Essentials of Business Law, 9th edition
INSTRUCTOR’S MANUAL
Chapter 2 Ethics and the Law
LESSON OVERVIEW
In Chapter 1, we discussed the role of law in our world, its sources, and the systems of courts. The first
chapter also briefly discussed the importance of moral and legal obligations.
In Chapter 2, Ethics and the Law, we will examine the role of ethics in greater detail, define the terms
ethics, morals, and values, and discuss the relationship law shares with ethics. We will also understand
the responsibility and responses of businesses, governments, and other organizations to upholding
ethics and moral practices in the society. Finally, we emphasize the role of whistleblowers in society as
well as the importance of integrating ethics into the corporate world. Instructors can utilize the
assessment exercise Thinking Critically About the Law to involve students in the subject and to take an
active role in the ethical issues found in today’s society.
CHAPTER OUTLINE
A. UNETHICAL BEHAVIOR IN OUR WORLD (pp. 20 – 21)
B. ETHICS, MORALS, AND VALUES (p. 21)
C. SOURCES OF GROUP AND INDIVIDUAL VALUES (pp. 21-22)
D. THE RELATIONSHIP BETWEEN LAW AND ETHICS (p. 22)
E. RESPONSES TO ETHICAL ISSUES (p. 22)
1. Responses of Business Firms (pp. 22-24)
2. Responses of Educational Institutions (p. 25)
3. Responses of Governments (p. 25)
4. Responses of Trade and Professional Associations (p. 25)
F. WAYS TO ENSURE ETHICAL PRACTICES (p. 25)
1. Whistleblowing (p. 26)
2. Integration of Ethics into Business and Government (pp. 26-27)
G. CHAPTER SUMMARY (p. 27)
H. CHAPTER ASSESSMENT (p. 27)
1. Matching Key Terms (pp. 27-28)
2. True/False Quiz (p. 28)
3. Discussion Questions (p. 29)
4. Thinking Critically About the Law (pp. 29-30)
5. Case Questions (pp. 30-31)
6. Case Analysis (pp. 31-32)
7. Legal Research (p. 32-33)
KEY TERMS
Key terms are listed at the beginning of the chapter, posted in the student textbook margins, and placed
in bold in the copy. They are listed here for your quick reference.
§ Sarbanes-Oxley (p. 20)
§ ethics (p. 21)
§ morals (p. 21)
§ values (p. 21)
§ culture (p. 21)
§ subculture (p. 21)
§ code of ethics (p. 23)
§ stakeholder (p. 23)
§ whistleblower (p. 26)
LEARNING OUTCOMES
The chapter Learning Outcomes will help you and the students discover the concepts and information
that should be understood upon completion of the chapter. You may want to access the PowerPoint
(PPT) slides for Chapter 2 when you begin the study of the chapter and discuss each Learning
Outcome. Each Learning Outcome will be covered separately in the Instructor Notes, but they are
shown here in total as an overview of the sections being presented in Chapter 2. The corresponding text
page numbers and PPT slides are listed next to each outcome. These slides should be used to reinforce
the main points of the lecture.
After completing this chapter, the students will be able to:
1. Cite some examples of how unethical behavior in our world has negatively affected business
practices. (pp. 20-21, PPT slides 2-5)
2. Distinguish among ethics, morals, and values. (p. 21, PPT slide 6)
3. Cite several influences on group and individual values. (p. 21, PPT slide 7)
4. Discuss the relationship between law and ethics. (p. 22, PPT slide 8)
5. Provide examples of responses to ethical issues by business firms, educational institutions,
governments, and trade and professional associations. (pp. 22-25, PPT slides 9-14)
6. Discuss some ways businesses can ensure ethical practices. (pp. 25-27, PPT slides 16-19)
LECTURE OUTLINE
A. UNETHICAL BEHAVIOR IN OUR WORLD
The fact that the Enron and Arthur Andersen case dominated the media and resulted in numerous
congressional investigations showed the widespread concern with ethical behavior in business. As a
result of the attention brought to the public’s eye in this and other cases, in 2002 a federal statute,
known as Sarbanes-Oxley, was enacted, placing a greater onus on upper management to monitor
closely the financial dealings and disclosures of their firms. The law also established a board to oversee
accounting practices in the United States. This board reports to the Securities and Exchange
Commission, a federal agency.
The development of technology, Internet and computer technology, and the expansion of global
markets have introduced a burgeoning array of ethical questions.
B. ETHICS, MORALS, AND VALUES
Both ethics and morals are concerned with standards of right and wrong. Ethics takes a more
philosophical approach, examining what is good or bad. Morals are concerned with behavior as judged
by society. Ethical theories and moral standards are derived from values—that is, the beliefs or
standards considered worthwhile.
C. SOURCES OF GROUP AND INDIVIDUAL VALUES
There are group values and individual values, both influenced by religions, traditions, and customs. An
individual’s values are significantly influenced by those held by the groups to which he or she belongs.
There are other influences on the development of individual and group values. Of utmost importance
are the values held by a culture—those of a nation or an ethnic group. On the other hand, the values
held by a subculture may differ from those of the larger culture.
D. THE RELATIONSHIP BETWEEN LAW AND ETHICS
Legal mandates are imposed on individuals or groups by authorities or governments. Ethical
considerations, on the other hand, generally spring from within individuals or organizations. A
distinction between law and ethics is that legal mandates are usually more precise. The law requires
individuals and organizations to behave in specified ways, requiring or prohibiting certain acts. Ethical
issues may be multifaceted.
E. RESPONSES TO ETHICAL ISSUES
1. Responses of Business Firms
There is increasing concern about ethics in the business world. Some of this concern is
undoubtedly the result of enlightened self-interest, as when corporate executives say that
ethical practices are simply good business practices.
a) Corporate Responsibility
The actions of corporations that are intended to demonstrate their wish to behave
responsibly take many forms and are conducted under the banner of corporate
responsibility. Corporations may “adopt” schools, construct parks, donate funds
to a local symphony orchestra, or provide scholarships to a university. Corporate
actions reflect a moral and ethical concern with social problems and a sincere
effort to improve society.
Critics of corporate social action, however, question whether it is appropriate to
commit corporate resources to socially desirable goals.
b) Codes of Ethics
Some firms or industries establish a code of ethics, sometimes called a credo,
that sets down the principles of ethical behavior expected of its personnel in
various situations. A code makes clear that the company expects its personnel to
recognize the ethical dimensions of corporate policies and actions.
A general list of topics covered in codes typically includes the following:
i. Fundamental honesty and adherence to the law
ii. Product safety and quality
iii. Health and safety in the workplace
iv. Possible conflicts of interest
v. Employment practices
vi. Fairness in selling and marketing practices
vii. Financial reporting
viii.Supplier relationships
ix. Pricing, billing, and contracting
x. Trading in securities and using insider information
xi. Payments to obtain business
2. Responses of Educational Institutions
Educational institutions have responded to the increased need to examine ethics by
adding courses, workshops, and programs, and have expanded the study of ethics in
existing courses. Typically, topics include the following:
i. Fairness in hiring, employment, and promotions
ii. Ethical issues in multinational business
iii. Ethical issues arising from technology
iv. Economic justice
v. Environmental ethics
vi. Ecology
3. Responses of Governments
Governments endeavor to protect consumers and the environment and to influence the
ethical behavior of business firms in various ways. The Federal Sentencing Guidelines
also provide an incentive for corporations to act more ethically. Under this mandate,
when an employee violates a law in the course of his or her employment, a firm can
reduce its possible liability if it can show that it took action to develop moral guidelines
for its employees. The guidelines are a response to the public’s desire to hold companies
to a higher standard, and to impose on white-collar criminals heavier penalties than had
been previously.
Even the operation of government itself is monitored and regulated. On an international
level, federal and state governments require that U.S. firms perform ethically in global
markets. In addition, diplomatic activities aim to protect American firms from corrupt
practices in other countries.
4. Responses of Trade and Professional Associations
Trade associations develop guidelines for ethical business practices for their diverse
memberships. For example, the Direct Marketing Association (DMA) provides
self-regulatory standards of conduct for activities such as telephone marketing,
sweepstakes, fund-raising, marketing to children, and the collection and use of
marketing data.
F. WAYS TO ENSURE ETHICAL PRACTICES
Despite these efforts, unethical practices persist. Such behavior frequently results in unfavorable public
relations, loss of consumer goodwill, and poor employee morale. The threat of legal prosecution and
penalties does not eliminate all unethical practices. Sometimes the driving force for reform may be the
individual whistleblower.
1. Whistleblowing
In spite of society’s disdain for informers, certain individuals have been so outraged by
what they consider unethical behavior that they have risked widespread condemnation
and loss of their jobs to reveal information about the activity. These people are usually
termed “whistleblowers.”
Typically, a whistleblower is a person who reveals to a governmental authority, or to
news media, confidential information concerning some wrongdoing or conduct that he
or she regards as unethical. The information may have come to him or her in the course
of employment or in other ways. Often the choice is between revealing information,
resulting in adverse effects on the firm that may cause many coworkers to lose their
jobs, and remaining silent.
It is not surprising that retaliation is frequently the result of speaking out. The
whistleblower is often regarded as an outcast to the organization or to peers. The federal
government and many states have statutes that protect whistleblowers from retaliation.
Still, with the possible exception of certain individuals who may have a personal grudge,
the usual motivation behind whistleblowing is the outrage to a person’s sense of ethics.
2. Integration of Ethics into Business and Government
In the abstract, there is agreement that business should be conducted in ways that will
not harm the consumer or the environment. The corporation may indeed adhere to the
highest ethical practices, but a new chief executive officer (CEO) or board of directors
may discontinue those practices if they reduce profits or otherwise adversely affect the
firm.
Further government regulation could ensure compliance with ethical standards, but such
an arrangement might require a costly and oppressive bureaucracy. The ideal is for
responsible individuals, industry organizations, and watchdog groups to encourage
corporations and governments to reach mutually agreed ethical practices.
INSTRUCTOR NOTES
A resulting answer or explanation is provided below for each Learning Outcome in Chapter 2. Every
outcome is also mapped to corresponding text page numbers, PPT slides, and relevant chapter
assessment exercises and activities for ease of reference and use.
LO1. Cite some examples of how unethical behavior in our world has negatively affected business
practices.
Examples of how unethical behavior in our world has negatively affected business practices include
investors acting on insider information, businesspersons polluting our natural habitat, and individuals
acting unethically in the development of medical and electronic technology. The expansion of global
markets also raises some ethical predicaments for business professionals.
Text Pages: 20-21
PowerPoint: Slides 2-5
Discussion Questions: 19,
LO2. Distinguish among ethics, morals, and values.
Ethics is a philosophical approach, examining theories of what is good or bad. Morals are concerned
with behavior as judged by society. Values are beliefs or standards considered worthwhile.
Text Page: 21
PowerPoint: Slide 6
Discussion Questions: 20, 21,
LO3. Cite several influences on group and individual values.
Individual and group values are influenced by religion, tradition, and customs.
Text Page: 21
PowerPoint: Slide 7
Case Questions: 31-32
Case Analysis: 34-35
LO4. Discuss the relationship between law and ethics.
Legal mandates are imposed on individuals or groups by authorities or governments. In contrast, ethical
considerations generally spring from within individuals or organizations. However, ethical beliefs are
the foundation of many of our laws.
Text Pages: 22
PowerPoint: Slide 8
Discussion Questions: 22, 23
LO5. Provide examples of responses to ethical issues by business firms, educational institutions,
governments, and trade and professional associations.
Business firms respond to ethical concerns by acts of corporate responsibility and the formulation of
codes of ethics, or credos. Educational institutions offer courses and workshops, and expand their
existing programs. Governments endeavor to protect consumers and the environment and to ensure
ethical behavior of business firms, and the government itself. Trade and professional associations
develop guidelines for business and professional members.
Text Pages: 22-25
PowerPoint: Slides 9-15
Discussion Questions: 24
Thinking Critically About the Law: 26-28
LO6. Discuss some ways businesses can ensure ethical practices.
Some ways business can ensure ethical practices include integrating corporate codes of ethics and
relying on whistleblowers. Corporate codes of ethics vary from one firm or industry to another.
Whistleblowing is the exposing of an unethical situation to an authority or the media.
Text Pages: 25-27
PowerPoint: Slides 16-19
Thinking Critically About the Law: 25, 29
Case Questions: 30
Case Analysis: 33