What are Business Ethics and why are they important?

D = Definition. Ethics is the study of what is generally accepted by society as being right or wrong.

I = Importance. It is important for a business to behave ethically – if it does not - that is – it behaves unethically – then
 its reputation with customers may be damaged….

• which may lead to reduced sales and falling profits…
• which may in the long term threaten the long term survival of the business
• which of course if the most important business objective!

E = Example These 2 articles give examples that can be used in an exam.

In this first article Ralph Norris, the Australian Commonwealth Bank’s CEO (Chief Executive Officer) has just received an 80% pay increase. His salary package of $AUD 16,000,000 (approx $USD 16 million) has received lots of criticism.

Is it ethical for businesses to pay such large salaries? Ist is it right for anyone to receive so much money, regardless of the success of the business?

In this second example, many of Chinas super-rich business bosses have been accused of being ‘stingy’ by not attending a Charity event with 2 of the worlds richest men – Bill Gates and Warren Buffet. Chinas richest man. What do you think of this argument from the article?

"Zong Qinghou, named by the Hurun Rich List as China's richest man with a $12bn fortune, told Phoenix television he had a previous engagement and said real philanthropy was creating wealth and jobs.’

‘"If I want to donate, I will; if I don't want to, I won't be persuaded to either. I don't think donating a lot of money is real philanthropy. It is just a way to get around the high inheritance tax and other taxes," he said.’

Ex-Morgan Stanley boss jailed for insider trading

1) Who or what is Morgan Stanley?
2) What does the term 'insider trading' mean?
3) What does Hong Kong's Securities and Futures Commission (SFC) do?

Read this Guardian article

4) What was Du Jun found guilty of - what sentance has he received?

If you get time...read this more detailed analysis of the case and answer these more detailed questions.

5) Explain how SEC overcame the difficulties it faced in getting a conviction in this case
6) Can you explain what "Tiger Asia Management" did to be put under investigation from the SEC?

How to earn $50 Million in 6 years!

A TRUE EXAMPLE OF UNETHICAL BUSINESS PRACTICE
US drugmaker Pfizer will pay a massive $USD 2.3bn (£1.4bn) fine in the largest healthcare fraud settlement in the history of the Department of Justice. A subsidiary of the firm was found guilty of illegally promoting four drugs for uses which had not been approved by medical regulators.

This link is an amazing interview with John Kopchinski - the Pfizer employee who 'blew the whistle' on Pfiser. In it he describes the unethical and illegal practices used by the firm to sell its products.

Mr Kopchinski's decision to tell the authorities what his bosses asked him to do cost him his job... but this article tells you that it all ended OK for him!

The Bernard Madoff Scandal: Part 1 and 2

Inside the Madoff Scandal – Part 1
The Wall Street Journal explains how one of the largest financial scandals of our time went on for so long without being detected. Click here to watch the video

Inside the Madoff Scandal – Part 2
The Wall Street Journal explains how Bernard Madoff organised his business and predicts what will happen next as authorities get to the bottom of his alleged fraud. Click here to watch the video

Obama 'outraged' at AIG bonuses

AIG is a huge American based financial institution.

It has been in the news a lot recently, because the US Government has pumped a huge amount of money into it to help it survive the current financial crisis.

First, watch this video for the story.



Next, read each short article in turn and answer all questions

1) AIG- What does this giant do? (Background on AIG)
1a) Describe briefly what AIG does, and how many people it employs.
1b) How much was Robert Willumstad paid as AIG's Chairman in 2008?
1c) How much did the US Government set aside as a AIG's rescue package in September 2008?

2) AIG failure would hurt others (Why the US Government bailed out AIG)
2a) Explain why the US Government decided to bail out AIG in 2008.
2b) What criticisms of the US Governments decision can you find in this article?

3) AIG to cut further bonuses (Why AIG wants to pay the bonuses)
3a) How much has AIG received from the US Government so far?
3b) What is the key reason given by AIG's Chairman Edward Liddy to explain why AIG must pay the bonuses to its workers?
3c) What economy of scale can you identify in this article?

4) Obama wants to block bonuses (Why Obama is mad with AIG!)
4a) What actions has the US Government taken in response to AIG’s decision to pay bonuses?
4b) What is the value of bonuses owed to AIG executives?

Obama unveils executive pay cap

I mentioned this BBC article in today’s class about Employee and Employer relations. Read it , and then answer the following questions:



Level 1: Knowledge
1) What is the value of the salary cap announced by President Obama? Which employees will have to accept this salary cap?

Level 2: Application
2) Explain the main objection to the salary cap mentioned in the article.

Level 3: Analysis
3) Use a theory of your choice to analyse the likely impact of this decision on executive’s motivation?

Level 4: Evaluation
4) To what extent will this decision help solve the current financial crisis?

Note Level 1 – Level 4 are questions based on IB standards where

Level 1: Knowledge
Level 2: Application
Level 3: Analysis
Level 4: Evaluation

Words in bold (define, explain…) have a specific meaning in the IB Diploma Program (DP). The meanings are in Glossary of Command Terms Section of the IBO DP Business and Management Guide available at the OCC and from my website

Primark in storm over conditions at UK supplier

This article from the Guardian newspaper describes the latest problems faced by Primark.

Primark is an Irish owned fashion store that has been incredibly successful - especially in the UK - by charging very low prices for reasonable quality clothes. It currently has 140 stores and employs 25,000 workers in the UK, and is planning to expand into other Euripean countries.

Primark have been very controversial - pressure groups believe that it can only offer such low prices by exploiting the local and overseas workers who make its clothes. If you are interested in business ethics, you should bookmark this site to track the behaviour of the business http://www.guardian.co.uk/business/primark

The business is in trouble in the UK because 2 of its subcontractors - TNS Knitwear, and Fashion Waves - have been accused of breaking UK employment and immigration laws. These companies have been accused of
· Paying workers just over half the minimum wage of £5.73 - for 12-hour days, seven days a week,
· Employing workers who admit that they are illegal immigrants in the UK
· Providing cold, cramped working conditions (against UK Occupational Health and Safety laws)


Primark has tried to counter this bad publicity by
· Stating that it has started its own investigation into the accusations
· Handing over evidence to the relevant enforcement agencies in the UK
· Removing references from its stores and website to the Ethical Trade Initiative (ETI) - a trade body that monitors Britain's top UK retailers.
· Restating its ‘official’ position on its website http://www.blogger.com/www.ethicalprimark.com that does everything it can to make sure that it acts legally and that it only uses subcontractors that act legally


The ETI has started to investigate the accusations. Specifically, they have
· Met with Primark and demanded that it provides a honest response to the allegations.
· Started a formal inquiry to establish whether or not there is a major failure by Primark's to follow the ETI’s code.