BUSINESS ETHICS

Pamela S. Evers
Attorney & Assoc. Prof., UNCW
Roadmap
• Moral Standards & Business Ethics
• Business Ethics & Decision Making
• Business Ethics in Practice

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Moral Standards & Business Ethics
• The measurement of ethics, moral
standards provide the basis for deciding
whether an act is right or wrong

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Moral Standards

• Consequentialist (teleological)
principles focus on outcome or
results of a decision
– Egoism (Hobbes, Adam Smith, Ayn
Rand)
– Utilitarianism (Bentham & Mill)

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Moral Standards

• Nonconsequentialist (deontological)
principles use rules to determine
ethics of a decision
– Rights-based (Kant’s categorical
imperative and virtue ethics)
– Justice-based (Rawls; distributive,
retributive, or compensatory)

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

 Your Initial Moral Orientation
How important are each of the following in your life?

N
E
o
x A
L t
t v
V i
r e
e t a
e r
r t t
m a
y l
e g
e a
l e
l
y
l

Religious Commands
Conscience
Selfishness
Duty
Respect
Rights
Consequences for Everyone
Moral Standards
• Social contract theory is
intended to be integrative and
normative, allowing for moral
diversity while maintaining
universal norms
– Firms exist only by the cooperation
and support of society

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Important Question
• A business entity is considered under the
law to be a legal “person”
• But can a business have ethics?

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Why Worry?
• If your boss asked you to
shred documents as part of
a “routine document
retention policy” and you
knew the documents were
important to a criminal
investigation, what would
you do?
– Former Arthur Andersen
employees know

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Business Ethics
• Definition: process of
evaluating decisions,
either pre or post, with
respect to moral
standards of the
society’s culture
• Or…business conduct
that seeks to balance
the values of society
with the goal of
profitable operation
Pamela S. Evers, Assoc. Prof. of Business Law, © 2009
Business Ethics Development
• Ethical business conduct has
existed for centuries, but was
seen as a best practice when
the town of Saltaire was built
by Titus Salt in 1851 for
employees
– A UNESCO World Heritage Site
– “A sense of duty and
responsibility has alone
actuated me.” Sir Titus Salt

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Business Ethics Development
• Business ethics developed as a scholarly
field in the 1970s
• Business ethics as a movement refers to
structures internal to the corporation
that help it and its employees act
ethically, as opposed to structures that
provide incentives to act unethically

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Business Ethics & Decision
Making
• Methods of ethical decision
making in business include:
– Utilitarianism
– Stakeholder theory
– Balanced scorecard approach
– Corporate codes

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Utilitarianism
• Basic view: maximize utility for society
as a whole by a cost-benefit analysis
• Strength of the theory is in the
simplicity of a cost-benefit analysis
• Criticism of the theory: how does a
person measure all the costs and
benefits?

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

What are the costs and benefits of a chemical plant and how
should these be allocated?

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Ethical Egoism Approach
• Maximize company’s
long-run profits
within legal limits
– From economists
Adam Smith, Milton
Friedman, and
Thomas Sowell
• If legal, then ethical

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Ethical Egoism Approach

• Strength of the theory is

the focus on profits as a
mechanism for creating
social benefit
• Criticism of the theory:
underlying assumptions
may be flawed Enron’s management
argued that their
activities were lawful

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Business Stakeholder Approach

• The business stakeholder standard of

behavior determines whether an act is,
or is not, ethical by examining the
interests of various stakeholders with
regard to a particular business action
– Supports efforts to engage in corporate
social responsibility
• Stakeholders are internal and external
to the firm
Pamela S. Evers, Assoc. Prof. of Business Law, © 2009
The
Stakeholder
Theory

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Balanced Scorecard Approach

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009
Apply the Factors
• Whether to lay off employees to cut costs at the
plant or incur a significant decrease in profit
• Whether to use a less expensive component with
a 15% increased risk of defect or use more
expensive component with decreased profit
• Whether to violate the environmental permit
and pay the $25,000 fine or spend $50,000 to
comply with the permit

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Corporate Codes of Ethics
• Many corporations have adopted a Code of
Ethics to foster ethical behavior within a
firm, sometimes adding ethics audits
– And/or to enhance their public image
• Some laws, such as the Sarbanes-Oxley
Act, have forced some firms to adopt
codes of ethics for their executives
– http://www.sec.gov/about/laws/soa2002.pdf

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Business Ethics & CSR

• "Corporate Social Responsibility is the

continuing commitment by business to
behave ethically and contribute to
economic development while improving
the quality of life of the workforce and
their families as well as of the local
community and society at large“
– World Business Council for Sustainable
Development, "Making Good Business Sense," by
Lord Holmes and Richard Watts

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Business Ethics in Practice
• Growing body of data indicates bottom-
line benefits of business ethics & CSR
– Improved financial performance
• Overall financial performance of 2001 Business
Ethics Best Citizen firms was significantly better
than remaining companies in the S&P 500 Index
– Reduced Operating Costs
• Recycling, lower non-compliance costs, lower
employee turnover, etc.

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Business Ethics in Practice
• Enhanced Brand Image & Goodwill
– 2001 Environics International CSR Monitor survey
showed factors most influencing public impressions
of companies: social responsibility (49%); brand
quality & image (40%); business fundamentals (32%)
• Increased Sales & Customer Loyalty
– 2001 Hill & Knowlton/Harris Interactive poll: 79%
of Americans take corporate citizenship into
account when deciding whether to buy a company’s
product

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Business Ethics in Practice

• Increased Productivity & Quality

– Efforts to improve working conditions, lessen
environmental impacts or increase employee
involvement often lead to increased productivity
& reduced error rate
• Employment Benefits
– The Aspen Institute Initiative for Social
Innovation through Business between 1999 and
2001: >50% of MBA students would seek another
job if their values conflicted with the business
where they work
Pamela S. Evers, Assoc. Prof. of Business Law, © 2009
Business Ethics in Practice

• Reduced Regulatory Oversight

– Agencies take “good behavior” into account
• Example: U.S. Federal Sentencing Guidelines
allow penalties and fines against corporations to
be reduced or eliminated if a company can show
it has taken “good corporate citizenship”
actions and has an effective ethics program in
place

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Business Ethics in Practice

• Access to Capital
– Social Investment Forum reported that social
investing in 2001 rose to $2.34 trillion despite
an extended market downturn for most of the
prior two-year period

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Business Ethics in Practice
• Other reasons
– Increased Stakeholder Interest
• Dow Jones Sustainability Indexes
• FTSE4Good
– More compliance regulations and calls for
transparency in reporting
• Sarbanes-Oxley
– Rise of voluntary CSR guidelines
• Global Reporting Initiative
• ISO 26000

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

ISO 14001
GRI Sustainability Reporting

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

GRI
Sustainability
Reporting

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009

Thank You!

“It is not what a lawyer tells me I may do; but what

humanity, reason, and justice, tell me I ought to do.”
Edmund Burke

Pamela S. Evers, Assoc. Prof. of Business Law, © 2009