Ethics & Business

Paul L. Schumann, Ph.D.

© 2003 by Paul L. Schumann. All rights reserved.

Outline
 Terminology
 Ethical Relativism
 Moral Development
 Role of Ethics in Business
 Moral Responsibility in Business
Terminology
Positive Statement
Terminology
Positive Statement Normative Judgment
Terminology
Positive Statement Normative Judgment

Moral Judgment Nonmoral Judgment

Terminology
Positive Statement Normative Judgment

Moral Judgment Nonmoral Judgment

Legal
Judgment

uses

Legal
Standards
Terminology
Positive Statement Normative Judgment

Moral Judgment Nonmoral Judgment

Legal Grammatical
Judgment Judgment

uses uses

Legal Grammatical
Standards Standards
Terminology
Positive Statement Normative Judgment

Moral Judgment Nonmoral Judgment

Legal Grammatical Aesthetic

Judgment Judgment Judgment

uses uses uses

Legal Grammatical Aesthetic

Standards Standards Standards
Terminology
Positive Statement Normative Judgment

Moral Judgment Nonmoral Judgment

Legal Grammatical Aesthetic

Judgment Judgment Judgment

uses uses uses uses

Moral Legal Grammatical Aesthetic

Standards Standards Standards Standards
Terminology
Positive Statement Normative Judgment

Moral Judgment Nonmoral Judgment

Legal Grammatical Aesthetic

Judgment Judgment Judgment

uses uses uses uses

Moral Legal Grammatical Aesthetic

Standards Standards Standards Standards

Moral
Norms
Terminology
Positive Statement Normative Judgment

Moral Judgment Nonmoral Judgment

Legal Grammatical Aesthetic

Judgment Judgment Judgment

uses uses uses uses

Moral Legal Grammatical Aesthetic

Standards Standards Standards Standards

Moral Moral
Norms Principles
Ethical Relativism
 Theory of Ethical Relativism: There are no
universal moral principles
– Different societies have different moral beliefs
– No way to judge a society’s moral principles as
being right or wrong
– Only possible judgment: Does a society live up
to its own moral principles?
Ethical Relativism Is False
 Some moral principles are required if the
society is to survive
 What appear to be differences in moral
principles may only be surface differences
 Just because two people have different
moral beliefs doesn’t mean they’re both
right
Ethical Relativism Is False
 The theory produces unacceptable
conclusions.
Examples:
– Slavery in the United States
– Treatment of Jews in Nazi Germany
Ethical Relativism Is False
 The theory must be false because it
contradicts itself
– Consider the following statement:
“There are no absolute truths.”
• Apply the statement to itself—what does it say
about itself?
– Apply the Theory of Ethical Relativism to itself
• Is it ethical for someone who believes in ethical
relativism to advocate ethical relativism?
Ethical Relativism Is False
 “A writer who says that there are no truths,
or that all truth is ‘merely relative’,
is asking you not to believe him.
So don’t.”
– Roger Scruton, Modern Philosophy: An
Introduction and Survey, NY: Allen Lane,
1994.
 If there are universal moral principles, how
do individual’s learn them?
Moral Development
 Kohlberg identified a sequence of 6 stages
of moral development
 The six stages are divided into 3 levels
– 2 stages in each level
– The 2 stages in each level have something in
common
Moral Development
 Level 1: Pre-Conventional Morality
– 2 stages
– Common element: Self-focused
– Motivation is self-interest:
“What’s in it for me?”
Level 1: Pre-Conventional Morality
 Stage 1: Punishment & Obedience Stage
– Person acts to avoid punishment
– Example: children sharing toys
– “The only crime is getting caught.”
Level 1: Pre-Conventional Morality
 Stage 2: Instrument & Relativity Stage
– Person uses others as a tool to self-satisfaction
– Example: children sharing toys
– “You scratch my back and I’ll scratch yours.”
– Example: a friend is moving, do you help?
Moral Development
 Level 2: Conventional Morality
– 2 stages
– Common element: Group-focused
– Group norms are important: what does the
group expect of me?
Level 2: Conventional Morality
 Stage 3: Interpersonal Concordance Stage
– Relevant groups: family, friends, co-workers
– Group norms and expectations affect behavior
– Person is motivated by a desire to be seen as a
good son or daughter, a good brother or sister, a
good friend, a good co-worker
– Example: a friend is moving, do you help?
Level 2: Conventional Morality
 Stage 4: Law & Order Stage
– Relevant group: society at large
– Norms, expectations, and laws of society
affects behavior
– Person is motivated by a desire to be seen as a
good citizen
– “It’s my duty as a citizen.”
Moral Development
 Level 3: Autonomous (or Principled or
Post-Conventional) Morality
– 2 stages
– Common element: Universal-focused
– Person takes a impartial viewpoint
• Not just what’s best for me
• Not just what groups expect of me
Level 3: Autonomous Morality
 Stage 5: Social Contract Stage
– Social Contract: The rules members of a society
agree to follow to govern relationships within
the society
• How are the rules of society decided?
• Example: the King makes up the rules
• Example: Democracy—majority rules
– Person is motivated by a desire to maintain the
social contract
– “I’m satisfied even though I lost the vote.”
Level 3: Autonomous Morality
 Stage 6: Universal Ethical Principles Stage
– Person develops a set of comprehensive,
coherent, and consistent moral principles
– Person follows the moral principles even if it
means self-sacrifice
Moral Development
 Individuals go through stages of moral
development
 Different individuals may develop at
different rates
 Can’t skip stages
 Can go backwards
 Different individuals may end up in
different stages
Moral Development
 Implications for managers:
– May have employees at different stages
– What motivates ethical behavior for one
employee may not motivate ethical behavior for
another employee
Moral Development
 How do you motivate an employee to act
ethically if the employee is in:
– Stage 1 (Punishment & Obedience)?
– Stage 2 (Instrument & Relativity)?
– Stage 3 (Interpersonal Concordance)?
– Stage 4 (Law & Order)?
– Stage 5 (Social Contract)?
– Stage 6 (Universal Ethical Principles)?
Can Ethics Be Taught?
 Yes, moral development can be encouraged
 Research concludes (Rest, 1988):
– Deliberate educational efforts to teach ethics
affects actual, real world, behavior
– Dramatic changes in moral reasoning occur into
young adulthood (20’s and 30’s) and beyond
 But is ethics relevant in business?
Role of Ethics in Business
 Adam Smith (1790):
Why do humans behave in generous and
noble ways? It is due to “reason, principle,
conscience, the inhabitant of the breast, the
man within, the quiet judge and arbiter of
our conduct.”
Role of Ethics in Business
 Peter Drucker (1954):
“But what is most important is that
management realize that it must consider
the impact of every business policy and
business action upon society. It has to
consider whether the action is likely to
promote the public good, to advance the
basic beliefs of our society, to contribute to
its stability, strength, and harmony.”
Role of Ethics in Business
 Thompson & Strickland (1995):
“A strong corporate culture founded on
ethical principles and sound values is a
vital driving force behind continued
strategic success.”
Role of Ethics in Business
 Milton Friedman (1970):
It is the responsibility of management “to
conduct the business in accordance with
[the desires of the owners of the business],
which generally will be to make as much
money as possible, while conforming to the
basic rules of society, both those embodied
in law and those embodied in ethical
custom.”
Role of Ethics in Business
 Business relationships are repetitive and on-
going:
– Employees
– Customers
– Suppliers
– Creditors
– Stockholders
 Unethical behavior results in retaliation
Moral Responsibility
 Who is responsible for unethical conduct in
business?
3 Views:
– 1. The employees who made the unethical
decision
• Corporations don’t make decisions, people do
• Therefore, the people who made the unethical
decision should be held responsible
Moral Responsibility
 Who is responsible for unethical conduct in
business?
– 2. The corporation
• Employees’ decisions are made in the context of
corporate policies, corporate norms, organizational
structure, and corporate culture
• Therefore, the corporation as a whole should be held
responsible
– 3. Both the corporation and the employees
involved
Reduce Moral Responsibility?
 True ignorance of fact
– Not willful ignorance
– Not ignorance due to negligence
– Not ignorance of ethics
 True inability to do anything else