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WHAT IS BUSINESS ETHICS?

BUSINESS ETHICS IS THE STUDY OF BUSINESS SITUATIONS, ACTIVITIES AND DECISIONS WHERE ISSUES OF RIGHTS AND WRONGS ARE ADDRESSED Crane and Matten 2011 It therefore means that where business activities and decisions take place, ethical issues exist. Especially important is this ethical issue as those affected by the way a company does its business are wide in scope. These are called STAKEHOLDERS as shown in the diagram below. These supply a company with its productive resources. As a result, they have a claim and stake in the company. Because stakeholders can directly benefit or be harmed by its actions, the business ethics of a company and its managers are important to them.

Managers

Employees

Stakeholders

COMPANY

Customers Suppliers And Distributors

Customers

Adapted from

When a stakeholder perspective is taken, questions of business ethics abound. What is the appropriate way to manage the claims of all stakeholders? When making business decisions, managers must consider all of the firms stakeholders. The loss of any one of these groups can be very detrimental. According to Michael L Michael (2006) managers can use four ethical rules or principles to analyze the effects of their business decisions on stakeholders: utilitarian, moral rights, justice, and practical rules. Micahel L Michael (2006)Business Ethics, the Law of Rules Working paper no 19 Available at http://www.hks.harvard.edu/m-rcbg/CSRI/publications/workingpaper_19_michael.pdf accessed date 18-04-2012.

Utilitarian Rule
An ethical decision should produce the greatest good for the greatest number of people.

Moral Rights Rule


An ethical decision should maintain and protect the fundamental rights and privileges of people.

Justice Rule
Rules for Ethical Decision Making
An ethical decision should distribute benefits and harm among people in a fair, equitable, and impartial manner.

Practical Rule
An ethical decision should be one that a manager has no hesitation to communicate to people outside the company because the typical person in a society would think the decision is acceptable.

Figure 2 Four ethical rules

Ethical issues, as we just discussed, are seldom clear-cut, however, because the rights, interests, goals, and incentives of different stakeholders often conflict. For this reason many experts on ethics add a fourth rule to determine whether a business decision is ethical: The practical rule is

that an ethical decision is one that a manager has no hesitation about communicating to society because the typical person would think it is acceptable. A business decision is probably acceptable on ethical grounds if a manager can answer yes to each of these questions: 1. Does my decision fall within the accepted values or standards that typically apply in business activity today? 2. Am I willing to see the decision communicated to all people and groups affected by itfor example, by having it reported in newspapers or on television? 3. Would the people with whom I have a significant personal relationship, such as my family members, friends, or even managers in other organizations, approve of the decision? If the answer to any of these questions is no, chances are the decision is not an ethical There are four main determinants of differences in business ethics between companies and countries: societal ethics, occupational ethics, individual ethics, and organizational ethics

Organizational Ethics

Individual Ethics

BUSINESS ETHICS

Societal Ethics

Occupational Ethics

IT IS AGAINST THIS BACKDROP OF INFORMATION THAT THE NEXT TEAM MEMBER IS GOING TO ANALYSE OUR COMPANY CASE STUDY ETHICAL BEHAVIOR The following information are for reading purpose and not to be included in the power point presentation. ADVANTAGES OF ETHICAL BEHAVIOR

Several advantages result when companies and their managers behave in an ethical way. First, companies known for their ethical behavior enjoy a good reputation. Reputation is the trust, goodwill, and confidence others have in a company such that they want to do business with it. A second reason for companies to behave ethically is because when they dont, the government (and taxpayers) has to bear the costs of protecting their stakeholdersby providing laid-off employees with health care and unemployment benefits, bailing out pension plans gone bust, or seeking compensation for shareholders. If all companies in a society act socially responsibly the quality of life for people as a whole increases.

Creating an Ethical Organization


Although ethical values flow down from the top of the organization, they can be strengthened or weakened by the design of an organizations structure. Creating authority relationships and rules that promote ethical behavior and punish unethical acts is one way of strengthening this structure. Often, an organization uses its mission statement to guide employees in making ethical decisions. Policies regarding the treatment of whistleblowers can also be put into place. A whistleblower is a stakeholder (usually an employee) who reveals an organizations misdeeds to the public In addition, many companies have installed chief ethics officers. Chief ethics officers are managers employees can go to to report wrongdoing. After an alleged incident is investigated, the firms ethics committee can make a formal judgment about whether wrongdoing has actually occurred, and, if so, what the consequences should be. Today, 20% of Fortune 500 companies have ethics officers. In addition to investigating unethical and illegal corporate conduct, these ethics officers are responsible for keeping employees informed about the firms conduct codes and training them to make good ethical decisions.

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