Chapter One
Business Ethics, the
Changing Environment,
and Stakeholder
Management
Business Ethics: A Stakeholder and Issues Management Approach, 4e, Joseph W. Weiss
Copyright ©2006 by South-Western, a division of Thomson Business & Economics. All rights reserved.
Recent Examples of Ethical
Events in Corporate America
Scandals
Enron
Tyco
WorldCom, etc.
Excessive CEO pay and poor firm
performance
Sarbanes-Oxley Act of 2002
Outsourcing trends
Figure 1.1: Environmental Dimensions
Affecting Industries, Organizations, and Jobs
Economic Environment
Increasingly global context for trade,
markets, and resource flow
Business and product expansion
Stock and bond market and volatility
interdependencies
The effects of the European Union
(currency exchange, negotiating power,
etc.)
Technological Environment
Internet and electronic communication
innovations
Change in jobs, financial transactions,
market operations
Change in corporate “best practices”
Integration of supply chains
Access to information
What privacy and surveillance issues arise
for employers?
Political Environment
Fall of communism/Soviet Union
Rise of global terrorism
Change in international coalitions
(NATO, EU)
Increased awareness of issues via
electronic technology
Governmental and
Regulatory Environment
Constantly changing/updating laws and
procedures
Sarbanes-Oxley Act, 2002
2004 Federal Sentencing Guidelines
Changing standards for products,
processes (e.g., FDA approval)
Judicial actions (e.g., Microsoft) against
anticompetitive practices
Legal Environment
Competing rights (Patriot Act)
Consumer protection (tobacco, gun
control, Firestone tires)
Corporate copyright protection (RIAA)
Demographic Environment
Workforce diversity
Sexual harassment
Discrimination
Downsizing workforce
Aging workforce
Generation gaps in skills, education
Figure 1.2: Primary vs. Secondary
Stakeholder Groups
Secondary Stakeholders
Local community groups
Special-interest groups
Consumer groups
Environmental groups
Media
Society-at-large
American Civil Liberties groups
Should managers pay attention to the needs
of these groups? What priority should they
have?
Stakeholder Management
Approach
Six Steps to developing win-win strategies:
1. Identifying and prioritizing issues, threats, or opportunities
2. Mapping who the stakeholders are
3. Identifying their stakes, interests, and power sources
4. Showing who the members of coalitions are or may
become
5. Showing what each stakeholder’s ethics are (and should
be)
6. Developing collaborative strategies and dialogue from a
higher ground perspective to move plans and interactions
to the desired closure for all parties
What is Business Ethics?
Laura Nash has defined business ethics as “the
study of how personal moral norms apply to the
activities and goals of commercial enterprise,”
as dealing with three basic areas of managerial
decision making:
1. Choices about what the laws should be and
whether to follow them
2. Choices about economic and social issues
outside the domain of law
3. Choices about the priority of self-interest over the
company’s interests
Unethical Business
Practices of Employees
Showing respect to those who act unethically
Abusive or intimidating behavior
Misrepresentation of hours worked
Lying
Withholding information
Context issues:
Companies in transition (mergers, downsizing)
Younger managers and employees with lower
tenure in the organization
What Organizations Do Poorly
in Regard to Ethics
Employees believe that no corrective
action will be taken if they report
unethical behavior
Employees fear that reports will not be
kept confidential
What Organizations Do Well
in Regard to Ethics
Top management keeps promises and
discusses the importance of ethics
Good role models for ethical behavior;
honesty and respect practiced more
Less unethical behavior observed since
2000
More misconduct being reported by
employees since 2000
Where the Most Unethical
Behavior Happens
1. Government
2. Sales
3. Law
4. Media
5. Finance
6. Medicine
7. Banking
8. Manufacturing
The Costs of Doing
Business Unethically
Billions of dollars each year in lawsuits and
settlements
Deterioration of relationships
Damage to reputation
Declining employee productivity, creativity,
and loyalty
Ineffective information flow throughout the
organization
Absenteeism and turnover
Theft (est. $600 billion annually)
Figure 1.3: Business Ethics Levels
Key Questions if Faced with
an Ethical Dilemma
What are my core values and beliefs?
What are the core values and beliefs of my
organization?
Whose values, beliefs, and interests may be at risk
in this decision? Why?
Who will be harmed or helped by my decision or by
the decision of my organization?
How will my own and my organization’s core values
and beliefs be affected or changed by this decision?
How will I and my organization be affected by the
decision?
Figure 1.5: Five Business Ethics
Myths
Why Use Ethical Reasoning
In Business?
Laws do not cover all aspects or “gray areas”
of a problem
Free-market and regulated-market
mechanisms are insufficient
Complex moral problems require “an intuitive
or learned understanding and concern for
fairness, justice, and due process to people,
groups, and communities”
Kohlberg’s Levels and Stages
of Moral Development
Level 1: Preconventional Level (Self-
Orientation)
Stage 1: Punishment
Stage 2: Reward seeking
Level 2: Conventional Level (Others Orientation)
Stage 3: Good person
Stage 4: Law and order
Level 3: Postconventional, Autonomous, or
Principles Level (Universal, Humankind
Orientation)
Stage 5: Social contract
Stage 6: Universal ethical principles
