1.      An “artificial person”.

2.      It is owned by its stockholders (one share of stock = 1 vote).

3.      It has rights and responsibilities.

4.      It substitutes itself for its shareholders when “doing business”.

5.      It is liable for its actions, but (significantly) shareholders are not personally liable, except insofar as the value of their equity decreases in response to corporate malfeasance.  Key Factor: Owners have no liability.

6.      Board of directors, elected by shareholders, is responsible for corporate policy.

7.      Board of directors hires officers, who run day-to-day operations.

8.      Fundamental duty is to make money for stockholder/owners.

Corporate crimes? Why bother? You cannot “jail” an artificial person.

Businesses and their employees have a symbiotic relationship; they need each other to survive.  A business that treats its employees poorly will have a high turnover – and increased training costs as it is forced to hire new employees.  But a business that coddles employees who are lazy, or unable to keep up with advances in technology, etc., runs the risk of falling behind competitors.  There is an inherently adversarial nature between most employers and employees.  The employer wants to pay as little as possible, to preserve the profits for stockholders.  Employees want the highest wages they can get.  The balance between these two competing interests sets wages.

 Occasionally, things get out of balance, threatening the survival of the business

Consumers are customers; without consumers business will wither.

As a result, every business has to pay attention to what it is consumers want, and are willing to purchase.

Consumers occasionally have interests that conflict with businesses.

Consumers want to be able to make informed decisions; sometimes businesses are not forthcoming, and sometimes they are.  

Government’s interests are quite broad.

1.  Government as a consumer (it buys a lot, and when purchasing things, sets standards, thus forcing industry to produce to those standards).

2.  Government sets many standards for products (FDA: safe and effective; products heavily regulated, to insure safety.

3.  Corporate taxes paid (Tobacco and gambling industries – government runs vast “public service” advertisements warning people to stay away, but at the same time profit handsomely from taxes these industries.

One of the most important social challenges to business is to strike a balance between economic activity and what is ecologically sustainable.  Farming, mining, and industrial production create by-products – waste and pollution – that often cannot be contained.  The costs of these by-products – called externalities -- are saddled on society as a whole.

The by-products of industry affect everyone: “An Inconvenient Truth”

Occasionally, significant controversies develop in the BGS context when it comes to the environment:  CFCs and the Ozone layer(propellants), Global Warming.

Where a business locates has profound effects on communities.Likewise, when a business closes, or re-locates elsewhere, the effects on the community will also be significant. There is a multiplier effect whenever a business closes and leaves a community short of jobs and tax revenues (and increased welfare payments).

Business ethics focus on what constitutes right and wrong behavior in the business world and how moral principles are applied by business persons to situations that arise in their daily work.

The central question is this: How can those in the business world act in an ethically responsible manner and at the same time make profits for their owners?

  1.  People act for personal gain. “Ethical egoists” have a mantra: Looking out for #1.

  2.  Competitive Pressure:  When companies are squeezed for profits, they sometimes engage in unethical behavior.  They may act consciously.

3. Business Goals versus Personal Values

  4.  Cross Cultural Contradictions:  If it’s not OK to do something in the US, is it ok to do it elsewhere?

1.  To avoid punishment.

2.  To satisfy self-centered needs and elicit a positive external response.

3.  To conform to the group interest to please others in the group.

4.  To accept legal restrictions as being in the best interest of society.

5.  To accept legal restrictions balanced with individual rights as being in the best interests of society and the individual.

6.  To find satisfaction in being ethical and moral for personal reasons.

1. Identifying the important facts and ethical issue, e.g, What is going on here?

2. Who are the stakeholders that will be affected? What are the consequences to these parties? How do things (subjectively) appear from their perspectives?

3. Applying a utilitarian trade-off model in terms of different resolutions.

4. Articulate how different moral principles apply, and recognize how various justice/fairness models might yield different results.

5. Recognizes and articulates personal biases that can influence evaluation (conflicts of interest)

A person should not act unless he or she is willing to have the rule or conduct on which one acts become universal law.  The rational person would consider the consequences of this, and then act accordingly, based on how society (not just the individual) would be affected. 

1.  Exclusive focus on motives and neglect of consequences.

2.  Possibly tolerates some injustice in the ends despite the ethical means.

Another method of ethical reasoning is to make decisions based upon a sense of justice, or the concept of what is fair according to the prevailing standards in society.  Most political debates focus on what is just, or fair.

Distributive justice focuses on the end result.

 Example:  Is it just, or unjust, that tax increases/cuts hit the rich/poor harder/softer?

 Procedural justice focuses on whether the system treats people fairly, regardless of the end result. Example: What types of government rules focus on this?

 Compensatory justice refers to decisions to compensate those who have been wronged.  Example: Affirmative action.  Is there still a wrong that needs to be compensated?  Example: What’s the remedy for a tort? A contract that has been violated?

What is proper in one country may not be in another.

Ethical principles are partly the result of history and culture, and are further defined by various periods of time in history, a society’s traditions, the special circumstances of the moment, or personal opinion.  Under this theory, there are no universal ethical standards on which people around the world could agree.  Bribery may be acceptable or unacceptable depending upon what county you’re living in.

People should act so as to generate the greatest good to the greatest number.

Utilitarianism is outcome determinative; results matter, and suggest the behavior that led to the result was ethical, if the result was positive for the greatest number of people.

 In business, this often requires managers to make decisions about short term vs. long term ramifications of their decisions. 

 It also often requires the business person to assess how various stakeholders (with competing interests) might be affected by a decision the business takes. 

 The problem with utilitarianism is that it is almost-always impossible to know, ahead of time, what the actual consequences of a decision will be.  Application of this principal requires: 1.  Knowing who will be affected.  2.  An assessment of the positive/negative impact on these people, by cost-benefit analysis.  3.  A choice to pursue the greatest good, for the greatest number.

1.It could accept violation of basic human rights in the service of the greater good. ex: Japanese imprisonment during WWII.

2.Utilitarianism breaks down into a cost/benefit analysis.This requires a common denominator which sometimes cannot be found. Example:Apply this model to global warming. Who makes the decision as to what is good? How is ranked? How is it measured?

Every human has a right to life, freedom, and the pursuit of happiness.

Legal Rights (provided by Constitution or statute) cannot be selectively applied; they must be applied without regard to race, gender, etc.

Anything that interferes with these rights is immoral.

Example:  Testing a new drug on a human would never be acceptable.

Rights are often implied in laws. 

Example:  The ADA, where businesses are required to make reasonable accommodations for disabled workers. 

Treat others as you would like to be treated.  People have a duty, a moral obligation to treat people with respect and dignity.  Corollary=step into another's shoes.

1.  The Options Fight

2.  Tort reform

3.  The Auditor-independent rule

In 1993 the Financial Accounting Standards Board, FASB,Proposed closing an accounting loophole that allowed companies to avoid recording stock options in their balance sheets.

 This was significant because, according to Merrill Lynch, expensing stock options would have slashed profits among leading hi-tech companies by 60% on average.  Why does this matter?  The real reason executives objected – cynics have suggested – is that executives knew that if shareholders understood the true value of options being granted to them, the shareholders would have revolted, or sold their stock (drawing down its price).  Pension plans, with large investments, wanted more transparency, and therefore supported the FASB amendments.  Companies lined up against the changes, and gave huge amounts of money to politicians who had the power to tell the SEC (which has some control over enforcement in the markets, as well as FASB) not to proceed.  The accounting profession sided with its clients.  The rule did not pass.  Moral: Accountants caved to their clients’ wishes, and lobbied against the change.

Shareholders own the company.

Management runs the company.

CPAs check the accounting, to insure that shareholders get honest information.

If management is cooking the books, and the CPAs are in collusion, or simply negligent (they do a poor job, and don’t spot the errors), shareholders can (and do) sue the accountants.Accounting firms got sick of being sued.  Because of rules on “joint and several liability”, the firms often got stuck footing the entire bill, even if others were involved (and they were insolvent).  They wanted “tort reform."The Accounting industry lobbied Congress, which passed tort reform in 1995.

By the late 1990s, consulting – which had been a small offshoot of big accounting firms – became the most lucrative part of the business. Consultants work hand-in-hand with company executives. CPAs have a different function – more like a private police force, charged with checking the books to insure that managers are doing the right thing, and that shareholders are provided the correct information. 

The Accounting industry went to war to prevent the SEC from passing rules separating the accounting and consulting businesses (auditor-independent rule). 

1.   Steal nonpublic information and use it to trade a stock; Note that courts have held you “steal” information if you KNOW it was private, and was supposed to remain private…

2.    Trade a stock based upon a tip from somebody who had an obligation to keep quiet, e.g., you will be prosecuted if your sister, who is on the Board of Directors, tips you off that her company is a take-over target;

3.  Pass information to others with an expectation of direct of indirect gain, even if the person doesn’t trade the stock on his own account

You own X, you talk up X to all your clients, you then sell X. Prosecutions of “penny stocks” that operate these schemes occur often.

1.     Churning of account: Churning is excessive trading of an investor’s account in order to generate broker commissions.

2.     Suitability violations: These claims arise from recommendations by a stockbroker or “financial advisor” those results in losses in your account from investments that were not appropriate for your risk tolerance, overall financial situation, or investment objectives.  The broker is frequently enriched because the investment choices yield high commission

You get a phone call saying that a poll is being conducted and your opinion is valued. These polls are phony and run by a candidate's organization to pass on negative information about his opponent. "Did you know the senator is married to a thespian?" How many people will run to the dictionary to discover that "thespian" means actress? Sometime it is even more sinister and they actually lie about the opposition. "How do you feel about the mental problems developed by prisoners of war during the Vietnam conflict?" This was raised by independent Bush supporter during the Republican primary in 2000, where John McCain was also a candidate. 

Is it ethical for a business to sell, trade, or otherwise distribute it customer/user lists, for profit, if would potentially harm those people?