LAW, BUSINESS, & SOCIETY

11th Edition

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Learning Objectives Describe some of the ethics issues

associated with America’s recent banking and finance crisis

Discuss America’s current moral climate

Discuss the leading ethical decision-making theories

Distinguish between teleological and deontological ethical systems

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Learning Objectives Distinguish utilitarianism and

formalism Describe Kohlberg’s theory of moral

development Describe some of the forces that

encourage unethical behavior in the workplace

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Learning Objectives Explain the general purpose of ethics

codes in the workplace Explain the general requirements of

the Foreign Corrupt Practices Act Discuss some of the risks and rewards

of whistle blowing

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Introduction to Ethics Current final crisis is a result of:

› Inadequate government regulation› Easy credit, overextended borrowers› Real estate speculation, greed, and

collapsed housing market

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Introduction to Ethics Too big to jail

› America’s big banks are untouched by criminal prosecution Money laundering, mortgage and foreclosure

fraud, and big rigging were discovered Settlements and civil penalties were paid

› Proving criminal wrongdoing and required intent to commit a crime are difficult

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Introduction to Ethics Pattern of abuse

› Subprime mortgage crisis› Savings and loan crisis of 1980s› Corporate greed of the Enron era

CEO Dennis Kozlowski stole millions of dollars from Tyco

Bernard Madoff’s colossal Ponzi scheme

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America’s Moral Climate Americans are questioning nation’s

moral health Majority of people believe moral values

are declining

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America’s Moral Climate College students

› Most of the business students admit they cheated in college or high school

› MBA Oath - Harvard students started a voluntary campaign to promote ethical acts

Changing values› College experience strengthens certain

ethical values› Most young people are self-absorbed

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Ethics Theories Business ethics

› Measurement of business behavior based on standards of right and wrong

Jean-Paul Sartre’s philosophy› Standards of conduct cannot be objectively

discovered or rationally justified › Individuals are responsible for their moral

decisions› Existence precedes essence

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Universal Truths? Religion

› Faiths feature efforts to build absolute and universal standards American managers believe in the Golden

Rule Provides a foundation for a moral life

Libertarianism› Ethical theory rooted in personal liberty› Morality coincides with the maximization of

personal freedom

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Universal Truths? Virtue ethics

› Key to good ethics lies in the classic notion of character

› One must focus on strategies for encouraging desirable character traits

› Person should cultivate the motivation to do the right thing in daily conduct

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Teleology Concerned with the consequences of

an act rather than the act itself Utilitarianism - Good is to be weighed

against evil to reach an ethical decision› Act-utilitarianism

Goal - To identify consequences of an act to determine whether it is right or wrong

› Rule-utilitarianism One must follow rules that generate the

greatest value for society

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Deontology Directed toward what ought to be, what

is right› Principle is primary› Consequence is secondary or irrelevant

Formalism - Measured by the rightness of rules and not by consequences› Categorical imperative - Every person should

act on principles that he or she would prescribe as universal laws Moral rule is categorical

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Corporate Ethical Climate Unfavorable public attitudes toward big

business Businesses are more transparent and

accountable than ever before

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Kohlberg’s Theory of Moral Development Moral development evolves and

improves as a function of age and education

Movement through distinct stages› Preconventional level

Stage 1 - Obey rules to avoid punishment Stage 2 - Follow rules only if it is in own

interest

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Kohlberg’s Theory of Moral Development

› Conventional level Stage 3 - Conform to meet the expectations

of others Stage 4 - Doing right is one’s duty

› Post conventional or principled level Stage 5 - Current laws and values are

relative Stage 6 - Follow self-chosen universal ethical

principles

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Feminine voice - Carol Gilligan’s criticisms› Conceptions of morality are gender-based

Men take an impersonal view of morality Women build morality based on care,

support, and responsiveness› Women are underscored in Kohlberg’s

stages

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Reason or Emotion? Kohlberg and Gilligan theory

› Moral decision making is controlled product of analysis, deliberation, and experience

Emotion/intuition approach› Moral decision making is an automatic,

nonreflective process Mind generates feelings of approval or

disapproval instantaneously when confronted with a moral question

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Reason or Emotion? Moral decision making

› Product of a dual process system› Employs both automatic emotions and

controlled reasoning

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Moral Identity Degree to which moral concerns are

central to one’s sense of self People with stronger moral identities

are likely to engage in good behavior

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Organizational Forces Individual character and organizational

culture influence corporate misconduct Pressure to cheat is cited as an

evidence of an organization’s ethical culture

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The Boss Top corporate bosses in America were

disgraced by various scandals Despite cynicism, bosses are crucial in

setting ethical climate in an organization

Climate of integrity is vital to the success of public company› Should be initiated from the top

management

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Corporate/White Collar Crime U.S. government struggles to curb

corporate crime Deferred and non-prosecution

agreements› Contracts with the government

Company undertakes specified actions in exchange for charges being dismissed or not filed

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Prevention or Enhanced Punishment Sarbanes–Oxley Act (SOX), 2002

› Confronts corporate crime by publicly traded companies

› Provisions Establishes an independent board to oversee

accounting profession Requires executives to personally certify the

accuracy of financial reports

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Prevention or Enhanced Punishment

Creates new crimes and raises penalties Requires publicly traded companies to:

Establish internal control systems Disclose whether they have adopted an ethics code

for senior financial management

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Sentencing Federal sentencing guidelines provide:

› Ranges within which judges are advised to impose sentences

› Greater predictability and consistency in punishment

Companies with effective compliance programs may receive reduced penalties in crimes

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Global Bribery Accepted as a necessary and lawful

way of doing business in many cultures Foreign Corrupt Practices Act (FCPA)

› Chief federal weapon against bribery abroad

› Considers bribery as a criminal conduct› Requires rigorous internal accounting

controls and careful recordkeeping

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Global Bribery› Does not forbid payments for securing the

performance of a routine governmental action

FCPA is controversial from the outset› Some consider that the act damages

competitiveness Most industrial countries are moving

toward the zero tolerance of bribery

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Whistle Blowing False Claims Act

› Rewards individuals who help stop fraud involving government contracts

Dodd–Frank Wall Street Reform and Consumer Protection Act› Include a cash reward for information that

leads to a recovery exceeding $1 million Whistle blowers are entitled to 10 to 30

percent of the recovery

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Whistle Blowing Retaliation

› Whistle blowers pay high price for exercising consciences

› Dodd–Frank forbids discharge, demotion, and other forms of retribution against securities law whistle-blowers