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Business Ethics Workshop

2010 Summer Entrepreneurship Institute

Prof. Gonzalo Freixes

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What is Ethics?

"Art, like morality, consists of drawing the line somewhere." — G.K. Chesterton, English essayist and poet (1874-1936)

“Ethics is a code of values which guide our choices and actions and determine the purpose and course of our lives.”  — Ayn Rand, Russian-American novelist/philosopher (1905-1982)

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Who is an Ethical Person?

"A moral being is one who is capable of comparing his past and future actions or motives, and of approving or disapproving of them." — Charles Darwin,

English biologist (1809-1882)

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Theory of Moral Development(Lawrence Kohlberg)

Level One:Pre-Conventional

Morality

Stage 1: Punishment - Obedience Orientation

Stage 2: Instrumental Relativist Orientation

Level Two:Conventional

Morality

Stage 3: Good Boy - Good Girl Orientation

Stage 4: Law and Order Orientation

Level Three:Post-Conventional

Morality

Stage 5: Social Contract Orientation

Stage 6: Universal Ethical Principle Orientation

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Character Counts

Six Pillars of Character

Trustworthiness Respect Responsibility Fairness Caring Citizenship

- Michael Josephson, Josephson Institute of Ethics

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Professional Ethics

Impartiality & Objectivity

Openness, Full Disclosure

Due diligence, Duty of Care

Fidelity to Professional Responsibilities

Avoiding Conflicts of Interest (Actual, Potential or Apparent)

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All the Wrong Reasons

“Everybody does it.”

“If we don’t, someone else will.”

“The only thing that matters is the bottom line!”

“We’ll wait until the lawyers tell us it’s wrong.”

“It doesn’t really hurt anyone.”

“I was just following orders.”

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7 Steps to Better Decisions An Ethical Approach to Business

1. Stop & Think

2. Clarify Goals

3. Determine Facts

4. Develop Options

5. Consider the Consequences

6. Choose Wisely

7. Monitor & Modify

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Corporate Responsibility

What is the purpose of a corporation?

Monotonic View vs. Pluralistic View

Corporate Constituency Statutes

Dolphins & Baby Formula

(the case of Star Kist & Nestle)

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Agents & Fiduciaries

Principal Agent relationship

Agent has fiduciary duties

Loyalty

Performance

To Obey

A can be liable to P or 3rd Parties

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Fiduciary Duties - Loyalty

Stealing

Secrets

Conflicts

Commingling

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Fiduciary Duties - Performance

Care & Skill

Reputation

Disclose & Notify

Account

Stay in Scope

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Fiduciary Duties - Obey

Obey your Principal, unless…

Illegal

Immoral

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Principal’s Duties to Agent

Opportunity to Work

Compensation

Indemnity

Cooperation

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Corporate ExecutivesDuty of Care

Act as a reasonable executive would

Protected by Business Judgment Rule Informed decision Rational basis No conflict

Protected by Constituency Statutes

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Corporate ExecutivesDuty of Loyalty

1. Avoid Self Dealing

2. Avoid Common Directorships

3. Avoid seizing Corporate Opportunities

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Ethics in Global Business

Results of International Study

1. Personal Standards: EU

2. Interpersonal Standards (e.g. Loyalty): Japan

3. Organizational Standards: US

MNC’s deal with ethics “ad hoc” - viewed as “public relations” issue

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SARBANES-OXLEY ACT OF 2002

PUBLIC ACCOUNTING OVERSIGHT BOARD (PCAOB)

AUDITOR INDEPENDENCE

EXECUTIVE RESPONSIBILITY

FINANCIAL/ETHICAL DISCLOSURES