Chapter Two

A HISTORICAL PERSPECTIVE ON
BUSINESS ETHICS

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Copyright 2012 John Wiley & Sons

 Describe salient business ethics issues

Chapter 2
Learning Objectives

Chapter 2: Collins, Business Ethics

in precapitalist America
Understand the ethical foundation of
capitalism as argued by Adam Smith in
the 1700s
Appreciate the delicate balance between
economic growth and stakeholder
rights, particularly labor issues,
throughout U.S. history
Benchmark an organization to the
Ethics Compliance Program best
practices outlined by the Federal
Sentencing Guidelines
Conceptualize how to maximize ethical
behaviors in organizations based on an
Optimal Ethics Systems Model

Economic Growth and Business Ethics in

Precapitalist America

Christopher Columbuss Arrival:

Get gold, humanely if possible, but at all hazards-get gold

Chapter 2: Collins, Business Ethics

Economic Growth and Business Ethics in

Precapitalist America
Roanoke and Jamestown Settlements
In the 1580s Walter Raleigh and his business

associates were granted a charter to establish a

colony in the area of modern-day Virginia and North
Carolina to trade, search for minerals, and plunder
Spanish merchant ships

Chapter 2: Collins, Business Ethics

Economic Growth and Business Ethics in

Precapitalist America
Buildup to the Revolutionary War
By 1774 more than 2.3 million European colonists
participated in highly regulated business activities
Business and tax policies exacerbated anti-England
sentiments

Chapter 2: Collins, Business Ethics

Freedom, Rights, and the Ethics of Capitalism

We hold these truths to be self-evident, that all men
are created equal, that they are endowed by their
Creator with certain unalienable rights, that among
these are life, liberty, and the pursuit of happiness.
Approximately 25,000 colonists died for these rights

during the victorious Revolutionary War

Chapter 2: Collins, Business Ethics

Freedom, Rights, and the Ethics of Capitalism

The Bill of Rights (1791) included:
Freedom of speech
Freedom of the press
Freedom of religion
Freedom to petition the government
Freedom to keep and bear arms
Freedom from unreasonable search and seizure

Chapter 2: Collins, Business Ethics

Freedom, Rights, and the Ethics of Capitalism

Adam Smiths Capitalism

Adam Smith (1723-90), a prominent

member of the Scottish enlightenment,

applied the concepts reason and
liberty to a wide range of endeavors,
including philosophy, politics,
economics, and law

Chapter 2: Collins, Business Ethics

Exhibit 2.1 Ethical Foundation of Capitalism

Isert Exhibit 2.1

Chapter 2: Collins, Business Ethics

Freedom, Rights, and the Ethics of Capitalism

Smith and Labor Issues
Freedom and self-interest play central roles in

Smiths conception of capitalism

Laborers benefit from capitalism because economic

growth generates more jobs and they are free to

choose an occupation

Chapter 2: Collins, Business Ethics

Economic Growth Under Capitalism

The Industrial Revolution

The economy boomed when the Industrial Revolution spread

from Britain to the United States in the early 1800s

Chapter 2: Collins, Business Ethics

Economic
Growth Under
Capitalism
New laws: antitrust,
charters, and liabilities

The federal government created

the Interstate Commerce

Commission in 1886
A few years later, Congress

passed the Sherman Antitrust Act

of 1890

Chapter 2: Collins, Business Ethics

Labor Issues
Slavery
The most notable economic problems included

slavery, working conditions, and income and wage

inequality

Chapter 2: Collins, Business Ethics

Labor Issues
Strikes and Labor Unions
A labor union is an association of employees that

advances its members interests, such as wages,

benefits, work rules, and other conditions of
employment, through collective bargaining with an
employer

Chapter 2: Collins, Business Ethics

Labor Issues

Chapter 2: Collins, Business Ethics

Labor Issues
Wages and Compensation
Capitalisms emphasis on liberty has increased

national wealth more than any other economic

system
Economic inequality still remains

Chapter 2: Collins, Business Ethics

Exhibit 2.3 Economic Class Structure in the United States

Insert Exhibit 2.3

Chapter 2: Collins, Business Ethics

Exhibit 2.4 Median Personal Income by Educational Attainment

Insert Exhibit 2.3

Chapter 2: Collins, Business Ethics

Labor Issues
The minimum wage refers to the lowest wage an

employer can legally pay an employee

A living wage refers to the amount of money a full-

time employee needs to either afford the basic

necessities in life or exceed the poverty threshold

Chapter 2: Collins, Business Ethics

Further Expansion of Stakeholder Rights

Regulations protecting stakeholders against unethical
business practices:
Food, Drug, and Cosmetic Act Amendments (1962)
Air Pollution Control Act (1962)
Equal Pay Act (1963)
Civil Rights Act (1964)
Equal Employment Opportunity Commission (1964)
Cigarette Labeling and Advertising Act (1965)

Chapter 2: Collins, Business Ethics

Further Expansion of Stakeholder Rights

Regulations (cont.)
Fair Packaging and Labeling Act (1966)
Child Protection Act (1966)
Traffic Safety Act (1966)
Coal Mining Safety Amendments (1966)
Flammable Fabrics Act (1967)
Age Discrimination in Employment Act (1967)
Consumer Credit Protection Act (1968)
Interstate Land Sales Full Disclosure Act (1968)
Chapter 2: Collins, Business Ethics

Federal Sentencing Guidelines

The continued existence of free market capitalism

depends on organizational employees behaving

ethically
In 1991, President George H. W. Bush issued new

Federal Sentencing Guidelines

The guidelines are based on the best practices for

ethics compliance programs

Chapter 2: Collins, Business Ethics

B Corporations
In 2007, B Lab, a nonprofit

organization, initiated a third-party

Benefit Corporation, known as a B
Corporation

It is a certification process for

branding a business as being ethical,

sustainable, and socially responsible

Chapter 2: Collins, Business Ethics

Exhibit 2.6 Rating System for Manufacturing Firm: Version

1.0

Insert Exhibit 2.6

Chapter 2: Collins, Business Ethics

The Optimal Ethics Systems Model

Business ethics scholars and consultants have

developed a variety of audits and surveys to help

organizations account for ethical behaviors
The Optimal Ethics Systems Model synthesizes these

various approaches into a systematic best practices

framework for reinforcing ethical behaviors

Chapter 2: Collins, Business Ethics

Exhibit 2.7 Optimal Ethics Systems Model

Insert Exhibit 2.7

Chapter 2: Collins, Business Ethics