Chapter Five

Business Ethics and the

Legal Environment
of Business
McGraw-Hill/Irwin
Introduction to Business

2007 The McGraw-Hill Companies, Inc., All Rights

Reserved.

5-3

Chapter 5
Business Ethics and the Legal Environment
of Business

1. Understand the relationship between ethics and the law and

appreciate why it is important to behave ethically.
2. Differentiate the claims of the stakeholder groups affected by a
companys actions.
3. Describe four rules to help companies and employees act in
ethical ways and identify the four main sources of business ethics.
4. Describe some methods companies can use to strengthen their
ethical rules and positions.
5. Appreciate the important ways a nations business laws and
regulations affect business commerce, occupations and
organization.

5-4

Chapter 5
Business Ethics and the Legal Environment
of Business

Ethical Dimension
There is an important ethical dimension in most kinds
of business decision-making
Evaluate the video and the role of
Environmental Responsibility

5-5

Chapter 5
Business Ethics and the Legal Environment
of Business

Ethics
Ethics as a code of conduct presents ethical dilemmas
that may be separate from the legal dimension and
presupposes ethical behavior.

5-6

Chapter 5
Business Ethics and the Legal Environment
of Business

Ethics
Ethics are motivation based on right and wrong
and standards governing behavior and conduct
Evaluate a video of your choice and relate the
key issues of Business Ethics

5-7

Chapter 5
Business Ethics and the Legal Environment
of Business

Ethical beliefs/dilemma
May lead to the development of laws it may also
question existing laws and justify illegal behavior
Digital piracy and/or downloading of copyrighted
music and software is an example of this ethical
dilemma

5-8

Chapter 5
Business Ethics and the Legal Environment
of Business
Scope and Significance of Ethics
Stakeholders, including employees, managers,
customers, suppliers, distributors, and community,
society, and nation state. have a stake and a claim and
can directly benefit or be harmed by its actions, and
the business ethics of a company are important to them

5-9

Chapter 5
Business Ethics and the Legal Environment
of Business

Scope and Significance of Ethics

When making business decisions managers must take
the claims of all stakeholders into consideration and
use four ethical rules or principles to analyze the
affects of their business decisions

5 - 10

Chapter 5
Business Ethics and the Legal Environment
of Business

Ethical Principles
Utilitarian
Moral rights
Justice
Practical rules

5 - 11

Chapter 5
Business Ethics and the Legal Environment
of Business

Ethical Principles
The utilitarian rule suggests the ethical decision
should produce the greatest good for the greatest
number of people

5 - 12

Chapter 5
Business Ethics and the Legal Environment
of Business

Ethical Principles
The moral rights rule suggests ethical decision should
maintain and protect the fundamental rights and
privileges of people

5 - 13

Chapter 5
Business Ethics and the Legal Environment
of Business

Ethical Principles
The justice rule suggests the ethical decision should
distribute benefits and harm among people in a fair
equitable, and impartial manner

5 - 14

Chapter 5
Business Ethics and the Legal Environment
of Business

Ethical Principles
The practical rules suggests the ethical decision should
be one that a manager has no hesitation to
communicate to people outside the company because
the typical person in a society would think the
decision is acceptable

5 - 15

Chapter 5
Business Ethics and the Legal Environment
of Business
Effects of Ethical Behavior
Creates trust
Lowers transaction costs
Increases efficiency and effectiveness
Increases production of trade

5 - 16

Chapter 5
Business Ethics and the Legal Environment
of Business
Effects of Ethical Behavior
Increases company profitability
Increases national standard of living, well being, and
prosperity
Unethical behavior is vice versa (no pun intended) or
negates these effects

5 - 17

Chapter 5
Business Ethics and the Legal Environment
of Business
Differences in Business Ethics
Determinants between companies and countries:
- Societal
- Organizational
- Occupational
- Individual

5 - 18

Chapter 5
Business Ethics and the Legal Environment
of Business

Differences in Business Ethics

Determinants between companies and countries
Especially significant are the ethics of the companys
top managers

5 - 19

Chapter 5
Business Ethics and the Legal Environment
of Business

Significance of Ethical Behavior

The companys reputation is part of their
goodwill and can enhance its profitability
Ethical behavior improves the quality of life
and can reduce crime, poverty and
unemployment rates and increase literacy rates
Evaluate RJRs core value and relate to the four
ethical principles

5 - 20

Chapter 5
Business Ethics and the Legal Environment
of Business

Significance of Ethical Behavior

An organization can encourage its member to act
ethically with incentives for ethical behavior and
disincentives to punish those who behave unethically

5 - 21

Chapter 5
Business Ethics and the Legal Environment
of Business

Significance of Ethical Behavior

Managers can also create authority relationships and
rules that both promote and punish ethical/unethical
behavior

5 - 22

Chapter 5
Business Ethics and the Legal Environment
of Business

Significance of Ethical Behavior

Whistle-blowing occurs when employees feel
powerless in the organization

5 - 23

Chapter 5
Business Ethics and the Legal Environment
of Business
Legal Environment
Subdivision of laws governing the business system
and include
Laws affecting business commerce
Laws affecting business occupations
Laws affecting business organization

5 - 24

Chapter 5
Business Ethics and the Legal Environment
of Business
Legal Environment
Additional classes of laws include
- Practices related to business occupations
- Regulation of occupational qualifications, promotion
of employee health and safety, and business diversity

All laws help business protect its valuable resources

5 - 25

Chapter 5
Business Ethics and the Legal Environment
of Business

Legal Environment
Additional classes of laws include
- Laws relevant to a companys form of business
organization and
- Incorporation laws and bankruptcy laws

All laws help business protect its valuable

resources

5 - 26

Chapter 5
Business Ethics and the Legal Environment
of Business

Legal Environment
Property rights are established in the granting
of patents, copyrights, and trademarks

5 - 27

Chapter 5
Business Ethics and the Legal Environment
of Business
Ethical Self-Interested Behavior
Managing money and personal finances is a complex
and difficult activity but it can be one of the most
rewarding
If you focus on determining the value of products and
how they will provide you with utility now and in the
future

5 - 28

Chapter 5
Business Ethics and the Legal Environment
of Business
Ethical Self-Interested Behavior
Financial success ultimately derives from hard work,
some luck and the ability to look ahead and think
about the future consequences of the spending and
saving decisions made in the present
You can double your money by folding it in half and
returning to your pocket or learn the Rule of 72.
Evaluate and relate to your financial success

5 - 29

Chapter 5
Business Ethics and the Legal Environment
of Business

Ethical Self-Interested Behavior

The spending/saving decisions are the same factors
that result in success or failure in business

5 - 30

Chapter 5
Business Ethics and the Legal Environment
of Business

Evaluate the role of the power of small business in the

video Small Biz Power and relate to business ethics
and the legal environment of business