Business Ethics
Concepts & Cases
Manuel G. Velasquez
Copyright © 2012 Pearson Education, Inc. All rights reserved.
Chapter One
Basic Principles: Ethics and Business
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Ethics and Morality
Ethics is the study of morality.
▪ Morality = The standards that an individual or a group has
about what is right and wrong, or good and evil.
• Example: B.F. Goodrich A7-D Fraud
▪ Moral Standards = norms about the kinds of actions that
are morally right and wrong, as well as the values placed
on what is morally good or bad.
▪ Non-Moral Standards: The standards by which we judge
what is good or bad and right or wrong in a non-moral way.
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Six Characteristics of Moral Standards
• Involve significant injuries or benefits
• Not established by authority figures
• Should be preferred to other values
including self-interest
• Universal Application
• Based on impartial considerations
• Associated with special emotions and
vocabulary.
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What is Business Ethics?
• Broadly, ethics is the discipline that examines
one’s moral standards or the moral standards
of a society to evaluate their reasonableness
and their implications for one’s life.
• Business ethics is a specialized study of moral
right and wrong that concentrates on moral
standards as they apply to business
institutions, organizations, and behavior.
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Types of Ethical Issues
• Systemic—ethical questions about the social,
political, legal, or economic systems within
which companies operate.
• Corporate—ethical questions about a
particular corporation and its policies, culture,
climate, impact, or actions.
• Individual—ethical questions about a
particular individual’s decisions, behavior, or
character.
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Can ethical qualities be attributed to
corporations?
• View #1: corporations, like people, act intentionally
and have moral rights, and obligations, and are morally
responsible.
• View #2: it makes no sense to attribute ethical qualities
to corporations since they are not like people but more
like machines; only humans can have ethical qualities.
• View #3: humans carry out the corporation’s actions so
they are morally responsible for what they do and
ethical qualities apply in a primary sense to them;
corporations have ethical qualities only in a derivative
sense.
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Arguments Against Business Ethics
• In a free market economy, the pursuit of profit
will ensure maximum social benefit so
business ethics is not needed.
• A manager’s most important obligation is
loyalty to the company regardless of ethics.
• So long as companies obey the law they will
do all that ethics requires.
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Arguments Supporting Business Ethics
• Ethics applies to all human activities.
• Business cannot survive without ethics.
• Ethics is consistent with profit seeking.
• Customers, employees, and people in general
care about ethics.
• Studies suggest ethics does not detract from
profits and seems to contribute to profits.
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Corporate Social Responsibility
• Corporate social responsibility refers to a
corporation’s responsibilities or obligations
toward society.
• Business ethics is both a part of corporate
social responsibility and part of the
justification for corporate social responsibility.
• Shareholder vs. Stakeholder Theory
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New Issues in Business Ethics
• Advances in technology often create new
issues for business ethics.
– Currently, advances in information technology are
creating new issues in business ethics.
• Increasing connections between the economic and
social systems of different nations, known as
“globalization”, has also created new issues in business
ethics.
• Post war system; Rapid Globalization; free flow of goods,
capital, information, services and cultural artifacts
beyond national borders and transforming the planet
into a globe with ease of access.
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Globalization
• MNCs and TNCs positive and negative implications
on host and parent country
• Poverty alleviation, cheap labor vs Environmental
cost
• Inequality, cultural dominance, toxic wastes creation
and mobilization of capital and resources from one
county to another
• Level of development and standards; outsourcing
• Which laws to be followed? Recipient state’s or
parent state’s? What about wages and more ….
• Working conditions and other perks for instance
insurance etc….
Resolving Cross-Cultural Ethical
Differences
• Moral Relativism = the theory that there are no
ethical standards that are absolutely true and
that apply or should be applied to the companies
and people of all societies.
• Objections to Moral Relativism:
– Some moral standards are found in all societies;
– Moral differences do not logically imply relativism;
– Relativism has incoherent consequences;
– Relativism privileges whatever moral standards are
widely accepted in a society.
Copyright © 2012 Pearson Education, Inc. All rights reserved.
Resolving Cross-Cultural Ethical
Differences
• According to the Integrative Social Contracts
Theory (ISCT), there are two kinds of moral
standards:
– Hypernorms: those moral standards that should be
applied to people in all societies. Accepted as social
contract by all. With offering some moral free space for
communities.
– Microsocial norms: those norms that differ from one
community to another and that should be applied to
people only if their community accepts those particular
norms. Kind of social contract accepted by particular
community.
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Kohlberg’s Three Levels of Moral
Development
• First Level: Pre-conventional Stages
– Stage One: punishment and obedience orientation
– Stage Two: instrumental and relative orientation
• Second Level: Conventional Stages
– Stage One: interpersonal concordance orientation
– Stage Two: law and order orientation
• Third Level: Post-conventional Stages
– Stage One: social contract orientation
– Stage Two: universal principles orientation
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Carol Gilligan Theory of Female Moral Development
• For women morality is primarily a matter of caring
and responsibility.
• Moral development for women is progress toward
better ways of caring and being responsible.
• Women move from a conventional stage of caring
only for oneself, to a conventional stage of caring for
others to the neglect of oneself, to a post
conventional stage of achieving a balance between
caring for others and caring for oneself.
3 Models of Management Ethics
Moral Amoral Immoral
1. Moral Management—Conforms to high standards of ethical behavior.
2. Immoral Management—A style devoid of ethical principles and active
opposition to what is ethical.
3. Amoral Management—
Intentional - does not consider ethical factors
Unintentional - casual or careless about ethical considerations in
business
Moral Reasoning
• The reasoning process by which human
behaviors, institutions, or policies are judged
to be in accordance with or in violation of
moral standards.
• Moral reasoning involves:
– The moral standards by which we evaluate things
– Information about what is being evaluated
– A moral judgment about what is being evaluated.
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Developing Moral Judgment
6-23
Making Ethical Judgments
Behavior or act compared with
Prevailing norms
that has been
of acceptability
committed
Value judgments
and perceptions of
the observer
Stakeholder Versus Shareholder
Shareholder Perspective Stakeholder Perspective
➢Those who approach ethical decision ➢Stakeholders may include: employees,
making from a shareholder perspective suppliers, customers, competitors,
focus on making decisions that are in the government agencies, the news media,
owners' best interest. Decisions are guided community residents and others. The idea
by a need to maximize return on behind stakeholder based ethical decision
investment for the organization’s making is to make sound business
shareholders. decisions that work for the good of all
affected parties
What is Ethical Behavior?
In many situations lines between right and wrong are blurred. Such situations
can lead to ethical dilemmas.
When faced with ethical dilemmas, it’s important to consider outcomes of the
decision-making process.
One way of dealing with ethical dilemmas is by using the four way test to
evaluate decisions. This test involves asking four questions:
✓Is my decision a truthful one?
✓Is my decision fair to everyone affected?
✓Will it build goodwill for the organization?
✓Is the decision beneficial to all parties who have a vested
interest in the outcome?
Four Steps Leading to Ethical Behavior
• Step One: Recognizing a situation is an ethical
situation.
– Requires framing it as one that requires ethical
reasoning
– Situation is likely to be seen as ethical when:
• involves serious harm that is concentrated, likely, proximate,
imminent, and potentially violates our moral standards
– Obstacles to recognizing a situation:
• Euphemistic labeling, justifying our actions, advantageous
comparisons, displacement of responsibility, diffusion of
responsibility, distorting the harm, and dehumanization, and
attribution of blame.
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Four Steps Leading to Ethical Behavior
• Step Two: Judging the ethical course of
action.
– Requires moral reasoning that applies our moral
standards to the information we have about a
situation.
– Requires realizing that information about a
situation may be distorted by biased theories
about the world, about others, and about oneself.
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Four Steps Leading to Ethical Behavior
• Step Three: Deciding to do the ethical course
of action.
– Deciding to do what is ethical can be influenced
by:
• The culture of an organization—people’s decisions to
do what is ethical are greatly influenced by their
surroundings.
• Moral seduction—organizations can also generate a
form of “moral seduction” that can exert subtle
pressures that can gradually lead an ethical person into
decisions to do what he or she knows is wrong.
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Four Steps Leading to Ethical Behavior
• Step Four: Carrying out the ethical decision.
– Factors that influence whether a person carries
out their ethical decision include:
• One’s strength or weakness of will
• One’s belief about the locus of control of one’s actions
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Moral Responsibility
• Three Components of Moral Responsibility
– Person caused or helped cause the injury, or
failed to prevent it when he or she could and
should have (causality).
– Person did so knowing what he or she was doing
(knowledge).
– Person did so of his or her own free will
(freedom).
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Factors that Mitigate Moral
Responsibility
• Minimal contribution
– In general, the less one’s actual actions contribute to the
outcome of an act, the less one is morally responsible for that
outcome.
• Uncertainty
– A person may be fairly convinced that doing something is wrong
yet may still be doubtful about some important facts, or may
have doubts about the moral standards involved, or doubts
about how seriously wrong the action is.
• Difficulty
– A person may find it difficult to avoid a certain course of action
because he or she is subjected to threats or duress of some sort
or because avoiding that course of action will impose heavy
costs on the person.
Copyright © 2012 Pearson Education, Inc. All rights reserved.
Other Factors Impacting Organizational
Ethics
➢Corporate Culture
➢Existence And Application Of A Written Code Of Ethics
➢Formal And Informal Policies And Rules
➢Norms For Acceptable Behavior
➢Financial Reward System
➢System For Recognizing Accomplishment
➢Company Attitude Toward Employees
➢How Employees Are Selected For Promotions
➢Hiring Practices
➢Applications Of Legal Behavior
➢Degree To Which Professionalism Is Emphasized
➢The Company’s Decision Making Processes
➢Behaviors And Attitudes Of The Organization’s Leaders
7 Principles of Admirable Business
Ethics
1. Be Trustful
2. Keep An Open Mind
3. Meet Obligations
4. Have Clear Documents
5. Become Community Involved
6. Maintain Accounting Control
7. Be Respectful
Conclusion
Ethics is a set of rules that define right and wrong
conduct.
Business ethics can be defined as written and unwritten codes
of principles and values that govern decisions and actions
within a company. In the business world, the organization’s
culture sets standards for determining the difference between
good and bad decision making and behavior.
Long termism in business
Issues of corporate ethics have taken the form of short-termism vs. long-
termism
If businesses are focused on long term stability and growth, they are
ethical:
Short term strategies, aimed at earning per share for the year in question,
compromise on longer interests
Warren Buffet has often stressed on long term strategies
[Link]
Long termism in business
Investigations into Fannie Mae suggested that the entire senior management
was intensively focused on earnings guidance
Capital market orientation of companies force them to be tempted by short
term targets:
Increasingly, the entire system of how companies are evaluated by analysts,
investors and stock markets leads to a short term approach
McKinsey survey [March 2006] shows that companies are focused on short term
strategies due to market pressures
[Link]
The Federal National Mortgage Association, commonly known as Fannie Mae, is a United States government-sponsored enterprise
and, since 1968, a publicly traded company.
CONCLUSION
Ethics are important not only in business but
in all aspects of life because it is an essential
part of the foundation on which of a civilized
society is build. A business or society that
lacks ethical principles is bound to fail sooner
or later.
