Chapter One

Business Ethics, The

Changing Environment,
And Stakeholder
Management
Copyright © 2003 by South-
Western, a division of Thomson
Learning 1
 Business Ethics and the
Changing Environment
 Businesses & governments operate in changing
technological, legal, economic, social & political
environments with competing stakeholders & power
claims.
 Stakeholders are individuals, companies, groups &
nations that cause and respond to external issues,
opportunities, and threats.
 The rate of change and uncertainty in which stake-
holders & society must make & manage business &
moral decisions have accelerated due to the impact of:
 Internet and information technologies
 Globalization
 Deregulation
 Mergers
 Wars
Copyright © 2003 by South-Western, a division of Thomson
Learning 2
 Environmental Forces and
Stakeholders
 Local, national, and international
environments are increasingly moving
toward and into a global system of
dynamically interrelated interactions among
local, national, and regional politics,
economies, regulations, technologies,
demographics, and international law.
 Economic environment
 Technological
 Governmental and regulatory
 Legal
 Demographic

Copyright © 2003 by South-Western, a division of Thomson

Learning 3
Contd….

 Economic environment- expansion of businesses on a global basis;

volatility in stocks and bond markets; interdependencies among
businesses worldwide; rise of India and China as superpowers; how
people’s careers and jobs are getting affected by all this?
 Technological environment- electronic communication,
social online networking and internet are changing economies ,
industries and companies and jobs
 on the one hand giving speed economy of scales and efficiency
and on the other hand issues relating to privacy , surveillance
are coming up ( monitoring internet usage of employees in
office time)
 Electronic democracy – tv shows, open debates on political and
other issues like security, RTI ( what are the limits?)
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Learning 4
 Contd…

 Government and legal environment- issuing regulatory laws and

procedures to protect consumers , restrict unfair corporate practices
 After Enron and corporate scandals – Sarbanes-Oxley Act 2002 instituted
 Executives from Large firms have been tried and sentenced, fined and
imprisoned
 US FDA has taken steps to speed up trials required market approval time for
new drugs sought by patients with life threatening diseases; on the other hand
failed to take some unsafe drugs off the markets
 Subprime crisis- who can the public trust for advice about mortgagee and
loans?
 Question: who regulates the regulators? Who is responsible and accountable for
educating and constraining the public in such transactions in a democratic ,
capitalist society

Copyright © 2003 by South-Western, a division of Thomson

Learning 5
 Contd…

 Legal questions and issues affect every stakeholder and investor

 How much power governments must have to administer laws to protect
citizens and ensure fair business transactions?
 Demographic and social environment:
 Aging population, minorities issues, generational differences, and the effects of
downsizing, outsourcing and its effects on morale productivity- major issues
affecting employers and employees
 Question: how can companies effectively integrate a younger and older
workforce, the less and more educated and the technologically sophisticated
and technologically unskilled?
 Controversies relating to usage of internet for downloading and file sharing of
music and movies through unauthorized peer-to peer services – question the
nature and limits of consumer and corporate laws in a free market economy

Copyright © 2003 by South-Western, a division of Thomson

Learning 6
 Stakeholder Management
Approach
 The stakeholder management approach is a way of
understanding the effects of environmental forces and
groups on specific issues that affect real-time
stakeholders and their welfare.
 This approach attempts to enable individuals and
groups to articulate collaborative win-win strategies:
based on:
 Identifying and prioritizing issues, threats, or opportunities
 Mapping who the stakeholders are
 Identifying their stakes, interests, and power sources
 Showing who the members of coalitions are or may become
 Showing what each stakeholder’s ethics are and should be
 Developing collaborative strategies and dialogue from a higher
ground perspective to move plans and interactions to the
desired closure for all parties

Copyright © 2003 by South-Western, a division of Thomson

Learning 7
 What is Business Ethics?
Why Does It Matter?
 Ethical solutions to business and organizational problems
may have more than one right alternative and sometimes,
no right solution may seem available.
 Laura Nash has defined business ethics as “the study of how
personal moral norms apply to the activities and goals of
commercial enterprise,” as dealing with three basic areas of
managerial decision making:
 Choices about what the laws should be and whether to
follow them
 Choices about economic and social issues outside the
domain of law
 Choices about the priority of self-interest over the
company’s interests

Copyright © 2003 by South-Western, a division of Thomson

Learning 8
 What Are Unethical
Business Practices?
 Surveys have identified the following recurring
themes to prominent everyday ethical issues
facing businesses and their stakeholders:
 Managers lying to employees
 Office nepotism and favoritism
 Taking credit for other’s work
 Receiving/offering kickbacks
 Stealing from the company
 Firing an employee for whistle-blowing
 Padding expense accounts
 Divulging confidential information or trade secrets
 Terminating employment without sufficient notice
 Using company property/materials for personal use
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Learning 9
 What Are Unethical
Business Practices?
 The most unethical behavior, as per one
survey, happens in the following areas:
 Government
 Sales
 Law
 Media
 Finance
 Medicine
 Banking
 Manufacturing

Copyright © 2003 by South-Western, a division of Thomson

Learning 10
Why Does Ethics Matter In
Business?
 “Doing the right thing” matters to employers,
employees, stakeholders, and the public.
 Financially and economically: For companies, it
means saving billions of dollars each year in
lawsuits, settlements, and theft
 Costs to businesses include:
 Deterioration of relationships
 Damage to reputation
 Declining employee productivity ,creativity, and
loyalty
 Ineffective information flow throughout the
organization
 Absenteeism

Copyright © 2003 by South-Western, a division of Thomson

Learning 11
 Working for the best companies

 Fortune magazine comes out with 100 best companies to work for as part ofther
annual survey
 What are the most frequently quoted characteristics of good employers by
employees :
 Profit –sharing, bonuses, and monetary rewards
 Policies regarding work-life balance and those which encourage social
responsibility
 Flexitime requests- managers are encouraged to do what is right and human
 an employee hotline to report company violations
 Firing clients who don’t respect its security officers
 Conclusions: public and consumers benefit from organizations acting in ethical
and socially responsible manner; all stakeholders stand to gain by intending and
actually doing what is right thing
 Creates investor loyalty, customer satisfaction business performance and profits
Copyright © 2003 by South-Western, a division of Thomson
Learning 12
 Levels of Business Ethics
 Because ethical problems are not only an individual or personal
matter, it is helpful to see the different levels at which issues
originate and how they move to other levels.
 Five levels are:
 Individual
 Organizational
 Association
 Societal
 International
Story of Malden Mills and Feurestein ( Former CEO)in Lawrence , MA
Re-building a new environment and worker-friendly plant .
His comments” you are not permitted to oppress the working man
because he his poor and he’s needy”
Ëverything I did after the fire was in keeping with the ethical
standards I have tried to maintain my entire life… I think it was
a wise business decision, but that isn’t why I did it. I did it
because it was the right thing to do” ( www.kalwall.com)
Copyright © 2003 by South-Western, a division of Thomson
Learning 13
 Some findings based on Kohlberg’s study

 Managers in large to medium sized-firms reasoned at lower moral

stages than mangers who are self employed or who worked at small
firms.
 Reason: large firms have more complex layers and structures, more
standard polices and procedures , exert more rule-based control over
employees.
 Employers in large firms feel more isolated from other parts of
organization , feel less involved in the central decision-making process
 Self employed professionals and managers in smaller firms tend to
interact more with people in all levels of organization and external
stakeholders

Copyright © 2003 by South-Western, a division of Thomson

Learning 14