1 A framework for ethical decision making in business

Ethical Issue Intensity

Ethical awareness is the ability to perceive whether a situation or decision has an

ethical dimension.

However, ethical awareness can be difficult in an environment when employees

work in their own areas of expertise with the same types of people.

Individual Factors

Extensive research regarding the link between gender and ethical decision making

shows that in many aspects there are no differences between men and women.

However, when differences are found, women are generally more ethical than men.

By “more ethical” we mean women seem to be more sensitive to ethical scenarios

and less tolerant of unethical actions.

Organizational Factors

Corporate culture can be defined as a set of values, norms, and artifacts, including

ways of solving problems that members (employees) of an organization share.

The corporate culture at American Express stresses that employees help customers

out of difficult situations whenever possible.

Opportunity

Opportunity describes the conditions in an organization that limit or permit ethical or unethical behavior.
Opportunity results from conditions that either provide rewards, whether internal or
external, or fail to erect barriers against unethical behavior.

Examples of internal rewards include feelings of goodness and personal worth

generated by performing altruistic or ethical acts.

Business Ethics Intentions, Behavior, and Evaluations

Ethical business issues and dilemmas involve problem-solving situations where the

rules governing decisions are often vague or in conflict.

The results of the decision are often uncertain; it is not always immediately clear

whether the decision was ethical.

Ethical Behavior: Ethical behavior refers to actions and conduct that align with established moral
principles, values, and ethical standards. Ethical behavior involves making decisions and choices that are
considered morally right and just, respecting the rights and well-being of others, and adhering to ethical
norms and principles.

Unethical Behavior: Unethical behavior, on the other hand, involves actions and conduct that violate
moral principles, ethical standards, or societal norms. It includes behavior that is considered morally
wrong, dishonest, unfair, harmful to others, or in violation of legal regulations. Unethical behavior can
encompass a wide range of actions, such as lying, cheating, fraud, discrimination, harassment, and
breaking the law.

2 Fundamentals and history of Business Ethics

1. Ethical Principles: Business ethics is built on foundational ethical principles such

as honesty, integrity, fairness, accountability, and respect for individuals and their
rights. These principles serve as a moral compass for businesses.
2. Stakeholder Perspective: Business ethics recognizes the interests and rights of
various stakeholders, including customers, employees, shareholders, suppliers,
communities, and the environment. Ethical decisions should consider the impact
on all relevant stakeholders.
3. Legal Compliance: While ethics go beyond mere legal compliance, adhering to
applicable laws and regulations is a fundamental aspect of business ethics. Legal
requirements set a minimum standard for ethical behavior.
4. Transparency and Accountability: Ethical businesses are transparent about their
actions and decisions, and they hold themselves accountable for their conduct.
This includes disclosing information honestly and openly.
5. Corporate Social Responsibility (CSR): CSR is a concept closely related to
business ethics. It involves a company's voluntary actions to address social,
 environmental, and ethical concerns beyond profit-making, often including
philanthropy, sustainability initiatives, and ethical supply chain practices.
History of Business Ethics:
The history of business ethics can be traced back to ancient civilizations, where ethical
principles played a role in commercial transactions. However, modern business ethics as
a formal field of study and practice has evolved over the last few centuries:
1. 18th Century: The term "business ethics" was not commonly used, but ethical
considerations were present in the works of philosophers like Adam Smith, who
wrote about the moral obligations of businesspeople in "The Wealth of Nations"
(1776).
2. 19th Century: The industrial revolution brought about significant changes in
business practices, and ethical concerns arose related to labor conditions, child
labor, and worker rights. Ethical discussions in business gained more prominence.
3. 20th Century: Business ethics as a distinct field of study began to emerge in the
mid-20th century. The Nuremberg Trials after World War II raised questions about
corporate responsibility, and the civil rights movement in the United States
highlighted issues of discrimination and equal rights in business.
4. 1960s-1970s: The 1960s and 1970s witnessed a surge in interest in business ethics,
driven by events like the publication of "Unsafe at Any Speed" by Ralph Nader
and environmental concerns. Scholars and organizations began to develop codes of
ethics and corporate social responsibility guidelines.
5. 1980s-Present: Business ethics continued to evolve and gain importance. Scandals
like Enron and WorldCom in the early 2000s led to increased scrutiny and
regulatory reforms. Corporate social responsibility became a mainstream concept,
and businesses started to integrate ethical considerations into their strategies and
operations.
Today, business ethics is an integral part of corporate culture, and many organizations
have dedicated ethics committees, codes of conduct, and sustainability initiatives. The
field continues to evolve as societal expectations change, and businesses face new ethical
challenges in a rapidly changing global economy.
3 Stakeholders define ethical issues in business

In a business context, customers, shareholders, employees, suppliers, government

agencies, communities, and many others who have a “stake” or claim in some
aspect of a company’s products, operations, markets, industry, and outcomes are
known as stakeholders. Sometimes activities and negative press generated by special
interest groups force a
company to change its practices.
Stakeholders play a crucial role in defining ethical issues in business. Ethical issues in
business arise when there is a conflict between different values, interests, or principles,
and stakeholders are the individuals or groups who are affected by or have an interest in
the activities and outcomes of a business. These stakeholders can include:
1. Customers: Customers have a significant stake in ethical business practices. They
expect businesses to provide safe and quality products or services, be honest in
their marketing and advertising, and protect their privacy and data.
2. Employees: Employees have a vested interest in fair wages, safe working
conditions, equal opportunities, and respectful treatment. Ethical concerns may
arise related to issues like discrimination, harassment, or labor practices.
3. Shareholders/Investors: Shareholders and investors want businesses to generate
profits and create shareholder value, but they also increasingly look for
responsible and sustainable business practices that minimize risks and promote
long-term stability.
4. Suppliers: Suppliers expect ethical treatment in terms of fair pricing, payment
terms, and working conditions. They also may be concerned about the
environmental impact of their products or services.
5. Government and Regulatory Bodies: Governments and regulatory bodies define
and enforce laws and regulations that set ethical standards for businesses.
Violations of these standards can lead to legal repercussions and damage a
company's reputation.
6. Competitors: Ethical issues can arise in competitive contexts, such as accusations
of unfair competition or unethical practices to gain a competitive advantage.
4 Ethical issues and dilemmas in business

stakeholders and the firm define ethical issues. An ethical

issue is a problem, situation, or opportunity that requires an individual, group, or
organization to choose among several actions that must be evaluated as right or
wrong, ethical or unethical. An ethical dilemma is a problem, situation, or opportunity
that requires an individual, group, or organization to choose among several actions that
have negative outcomes.
Here are some common ethical issues and dilemmas in business:
1. Financial and Accounting Ethical Issues:
• Financial Fraud: Falsifying financial statements or misrepresenting
financial information to deceive investors, regulators, or stakeholders.
• Insider Trading: Trading stocks or securities based on non-public, material
information, which gives an unfair advantage.
2. Employment and Human Resources:
• Discrimination: Treating employees unfairly based on characteristics such
as race, gender, age, or disability.
• Harassment: Creating a hostile work environment through unwelcome
behavior, including sexual harassment.
• Wage and Labor Practices: Exploiting employees through practices like
low wages, excessive hours, or unsafe working conditions.
3. Supply Chain and Procurement:
• Unethical Sourcing: Using suppliers that engage in exploitative or
environmentally harmful practices.
• Conflict Minerals: Sourcing minerals from regions involved in armed
conflict and human rights abuses.
4. Marketing and Advertising:
• Deceptive Advertising: Misleading consumers through false or
exaggerated claims about products or services.
• Targeting Vulnerable Populations: Marketing products or services to
vulnerable or susceptible groups, such as children or the elderly.
 5. Environmental Responsibility:
• Pollution and Environmental Damage: Neglecting environmental
regulations, leading to harm to ecosystems and communities.
• Greenwashing: Falsely portraying a product or company as
environmentally friendly when it is not.

5 Fundamentals of corporate governance

To better understand the role of corporate

governance in business today, we must consider how it relates to fundamental
beliefs about the purpose of business. Some organizations take the view that as long as
they are maximizing shareholder wealth and profitability, they are fulfilling their core
responsibilities. Other firms, however, believe that a business is an important member,
even a citizen, of society, and therefore must assume broad responsibilities that include
complying with social norms and expectations.
From these assumptions, we can derive two major approaches to corporate
governance: the shareholder model and the stakeholder model.
The shareholder model of corporate governance is founded in classic
economic precepts, including the goal of maximizing wealth for investors and
owners.
A shareholder orientation should drive a firm’s decisions toward serving
the best interests of investors.
Underlying these decisions is a classic agency problem, in
which ownership (investors) and control (managers) are separate.
Investors and managers are distinct parties with unique insights, goals, and
values with respect to the business.
Managers, for example, may have motivations beyond stockholder
value, such as market share, personal compensation, or attachment to particular
products and projects.
Because of these potential differences, corporate governance mechanisms are
needed to align investor and management interests.
The stakeholder model of corporate governance adopts a broader view of the
purpose of business.
6 Programs and requirements for ethical and legal compliance

Establishing programs and requirements for ethical and legal compliance is essential for
organizations to operate responsibly, maintain their reputation, and avoid legal troubles.
These programs aim to ensure that a company's actions align with ethical standards and
comply with relevant laws and regulations. Here are some key components and
requirements for such programs:
1. Code of Ethics and Conduct:
• Develop a comprehensive code of ethics and conduct that outlines the
organization's commitment to ethical behavior and legal compliance.
• Clearly define expectations for employees, management, and other
stakeholders regarding ethical behavior, including guidelines for decision-
making in ethically challenging situations.
2. Compliance Officer or Department:
• Appoint a compliance officer or establish a compliance department
responsible for overseeing and enforcing ethical and legal compliance
within the organization.
• Ensure that the compliance officer has the authority to investigate, report,
and address compliance violations.
3. Policies and Procedures:
• Develop and maintain policies and procedures that cover various aspects of
business operations, including HR practices, financial reporting, data
privacy, environmental standards, and more.
• Regularly update policies to reflect changes in laws and regulations or
emerging ethical issues.
4. Training and Education:
• Implement training programs to educate employees and stakeholders about
the organization's code of ethics, relevant laws, and industry-specific
regulations.
 • Provide ongoing training to keep everyone informed about new legal
requirements and emerging ethical concerns.
5. Risk Assessment:
• Conduct regular risk assessments to identify potential areas of ethical or
legal concern within the organization.
• Prioritize risks and develop mitigation strategies to address identified
issues.
6. Reporting Mechanisms:
• Establish clear and confidential reporting mechanisms, such as hotlines or
anonymous reporting systems, to allow employees and stakeholders to
report potential ethical violations or legal issues.
• Ensure that reports are thoroughly investigated and addressed promptly.
7. Auditing and Monitoring:
• Conduct regular internal audits and reviews to assess compliance with
ethical standards and legal requirements.
• Implement monitoring systems to track compliance and identify any
deviations.
8. Whistleblower Protection:
• Enact policies and practices that protect whistleblowers from retaliation for
reporting ethical violations or illegal activities.
• Comply with relevant whistleblower protection laws.