Business Law and Ethics MID SEM EXAM NOTES

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Management and Human Resources
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WEEK 1: Individual responses to ethical situations: •Stage ZERO: People act on impulse (no capacity for moral reasoning) they dont matter about the consequences •Stage ONE: people have no inate sense of morality, this stage consists of unwitting compliance. Preconventional People act to avoid punishment for actions (praise or punishments) Stage • Stage TWO: This stage characterises morale thinking. Opinions are evaluated according to benefits gained. (People act to get a benefit) THE SELFISH STAGE KIDS • Stage THREE: people respond to their social role. They view morality in terms of a good boy or a bad girl. people abide by the social norms not because they are correct but because they wish to be socially accepted. (Socially acceptible for the IMMEADIATEGROUP OF PEOPLE) ConventionalStage • Stage FOUR: moralit is now not social but extends to organisational /institutional. Morality is framed within the rules and regulations of a company (inferior LVL) There is an adherance TEENS to the wider institutional roles of society (superior LVL) <<<>>>>> • Stage FIVE: people are capable of questioning and reflecting upon the principles and systems of moralitythey follow. People challenge their moralityand change it in accordance with their Post own beliefs. (people FOLLOW THE LAWS but EVALUATE & QUESTION THEM) Conventional • Stage SIX: Acceptance of universal principles of justice. A person at this level takes Stage LATE 20's WHAT IS ETHICS? - Is primarily concerned with how we behave or should behave - ethics (or lack thereof) have also played a part in the current financial crisis. WHAT IS MORALITY? - Morality is concerned with social practices defining right or wrong - Morality, society says that stealing is wrong. Ethical theory examines and explains why - Morality Morality and Prudence: - The first step in this process is learning to distinguish moral rules from rules of prudence. Prudence e.g. --- Don’t touch the hot stove, eat your vegetables (rules to help you) Morality e,g. ---- Share your toys, don’t steal money (right and wrong) Morality and Law:  Law is the publics agency for translating morality into explicit social guidelines and practices for stipulating punishments and offenses o Case Law: judge made law expressed in court decisions o Statutory Law: federal and state laws and their accompanying administrative regulations o International Law: Treaties and agreements among nations  Corporate concerns about business ethics can be eliminated by being handed over to the legal department  The law is not the sole repository of a societies moral standards and values  “A law abiding person in not necessarily morally sensitive e.g. slavery in the US was legal but nor moral or ethical” The Rule of Conscience: Slogan “Always let your conscience be your guide” –Pinocchio Consciences vary radically from person to person, time to time Altered by circumstance, religious belief, childhood and training - The reliability of conscience is not self certifying. Moral justification must be based on a source of external to individual conscience. Approaches to the study of morality and Ethical Theory: Morality and ethical theory has three approaches 1) Descriptive 2) Conceptual 3) Normative (1)Descriptive Approach: (scientific Approach) - Factual description and explanation of moral behaviours and beliefs as performed by sociologists and historians - e.g. report what business executives believe is morally acceptable/unacceptable (2)Conceptual Study Approach: - Meanings of terms such as right, pbligation, justice, good , virtue are analysed - Business terms analysed are liability, deception, corporate intention and stakeholder. (3)Normative Approach: (prescriptive) - Normative morality philosophy aims at determining what ought to be done -Utilitarianism and Kantianism come into play here - Normative ethics commonly used to treat moral problems i.e. famine, conflict of interest, environmental pollution, mistreatment of animals etc. -Descriptive claims to justify a normative position (normative approach) - Moral philosophers have tended to reject relatives, Moral Philosophers ask “What does the argument from the fact of cultural diversity reveal?” Moral disagreements they often discovered agreement at deeper levels on more basic values. Normative Theories of Ethics Teleological: Deontological: Virtue Ethics: (outcome based) (Duty based) (Character based) Focus is on the Focus is on the Focus is on wether consequences of a process used decision. The ends e.g.doing social a god persone.e. can justify the duty, folow good virtues would do the act means principles etc. Teleological = Egoism, Utilitarianism Deontological = Kantian Ethics Virtue = Virtue ethics EGOISM: - Involves looking at the outcome of a decision in terms of the effect it will have on you - Psychological Egoism: Everyone is always motivated to act in their own self interest -Ethical Egoism everyone ought to be motivated to act in their own self interest - This does not mean that an egoist will always be greedy or selfish but that the motivation for acting will be to gain benefit themselves - Wouldn’t act over egotistical as it would lead to anarchy and would ruin society therefore minimising self interest Examples of EGOISM: - Heroes: save people so they are praised as heroes - Short term pay for long term benefit = job promotion UTILITARIANISM: (NORMATIVE ETHIC) - People should act in a way that maximises the good (utility) of society - Business concepts like cost benefit analysis, risk assessment or management objectives are all strongly based on utilitarianism. - Good refers to happiness or pleasure according to hedonists Bentham and Mill - It is the best possible balance of good consequences over bad for all parties affected Features of Utilitarianism - It is committed to the maximization of good and the minimisation of harm or evil - Society ought to always produce the greatest possible balance of positive value Criticisms of Utilitarianism - It ignores non-utilitarian factors that are needed to make moral decisions - The problem is whether utilitarian values can be measured and compared to determine the best action among alternatives Hedonistic Utilitarians = Believe that any act or practice that maximises pleasure is right Pluralistic Utilitarians = People who believe in multiple intrinsic values Bentham identified the following features on how to measure pleasure: 1. Intensity: the strength of happiness 2. Duration: the length of time happiness lasts 3. Certainty: the probability of happiness resulting 4. Extent: the number of people effected 5. Closeness: is the pleasure now or later in time? 6. Richnesss: Will the act lead to further pleasure? 7. Purity: Is it all pleasure or is it mixed with some pain KANTIAN ETHICS: The essence of this approach is that established rules and codes, responsibilities, duties, principles, etc. (called DUTIES) should guide our behaviours. The process of making the decision is the important factor, not the outcome for the decision. Doing the right thing for the wrong reasons cheapens the result. Actions must come from a sense of duty. Important Factors of Kantian Ethics are: - Universal Acceptability - can the act be a rule performed by everyone without contradiction? - Respect for Persons – we are all rational independent beings. Treating a person exclusively as a means to some end fails to give them respect - Reversibility – would you like to be on the receiving end of such action? Virtue Ethics: - What would a good person do? They are characteristics of moderation. Too much or too little of something is a vice (not a virtue). - Plato identified 4 virtues that lead a “good” life: 1. Wisdom 2. Courage 3. Self Control 4. Justice WEEK 2: Corporate Social Responsibility & Corporate Governance WHAT IS A COMPANY/ CORPORATION? Corporations have laws they have to abide by both legal and economic but the question at hand is do they have a social responsibility?  They have a separate legal entity  Makes it easier to hide behind the company, not going to be singled out for unethical working  Its not your actions it’s the companies  There is always LIMITED LIABILITY o People only loose the value of theri investment if the company has debts. You as a shareholder do not have to pay for them Corporate Social Responsibility Definition: The concept of corporate social responsibility (CSR) is often expressed as the voluntary assumption of responsibilities that go beyond the purely economic and legal responsibilities of businesses and firms. It is all about the public image EXAMPLES OF CSR: 1. Choosing to operate on an ethical level that is higher than what the law requires 2. Providing benefits for employees and improving the quality of life in the workplace beyond economic and legal requirements 3. Using corporate resources to operate a program that addresses some major social problems The Debate over Corporate Social Responsibility: - The increase in globalisation of business also made corporations more vulnerable to criticism for their operations abroad. (the social radar, many small businesses fly through unnoticed) i.e. NIKE, Adidas - When corporations get bigger they start to attract more attention and people start to look to see if they are doing he right thing or not. - Corporations with valuable brand names also made corporations more vulnerable to criticism for their operations abroad. Milton Friedman : Stockholder Theory His view is that the company should only make a profit. If complying with corporate social responsibility makes a profit then it should be done. But if it does not make a profit don’t do it. You shouldn’t do Corporate Social Responsibility just for the sake of doing it.  Milton Friedman believed: o Directors run the company properly to make a profit, shareholders invest in the company o The profits (dividends) must be paid out to the shareholders o It is not the directors job to make decisions for the shareholders nor can he use their money without their say so.........  i.e. If the director invested in “save the whales” that is just CSR for the sake of it as it does not affect the company. It is also not the directors money to use o Also believes that voluntary contractual agreements maximise economic freedom and that economic freedom is a necessary condition for political freedom Economic freedom Political freedom (linked) (linked) CRITICISMS OF THE FRIEDMAN THEORY: - Some people believe that if Friedman justifys anything that will lead to maximisation of profits including acting immorally or illegally if the manager can get away with it - others believe that employees, customers and suppliers (other stakeholders) should be used to maximise profits Stakeholder Theory : John Boatright A stakeholder is anyone who holds an interest or stake in how the company acts, including: employees, customers, suppliers, local communities and shareholders.  It is in a companies interests to be on good terms with the community within which it operates.  Unfortunately the stakeholder that gets the majority of attention is the shareholders. o The others are the minority of political decisions  Managers who manage stakeholders view that they harmonize the legitimate interests of primary cor[prate stakeholders The Stakeholder view of the corporation:  All emphasis is placed on the stakeholder (this is any person affected by corporate decisions)  There are 6 main identifiable groups: stockholders, employees, customers, suppliers, managers, the community  Many codes of conduct are centred around stakeholder principles  John Boatright Believed: o The purpose of the firm is to benefit every stakeholder group o Stockholders have been given special attention because law makers believed it was public interest to do so o Stakeholder theory compliments stockholder theory in 2 ways:  It reminds managers they have an obligation to correct for things like market failure and externalise to ensure markets work as they should to ensure benefits for all  Can be seen as a guide for the ethical management of a firm rather than an alternative system of corporate governance Corporate Governance (WEEK 2): Corporate governance is about the proper governance of corporations. If you have it you won’t have unforseen collapses like the ABC learning centers. Corporate governance is not the law it is just a guide of optional compliance. It is not mandatory. Corporate Governance Definition: Corporate governance is the framework of rules, relationships, systems and processes, within and by which authority is exercised and controlled in corporations. It encompasses the mechanisms by which companies, and those in control, are held to account. Corporate governance influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimised. Good corporate governance structures encourage companies to create value and provide accountability and control systems commensurate with the risks involved. In a nutshell Corporate Governance is:  Monitors and assesses risks  Optimises performance  Creates value  Provides accountability − Corporate governance is contingent upon the legal, regulatory and institutional environment in which it exists − It is dependant on proper consideration and interaction with all stakeholders THE CORPORATIONS ACT 2001: Limited by shares: Liability for members in the company is restricted on the amount of owing on their shares. One exception is ‘notabilities companies’ where members of the company are not ecen obligated to make calls on their shares...i.e. some mining companies Limited by guarantee: Liability of members is restricted to an amount specified in the company constitution that they may be obligated to pay in the event the company winds up its affairs. THE 8 PRINCIPLES OF UNDERLINING GOOD CORPORATE GOVERNENCE: Principle 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT − Companies should establish and disclose the respective roles and responsibilities of board and management: o Also disclose the process for evaluating the performance of senior executives Principle 2: STRUCTURE THE BOARD TO ADD VALUE − Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities o Majority and chair should be independent directors o Role of the chair and chief executive officer should not be the same o Companies should disclose the process of evaluating the performance of the board, its committees and individual directors Principle 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING − Companies should actively promote ethical and responsible decision making o A code of conduct should be established and should disclose  Practices necessary to take into account their legal obligations  The responsibility and accountability of individuals for reporting and investigating reports of unethical practices  Practices necessary to maintain confidence in the company’s integrity o The policy should be disclosed to all concerning trading in company securities by directors, senior executives and employees o Companies should also be able to provide further information pertaining to principle 3 Principle 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING − Companies should have a structure to independently verify and safeguard the integrity of their financial reporting o The board should establish an audit committee o The audit committee should consist of only non-executive officers, have a majority of independent directors, have at least 3 members o The audit committee should have a formal charter o Companies should provide the information indicated in the guide to reporting on principle 4 Principle 5: MAKE TIMELY AND BALANCED DISCLOSURES − Companies should promote timely and balanced disclosures of all material matters concerning the company o Companies should provide written policies designed to ensure compliance with the ASX listing Rule of disclosure Principle 6: RESPECT THE RIGHTS OF SHAREHOLDERS − Companies should respect the rights of shareholders and facilitate the effective exercise of those rights o Companies should design a communications policy wh
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