish behavior of a harassing
nature toward employees.
Avoiding wrongful discharge, either actual or
constructive.
Adhering to ethical principles during corporate
restructuring and downsizing.
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2001 West Legal Studies in Business. All Rights Reserved.

Codes Of Ethics
Adopted by business entities as a way to:
Provide standard guidance to executives and
managers.
Take into account the duties owed by the
business to its various stakeholders.

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2001 West Legal Studies in Business. All Rights Reserved.

Ethical Gray Areas

Sometimes whether an action is legal or
ethical depends on how a court or
administrative agency interprets a statute.
What if different courts disagree?
Case 40.3: Pavlik v. Lane Ltd. (1998).

If managers, in good faith, believe they are

complying with a statute and later are ruled
against, was their action unethical?
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2001 West Legal Studies in Business. All Rights Reserved.

4: Maximum vs.
Optimum Profits
Ethical priorities of the executives institution
will have an effect on whether she chooses
maximum profits versus optimum profits.
The sacrifice of some profitability resulting
from adherence to an institutions ethical and
legal priorities produces what business
ethicists refer to as optimum profits.

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2001 West Legal Studies in Business. All Rights Reserved.

5: The Ever-Changing
Ethical Landscape
What causes a societies ethics to change?
Seventy-five years ago a corporations ethical duty
was only to its shareholders and maximize profits.
Only two questions were asked: is it legal? Is it
profitable?
The globalization of business impacts US
companies, suppliers, wages of foreign workers and
consumers.
Foreign Corrupt Practices Act (1977).
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2001 West Legal Studies in Business. All Rights Reserved.

Focus on Ethics
How can an executive know what is
ethical in a particular business decision?
Obstacles to ethical business behavior.
Ethics and the Corporate Environment.
Corporate Social Responsibility.
Does it pay to be Ethical today?

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Law on the Web

Ethics at the Corporate Governance Website.
Ethics at DePaul University.
The U.N. Global Compact on Ethics and
Human Rights.
U.S. Law, Regulations and Agencies (at Lex
Mundi).
Legal Research Exercises on the Web.
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2001 West Legal Studies in Business. All Rights Reserved.