Chapter 9 Ethical Considerations Flashcards
Ethics
The communal sense of right and wrong. “The study of how people ought to act.” Ethics are part of the community. Morals. Inherent subjectivity. Ethical principles are not laws. Law is not ethics.
Morals
These are personal and individual. Not equal to ethics.
Inherent Subjectivity
Conduct depends on what community you are from or apart of. Think about the example in regards to speed bumps.
Ethics Laws: Fiduciary
Person having duty to act for the benefit of somebody else. A relationship founded on trust and confidence. By failing to act for the benefit of the other person, you have violated your relationship with that other person.
Law and Ethics (Two conflicting points)
1) Violations of laws result in some formal sanction or penalty. Ethical violations do not.
2) Law pursues some public policy adopted by some governmental authority. Ethics promote ‘right’ or proper conduct. These considerations may not align.
Ex: Employment at will.
Revlon Case (1986) Shareholders vs. Stakeholders
1) Court said: Corporate directors have fiduciary responsibility to maximize shareholder profit.
2) State law said later on: The people in charge of corporations must maximize their profit BUT can also choose a course of path that doesn’t’t maximize profit in the short run but can show proof that they can maximize profit in the long run. (Law talked only about SHAREHOLDERS).
3) Stakeholders are the suppliers, customers, community of the corporation, society, former employees, everyone who has an interest in the functioning of this corporation!
Caux Round Table
Conduct should be based on stakeholders! Not shareholders.
Corporate Social Responsibility (CSR)
Adam Smith talked about the free market system; that there is little need for government regulation. The cobbler in the village who makes the shoes in the village is incentivized to make good shoes, or else his reputation will take a toll and he will lose business. Smith said there is a natural incentive in capitalism to be good, ethical, and make good products. Self-regulate. The businessman will be guided by an invisible hand!
The Theory of Moral Sentiments
1) People are inherently moral, people get pleasure from acting in ways to help others, therefore people will always help others (therefore people will act morally and ethically).
2) Smith then applied this to the free market system! First must be based on the ethical conduct of all involved, then there is less need for government regulation!!!
Ethics in relation to CSR
1) Ethics are not rational. They are emotional.
2) Almost any conduct can be rationalized on the basis of some measurable good that it produces- usually money, wealth, power, material gain, physical comfort, etc.
3) Often, the benefit of acting ethically is the peace of mind, or the comfort of soul that results.
4) To act ethically, one must be ethical.
Why should you do the right thing?
It is about humanity.
Santa Clara County v. Southern Pac. R. Co.
U.S. Supreme Court, 1886
The Court declared that a corporation is a “person” entitled to the protections of the 14th Amendment.
B Corporation: can engage in social entrepreneurship, without needed to maximize return for shareholders. (Creating an opportunity not a requirement).
Conclusions about Ethics (Four of these)
1) Ethical standards are suggestions. Laws set standards, these are legal requirements that need to be followed however.
2) The most society has a right to expect from business is adherence to law.
3) As long as success is measured in money, there will always be unethical conduct.
4) The very basic tenets of free market capitalism require ethical conduct. Yet, few recognize ethical constraints as critical to the free market system. Unless ethical conduct is mandated by law, and enforced with consequences, we will continue to experience market disasters.
