IMPORTANCE OF BUSINESS ETHICS

Explaining the importance of ethics in business

1. The Importance of Business
Ethics
C H A P T E R 1
Ethical Decision Making For Business 8e Fraedrich/Ferrell/Ferrell
CHAPTER 1

2. Why Study Business Ethics?
•Business decisions under great
scrutiny
–Global financial crisis created
diminished stakeholder trust
•Deals with questions about
whether practices are
acceptable
•No universally-accepted
approach for resolving issues
Source: © Jack Hollingsworth/Corbis

3. Business Ethics
•Comprises principles, values, and standards that guide
behavior in the world of business

4. A Crisis in Business Ethics
•Consumer trust of businesses is declining
•No sector is exempt from ethical misconduct
•Stakeholders determine what is ethical/unethical
–Investors
–Employees
–Customers
–Interest groups
–Legal system
–Community
Source: Stockbyte

5. Before 1960: Ethics in Business
•Theological discussions of ethics emerged
–Catholic social ethics included a concern for
morality in business, workers’ rights and living
wages
–Protestants developed ethics courses in their
seminaries and schools of theology
•The Protestant work ethic encouraged hard work

6. The 1960s: The Rise of Social Issues in
Business
•Societal social consciousness emerged
–Anti-business sentiment rose
•A new era of consumerism
–Right to safety, to be
informed, to choose,
and to be heard
•Consumer protection groups
fought for consumer
protection legislation
Source: Hisham Ibrahim

7. The 1970s: Business Ethics as an
Emerging Field
•Business professors began to write about social
responsibility
–An organization’s obligation to maximize
positive impact and minimize negative impact
on stakeholders
•Businesses became concerned with public image
•Issues:
–Bribery –Product safety
–Deceptive advertising –Environment
–Price collusion

8. The 1980s: Consolidation
•Membership in business ethics
organizations increased
•Ethics centers provided:
–Publications, courses, conferences
and seminars
•Firms established ethics committees
•Corporate support for ethics

9. The 1990s: Institutionalization of
Business Ethics
•Preventative actions against misconduct
–A company could avoid/minimize potential
penalties

10. Ethics Contributes to Employee
Commitment
•Comes from employees who believe their future
is tied to the organization’s
•Are willing to make personal sacrifices for the
organization
–The more dedication on the part of the company,
the greater the employee dedication
–Concerns include a safe work environment,
competitive salaries and benefit packages, and
fulfillment of contractual obligations

11. Ethics Contributes to Investor
Loyalty
•Companies perceived by their employees as
having a high level of honesty and integrity are
more profitable than companies with a low level
of honesty and integrity
•Ethical climates in organizations provide platform
for:
–Efficiency
–Productivity
–Profitability

12. Ethics Contributes to Customer
Satisfaction
•Consumers respond positively to socially concerned
businesses
–Being good can be extremely profitable
•Customer satisfaction dictates business success
•A strong organizational ethical climate
places customers’ interests first
•Research shows a strong relationship between ethical
behavior and customer satisfaction

13. Ethics Contributes to Profits
•Corporate concern for ethical
conduct is being integrated with
strategic planning
–Maximize profitability
•Corporate citizenship is
positively associated with:
–Return on investment and
assets
–Sales growth
•Studies have found a positive
relationship between citizenship
and performance
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