LS311_Chapter_3 - 95735_03_Ch03_061-078.qxp 11/7/08 7:32 AM...

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Acting ethically in a business context is not child’s play; it can mean billions of dollars—up or down—for corporations, shareholders, and employees. In the wake of these scandals, Congress attempted to prevent similar unethical business behavior in the future by passing stricter legislation in the form of the Sarbanes-Oxley Act of 2002, which will be discussed in detail in Chapters 27 and 31. This act generally imposed more reporting requirements on corporations in an effort to deter unethical behavior and encourage accountability. As you might imagine, business ethics is derived from the concept of ethics. Ethics can be defined as the study of what constitutes right or wrong behavior. It is a branch of philoso- phy focusing on morality and the way moral principles are derived. Ethics has to do with the fairness, justness, rightness, or wrongness of an action. What Is Business Ethics? Business ethics focuses on what is right and wrong behavior in the business world. It has to do with how businesses apply moral and ethical principles to situations that arise in the BUSINESS ETHICS ll of the following businesspersons have been in the news in the past few years: Dennis Kozlowski (former chairman and chief executive officer of Tyco International). Mark H. Swartz (former chief financial officer of Tyco International). Jeffrey Skilling (former chief executive officer of Enron Corporation). Bernard Ebbers (former chief executive officer of WorldCom). What do these individuals have in common? They are all in prison, and some may stay there until they die. They were all convicted of various crimes ranging from overseeing revenue exaggeration in order to increase stock prices to personal use of millions of dollars of public company funds. Not only did they break the law, but they also clearly violated even the minimum ethical principles that a civil society expects to be followed. Other officers and directors of the companies men- tioned in the preceding list cost shareholders billions of dol- lars. In the case of those companies that had to enter bankruptcy, such as Enron Corporation, tens of thousands of employees lost their jobs. A 61 AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO ANSWER THE FOLLOWING QUESTIONS: 1 What is business ethics, and why is it important? 2 How can business leaders encourage their companies to act ethically? 3 How do duty-based ethical standards differ from outcome-based ethical standards? 4 What are six guidelines that an employee can use to evaluate whether his or her actions are ethical? 5 What types of ethical issues might arise in the context of international business transactions? LEARNING OBJECTIVES 95735_03_Ch03_061-078.qxp 11/7/08 7:32 AM Page 61
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strictly adhere to the goal of profit maximization, resources tend to flow to where they are most highly valued by society.
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LS311_Chapter_3 - 95735_03_Ch03_061-078.qxp 11/7/08 7:32 AM...

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