Business And Its Legal Environment (Mgmt 246)

1
Business And Its Legal Environment (Mgmt 246)

• Professor Charles H. Smith
• Ethics and Business Decision Making (Chapter 4)
• Fall 2006

2
Business Ethics

• Focus is what is right and wrong in context of
  the business world (the specific application of
  ethics in the workplace).
• Ethics are important to a companys long-term
  viability reputation lasts longer than this
  quarters profits.
• Fiduciary duty obligation of trust and loyalty
  owed by co-owners of business to each other.
• Case study Time Warner Entertainment Co. v. Six
  Flags Over Georgia, LLC (pages 84-85).

3
Setting the Right Ethical Tone

• Ethical leadership
• Top management must be committed to ethics or
  underlings will not be.
• Looking the other way managers ignoring
  workers bad conduct will encourage future bad
  conduct by all workers.
• Periodic ethics evaluation.
• Case study In re the Exxon Valdez (pages
  86-87).
• Ethics codes and training provides clarity and
  shows company is serious
• Written codes.
• Ethics training for employees.

4
Setting the Right Ethical Tone cont.

• Corporate compliance programs
• Sarbanes-Oxley Act of 2002 and web-based
  reporting systems.
• Corporate governance principles which go beyond
  requirements of the law.
• Compliance programs must be integrated throughout
  the company.
• Case study SEC v. WorldCom, Inc. (pages 89-91).
• Conflicts and trade-offs if decision needs to
  be made, which group of stakeholders (people
  with an interest in the decision) should take
  priority? Which stakeholders are more important?

5
Companies That Defy the Rules

• Enron video
• Merck controversy re Vioxx (painkiller)
• Mercks knowledge of risks study showed that
  patients taking Vioxx for extended period had up
  to 4X as many heart attacks and strokes as
  patients who took Naproxen, though less stomach
  bleeding if patients took Vioxx instead of
  Naproxen.
• Merck executives took position that Vioxx was
  safe until proven otherwise.
• August 2005 jury awarded 253M to widow of
  Vioxx victim.

6
Business Ethics and Law

• Laws regulating business
• Extensive federal, state and local regulation,
  with frequent changes/additions to governing law
  ignorance of the law is no excuse.
• Therefore, important to stay current re governing
  law.
• Legal gray areas
• Definitions of terms in statutes and cases, such
  as
• Reasonable person
• Good faith
• Abuse of discretion
• Exceptions to general rules often called
  loopholes.
• Contract interpretation, especially if contract
  comprised of multiple documents/communications.

7
Approaches to Ethical Reasoning

• Duty-based ethics
• Religious beliefs every religion has set of
  rules that are both absolute and based on
  compassion.
• Kant central theme is individual should
  evaluate his actions in light of consequences
  that would follow if everyone acted the same way
  (categorical imperative).
• Principle of rights humans have basic rights,
  such as life, freedom and pursuit of happiness.
• If the above concepts are in conflict, which
  should be controlling?
• Outcome-based ethics (utilitarianism) focus on
  consequences, not the nature of an action itself
  or any moral/ethical rules wants the greatest
  good for the greatest number of people.

8
Business Ethics on a Global Level

• Different ethics in different countries/cultures
• Example U.S. laws barring discrimination
  against women and other protected classes of
  people, such as people of color or non-U.S.
  origin other countries permit such
  discrimination.
• Example while alcohol consumption is legal in
  U.S., it is up to each individual whether to
  imbibe in some countries, alcohol consumption is
  illegal, so no individual choice.
• Foreign Corrupt Practices Act (1977)
• Prohibits bribery of foreign officials.
• Accounting requirements.
• Penalties.