Business ethics Study Guide

📖 Core Concepts Business Ethics – Applied ethics that studies moral principles and problems in business activities. Normative vs. Descriptive Ethics – Normative: what should be done; Descriptive: how firms actually behave. Stakeholder Expectations – All groups (shareholders, employees, customers, community, environment) expect ethical conduct; violations hurt reputation and performance. Legal ≠ Ethical – An action can be legal but still unethical (e.g., historic U.S. slavery). Corporate Social Responsibility (CSR) – The idea that firms act as good corporate citizens, sometimes sacrificing profit for social/environmental goals. Key Philosophical Views Friedman: profit‑maximization is the sole corporate duty, provided laws/customs are obeyed. Drucker: personal ethics cover business; directors must “do no harm.” Rand: rational egoism – entrepreneurs pursue their own happiness, not others’ needs. 📌 Must Remember Two dimensions of business ethics – normative and descriptive. Ethics regulates what law cannot; managers are responsible for maintaining ethical status. CSR ≠ profit loss – it can enhance long‑term value and stakeholder trust. Key ethical issues by function Finance: insider trading, earnings management, bribery. HR: discrimination, whistle‑blowing, IP protection. Marketing: false advertising, green‑washing, price fixing. Precautionary Principle – avoid deploying technologies whose impacts are unknown. Intellectual Property (IP) debate – monopoly vs. innovation incentive. Ethics officers report to CEO; their presence alone does not guarantee ethical behavior. 🔄 Key Processes Ethical Decision‑Making (Mason 2013) Identify the ethical dilemma. Gather relevant facts & stakeholders. Apply a framework (utilitarianism, deontology, virtue ethics). Choose the action that best aligns with corporate values & stakeholder interests. Document the decision & monitor outcomes. Governance Mechanism Setup Draft formal contracts → embed relational norms → set monitoring & enforcement clauses. Align agency theory incentives (e.g., bonuses tied to ESG metrics). Implementing CSR Programs Conduct stakeholder analysis → define measurable social/environmental goals → integrate into strategy → report progress annually. 🔍 Key Comparisons Friedman vs. Drucker – Profit‑only vs. personal ethics cover business. Legal vs. Ethical – Legal compliance is necessary but not sufficient for ethical behavior. Descriptive vs. Normative Ethics – “What is” vs. “What ought to be.” CSR vs. Pure Shareholder Wealth Maximization – Short‑term profit focus vs. long‑term value creation and societal contribution. ⚠️ Common Misunderstandings “If it’s legal, it’s ethical.” → Wrong; legality is a floor, not a ceiling. “CSR always reduces profits.” → Misconception; CSR can improve brand, employee morale, and risk management. “Ethics officers guarantee ethical firms.” → Culture and incentives matter more than titles. 🧠 Mental Models / Intuition “Ethical Ladder” – Move from compliance (minimum) → risk management → values‑driven → purpose‑driven behavior. “Stakeholder Ripple” – A decision affecting one stakeholder often creates secondary effects on others; trace the ripple before acting. 🚩 Exceptions & Edge Cases Facilitation Payments – Allowed under the U.S. Foreign Corrupt Practices Act for routine services, but still ethically gray. Precautionary Principle – May be overridden when benefits are overwhelmingly critical (e.g., life‑saving vaccines). Property Rights – Private ownership is not absolute; duties to community and environment can limit rights. 📍 When to Use Which Normative analysis → when setting policies, codes, or evaluating new initiatives. Descriptive study → when researching actual corporate behavior (e.g., audit of ESG reporting). CSR vs. profit‑maximization decision → use stakeholder impact matrix: if high stakeholder risk + long‑term brand value, favor CSR. Agency‑based incentives → apply when aligning executive bonuses with ESG metrics. 👀 Patterns to Recognize “Legal‑but‑Unethical” red flag – Look for historical examples (slavery, child labor) where law lagged behind moral standards. “Green‑washing” pattern – Vague sustainability claims, lack of measurable data, and marketing language that outpaces actual practice. “Price Discrimination” cue – Same product sold at different prices without cost justification → potential ethical issue. 🗂️ Exam Traps Distractor: “CSR always harms shareholder value.” – Wrong; many exam questions expect you to note potential long‑term benefits. Distractor: “Friedman says corporations have no ethical duties." – Incorrect; he allows duties that comply with law and societal customs. Distractor: “All facilitation payments are illegal under FCPA.” – Misleading; routine service fees are exempt. Distractor: “Intellectual property monopolies only have positive effects.” – Over‑simplifies; exams often test the social cost argument. --- Use this guide to scan quickly before the test – focus on the bolded contrasts, decision rules, and recurring patterns.