Chapter 2 Today's Environment for Business Ethics and Related Social Issues

1. Today's Environment for
Business Ethics and Related
Social Issues
Chapter 2

2. Explain the concepts of business ethics
and social responsibility
Describe the factors that influence
business ethics.
List the stages in the development of
ethical standards and discuss how
organizations shape ethical behavior.
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Learning Goals
Describe how businesses’ social
responsibility is measured and
summarize the responsibilities of
business to the general public,
customers, and employees.
Explain why investors and the
financial community are concerned
with business ethics and social
responsibility.
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3. • Ethics may be defined as the set of moral principles that
distinguish what is right from what is wrong.
• Ethics has a twofold objective: It evaluates human practices by
calling upon moral standards; also it may give prescriptive advice
on how to act morally in a given situation.
• Ethics, therefore, aims to study both moral and immoral
behavior in order to make well-founded judgments and to arrive
at adequate recommendations.
• Sometimes ethics is used synonymously with morality. An
action, which is morally right, is also called an ethical one.
Codes of morality are called ethical codes. Business ethics can
also be defined as business morality.
Business Ethics

4. • The study of proper business policies and practices regarding
potentially controversial issues, such as corporate governance,
insider trading, bribery, discrimination and corporate social
responsibility. Business ethics are often guided by law, while
other times provide a basic framework that businesses may
choose to follow in order to gain public acceptance.
(Investopedia).
• Business ethics are implemented in order to ensure that a
certain required level of trust exists between consumers and
various forms of market participants with businesses.
• For example, a portfolio manager must give the same
consideration to the portfolios of family members and small
individual investors. Such practices ensure that the public is
treated fairly.
Business Ethics

5. • In Islam, ethics governs all aspects of life. Islamic teachings
strongly stress the observance of ethical and moral code in
human behaviour. Moral principles and codes of ethics are
repeatedly stressed throughout the Holy Qur’an. Besides, there
are numerous teachings of the Prophet(sws) which cover the
area of moral and ethical values and principles. Says the
Holy Qur’an:
• You are the best nation that has been raised up for mankind; You enjoin
right conduct, forbid evil and believe in Allah. (3:110)
• The Prophet (sws) also says:
• I have been sent for the purpose of perfecting good morals. (Ibn Hambal,
No: 8595)
AN ISLAMIC APPROACH TO BUSINESS ETHICS

6. • Islam demands a certain type of behaviour from the economic
agents – the consumers and the producers. There are a number
of rules of ethical discipline in Islamic commercial transactions
without which business contract would be regarded as lacking
perfection in the light of the code of good manners, decency
and ethical excellence. Some of these tenets are as follows:
• Islam places great emphasis on the code of lawful and unlawful
in business transactions. Many Qur’anic verses disapprove the
wrongful taking of the property. Says the Holy Qur’an:
• Do not devour one another’s property wrongfully, nor throw it before the
judges in order to devour a portion of other’s property sinfully and
knowingly. (2:188)
• Do not devour another’s property wrongfully – unless it be by trade based
on mutual consent. (4:29)
ISLAMIC TENETS CONCERNING BUSINESS TRANSACTIONS

7. • The Prophet (sws)endorsed the importance of legitimate ways of
earning in the following words:
• Asked ‘what form of gain is the best? [the Prophet] said, ‘A man’s work with
his hands, and every legitimate sale’. (Ahmad, No: 1576)
• From the above it is clear that a Muslim trader must be
determined to earn only through legitimate means.
• Things legitimate and illegitimate are clearly defined in Islam
and, in between them, are doubtful things, which should be
avoided. A tradition of the Prophet (sws) states: A time will come
upon the people when one will not care as to how he gets his money
whether legally or illegally. (Bukhari, No: 1941). The Prophet (sws) is
also reported to have said; Allah and His Messenger made illegal the
trade of alcoholic liquors, dead animals, pigs and idols. (Bukhari, No: 2082)
• The Prophet (sws) also said; If Allah makes something unlawful, he
makes its price also unlawful. (Ahmad, No: 2546)
ISLAMIC TENETS CONCERNING BUSINESS TRANSACTIONS

8. The Prophet (sws) has also exhorted the believers to strictly adhere
to truthfulness in business transactions. He says:
• The seller and the buyer have the right to keep or return the goods as long
as they have not parted or till they part; and if both the parties spoke the
truth and described the defects and qualities [of the goods], then they would
be blessed in their transaction, and if they told lies or hid something, then
the blessings of their transaction would be lost. (Bukhari, No: 1937)
• The tradition implies that Allah blesses business dealings if both
the buyer and the seller are true to each other. Telling lies and
hiding facts will result in the loss of divine blessing. A tradition
reads.
• The Holy Prophet said: ‘Traders are wicked people’. The Companions
asked: ‘O Messenger, has Allah not permitted business?’ The Messenger
replied: ‘Of course He has declared trading lawful. But they (i.e. the traders)
will swear by Allah and do evil, they will not speak but tell lies’. (Ahmad, No:
14982)
ISLAMIC TENETS CONCERNING BUSINESS TRANSACTIONS

9. Business Ethics
The standards of conduct and moral values
governing actions and decisions in the work
environment.
Social responsibility
Balance between what’s right and what’s profitable
Often no clear-cut choices
Often shaped by the organization’s ethical climate
Sarbanes-Oxley Act
A 2002 law that added oversight for the nation’s
major companies and a special oversight board to
regulate public accounting firms that audit the
financial records of these corporations.
Concern for Ethical and
Societal Issues

10. The Contemporary Ethical
Environment
Business ethics are now in the spotlight as never
before. Companies realize that they have to work
harder to develop trust in general public.
A Survey report, Society now has greater
expectations of business than it did five years
ago, 95% CEOs replied.
It benefit all Consumers, the Environment, and the
Companies themselves.
Vast majority of businesses are ethical.

11. Engage in traditional corporate generosity, which
involves giving to worthy causes.
Anticipate and manage risks.
Identify opportunities to create value by doing the
right thing.
See how Wal-Mart highlights corporate
responsibility on its website.
Business Approach to Ethics and
Social Responsibility

12. Individuals can make the difference in ethical
expectations and behavior.
Putting own interest ahead of the organization
Lying to employee
Misrepresenting hours
Safety violations
Internet abuse
Technology is expanding unethical behavior.
Individuals Make a Difference

13. Development of Individual Ethics

14. On-the-Job Ethical Dilemmas
Situation in which a
business decision may
be influenced for
personal gain.
Employee’s
disclosure of illegal,
immoral, or
unethical practices
in the organization.
Telling the truth and
adhering to deeply felt
ethical principles in
business decisions.
Businesspeople
expect employees to
be loyal and truthful,
but ethical conflicts
may arise.

15. How Organizations Shape Ethical
Conduct

16. Ethical Awareness
Code of Conduct: Formal
statement that defines how
the organization expects
and requires employees to
resolve ethical questions.

17. Ethical Education
Codes of conduct cannot
detail a solution for every
ethical situation, so
corporations provide training
in ethical reasoning.

18. Ethical Action
Helping employees
recognize and reason
through ethical problems
and turning them into ethical
actions.
TI Ethics Quick Test

19. Ethical Leadership
Executives must demonstrate
ethical behavior in their
actions.
use clear, explicit language rather
than euphemisms for corrupt
behavior
encourage behavior that generates
and fosters ethical values

20. Acting Responsibly to Satisfy
Society
Social Responsibility
Management’s consideration of profit, consumer
satisfaction, and societal well-being of equal value in
evaluating the firm’s performance.
Contributions to the overall economy, job
opportunities, and charitable contributions and
service.

21. Areas of Responsibility

22. Responsibilities to the General
Public
Public Health Issues. What to do about inherently
dangerous products such as alcohol, tobacco, vaccines,
and steroids.
Protecting the Environment. Using resources
efficiently, minimizing pollution.
Green marketing
Sustainability
Developing the Quality of the Workforce. Enhancing
quality of the overall workforce through education and
diversity initiatives.
Corporate Philanthropy. Cash contributions, donations
of equipment and products, and supporting the volunteer
efforts of company employees.

23. Responsibilities to Customers
CONSUMERISM
The Right to Be Safe. Safe operation of products,
avoiding product liability.
The Right to Be Informed. Avoiding false or misleading
advertising and providing effective customer service.
The Right to Choose. Ability of consumers to choose the
products and services they want.
The Right to Be Heard. Ability of consumers to
express legitimate complaints to the appropriate parties.

24. Responsibilities to Employees
Workplace Safety. Monitored by Occupational Safety and
Health Administration.
Quality-of-Life Issues. Balancing work and family through
flexible work schedules, subsidized child care, and regulation
such as the Family and Medical Leave Act of 1993.
Ensuring Equal Opportunity on the Job. Providing equal
opportunities to all employees without discrimination; many
aspects regulated by the Equal Employment Opportunity
Commission.
Age Discrimination. Age Discrimination in Employment Act
of 1968 protects workers age 40 or older.
Sexual Harassment and Sexism. Avoiding unwelcome
actions of a sexual nature; equal pay for equal work without
regard to gender.

25. Responsibilities to Investors
Obligation to make profits for
shareholders.
Expectation of ethical and moral
behavior.
Protection of investors by the
Securities and Exchange Commission
and state regulations.