ch2_PPT

A HISTORICAL PERSPECTIVE ON BUSINESS ETHICSChapter TwoCopyright 2012 John Wiley & SonsVisit http://wileymanagementupdates.com/ for the latest in business news stories.

Copyright 2012 John Wiley & Sons

Chapter 2Learning ObjectivesDescribe salient business ethics issues in precapitalist AmericaUnderstand the ethical foundation of capitalism as argued by Adam Smith in the 1700sAppreciate the delicate balance between economic growth and stakeholder rights, particularly labor issues, throughout U.S. historyBenchmark an organization to the Ethics Compliance Program best practices outlined by the Federal Sentencing GuidelinesConceptualize how to maximize ethical behaviors in organizations based on an Optimal Ethics Systems Model

Chapter 2: Collins, Business Ethics


Economic Growth and Business Ethics in Precapitalist AmericaChristopher Columbuss Arrival:

Get gold, humanely if possible, but at all hazards-get goldChapter 2: Collins, Business Ethics

Chapter 2: Collins, Business EthicsColumbus proposed an alternative trade route based on sailing west to India rather than east by land or sea

Columbus signed a lucrative contract that entitled him to the rank of admiral, governor of any new lands discovered, and 10 percent of the revenues generated by the new lands*

Economic Growth and Business Ethics in Precapitalist AmericaRoanoke and Jamestown Settlements

In the 1580s Walter Raleigh and his business associates were granted a charter to establish a colony in the area of modern-day Virginia and North Carolina to trade, search for minerals, and plunder Spanish merchant ships


Chapter 2: Collins, Business EthicsCharters allowed several people to create an organization by pooling their financial resources, which enabled bigger and riskier business projects to be undertaken

Colonists began exporting tobacco to England in 1614

Lacking a sufficient number of laborers, the colonists enslaved indigenous men and women to work the tobacco plantations, eventually importing slaves from Africa to meet labor needs*

Economic Growth and Business Ethics in Precapitalist AmericaChapter 2: Collins, Business EthicsBuildup to the Revolutionary WarBy 1774 more than 2.3 million European colonists participated in highly regulated business activitiesBusiness and tax policies exacerbated anti-England sentiments

Chapter 2: Collins, Business EthicsA sense of American nationalism grew among several generations of English settlers who had experienced life only in America and felt limited loyalty to England

Acts of civil disobedience intensified and, within two years, the colonists declared war against their English ancestors

On July 4, 1776, colonial leaders declared political independence from Britain, an act of treason punishable by death*

Freedom, Rights, and the Ethics of CapitalismWe hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness.

Approximately 25,000 colonists died for these rights during the victorious Revolutionary War


Chapter 2: Collins, Business EthicsThe Bill of Rights took effect in 1791*

Freedom, Rights, and the Ethics of CapitalismThe Bill of Rights (1791) included:

Freedom of speechFreedom of the pressFreedom of religionFreedom to petition the governmentFreedom to keep and bear armsFreedom from unreasonable search and seizure



Freedom, Rights, and the Ethics of CapitalismAdam Smiths Capitalism

Adam Smith (1723-90), a prominent member of the Scottish enlightenment, applied the concepts reason and liberty to a wide range of endeavors, including philosophy, politics, economics, and law


Chapter 2: Collins, Business EthicsSmith formulated capitalism as an economic system ethically superior to government controlled mercantilism

He insisted that a successful economic system could be devised based on freedom and competition in both product and labor markets

Smith differentiated between selfishness (concern only for self) and self-interest )concern for self in relation to others) and concluded that when granted freedom, a large majority of people would be motivated by self-interest*

Exhibit 2.1 Ethical Foundation of CapitalismIsert Exhibit 2.1Chapter 2: Collins, Business Ethics

Chapter 2: Collins, Business EthicsGovernment intervention in the marketplace, Smith reasoned, is needed under only three conditions:When contracts are violatedWhen merchants abuse their freedom by committing injustices against others (like slavery)When the pursuit of self-interests does not generate highly desired social welfare benefits

*

Freedom, Rights, and the Ethics of CapitalismSmith and Labor Issues

Freedom and self-interest play central roles in Smiths conception of capitalism

Laborers benefit from capitalism because economic growth generates more jobs and they are free to choose an occupation


Chapter 2: Collins, Business EthicsSmith highlighted three problems that could occur if owners, in pursuit of greater profits, did not rely on moral sentiments when dealing with laborers:Due to an overabundance of labor, owners could drive wages below subsistence amountsExcessive application of piece-rate incentives could increase productivity in the short term, but damage a workers health in the long termExcessive application of division of labor could also increase productivity in the short term, but damage a workers intellectual abilities in the long term

*

Economic Growth Under CapitalismChapter 2: Collins, Business EthicsThe Industrial RevolutionThe economy boomed when the Industrial Revolution spread from Britain to the United States in the early 1800s

Chapter 2: Collins, Business EthicsTechnological innovation and the division of labor significantly increased productivity and reduced the price of products

Westward expansion required the transportation of goods to new markets and resulted in the creation of integrated industries, cheaper products, and job growth*

Economic Growth Under CapitalismNew laws: antitrust, charters, and liabilitiesThe federal government created the Interstate Commerce Commission in 1886

A few years later, Congress passed the Sherman Antitrust Act of 1890


Chapter 2: Collins, Business EthicsInterstate Commerce Commission determined reasonable railway rates

Sherman Antitrust Act outlawed monopolies*

Labor IssuesChapter 2: Collins, Business EthicsSlavery

The most notable economic problems included slavery, working conditions, and income and wage inequality

Chapter 2: Collins, Business EthicsSlavery, the worst form of labor exploitation, predates capitalism and can be found in almost all ancient societies*

Labor IssuesStrikes and Labor Unions

A labor union is an association of employees that advances its members interests, such as wages, benefits, work rules, and other conditions of employment, through collective bargaining with an employer


Chapter 2: Collins, Business EthicsUnions reduced power imbalances between owners and laborers by organizing employees to speak with a single voice against what they considered unethical treatment*

Labor IssuesChapter 2: Collins, Business Ethics

Chapter 2: Collins, Business EthicsOn May 1, 1886, unions across the nation went on strike for the eight-hour workday

Henry Ford reduced his assembly line shifts to eight hours in 1914 and two years later the Adamson Act established an eight-hour day for railroad workers*

Labor IssuesWages and Compensation

Capitalisms emphasis on liberty has increased national wealth more than any other economic system

Economic inequality still remains


Chapter 2: Collins, Business EthicsThe wealthiest 1% of the population possesses more wealth than the bottom 90%

*

Exhibit 2.3 Economic Class Structure in the United StatesInsert Exhibit 2.3Chapter 2: Collins, Business Ethics


Exhibit 2.4 Median Personal Income by Educational AttainmentInsert Exhibit 2.3Chapter 2: Collins, Business Ethics


Labor IssuesThe minimum wage refers to the lowest wage an employer can legally pay an employee

A living wage refers to the amount of money a full-time employee needs to either afford the basic necessities in life or exceed the poverty threshold


Chapter 2: Collins, Business EthicsFair Labor Standards Act of 1938: the ethical principle guiding the legislation was a fair days pay for a fair days work

Some free market advocates claim that minimum wage laws violate the constitutional right of employers and employees to freely enter into contracts

Most living wage initiatives are local municipal ordinances*

Further Expansion of Stakeholder RightsRegulations protecting stakeholders against unethical business practices:Food, Drug, and Cosmetic Act Amendments (1962)Air Pollution Control Act (1962)Equal Pay Act (1963)Civil Rights Act (1964)Equal Employment Opportunity Commission (1964)Cigarette Labeling and Advertising Act (1965)



*

Further Expansion of Stakeholder RightsRegulations (cont.)Fair Packaging and Labeling Act (1966)Child Protection Act (1966)Traffic Safety Act (1966)Coal Mining Safety Amendments (1966)Flammable Fabrics Act (1967)Age Discrimination in Employment Act (1967)Consumer Credit Protection Act (1968)Interstate Land Sales Full Disclosure Act (1968)


Chapter 2: Collins, Business EthicsThese regulations challenged businesses to achieve economic growth and profits in a socially responsible manner that took into consideration the well-being of all stakeholders, not just shareholders

In the 1980s, Republican President Ronald Reagan argued that the high costs associated with the onslaught of government regulations outweighed the benefits*

Federal Sentencing GuidelinesThe continued existence of free market capitalism depends on organizational employees behaving ethically

In 1991, President George H. W. Bush issued new Federal Sentencing Guidelines

The guidelines are based on the best practices for ethics compliance programs


Chapter 2: Collins, Business EthicsThe Federal Sentencing Guidelines are applicable to nonprofits, unions, partnerships, trusts, and universities as well as businesses *

B CorporationsIn 2007, B Lab, a nonprofit organization, initiated a third-party Benefit Corporation, known as a B Corporation

It is a certification process for branding a business as being ethical, sustainable, and socially responsible


Chapter 2: Collins, Business EthicsThe goal of B Labs cofounders is to create a new legal entity recognized by federal, state, and municipal governments that permits managers to consider the interest of employees, communities, and the environment, not just the owners, when making decisions*

Exhibit 2.6 Rating System for Manufacturing Firm: Version 1.0Insert Exhibit 2.6Chapter 2: Collins, Business Ethics


The Optimal Ethics Systems ModelBusiness ethics scholars and consultants have developed a variety of audits and surveys to help organizations account for ethical behaviors

The Optimal Ethics Systems Model synthesizes these various approaches into a systematic best practices framework for reinforcing ethical behaviors


Chapter 2: Collins, Business EthicsSuccessful long-term organizational growth requires honesty, trust, integrity, and credibility*

Exhibit 2.7 Optimal Ethics Systems ModelInsert Exhibit 2.7Chapter 2: Collins, Business Ethics

Chapter 2: Collins, Business EthicsSimilar to Total Quality Management, the ultimate goal of the Optimal Ethics Systems Model is to reduce ethical risks as close to zero defects as possible*

Columbus proposed an alternative trade route based on sailing west to India rather than east by land or sea

Columbus signed a lucrative contract that entitled him to the rank of admiral, governor of any new lands discovered, and 10 percent of the revenues generated by the new lands*Charters allowed several people to create an organization by pooling their financial resources, which enabled bigger and riskier business projects to be undertaken

Colonists began exporting tobacco to England in 1614

Lacking a sufficient number of laborers, the colonists enslaved indigenous men and women to work the tobacco plantations, eventually importing slaves from Africa to meet labor needs*A sense of American nationalism grew among several generations of English settlers who had experienced life only in America and felt limited loyalty to England

Acts of civil disobedience intensified and, within two years, the colonists declared war against their English ancestors

On July 4, 1776, colonial leaders declared political independence from Britain, an act of treason punishable by death*The Bill of Rights took effect in 1791*Smith formulated capitalism as an economic system ethically superior to government controlled mercantilism

He insisted that a successful economic system could be devised based on freedom and competition in both product and labor markets

Smith differentiated between selfishness (concern only for self) and self-interest )concern for self in relation to others) and concluded that when granted freedom, a large majority of people would be motivated by self-interest*Government intervention in the marketplace, Smith reasoned, is needed under only three conditions:When contracts are violatedWhen merchants abuse their freedom by committing injustices against others (like slavery)When the pursuit of self-interests does not generate highly desired social welfare benefits

*Smith highlighted three problems that could occur if owners, in pursuit of greater profits, did not rely on moral sentiments when dealing with laborers:Due to an overabundance of labor, owners could drive wages below subsistence amountsExcessive application of piece-rate incentives could increase productivity in the short term, but damage a workers health in the long termExcessive application of division of labor could also increase productivity in the short term, but damage a workers intellectual abilities in the long term

*Technological innovation and the division of labor significantly increased productivity and reduced the price of products

Westward expansion required the transportation of goods to new markets and resulted in the creation of integrated industries, cheaper products, and job growth*Interstate Commerce Commission determined reasonable railway rates

Sherman Antitrust Act outlawed monopolies*Slavery, the worst form of labor exploitation, predates capitalism and can be found in almost all ancient societies*Unions reduced power imbalances between owners and laborers by organizing employees to speak with a single voice against what they considered unethical treatment*On May 1, 1886, unions across the nation went on strike for the eight-hour workday

Henry Ford reduced his assembly line shifts to eight hours in 1914 and two years later the Adamson Act established an eight-hour day for railroad workers*The wealthiest 1% of the population possesses more wealth than the bottom 90%

*Fair Labor Standards Act of 1938: the ethical principle guiding the legislation was a fair days pay for a fair days work

Some free market advocates claim that minimum wage laws violate the constitutional right of employers and employees to freely enter into contracts

Most living wage initiatives are local municipal ordinances*

*These regulations challenged businesses to achieve economic growth and profits in a socially responsible manner that took into consideration the well-being of all stakeholders, not just shareholders

In the 1980s, Republican President Ronald Reagan argued that the high costs associated with the onslaught of government regulations outweighed the benefits*The Federal Sentencing Guidelines are applicable to nonprofits, unions, partnerships, trusts, and universities as well as businesses *The goal of B Labs cofounders is to create a new legal entity recognized by federal, state, and municipal governments that permits managers to consider the interest of employees, communities, and the environment, not just the owners, when making decisions*Successful long-term organizational growth requires honesty, trust, integrity, and credibility*Similar to Total Quality Management, the ultimate goal of the Optimal Ethics Systems Model is to reduce ethical risks as close to zero defects as possible*

Documents

ch2_PPT