UNIVERSITY OF THE CORDILLERAS
College of Business Administration
AE 101: Managerial Economics
Prepared by; Sheiryl I. Baldo, MBA
Handout for Unit 1: The Nature and Scope of Managerial Economics
d. Business Ethics
e. Managerial Economics in International Framework
Topic Objective:
➢ Understand the concept of business ethics and its importance in an
organization.
Business Ethics Defined
Business ethics is the moral principles, policies, and values that govern the
way companies and individuals engage in business activity.
Business ethics refers to implementing appropriate business policies and
practices with regard to arguably controversial subjects.
It goes beyond legal requirements to establish a code of conduct that
drives employee behavior at all levels and helps build trust between a
business and its customers.
Developing ethical models and practices can boost a company's
revenues, profits, and share price.
Business ethics concerns ethical dilemmas or controversial issues faced by
a company. Often, business ethics involve a system of practices and
procedures that help build trust with the consumer.
On one level, some business ethics are embedded in the law, such as
minimum wages, insider trading restrictions, and environmental
regulations.
On another, business ethics can be influenced by management behavior,
with wide-ranging effects across the company.
Business Ethics Explained
Business ethics ensure that a certain basic level of trust exists between consumers
and various forms of market participants with businesses.
❖ For example, a portfolio manager must give the same
consideration to the portfolios of family members and small
individual investors as they do to wealthier clients. These kinds of
practices ensure the public receives fair.
❖ The concept of business ethics began in the 1960s as corporations
became more aware of a rising consumer-based society that
showed concerns regarding the environment, social causes, and
corporate responsibility.
❖ The increased focus on "social issues" was a hallmark of the
decade.
❖ Since that time, the concept of business ethics has evolved.
Business ethics goes beyond just a moral code of right and wrong;
it attempts to reconcile what companies must do legally vs.
maintaining a competitive advantage over other businesses.
❖ Firms display business ethics in several ways.
Principles of Business Ethics
There are generally 12 business ethics principles:
1. Leadership: The conscious effort to adopt, integrate, and emulate the other
11 principles to guide decisions and behavior in all aspects of professional
and personal life.
2. Accountability: Holding yourself and others responsible for their actions.
Commitment to following ethical practices and ensuring others follow ethics
guidelines.
3. Integrity: Incorporates other principles—honesty, trustworthiness, and
reliability. Someone with integrity consistently does the right thing and strives
to hold themselves to a higher standard.
4. Respect for others: To foster ethical behavior and environments in the
workplace, respecting others is a critical component. Everyone deserves
dignity, privacy, equality, opportunity, compassion, and empathy.
5. Honesty: Truth in all matters is key to fostering an ethical climate. Partial truths,
omissions, and under or overstating don't help a business improve its
performance. Bad news should be communicated and received in the same
manner as good news so that solutions can be developed.
6. Respect for laws: Ethical leadership should include enforcing all local, state,
and federal laws. If there is a legal grey area, leaders should err on the side of
legality rather than exploiting a gap.
7. Responsibility: Promote ownership within an organization, allow employees to
be responsible for their work, and be accountable for yours.
8. Transparency: Stakeholders are people with an interest in a business, such as
shareholders, employees, the community a firm operates in, and the family
members of the employees. Without divulging trade secrets, companies
should ensure information about their financials, price changes, hiring and
firing practices, wages and salaries, and promotions are available to those
interested in the business's success.
9. Compassion: Employees, the community surrounding a business, business
partners, and customers should all be treated with concern for their well-
being.
10. Fairness: Everyone should have the same opportunities and be treated the
same. If a practice or behavior would make you feel uncomfortable or place
personal or corporate benefit in front of equality, common courtesy, and
respect, it is likely not fair.
11. Loyalty: Leadership should demonstrate commitment to their employees and
the company. Inspiring loyalty in employees and management ensures that
they are committed to best practices.
12. Environmental concern: In a world where resources are limited, ecosystems
have been damaged by past practices, and the climate is changing, it is of
utmost importance to be aware of and concerned about the environmental
impacts a business has. All employees should be encouraged to discover
and report solutions for practices that can add to damages already done.
Importance of Business Ethics
There are several reasons business ethics are essential for success in modern
business.
Most importantly, defined ethics programs establish a code of conduct that
drives employee behavior—from executives to middle management to the
newest and youngest employees.
When all employees make ethical decisions, the company establishes a
reputation for ethical behavior.
Its reputation grows, and it begins to experience the benefits a moral
establishment reaps, such as:
✓ Brand recognition and growth
✓ Increased ability to negotiate
✓ Increased trust in products and services
✓ Customer retention and growth
✓ Attracting talent
✓ Attracting investors
When combined, all these factors affect a business' revenues.
Types of Business Ethics
There are various types of business ethics.
➢ corporate social responsibility practices,
➢ transparency and trustworthiness,
➢ fairness, and ;
➢ technological practices.
Corporate Social Responsibility
Corporate social responsibility (CSR) is the concept of meeting the needs
of stakeholders while accounting for the impact meeting those needs has
on employees, the environment, society, and the community in which the
business operates. Finances and profits are important, but they should be
secondary to the welfare of society, customers, and employees. In fact,
studies have concluded that corporate governance and ethical
practices increase financial performance.
Transparency and Trustworthiness
It's essential for companies to ensure they are reporting their financial
performance in a way that is transparent. This not only applies to required
financial reports but all reports in general.
Most of these reports outline not only the submitted reports to regulators,
but how and why decisions were made, if goals were met, and factors
that influenced performance. CEOs write summaries of the company's
annual performance and give their outlooks.
Press releases are another way companies can be transparent. Events
important to investors and customers should be published, regardless of
whether it is good or bad news.
Technological Practices and Ethics
The growing use of technology of all forms in business operations
inherently comes with a need to ensure the technology and information
being gathered is used ethically. Additionally, it should ensure that the
technology is secured to the utmost of its ability, especially as many
businesses store customer information and collect data that those with
nefarious intentions can use.
Fairness
A workplace should be inclusive, diverse, and fair for all employees
regardless of race, religion, beliefs, age, or identity. A fair work
environment is where everyone can grow, be promoted, and become
successful in their own way.
How to Implement Good Business Ethics
Fostering an environment of ethical behavior and decision-making takes
time and effort and starts at the top. Most companies need to create a
code of conduct/ethics, guiding principles, reporting procedures, and
training programs to enforce and encourage ethical behavior.
Once conduct is defined and programs are implemented, continuous
communication with employees becomes vital. Leaders should constantly
encourage employees to report concerning behavior. Additionally, there
should be assurances that whistle-blowers will not face adversarial
actions.
Monitoring and Reporting Unethical Behavior
To prevent unethical behavior and repair its adverse side effects,
companies often look to managers and employees to report any
unethical acts they observe or experience.
However, barriers within the company culture (such as fear of retaliation
for reporting misconduct) can prevent this from happening.
Indeed, fear of retaliation is one of the primary reasons employees cite for
not reporting unethical behavior in the workplace.
ECI says companies should work toward improving their corporate
culture by reinforcing the idea that reporting suspected misconduct is
beneficial to the company.
Additionally, they should acknowledge and reward the employee's
courage in making the report.
E: Managerial Economics in International Framework
The International Framework of Managerial Economics
- Many of the commodities we consume today are imported, and
American firms purchase many inputs abroad and sell an increasing share
of their products overseas.
- Specifically, as consumers, we purchase Japanese Toyotas and German
Mercedes, Italian handbags, Hong Kong clothes, American suit, Swiss
chocolates, and Brazilian coffee. Often, we are not even aware that the
products, or parts of them, are in fact made abroad.
- American multinational corporations produce and import many parts
and components from abroad and export an increasing share of their
output.
