Law Exam 2 Chapter 5 Chapter Five Key Points I Stakeholders Primary Stakeholders Those who feel a direct impact based on the decision o Investors Owners and Employees Secondary Stakeholders Those who do not have a direct connection to the business but suffer some consequences in an indirect way o Merchants in town around a plant or residents that may be affected by the safety or environmental impact of a demolition II Moral Philosophy and Ethical Decision Making Morals generally accepted standards of rights and wrong in a given Ethics term to describe having a conscious system in use for society deciding moral dilemmas Principles Based Approach Ethical decisions made according to a set of established principles such as religious tenets o Some believe that humans have certain inherent moral rights that spring from their ability to reason and choose freely what to do with their lives o Kant theorized that rights imply duties and the duty to respect other s rights was paramount in acting morally o Categorical Imperative Test universalization test individuals make ethical decisions with an eye toward the potential consequences if everyone in society acted the same way Consequences Based Approach provides the most good for the greatest number of people o Utilitarian stream of moral philosophy and method for evaluating ethical dilemmas Jeremy Bentham founder III Values Management Prioritizing moral values for the organization and ensuring behaviors are aligned with those values IV Strategic advantages of values management Cultivation of Strong Teamwork and Productivity o Helps align employee behaviors with the top priority ethical values Clarity in Business Operations o Identifies preferred values and ensures organizational behaviors are aligned with those values Strong Public Image image to the public o Allows a business organization to portray a strong positive Values management should have strategic parity with other management priorities V Traits of Effective Ethical Programs Clear vision of integrity throughout organization Reward systems aligned with the vision Responsibility is seen as individual rather than collective Policies and practices are aligned with the vision The vision of integrity is well integrated into the decision making process VI The Enron Scandal Collapsed under ethical lapses by management who ignored the company s values management policies Energy Bank Retained difference as profits buy low sell high o Used profits to add business ventures to complement energy trading such as operating power plants o Management compensation shot up due to stock Key Players o Kenneth Lay Chairman Public Face o Jeffrey Skilling CEO Mastermind of scandal o Andrew Fastow CFO Oversaw financial transactions o Rick Causey Chief Accountant Deviated from accepted accounting practices and pressured auditors to sign off Arthur Andersen Accounting Firm Government indicted the entire firm on charges of obstruction of justice Instructed employees to destroy documents Andersen went out of business Obstruction of Justice Were jury instructions correctly submitted that the jury corruptly persuades needed no consciousness of wrong doing Ruling No Supreme Court ruled that instructions allowed the jury to convict in error without proving the firm had broken the law or a link to official proceedings prohibiting destruction of documents Words of the Court Improper Jury Instruction VII AIG Example Insurance Received 173 billion in taxpayer money in exchange for an 80 stake in AIG for the U S Government Distributed bonuses months after government bailout U S Secretary knew and didn t stop it VIII Corporate Social Responsibility Conscience resides not just in individuals but also in a corporation Business organizations committed to CSR aim to achieve commercial success in ways that honor ethical values and respect people communities and the natural environment in a sustainable manner while recognizing the interests of its stakeholders o Stakeholders include investors customers employees business partners local communities the environment and society at large The Narrow View Invisible Hand o What is good for business is good for America because the market s efficiencies provide an invisible hand that guides o States that only responsibility a business has is to maximize morality and responsibility shareholder wealth o Views Businesses are amoral managers who pursue social initiatives with corporate funds are violating their fiduciary duties to the owners of the corporation Moderate View Government s Hand o Regulatory hands of the law and the political process provide the basis for ethical decision making o States that corporations have responsibility to pursue objectives that are rational legal and purely economic The Broad View Management s Hand o States corporations have a social responsibility and that profitability is secondary Therefor it is not necessary to justify the need for a greater corporate roll in social responsibility o Social responsibility is in the public s interest and a company s self interest and a company does well by employing socially responsible principles in their business operations o Focus on the triple bottom line that emphasizes not only the conventional creation of economic value profits but also creation or destruction of environmental and social value o It is not enough then for managers to aggressively pursue a social agenda but she he must not lose sight of financial and environmental performance as well IX Grimshaw V Ford Motor Company Chapter 5 HW Click and Drag 1 Narrow View 2 Broad View 3 Moderate View Concept Check a The market s invisible hand and guides a company b Competitive advantage is best for society a Company exists mainly for the public good a Government regulation sets out responsibility 4 Which schools of thought emphasize maximizing shareholder wealth as a corporation s only moral responsibility a Narrow view Invisible hand i Maximizing shareholder wealth is aligned with the narrow view the invisible hand school of thought 5 Business organizations that integrate corporate social responsibility CSB principles in their decision making plan to achieve commercial success while still honoring ethical values and respecting a People communities and the natural environment 6 Which CSR school of thought follows the view that market efficiencies guide morality and responsibility in business a Narrow 7 Some ethicists refer to the triple bottome line to put