2 Unit 1 The Legal Environment
To whom does a corporation owe responsibility – its shareholders? Or, in addition to shareholders, to
its stakeholders, which include employees, customers, and the community and countries in which the
company operates? Differing viewpoints yield distinct responses to ethical dilemmas, particularly
when the law does not require a particular outcome.
Corporate managers face many choices in which the most profitable option is not the most ethical
choice. Sometimes, doing the right thing will lead to a loss of profits or even one’s job. Conversely,
engaging in unethical behavior may increase profits, but may ignore stakeholders, or even be criminal.
Why Be Ethical?
Society as a Whole benefit from Ethical Behavior
Mutual trust is a vital part of a successful society. No society will survive long if the people are
constantly having to protect themselves from dishonesty and the government is compelled to regulate
businesses severely to ensure fairness.
People Feel Better When they Behave Ethically
Researchers who study happiness find that people expect material goods to make them happier than
they actually do. Almost no matter how much people earn, they feel they would be happier if their
income were just a little bit higher. So what does make people happy in the long run? Good
relationships, satisfying work, ties to the community—all available at no additional cost.
Profitability is generally not what motivates managers to care about ethics. Managers want to feel good
about themselves and the decisions they have made; they want to sleep at night.
Unethical Behavior Can Be Very Costly
Unethical behavior does not always damage a business, but it certainly has the potential of destroying a
company overnight. So why take the risk?
Even if unethical behavior does not devastate a business, it can cause other, subtler damage. In one
survey, a majority of those questioned said that they had witnessed unethical behavior in their
workplace and that this behavior had reduced productivity, job stability, and profits. Unethical behavior
in an organization creates a cynical, resentful, and unproductive workforce.
Although there is no guarantee that ethical behavior pays in the short or long run, there is evidence that
the ethical company is more likely to win financially. Ethical companies tend to have a better
reputation, more creative employees, and higher returns than those that engage in wrong-doing.
But if we decide that we want to behave ethically, how do we know what ethical behavior is?
Theories of Ethics
When making ethical decisions, people sometimes focus on the reason for the decision – they want to
do what is right. Thus, if they think it is wrong to lie, then they will tell the truth no matter what the
consequence. Other times, people think about the outcome of their actions. They will do whatever it
takes to achieve the right result, no matter what they have to do to obtain it. This choice – between
doing right and getting the right result – has been the subject of much philosophical debate.
Under utilitarian ethics, a correct decision is one that tended to maximize overall happiness and
minimize overall pain. Risk management and cost-benefit analyses are examples of utilitarian business