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courses.lumenlearning.com/boundless-business/chapter/business-ethics
Learning Objectives
Recall the three disciplines of business ethics
Key Takeaways
Key Points
Ethics, broadly, is concerned with the meaning of all aspects of human behavior. Theoretical/
normative ethics aims to differentiate right from wrong.
An organization’s culture sets standards for determining the difference between good and bad
decision making. Ethics in business is about knowing the difference between right and wrong
and choosing to do what is right.
There are three intricately related parts to the discipline of business ethics: personal,
professional, and corporate.
Key Terms
ethical behavior: Business ethics (also corporate ethics) is a form of applied ethics or
professional ethics that examines ethical principles and moral or ethical problems that arise in
a business environment. It applies to all aspects of business conduct and is relevant to the
conduct of individuals and entire organizations.
normative ethics: A branch of ethics concerned with classifying actions as right and wrong,
attempting to develop a set of rules governing human conduct, or a set of norms for action.
ethics: The study of principles relating to right and wrong conduct.
Business Ethics
Business ethics, also called corporate ethics, is a form of applied ethics or professional ethics that
examines the ethical and moral principles and problems that arise in a business environment. It can
also be defined as the written and unwritten codes of principles and values, determined by an
organization’s culture, that govern decisions and actions within that organization. It applies to all
aspects of business conduct on behalf of both individuals and the entire company. In the most basic
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terms, a definition for business ethics boils down to knowing the difference between right and wrong
and choosing to do what is right.
There are three parts to the discipline of business ethics: personal (on a micro scale), professional (on
an intermediate scale), and corporate (on a macro scale). All three are intricately related. It is helpful
to distinguish among them because each rests on a slightly different set of assumptions and requires
a slightly different focus in order to be understood.
Pierre Omidyar and Richard Branson: CEOs must adhere to ethical standards.
Learning Objectives
Outline the various ethical philosophies over time, and integrate them into a meaningful
understanding of ethical behavior
Key Takeaways
Key Points
Key Terms
deontological: Relating to the the normative ethical position that judges the morality of an
action based on the action’s adherence to rules or obligations rather than either the inherent
goodness or the consequences of those actions.
communitarian: Pertaining to the idea that a given group is of central importance.
utilitarian: Relating to the ethical point of view that the greatest good for the greatest number
of people is ideal.
Ethics are a central concern for businesses, organizations, and individuals alike. Behaving in a way
that adds value without inappropriate conduct or negative consequences for any other group or
individual, organizational leaders in particular must be completely aware of the consequences of
certain decisions and organizational trajectories, and ensure alignment with societal interests.
There are many examples of ethical mistakes in which organizational decision makers pursued
interests that benefited them at the cost of society. The 2008 economic collapse saw a great deal of
poor decision-making on behalf of the banks. The Enron scandal is another example of individuals
choosing personal rewards at the cost of society at large. These types of situations are extremes, but
they highlight just how serious the consequences can be when ethics are ignored.
Utilitarian Approach
Perhaps the cleanest and simplest perspective on ethical behavior, a utilitarian will always ask one
question: what is the ideal outcome for the highest number of people? This approach simply
considers the impact of ones actions on others, and tries to ensure that the best outcome for the most
people is what ultimately occurs.
While this outcome-based reasoning is quite useful, it has one fatal flaw. The definition of ‘best’
when discussing what’s best for the most people can become quite subjective. As a result, when
utilizing this ethical reasoning to make decisions, it is important to set terms and create definitions
that enable the reasoning to have applicable and measurable logic. Simply put, one must ensure they
define their terms, and what they mean by good, when pursuing this ethical line of reasoning.
Deontological Approach
Popularized by Emmanual Kant, the central term in this point of view is duty. Kant disliked the
concept of utilitarianism for one simple reason: the ends should not justify the means. Indeed,
Kant’s ethical argument is that moral maxims of respect for one another and appropriate behavior
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serve as a groundwork for all ethical reasoning. It is these core concepts which can never be
sacrificed for the greater good.
Virtue Ethics
Popularized by Greek philosophers such as Aristotle, this point of view assumes that virtue is a
central benchmark for all ethical behavior. What is meant by virtue in this context is a desire to
perform a certain act as a result of deep contemplation on the value of that act. To make this act
virtuous is to perform it with excellence. As a result, we have a deep contemplation of the value of a
certain behavior or decisions, which we apply great practice and consideration. Following this, we
can approach the perfect execution of that act or behavior through our rational minds.
In this school of ethical thought, it is similarly important to discard the justification of a means by
the ends of that means. Which is to say this an act should be performed because it is desirable in and
of itself, and not for the sake of something else. Each behavior is therefore considered carefully,
rationally and virtuously to ensure it is valid, beneficial, and valuable.
Communitarian Ethics
Finally we have communitarian ethics. In this perspective, the individual decision-maker should ask
about the duties owed to the communities in which they participate. This is a relatively simple frame
of reference, where the individual decision maker will recognize the expectations and consequences
of a given decision relative to the needs, demands and impacts of a certain preferred community.
Ethical behavior requires careful consideration of all frames, and a thorough understanding of the
impacts of a given decision.
Learning Objectives
Understand the interaction between individual ethics and organizational management
Key Takeaways
Key Points
Key Terms
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extrinsic: Outside of; not belong to the thing itself.
Intrinsic: An aspect possessed by character; internal.
As a result, most organizations generate a statement of organizational values and codes of conduct
for all employees to understand and adhere to. Motivating and reinforcing positive behavior while
creating an environment that avoids unethical behavior is a critical responsibility of both managers
and employees.
Structure
At the individual level, organizations must focus on developing and empowering each employee to
understand and adhere to ethical standards. There are four basic elements organizations can build to
empower individual ethics:
Equipping organizations with these four components can alleviate much of the burden on the
individual, and enable each employee to learn what is appropriate (and what isn’t).
Motivation
As with most facets of management, there is also a critical motivational component to individual
ethics. Intrinsic and extrinsic motivations can reinforce positive behavior and/or eliminate negative
behavior in the workplace.
Whistleblowing, for example, is a practice that gets quite a bit of both positive and negative media
attention. Whistleblowers are individuals who identify unethical practices in organizations and
report the behavior to management or the authorities. A whistleblower who behaves honestly,
reporting a problem accurately, should be rewarded for their bravery and honesty, as opposed to
punished and ostracized. If an employee is blowing the whistle, it is likely that the organization itself
has failed to empower and positively reinforce honest and ethical discussions internally.
Another example is rewarding employees for admitting mistakes. An employee who makes a
mistake on the assembly line, and accidentally produces a batch of defective goods, could react in a
number of ways. If the organization punishes employees for mistakes, the employee is quite likely to
be motivated to keep quiet and not mention it to avoid punishment. However, if the organizational is
ethical and clever, they will empower employees to take responsibility for their mistakes and even
reward them for coming forward, apologizing, and ensuring that no consumer receives a defective
product. It seems at first counter-intuitive to reward an employee for a mistake, but ultimately it
provides the best outcome for everyone.
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Professionalism
Finally, some aspects of individual ethics are rooted in the individual. Attaining a strong sense of
professionalism, and recognizing the ethical implications of certain professional decisions, is a key
component of education, individual reflection, and experience. For some professions it is even more
critical and relevant than others.
Journalists, for example, could easily attain higher notoriety for making up false stories about
celebrities to gain traffic to their news website. But an ethical journalist recognizes the repercussions
of slander for the individual being discussed, and maintains an honest ethical code of reporting only
what they know to be true (and not what they speculate). Psychologists will maintain patient
privacy, understanding the repercussions of leaking personal information about their patients.
There are many potential examples, but the primary point is that professionals understand the their
field deeply, including the repercussions of making ethical mistakes.
Triple Bottom Line: Balancing ethics with proper business practices at the individual and
organizational level can result in a triple bottom line: economic, social, and environmental
value.
Learning Objectives
Evaluate ethical issues that face organizations in the fields finance, human resource management,
sales and marketing, and production
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Key Takeaways
Key Points
Key Terms
Marketing ethics involves pricing practices, including illegal actions such as price fixing and legal
actions including price discrimination and price skimming. Certain promotional activities have
drawn fire, including greenwashing, bait-and-switch, shilling, viral marketing, spam (electronic),
pyramid schemes, and multi-level marketing. Advertising has raised objections about attack ads,
subliminal messages, sex in advertising, and marketing in schools.
Enron Stocks During the 2001 Scandal: Enron’s unethical practices led to their employees and
shareholders losing billions of dollars as their stocks became worthless by November of 2001.
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Fairness
Treating employees equitably enables substantial organizational benefits while avoiding unethical
operations and the corresponding consequences.
Learning Objectives
Understand the importance of an employee’s perception of an organization’s decisions, and the
impact this can have on performance.
Key Takeaways
Key Points
From a common sense perspective, you tend to get what you give. Treating employees in a
way that empowers a sense of fairness and equity is a critical component to motivating
positive employee behaviors.
There are three useful frames of reference when considering organizational fairness:
distributive justice, procedural justice, and interactional justice.
Distributive justice is simply the process of making sure an employee’s production output
aligns with his or her compensation.
Procedural justice focuses on allowing all participating employees to have input and
accountability when designing operational processes.
Interactional justice comes in two parts. The first is ensuring that employees are treated in a
socially positive and constructive manner. The second is ensuring nobody is left in the dark
when important decisions are made.
Building the above concepts successfully into an organizational norm avoids productivity
problems and empowers motivation, citizenship, and commitment.
Key Terms
Procedural: Concerned with the way in which something is done, or the process which
enables it.
Distributive: Concerned with the way in which things are shared between people.
Interactional: Concerned with the way in which one individual socially encounters another.
Organizational Justice
To ensure an organization is fair, one must consider the concept of justice as a central pillar of what
creates a fair environment (and what does not). The question is simple: how do employees perceive
the behavior of the organization, and how does this impact both employee and organizational
outcomes ?
In answering these questions, there are three useful perspectives one can adopt in considering
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fairness in the organization:
Distributive – Simply put, the distribution of resources should align with the value of an
individual’s inputs. Of course, this is more complex than salary. As a manager, ensure that
credit, bonuses, and benefits are also distributed fairly.
Procedural – Employees don’t only want compensation. They also need input into the process,
and shared accountability in the decisions being made. When designing the procedure of a
given work group, inclusion of everyone’s perspectives can lead to substantially higher
satisfaction, efficiency, and fairness.
Interactional – All members of an organization must both be treated appropriately (from a
social frame) and informed respectfully (from an informational frame). In short, employees
should be treated with propriety in discussions and shouldn’t be left in the dark when
important decisions are made.
Implications of Fairness
There are many overt and subtle outcomes of treating employees equitably. The simplest examples
of positive results due to a strong sense of ethical fairness in an organization include:
Higher Performance and Efficiency – People feel their input is aligned with their
compensation
Commitment – Happy employees tend to stick around.
Citizenship – If there is inequity in how people are treated, it tends to divide them. This is
incredibly dangerous, and can quickly erode the positive benefits of looking out for one
another.
Avoiding Counterproductive Behavior – In short, dissatisfied employees are more prone to
working against the established goals of the organization. Behaviors such as not doing certain
tasks or helping certain work-groups can quickly become a source of inefficiency.
Absenteeism – Sick days, skipping meetings, and generally unplugging from the organization
is often an outcome of inequitable organizations.
Emotional Exhaustion – Unsatisfied employees wrestle with insecurity and dissatisfaction,
both of which are emotionally draining.
While there are many more examples of consequences avoided and benefits achieved from an
ethical operational approach, this paints a clear picture of why it is important and how to frame
manager’s perspectives to ensure equitable behavior.
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Work Motivation: This model aligns well with Maslow’s hierarchy of needs, but applied to
workplace motivation. Through the five M’s identified (in order of chronological achievement
being Money; Myself; Member; Mastery; Mission), one can see in this pyramid chart how
organizational justice will enable higher levels of individual motivation.
Learning Objectives
Explain how a company uses transparency to open communication and why this is crucial to
building connections and a sense of community
Key Takeaways
Key Points
Key Terms
transparency: Open, public; having the property that theories and practices are publicly
visible, thereby reducing the chance of corruption.
Transparency, as used in science, engineering, business, the humanities and in a social context more
generally, implies openness, communication, and accountability. Transparency means operating in
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such a way that it is easy for others to see what actions are performed. For example, a cashier
making change at a point of sale by segregating a customer’s large bills, counting up from the sale
amount, and placing the change on the counter in such a way as to invite the customer to verify the
amount of change demonstrates transparency. Radical transparency is a management method where
nearly all decision making is carried out publicly. All draft documents, all arguments for and against
a proposal, all final decisions, and the decision making process itself are made public and remain
publicly archived.
Corporate transparency, a form of radical transparency, is the concept of removing all barriers to—
and the facilitation of—free and easy public access to corporate information. This includes the laws,
rules, and processes that facilitate and protect those individuals and corporations that freely join,
develop, and improve the process.
Conflicts of Interest
A situation in which someone in a position of trust has competing professional or personal interests
is known as a conflict of interest.
Learning Objectives
Outline how self-dealing, outside employment, family interests, pump and dumps, and gifts
exemplify conflicts of interest, and differentiate that from an impropriety
Key Takeaways
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Key Points
A conflict of interest can exist even if there are no improper acts that result from it. One way
to understand this is to use the term “conflict of roles”.
The presence of a conflict of interest is independent from the execution of impropriety.
A conflict of interest becomes a legal matter when an individual either tries and/or succeeds in
influencing the outcome of a decision for personal benefit.
Common types of conflicts of interest include: self-dealing, family interests or nepotism, and
the giving of gifts.
Conflict of interest can be mitigated by several actions including: removal, disclosure, recusal,
third-party evaluations, and establishing codes of conduct.
Key Terms
pump and dump: A form of financial fraud where the fraudster buys stocks cheaply,
generates artificial excitement about them to create a temporary price increase, then sells the
stocks before the price goes back down.
disclosure: The act of revealing something.
recusal: An act of recusing. To remove oneself from a decision/judgment because of a conflict
of interest.
The presence of a conflict of interest is independent from the execution of impropriety. Therefore, it
can be discovered and voluntarily defused before any corruption occurs. In fact, for many
professionals, it is virtually impossible to avoid having conflicts of interest from time to time. It can,
however, become a legal matter for example when an individual tries (and/or succeeds in)
influencing the outcome of a decision, for personal benefit. A director or executive of a corporation
will be subject to legal liability if a conflict of interest breaches his/her Duty of Loyalty.
As an example, in the sphere of business and control, according to the Institute of Internal Auditors:
An organizational conflict of interest (OCI) may exist in the same way (as described above) in the
realm of the private sector providing services to the government, where a corporation provides two
types of services to the government that have conflicting interest or appear objectionable (i.e.:
manufacturing parts, and then participating on a selection committee for parts manufacturers).
Corporations may develop simple or complex systems to mitigate the risk, or perceived risk, of a
conflict of interest. These are typically evaluated by a governmental office (e.g., in a US Government
RFP) to determine whether the risks pose a substantial advantage to the private organization over the
competition or will decrease the overall competitiveness in the bidding process.
Other improper acts that are sometimes classified as conflicts of interests may be better classified
elsewhere: e.g., accepting bribes is corruption; the use of government or corporate property or assets
for personal use is fraud; not conflict of interest.
Codes of Ethics
These help to minimize problems with conflicts of interest because they spell out the extent to which
such conflicts should be avoided, and what the parties should do where such conflicts are permitted
(disclosure, recusal, etc.). Thus, professionals cannot claim that they were unaware that their
improper behavior was unethical. As importantly, the threat of disciplinary action (for example, a
lawyer being disbarred) helps to minimize unacceptable conflicts or improper acts when a conflict is
unavoidable.
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As codes of ethics cannot cover all situations, some governments have established an office of the
ethics commissioner, who should both be appointed by and report to the legislature.
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