College of Education, Arts and

Sciences
Computer Education Department
GE 107 – Ethics/Etika

BUSINESS ETHICS
BSCS-1C
Term Paper group-8
Prof. Michael John Moneva
 INTRODUCTION
Introduction
The world of business is oftentimes seen as an amoral world. It is viewed as a world solely driven by the
profit- motive and business people are often portrayed as ruthless, self-interested individuals. One might
thus wonder bow business and ethics can co-exist. One of the principal tasks of ethics is to enforce the
values of justice and fairness is situations where there are grave abuses of power and a gross Imbalance in
the allocation of resources between people that are meant to share them. Business, as an enterprise directed
towards the accumulation and growth of profit, is prone to many unethical practices, especially by those who
occupy the seats of power of corporations. More often than not. Businesses engage in unethical conduct not
for the conscious motive of causing harm or damage to various stakeholders but simply for their own
survival and flourishing. Most unethical
Behaviors by businesses and corporations emanate either from ignorance of their ethical responsibilities or
from deliberate and insidious attempts at increasing their profit margins beyond what may be just and fair. In
other words, the world of business is replete with examples of behavior that attempt to circumvent society’s
ethical standards not solely because it does not recognize the good but because it finds the good too costly
and, therefore, counter-intuitive to the profit motive.
Some businesses engage in illegal and unfair labor practices. Some do not pay their workers proper wages;
some do not maintain a safe working environment; some force workers to work overtime without extra pay;
some engage in fraud by selling products that do not perform as advertised; some enter illegal contracts that
bypass legal codes; some damage the environment and human communities with waste from their factories,
and some are involved in creating monopolies and cartels that effectively control the price of consumer
goods. All these have moral implications in that such practices violate the basic principles of justice and
fairness. A business reserves the right to seek profit, but it does not have the right to profit through unethical,
or at least, illegal means.

However, some businesses do want to at least strike a balance between the profit motive and ethics. They try
to ensure that their employees are paid fairly and enjoy the benefits of social security and health insurance.
They also make sure that their business processes abide by the legal environmental codes of the community.
They do not engage in false advertising and they make sure that their profit margins are within acceptably
fair bounds.
This chapter tries to shed light on how ethics may be effectively integrated into a business’s operation. How
can business fulfill its goal of making money without compromising ethical responsibility? What are some
Multinational corporations (MNCs) are companies with operations in multiple countries, seeking
manufacturing advantages and market opportunities globally. They source capital, materials, and labor from
wherever they are cost-effective. Many of the largest U.S. industrial corporations are MNCs.

Globalization, facilitated by MNCs, has advantages such as job creation, skill development, and
technology transfer to less developed regions. This process raises living standards and offers affordable
goods. However, critics argue that globalization benefits developed nations more, leaving poorer nations
with limited trade options, often limited to cheap agricultural products.

Moreover, MNCs' global presence has led to the spread of Western culture, primarily through popular media,
technology, and consumer goods. This has led to concerns about the erosion of local cultures and traditions,
which face the risk of disappearing or being significantly diminished.
Normative Theories of Business Ethics

It is not uncommon to hear the criticism that those who theorize and teach business ethics have little or no
experience in the actual practice of business. Some argue that deontology, virtue ethics, and consequentialist
morals are esoteric philosophical theories that are inapplicable to real-life business situations. Some say that
if one is fully engaged in the workings of the business world, one realizes that it is not a world of
abstractions but a world of simple and practical problem-solving. In this case, one realizes that business
ethics, if it is to be reliably applicable to such a context, must negotiate a way of speaking the language of
business. It must translate the language of normativity into a language that can be understood and accepted
by those in the business community. The following is a brief explication of the three basic normative
theories in business ethics mainly derived from an article by John Hasnas.

The Stockholder Theory

This theory states that “businesses are merely arrangements by which one group of people, the stockholders,
advance capital to another group, the managers, to be used to realize specified ends and for which the
stockholders receive an ownership interest in the venture.”44 In this theory, it is the people who invested
money in the company that serve as the main source of business decisions. Managers act as agents that serve
at the pleasure of investors. They are not allowed to divert funds away from the business plan that has been
expressly approved by the stockholders.
Stockholders hold significant power in businesses, as they can issue directives that management must
follow, even if these directives are not in the company’s immediate financial interest. However, in most
cases, stockholders typically instruct managers to focus on maximizing financial returns. The stockholder
theory maintains that managers should pursue profits legally and ethically, within the boundaries of society’s
laws and ethical norms. This implies that it is society’s role to regulate businesses and prevent unethical
behavior. If stockholders wish to increase profits, they should let managers interpret how to achieve this
within legal and societal constraints. Businesses are thus morally obligated to maximize profits for
stockholders, but they must do so legally and honestly. Spending stockholders’ money on social goals
without their approval violates this obligation, as it involves spending others’ money without consent.
For instance, if a manager decides it’s morally right to allocate 10% of company earnings to social programs
benefiting employees’ children (like feeding programs, medical check-ups, or scholarships) but does so
without stockholders’ knowledge or approval, it violates the manager’s contractual duty. The stockholder
theory prioritizes the manager’s financial obligations to stockholders over personal moral beliefs or actions
that may benefit others. Even if such actions increase overall happiness, the theory deems them wrong
because they breach contractual obligations, emphasizing that honoring contracts outweighs promoting
general welfare.
The Stakeholder Theory

This theory “holds that the management’s fundamental obligation is not to maximize the firm’s financial
success but to ensure its survival by balancing the conflicting claims of multiple stakeholders.” A
stakeholder is defined as any group or individual that stands to benefit or suffer from decisions made by a
corporation. This obligation, according to Hasnas, is based on the two principles of stakeholder
management:

1. Principle of corporate legitimacy. The corporation should be managed for the benefit of its
stakeholders: its customers, suppliers, owners, employees, and the local communities. The rights of
these groups must be ensured, and further, the groups must participate, in some sense, in decisions
that substantially affect their welfare.

2. Stakeholder fiduciary principle. Management bears a fiduciary relationship to stakeholders and to

the corporation as an abstract entity. It must act in the interest of the stakeholders as their agent, and
it must act in the interest of the corporation to ensure the survival of the firm, safeguarding the long-
term stakes of each group.

These principles ensure that all stakeholders have a say, particularly in decisions that could harm
them. Business success is judged by how it benefits all stakeholders. This idea is rooted in Kantian
ethics, which emphasizes treating people as ends, not just as means. Stakeholder theory asserts that
stakeholders’ interests should be considered in business decisions, giving them a fair role in policies.
For example, if a firm buys raw materials from an indigenous tribe, it must ensure fair compensation,
even if these people are not competitive in the market.
The market, when functioning properly, operates on principles that should not dehumanize
individuals as mere tools for production. Fair application of market rules is crucial, ensuring
equitable treatment of all stakeholders.

In scenarios where a factory establishes operations in a community, it must prioritize the health of
residents. This is particularly critical when hazardous chemicals are involved and the factory is
located near residential areas. Even if the community isn’t a direct stakeholder, ethical considerations
demand that potential impacts on the surrounding population be carefully evaluated.

The Social Contract Theory

 in business ethics asserts that all businesses have an ethical duty to advance societal welfare by
meeting the needs of consumers and employees while upholding principles of justice. It suggests an
implicit agreement between businesses and society, wherein society allows businesses to exist and
operate under the condition that they contribute to societal benefit. This concept draws parallels to
the social contract theories of political philosophers like Hobbes, Locke, and Rousseau, who
contemplated the conditions under which individuals would form a government in a hypothetical
state of nature. Just as these theories establish the basis for governmental obligations to citizens, the
Social Contract Theory in business ethics establishes a framework for businesses’ responsibilities to
society.

The Social Contract Theory in business ethics suggests that corporations are granted privileges such
as land ownership and resource use in exchange for improving society’s welfare. This theory, as
outlined by Hasnas, states that businesses can benefit society by enhancing economic efficiency for
consumers, increasing income potential and stability for employees, and minimizing negative
impacts like pollution and worker alienation.

Businesses, by providing economic opportunities and improving work-life balance, play a vital role
in citizens’ lives. However, this hinges on fair business practices. When businesses operate ethically,
they can contribute significantly to the stability and well-being of employees and society as a whole.

Regular salary. As long as companies respect workers’ labor rights, the latter’s productivity may be
channeled into various endeavors that essentially support the economic apparatuses. Within the
mandates, society stands to gain a lot from the existence of various businesses.

Corporate Social Responsibility (CSR) is a strategic approach where companies aim to contribute to
societal and environmental well-being. Also known as corporate citizenship, CSR involves initiatives
that reduce waste and pollution, and support social welfare causes like education for underprivileged
communities. While these initiatives may incur short-term costs for companies, they are geared
towards promoting sustainable environmental and social development, rather than solely focusing on
profit.

Reidenbach and Robin’s Conceptual Model of Corporate Moral Development

suggests that a business’s level of moral development can be seen in its organizational behaviors.
While profitability is a key objective, societal expectations also require companies to contribute to
social goals. The model acknowledges that some business cultures may tolerate unethical behavior,
highlighting the need for an objective measure to assess a company’s ethical culture as either ethical
or sub-ethical.
Reidenbach and Robin’s model of corporate moral development uses several classificatory variables
to assess a business’s ethical stance. These include the philosophy and attitudes of top management,
the visibility of ethical values in the business’s culture, and the presence and spread of organizational
cultural norms.
Reidenbach and Robin’s model categorizes organizations into four stages: legalistic, responsive,
emerging ethical, and ethical. Inspired by Lawrence Kohlberg’s Stages of Moral Development, the
model differs in its application, as organizations do not develop in the same way as individuals.

Kohlberg’s model consists of three levels:

1. Pre-conventional morality:
- Stage 1: Obedience and punishment, where behavior is driven by avoiding punishment.
- Stage 2: Individual Interest, where behavior is driven by self-interest and rewards.

2. Conventional morality:
- Stage 1: Interpersonal, where behavior is driven by seeking social approval.
- Stage 2: Authority, where behavior is driven by obeying authority and conforming to social order.

3. Post-Conventional morality:
- Stage 1: Social Contract, where behavior is driven by balancing social order and individual rights.
- Stage 2: Universal Ethics, where behavior is driven by internal moral principles.

Kohlberg’s model illustrates how an individual’s moral development shifts from external influences
to internal moral motivation. Similarly, Reidenbach and Robin suggest that for businesses, ethical
development is not necessarily a linear progression. It’s an ongoing process influenced by various
factors. Changes in management or mergers can lead to sudden shifts in an organization’s ethical
climate, signaling either advancement or decline in its moral development.

The Stages of Organizational Moral Development

Stage. 1In the amoral organization, profit is the sole focus, with ethics being of little concern except
when misconduct is detected. Top management rules through power and authority, and employees
are expected to comply without question, rewarded for obedience and punished for dissent. This
approach treats employees as instruments for productivity and profit, overlooking their intrinsic
value. The organization’s ethical culture is characterized by a “win at any cost” attitude, prioritizing
profitability over ethical considerations.

In stage two, the legalistic corporation prioritizes adherence to laws and regulations over ethical
considerations. These companies focus on complying with the letter of the law rather than its spirit,
placing a premium on legality rather than morality. They rely on their legal teams to ensure that
corporate policies align with legal requirements to avoid legal complications. While profit remains a
key goal, stage two emphasizes the legality of the means used to achieve profits.

In the responsive corporation stage, companies expand their focus beyond profitability and legality.
While profit remains important, these corporations view ethical behavior as a matter of expediency
rather than solely profit-driven. They are more inclined to respond to societal expectations,
recognizing their responsibility to operate with society’s well-being in mind. These companies
establish a code of ethics to align corporate goals with societal demands, demonstrating a growing
concern for stakeholders such as employees and the community.

In the emergent ethical organization stage, companies actively strive to balance profitability with
ethical considerations, recognizing a social contract with society. They weigh the ethical implications
of decisions alongside potential profitability and implement various measures to ensure ethical
conduct. These may include handbooks, policy statements, committees, ombudsmen, and ethics
programs. For example, Boeing offers ethics training and a hotline for reporting violations, while
General Mills recruits individuals who share its values and has guidelines for interactions with
stakeholders. Despite these efforts, organizations in this stage may still be refining their ethical
mechanisms, as top management acknowledges the importance of ethics but may lack the experience
to fully implement them effectively.

In stage five, the ethical organization, there is a widespread acceptance of a common set of ethical
values that deeply influence the organization’s culture. These values guide everyday behavior and
decision-making, prioritizing inherent justness, fairness, and profitability. Employees are
incentivized to avoid actions that could compromise the organization’s ethical stance.

Normative moral theories play a significant role in guiding organizational activities, alongside an
ongoing ethical training program integrated with technical training. This culture emphasizes duty,
fairness, and justice, evaluating jobs from a moral standpoint and highlighting dimensions related to
social responsibility. The key distinction from stage four is the organization’s heightened
commitment to funneling resources toward becoming truly ethical in all aspects, reflecting a deeper
dedication to ethical values and practices throughout the organization.

The stages of corporate moral development, as outlined by Reidenbach and Robin, demonstrate how
companies evolve in their approach to ethics and its relationship with profitability. As organizations
move through these stages, ethics becomes increasingly integrated into their operations. This
progression reflects a shift towards balancing the profit motive with ethical considerations, leading
companies to be more attentive to their societal responsibilities.

In stage four, companies focus on implementing ethical mechanisms to enforce ethical behavior,
while stage five represents the highest level, where ethics are deeply ingrained in the corporate
culture. At this stage, there is a seamless alignment between the correct course of action and ethical
behavior. This advanced level of ethical development explains why few companies are able to reach
stage five, as it requires a significant commitment to ethical values and practices throughout the
organization.

CONCLUSION
In conclusion, ethics plays a crucial role in guiding behavior, even in the business world where profit
often takes precedence. While maximizing profit is a fundamental goal of business, it is possible to
conduct business ethically by considering values such as justice and fairness in dealings with others.

Businesses have a social responsibility to ensure that their operations do not harm the well-being of
stakeholders, including employees, customers, and the environment. As businesses mature ethically,
they become more aware of their impact on society and the environment, leading to more responsible
and sustainable practices.

The chapter illustrates how businesses can achieve ethical maturity through the codification of rules
and the establishment of an ethics manual. These steps help cultivate a workplace culture that
prioritizes just and fair practices over profit maximization at any cost.

While implementing ethical practices may initially incur costs, businesses that embrace ethics as a
core value view it as an integral part of their operations. In ethical companies, profit-making is
framed within the context of fairness and consideration for all stakeholders, including the natural
environment. This approach reflects a shift towards a more balanced and responsible business ethos.