Business Ethics | Autumn 2012 Week 2: The Benefits of Ethics WEEK 2: BENEFITS OF ETHICS OBJECTIVES: Understand how ethics

s benefits business

KEY VOCABULARY: Case Method Good Citizen Fallacy Ethical Climate LECTURE SUMMARY: Wrap-up history lesson from previous week (if needed) Legal Misconduct Investors Loyalty Commitment Reputation Close Call Goodwill Fallacy

Activity A Decline in values Background facts Why study misconduct in business? o Importance of business to society o Good citizen fallacy o Legal vs. ethical o Close calls o Identify issues

Activity identify good and bad companies (in your opinion) why? Benefits of ethical behaviour in business Relationship between ethics and reputation o Employee Commitment o Investor loyalty o Customer Satisfaction Profits

QUESTIONS: 1. 2. 3. 4. 5. 6. Why is the study of ethics useful for business? What benefits does ethical behavior have for business? What is the difference between something being legal and something being ethical? What is a close call? Why is this idea important to business ethics? Are businesses and business people becoming more or less ethical? Explain. When you make a decision about ethics, who decides if you made the correct choice? Explain.

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Business Ethics | Autumn 2012 Week 2: The Benefits of Ethics LECTURE NOTES WARM- UP (A DECLINE IN VALUES) Have social values and standards of business leaders been improving or declining over the past 20 years in China? Globally? Why or why not?

BACKGROUND FACTS (2004) 57% of Americans feel that business becoming less ethical (2008) 84% percent of executives felt important for business to be socially responsible Ethics (re)defined o How do we know what is right or wrong certainly judgment matters, but Is a balance between profits, laws & responsibility How common is the problem of poor ethical performance? 30-40% admit to seeing misconduct in their firm (in US)

Activity identify good and bad companies (in your opinion) why? WHY STUDY BUSINESS ETHICS? Historically, numerous ethical problems have arisen in business Business is important to society and the world o Business effect on the world is large, important and increasing Good citizen fallacy o Good people often do bad things o And, even if all of your employees are good people they will still encounter difficult or unclear situations Legal vs. ethical - these ideas, while related, are different o Legal requirements can often be considered societys a minimum requirements for acceptable behaviour o Ethical requirements are more similar to the preferred or best possible behaviour or action Close calls & unusual circumstances o One of the biggest problems in ethics is that many ethical problems are complex, difficult or the best choice is unclear Depth of knowledge o The better prepared you are to analyse and understand problems, the more likely you will be able to effectively handle problems you encounter once you are in the workforce

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Business Ethics | Autumn 2012 Week 2: The Benefits of Ethics BENEFITS OF BUSINESS ETHICS Twenty-five years research show ethics and profits are connected long-term Relationship between ethics & reputation o Having ethical problems is not necessarily bad if the company has a good reputation for handling ethical problems o Actions matter! Employee Commitment o Importance of ethics in working for employer (79% feel it is important) o Motivation, loyalty, sacrifices o Trust & goodwill (greater honesty between staff, openness, efficient decisionmaking) o Improved recruitment & retention(up to 6x more turnover) Investor loyalty o Risk & trust matter for accounting, financial & legal reasons o Attracting and retaining investors: ethical business generally have a higher level of return to investors over 3 years (101% vs 69%). Fewer instances of fines or penalties o Ethical investors are becoming important to the market (including some institutional investors) Customer Satisfaction o Happy customer is a repeat customer unhappy customers want revenge (or at least wont come back) o Buy from companies that share the same ethical standards (GAP, Nike sweatshops) o Ethical companies are more focused on and in tune with customer interests Profits o Higher return on assets for firms that emphasise ethical behaviour long-term (as seen in top 500 firms over last 25 years) o Better understanding of customers interests o Higher staff performance o Not just being ethical, but how you handle ethics problems o Short term profits not correlated with ethics (we know that unethical behaviour is often very profitable in the short-term; after all, thats a major reason for unethical behaviour in business) o Now being seen as a source of competitive advantage rather than just a compliance program

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