Chp 7: Ethics And Decision Making(Additional Concepts)

Front 1

Why is Business Ethics Important

Back 1

An in-depth understanding of business ethics is important to the long-run viability of a corporation; to the well-being of individual officers and directors and to the firms employees; can negatively affect other stakeholders

Front 2

Short-Run Profit Maximization

Back 2

An overemphasis on short-run profit maximization is the most common reason for ethical problems in businesses and long-run profit maximization takes into account lawsuits, large settlements, and bad publicity, which could result from prioritizing short-run profit maximization.

Front 3

"Gray Areas" in the Law

Back 3

There are so many laws regulating business that it is increasingly possible to violate one without even realizing it and these laws also contain numerous "grey areas," making it difficult to predict with certainty how a court will apply a given law to a particular action.

Many rules of law require a court to determine what is "foreseeable" or "reasonable" in a particular situation.

Front 4

The Importance of Ethical Leadership

Back 4

Management must set ethical standards and this section Includes two categories:

1. Attitudes of Top Management

2. Behaviors of Owners and Managers

Front 5

Attitudes of Top Management

Back 5

Managers more than anything else set the ethical tone of the firm and employees take their cues from this tone.

Front 6

Behaviors of Owners and Managers

Back 6

Business owners and managers sometimes take more active roles in fostering unethical and illegal conduct, indicating to their co-owners, co-managers, employees, and others that unethical business behavior will be tolerated.

Front 7

Creating Ethical Codes of Conduct

Back 7

One of the most effective ways of setting a tone of ethical behavior within an organization is to create an ethical code of conduct, which is a well written code of ethics explicitly stating a company's ethical priorities and demonstrating a company's commitment to ethical behavior.

Front 8

Ethics Training to Employees

Back 8

Ethical code must be clearly communicated to employees for it to be effective, which is done in various ways:

1. Ethics training programs

2. Periodic ethics seminars

3. Managers meet individually with employees and grade them on their ethical(or unethical) behavior.

Front 9

The SOX Act and Web-Based Reporting Systems

Back 9

The SOX Act requires that companies set up confidential systems, such as online reporting systems(ethics point), so that employees can report suspected illegal or unethical auditing and accounting practices.

Front 10

Ethical Transgressions by Financial Institutions

Back 10

1. Corporate Stock Buybacks

2. Startling American International Group Decisions

3. Executive Bonuses

Front 11

Corporate Stock Buybacks

Back 11

Corporations were making stock buybacks to prop up the value of their stock, which benefited corporate executives with stock options.

Stock buybacks are abused when corporate managers use them to increase the price in the short term so that they can profit from their stock options without considering the long-term needs of the company.

Front 12

Stock Options

Back 12

Enables beneficiaries of stock buybacks to buy shares of the corporation's stock at a set price.

Front 13

Startling AIG Decisions

Back 13

After AIG experienced multibillion-dollar losses, the company had to be bailed out by U.S. taxpayers' funds; however, after receiving the funds, it was discovered that AIG executives spent almost $400,000 on a retreat at a resort in California.

Front 14

Executive Bonuses

Back 14

The collapse of Investment banks and commercial banks brought to light the excessive amount of bonuses that corporate executives were receiving, which was enabled by the sale of risky assets that prioritized high short-run returns.

As a response to the public outrage over this matter, Congress included a new provision in the American Recovery and Reinvestment Tax Act of 2009, which capped the bonuses that could be paid by firms that had received bailout funds under TARP.

Front 15

Religious Ethical Standards

Back 15

Ethical standards derived from religion, in which its rules generally are absolute with respect to the behavior of their adherents.

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Kantian Ethics

Back 16

Ethics derived from philosophical reasoning, in which its central theme is that individuals should evaluate their actions with consideration of the consequences that would follow if everyone acted in the same way.

Front 17

Duty-Based Ethics

Back 17

1. Religious Ethical Standards

2. Kantian Ethics

3. The Principle of Rights

Front 18

Outcome Based Ethics:Utilitarianism

Back 18

Key concepts include:

1. Utilitarianism

2. Cost-benefit analysis

Front 19

Theories and Views of Corporate Social Responsibility

Back 19

1. Stakeholder Approach
2. Corporate Citizenship
3. A way of Doing Business

Front 20

Stakeholder Approach

Back 20

Under this approach, a corporation would consider the impact of its decision on other stakeholders besides shareholders because one or more groups(such as employees or customers) included among stakeholders may have a greater stake in company decisions.

Often difficult to decide which groups' interest should receive greater weight if the interests conflict.

Front 21

Corporate Citizenship

Back 21

Corporations should use their to wealth and power to promote goals that society deems worthwhile, such as by donating to social causes.

Front 22

A way of Doing Business

Back 22

Most corporate executives agree that corporate citizenship should be treated as a priority.

Corporate responsibility is most successful when a company undertakes activities that are relevant and significant to its stakeholders and related to its business operations.

Front 23

Making Ethical Business Decisions

Back 23

Each employee should evaluate his actions using the following six guidelines:

1. The Law; Is the action legal?

2. Rules and procedures; Are you following your company's internal rules and procedure?

3. Values; policies reinforce society's values

4. Conscience; let conscience be your guide

5. Promises; Live up to commitments made

6. Heroes; would your personal hero do this?

Front 24

Practical Solutions to Corporate Ethical Questions

Back 24

5 steps to solve specific ethics problems:

1. Inquiry; understanding of facts; ethical problem or problems specified

2. Discussion; Action options developed

3. Decision; Consensus decision or plan of action

4. Justification; Does the consensus solution withstand moral scrutiny

5. Evaluation; Does the solutions satisfy corporate values, community values, and individual values.

Front 25

Business Ethics on a Global Level

Back 25

Conflicts arise frequently between foreign and U.S. businesspersons, which have created especially difficult ethical problems for U.S. sellers of goods.

Front 26

Employment Practices of Foreign Suppliers

Back 26

Foreign suppliers contracted by U.S. businesses may not live up to ethical polices of the U.S. businesses, thereby forcing them to end relationships with them and report them for potential legal and ethical violations.

Front 27

The Foreign Corrupt Practices Act(FCPA)

Back 27

Prohibits U.S. businesspersons from bribing foreign officials to secure advantageous contracts.

Front 28

Prohibition against the Bribery of Foreign Officials

Back 28

The part of the FCPA prohibits bribery of officials of foreign governments if the purpose of the payment is to induce the officials to act in their official capacity to provide business opportunities, but does not prohibit payments to minor officials whose duties are ministerial.

Front 29

Accounting Requirements

Back 29

The second part of the FCPA, which is directed towards accountants.

With the use of an accounting system that provides reasonable assurance, a company must keep detailed records that accurately and fairly reflect the company's financial activities to assist in detecting illegal bribes.