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5 Business Ethics and Ethical Decision Making

Key business ethics concerns to questions about whether various

stakeholders consider specific business practices acceptable.

By its very nature, field of business ethics is controversial, and no

universally accepted approach has emerged for resolving its

Nonetheless, most business are establishing initiatives that include

the development and implementation of ethics programs designed to
deter conduct that some stake holders might consider objectionable.
Nature of Business Ethics

Business decisions can be both acceptable and beneficial to society

It is necessary to examine business ethics to understand decisions

made in the context of an organizational culture.

Ethics relates to choices and judgments about acceptable

standards of conduct that guide the behavior of individuals and

These standards require both organizations and individuals to accept

responsibility for their actions and to comply with established
principles and values.

Business Ethics comprises the principle and standards that guide

the behavior of individuals and groups in the world of business.

Most definitions of business ethics relate to rules, standards, and

moral principles regarding what is right or wrong in specific situations.

Principles are specific and pervasive boundaries fir behavior that are
universal and absolute.

Principles often become the basis for rules. Some examples of

principles include freedom of speech, principles of justice, and equal
rights to civil liberties.

Values are used to develop norms that are socially enforced.

Integrity, accountability and trust are examples of values.

Investors, employees, customers, interest groups, the legal system,

and the community often determine whether a specific action is right
or wrong, ethical or unethical.

Some businesses choose to behave ethically because of enlightened

self-interest or the expectation that ethics pays.

They want to act responsibly and assume that the public and
customers will reward the company for its ethical actions.
Ethical Issues in Business

An ethical issue is a problem, situation, or opportunity requiring an

individual, group, or organization to choose among several actions
that must be evaluated as right or wrong, ethical or unethical.

An ethical issue is simply a situation, a problem, or even an

opportunity that requires thought, discussion, or investigation to
determine the moral impact of the decision.
Specific types of observed misconduct:
1. Abusive or intimidating behavior
2. Conflict of interest
3. Lying
4. Fraud
Abusive or Intimidating Behavior

Mean anything from physical threats, false accusations, annoying a

coworker, profanity, insults, yelling, harshness, and ignoring
someone to being unreasonable; and the meaning of these words
can differ by person.

Bullying is associated with a hostile workplace when someone (or a

group) considered a target is threatened, harassed, belittled,
verbally abused or overly criticized. The concept of bullying in the
workplace is now considered a legal issue.

The concept of bullying in the work place is now considered a legal

Steps to minimize workplace bullying:
They should have policies in place that make it clear that bullying
behaviors will not be tolerated
The employee handbook should emphasize that workers must treat
each other with respect

Employers should encourage employees who feel bullied to report

the conduct and should handle such complaints in much the same
way as discriminatory harassment complaints are handled.

Bullying can also occur between companies that are intense

To be honest to tell the truth to the best of your ability; lying relates to
distorting the truth. Three major types of lies:

Joking without malice

Lying by commission

Lying by omission

The first type is joking without malice, the so-called white lie that
is told in order to avoid hurting someones feelings

The second type of lie is lying by commission, or creating a

perception or belief by words that intentionally deceive the receiver
of the message

Commission also entails intentionally creating noise within the

communication that knowingly confuses or deceive the receiver

Noise can be defined as technical explanations that the

communicator knows the receiver does not understand. It can be
the intentional use of communication forms that make it difficult for
the receiver to hear the true message

Using legal terms in relating to unfamiliar process and systems to

explain what was done in a work situation facilitates this type of lie.

The third type of lie, lying by omission involves intentionally not

informing the receiver of material facts

A classic example for decades was tobacco manufacturers that did

not allow negative results to appear on cigarettes and cigars.

When lying damages others, it can be the focus of a lawsuit in the

context and intent to distort the truth.

A lie becomes unethical in business based on the context and

intent to distort the truth. A lie becomes illegal if it is determined by
the judgment of courts to damage others.

Some businesspersons may believe that one must lie a little or that
the occasional lie is sanctioned by the organization

The question you need to ask is whether lies are distorting

openness, transparency, and other values that are associated with
ethical behavior
Conflict of Interest

Conflict of interest exists when an individual must choose whether

to advance his or her own interests, those of his or her
organization, or those of some other group.

To avoid conflicts of interest, employees must be able to separate

their private interests from their business dealings.

In many developed countries, it is generally recognized that

employees should not accept bribes, personal payments, gifts, or
special favors from people who hope to influence the outcome of
decision. However, bribery is an accepted way of doing business in
many countries.

When an individual engages in deceptive practices to advance his

or her own interests over those of the organization or some other
group, charges of illegal fraud may result

Fraud is any false communication that deceives, manipulates, or

conceals facts to create a false impression when others are
damaged or denied a benefit.

It is considered a crime and convictions may result in fines,

imprisonment, or both

Among the most common fraudulent activities employees report

about their coworkers are stealing office supplies or shoplifting,
claiming to have worked on extra hours, and stealing money or
In recent years, accounting fraud has become a major ethical issue
Fraud can also relate to marketing and consumer issues as well.Online
frauds are also a large concern and have grown as internet use has
Major types of fraud business fraud
1. Marketing Fraud the intentional misrepresentation or deceit during the
process of creating, distributing, promoting and pricing products.
False or deceptive advertising is a key issue in marketing communications.
3 categories of misleading advertisements:
a) Puffery exaggerated advertising, blustering, and boasting upon
which no reasonable buyer would rely.
b) Implied falsity means that the message has a tendency to
mislead, confuse, or deceive the public.
c) Literal Falsity
1. test prove
2. bald assertion
2. Consumer Fraud involves intentional deception to derive an unfair
economic advantage by an individual or group over an organization.
Example includes shoplifting, collusion or duplicity and guile.

Collusion involves an employee who assists the consumer in


Duplicity may involve a consumer staging an accident in a grocery

and then seeking damages against the store for its lack of attention
to safety

A consumer may purchase, wear and then return an item of clothing

for full refund. And others may ask refund by claiming a defect.
Consumer fraud occurs when consumers attempt to deceive business for
their own gain.
Examples are: shoplifting, price-tag switching, item switching,
lying, age-related and other discounts, and taking advantage of generous
return policies by returning used items, especially clothing that has been
worn (with price tags still attached).

Such behavior by consumer affects retail stores as well as other consumer

who, for example, may unwittingly purchase new clothing that has actually
been worn.
3. Accounting Fraud
DISCRIMINATION. The unjust or prejudicial treatment of different
categories of people or things, especially on the grounds of race, age, or

Affirmative action programs which involve efforts to recruit, hire,

train, and promote qualified individuals from groups that have
traditionally been discriminated against on the basis of race,
gender, or other characteristics.

Sexual harassment defined as any repeated, unwanted behavior

of a sexual nature perpetrated upon one individual by another.

6Strategic Approaches to Improving Ethical Behavior

The Need for Organizational Ethics Programs
Organizations are held accountable for the conduct of their

Without such programs, employees may not understand

acceptable behavior

Fostering ethical decisions requires eliminating unethical behavior

and improving the firms ethical standards.

Some people are bad apples who will always do things in their
own self-interest regardless of organizational goals or accepted
standards of conduct.

Eliminating bad apples through screening techniques and

enforcement of the firms ethical standards can help improve the
firms overall ethical conduct.
Codes of Conduct

Formal statements that describe what an organization expects of its


Reflect the board of directors and senior managements desire for

organizational compliance

Assess key risks for the organization

Codes of conduct may address a variety of situations, from internal

operations to sales presentations and financial disclosure practices.

Codes of conduct will not resolve every ethical issue encountered in

daily operations but they help employees and managers deal with
ethical dilemmas by prescribing or limiting specific actions.
The six values that have been suggested as desirable to appearing in the
codes of ethics:
1. trustworthiness
2. respect
3. responsibility

Code of Ethics vs Code of Conduct

Codes of ethics and conduct have proliferated in part because of increase
public concern about the way companies do business. Codes of ethics,
which govern decision-making, and codes of conduct, which govern
actions, represent two of the common ways that companies self-regulate.

Both codes are similar insofar as they attempt to encourage specific

forms of behavior by employees. Ethics guidelines attempt to provide
guidance about value and choices to influence decision-making
whereas conduct regulations assert that some specific actions are
appropriate or inappropriate. In both cases, the companys desire is
to obtain narrow range of acceptable behavior from employees
Ethics Officers

Organizational ethics programs also must have oversight by a highranking person known to respect and understand legal and ethical

Many corporations are now appointing chief compliance officers and

ethics and business conduct professionals to develop and oversee
corporate compliance programs

Assess organizational needs and risks

Develop and distribute the code of ethics

Conduct ethics training programs

Establish and maintain a confidential system to respond to ethics


Make certain the company is incompliance with government


Monitor and audit ethics conduct

Take action when there is a code violation

Review and update the code

Establishing Systems to Monitor and Enforce Ethical Standards

Help or assistance lines

Report and request assistance with ethical concerns

Organizations need avenues through which employees and

managers can report suspected cases of unethical conduct

Critical comments, dilemmas, and advise can be handled at a

central contact point where the most appropriate person can deal
with a specific case

Observation and feedback

Determine level of adequacy in handling ethical issues

Exposing an employers wrongdoing to
outsiders, such as the media or government agencies

Protection for accurate exposures

Historically, the fortunes of whistle-blowers have not been

positive, most are labeled traitors and many lose their jobs.

Researchers found that 69% lost their jobs or were forces to retire
after exposing their companies misdeeds

Fearful about
Leaders influence Corporate Culture

Organizational leaders use their power and influence to shape

corporate culture. Power refers to the influence that leaders have
over the behavior and decisions of subordinates.

Exerting power is one way to influence the ethical decision-making


Transformational vs. transactional leaders

Moral Philosophy

Principles or rules which individuals apply in deciding what is

right or wrong

It is a persons principles and values that define what is moral or


Moral philosophies are person-specific, whereas business ethics

is based on decisions in groups or those made when carrying
out tasks to meet business objectives.
Classifications of Moral Philosophies


A class of moral philosophy that considers a decision right or

acceptable if it accomplishes a desired result such as pleasure,
knowledge, and career growth, the realization of self-interest or

It is a philosophy that defines right or acceptable conduct in

terms of the consequences for the individual.

Egoists believe that should make decisions that maximize their

own self-interest, which, depending on the individual, may be
defined as physical well-being, power, pleasure, fame, a
satisfying career, a good family life, wealth, and so forth.

A consequentialist philosophy that is concerned with seeking the

greatest good for the greatest number of people.

Ethical Formalism

A class of moral philosophy that focuses on the rights of

individuals and on the intentions associated with a particular
behaviour rather than on its consequences.

Ethical formalists regard certain behaviors as inherently right, and

then their determination of rightness focuses on the individual
actor, not on society.

Unlike utilitarian, ethical formalists contend that there are some

things that people should not do even to maximize utility.

Justice Theory
A class of moral philosophy that relates to evaluation of fairness
or the disposition to deal with perceived injustices of others.
Justice demands fair treatment and due reward in accordance
with ethical and legal standards.
In business, this requires that the rules a individual uses to
determine justice be based on the perceived rights of individuals
and on the intentions associated with a business interaction
Justice primarily addresses the issue of what individuals feel
they are due based on their rights and performance in the
3 types of justice
1. Distributive Justice evaluates the outcomes or
results of a business relationship.
2. Procedural Justice assesses the processes and
activities employed to produce an outcome or result.
3. Interactional Justice evaluates the communication
processes used in the business relationship.