Business Ethics JJ

Chapter 8: Ethical Decision-Making: Corporate Governance, Accounting, & Finance
In the past few decades, corporate governance has come under the spotlight because
of high-profile scandals that involve misuse of corporate power and even alleged
unlawful activity by company officers. An essential element of an effective corporate
governance leadership includes arrangements for civil or criminal prosecution of people
who behave in unethical or participate in illegal acts in the name of the company.
Corporate governance refers in general to the rules, procedures, or laws whereby

businesses are regulated, operated, and controlled. Corporate governance may pertain
to internal elements established by the stockholders, officers, or constitution of a
company. It may also pertain to external elements such as clients, consumer groups,
and government regulations.
A clear and applied corporate governance presents a structure that works for the
advantage of all involved by ensuring that the company complies with accepted ethical
standards, best practices, and formal laws. Thus, companies have been established at
the regional, national, and global levels.
Professional Duties and Conflicts of Interest

Most, if not all, businesses give importance to business ethics and usually include it in
the company’s core values. It does not mean, however, that the company in its entirety
is ethical. Management must establish and model the core values of the company to be
able to build an ethical company.
There are a number of business professions that enforce rules and attests to the
fundamental fairness of the system. These professions may be called gatekeepers and
some examples are: accountants, financial analysts, attorneys, and auditors. They are
intermediaries and they act between different parties in the market and are bound to
ethical duties in their professions. All participants in the market – investors, boards,
management, and bankers – depend on these gatekeepers. When the independence
and integrity of gatekeepers become compromised, the market confidence suffers.
Investors depend on auditors to objectively assess a company’s financial statements.

Analysts provide unbiased assessments of a company’s creditworthiness so banks and
investors are able to make informed decisions. Attorneys make certain that companies
make decisions and transactions that adhere to the law. Credit rating agencies make
sure that there are no conflicts of interest that may affect the independence of their
ratings.
In the business context, the most common ethical issue that gatekeepers come across
involves conflicts of interest. A conflict of interest is a situation in which personal
and/or financial considerations have the potential to influence or compromise
professional judgment. Some examples of conflict of interest are as follows: accepting
a payment from another company for information about one’s employer; sharing
confidential information about one’s employer with a competitor; accepting consulting
fees and providing advice to another company for personal gain; etc. Fiduciary duties,
the legal obligations of a professional to act in the best interest of his clients, are
commonly in the area of finance or property. Some examples of fiduciary relationships
are: trustee and beneficiary, broker and client, and attorney and client.
The Sarbanes-Oxley Act of 2002

In July 2002 the Sarbanes-Oxley Act came into force and introduced major reforms to
the regulation of corporate governance and financial practice. Its main architects were
US Senator Paul Sarbanes and US Representative Michael Oxley and it protects
investors from probable fraudulent accounting activities by companies. The Sarbanes-
Oxley Act decreed strict changes to improve financial disclosures from companies and
impede accounting fraud. It was conceived as a response to accounting malpractice in
the early 2000s, when scandals such as Enron Corporation, Tyco International PLC,
and WorldCom rattled the confidence of investors in financial statements and required
an overhaul of regulatory standards.
The guidelines and enforcement tactics outlined by the Sarbanes-Oxley Act improve or
add to current legislation dealing with security regulations. The following provisions
have the biggest influence on corporate governance and boards:
● Section 201: Services outside the scope of auditors (prohibits various
forms of professional services that are determined to be consulting rather
than auditing).
● Section 301: Public company audit committees (requires independence),
mandating majority of independents on any board (and all on audit
committee) and total absence of current or prior business relationships.
● Section 307: Rules of professional responsibility for attorneys (requires
lawyers to report concerns of wrongdoing if not addressed).
● Section 404: Management assessment of internal controls (requires that
management fi le an internal control report with its annual report each year
in order to delineate how management has established and maintained
effective internal controls over financial reporting).
● Section 406: Codes of ethics for senior financial officers (required).
● Section 407: Disclosure of audit committee financial expert (requires that
they actually have an expert).
Sarbanes-Oxley Act entails requirements for verification of the statements by officers.

When a company’s executives and auditors are mandated to literally sign off on these
documents, verifying their veracity, fairness, and completeness, they are more likely to
personally guarantee their truth.
The Internal Control Environment

The Committee of Sponsoring Organizations of the Treadway Commission
(COSO) describes internal control as a process, carried out by a company’s board of
directors, management and other employees, fashioned to provide reasonable
assurance concerning the achievement of objectives. Simply put, internal control is: a
process, carried out by people, and designed to achieve objectives.
A company executes internal controls regularly. For instance, an employee inputs his
password to log in to the system; an employee submits a day-off request to the
supervisor for approval; and an Accounting Manager reviews bank account
reconciliations.
Based on the COSO framework, internal control is made up of five integrated

components:
● Control Environment: the culture or tone of a company
● Risk Assessment: risks that may prevent the attainment of corporate
objectives.
● Control Activities: policies and procedures that support the control
environment.
● Information and Communication: aimed at supporting the control
environment through impartial and honest communication of information.
● Monitoring Activities: to provide assessment capabilities and to uncover
vulnerabilities.
Out of the five components, control environment provides the foundational basis for
carrying out internal controls in a company because control environment sets the tone
of a company and it is the foundation for all other components of internal control,
providing discipline and structure.
The board of directors and management set up the control environment through
policies, procedures, processes, standards and structures giving the basis for carrying
out internal controls in a company.
Going Beyond the Law: Being an Ethical Board Member

The board is the party responsible for the company’s highest decision-making level and
legal authority. The ruling board has authority over and is accountable for the affairs of
the company. The board consists of individual board members who act together as a
whole and is responsible for the advancement of the company, the continuity of the
company and the identity of the company. Each member of the board has a number of
responsibilities and expectations to fulfill.
Legal Duties of Board Members

Board members are the fiduciaries who govern the company towards a sustainable
future by choosing sound, ethical, and legal governance and financial management
policies. The law dictates three clear duties on board members; the duties of care, good
faith, and loyalty.
● Duty of Care: This refers to the manner the board makes decisions that
impact the business’ future. It is the board’s duty to thoroughly examine all
possible decisions and how they may affect the business. Since a
company's board of directors is assigned with making very critical
decisions, it is essential that each member takes each issue earnestly and
sufficiently considers all options. As expected, business decisions usually
have to be made within financial or time constraints and that means the
investigation is limited. For that reason, the board is only required to
employ the same level of care and diligence to its process of decision-
making that could be reasonably expected from a judicious person under
similar situations.
● Duty of Good Faith: The second fiduciary of directors is the duty to act in
good faith. It is one of obedience; it requires the board to faithfully obey
the company’s mission. Even after it sensibly investigates all the choices
before it, the board has the responsibility to select the option it believes
best serves the interests of the business and its shareholders.
● Duty of Loyalty: This means the board is mandated to put no other
causes, interests or affiliations before its loyalty to the company and its
investors. Board members must avoid personal or professional
transactions that put their own self-interest or that of another person or
business before the interest of the company. This can be crucial if one or
more board members has an absolute interest in an entity with which the
governed company does business.
Beyond the Law, There is Ethics

When it comes to discretionary decision-making boards of directors have, the law can
only answer a limited number of questions. The Sarbanes-Oxley Act tried to answer
more but there are still numerous questions about it. Who does the board represent?
That is a question the law is expected to answer but it has still remained unclear to
some extent. By law, the board has an obligation to the stockholders of the company
but many are uneasy with this restricted approach to board responsibility and contest
that the board is also the keeper of the company’s social responsibility.
There may be executives who question the board’s legal right to inquire about the ethics
of its executives and others. If a board is knowledgeable of a usual procedure that it
considers to be unethical but that is entirely within the domain of the law, on what
grounds can the board mandate the executive to halt the procedure? The board can
impede actions to protect the lasting sustainability of the company. Despite the type of
the unethical behavior, stakeholders like consumers or personnel can be negatively
affected by unethical acts which can negatively affect the company which could lead to
the downfall of the company in the future. It is a fact that it is the board’s fiduciary duty
to protect the company by inhibiting unethical acts. If corporate executives violate
universal principles of decency and respect for human dignity, people will demand a
penalty. Subsequently, a board has a duty to hold its executives to this higher standard
of ethics instead of merely obeying the legal rules.
It has been suggested that board members be given additional responsibilities beyond
the law to survey and to investigate the companies that they represent. It is said that an
honest conversation is the best manner for understanding what the board members
know and do not know. Board members must know how the company makes profits and
whether consumers and clients really do pay for products and services. The financial
flow of the company says a lot about what moves the company. Board members must
also be demanding in their inquiries about corporate vulnerabilities. They must discover
what factors could cause the company to fall and what competitors might do to aid it.
Making certain the data regarding vulnerabilities is regularly and consistently sent to the
executives and the board forges effective prevention. The board needs to fully
comprehend the direction the company is headed and whether it is realistic to get there.
This will be less likely if the company is not living within its means or if it is squandering
much of its growth profits to its executives in compensation.
Conflicts of Interest in Accounting and the Financial Markets

In the legal and accounting field, possible conflicts of interest can emerge before or
during the course of an encounter. Most companies have rules and procedures in place
that control how conflicts are determined and managed, to ascertain that customer and
public interests are not threatened.
Conflicts that surface in the accounting field are very similar to those that take place in
the legal field. In the world of accounting, conflicts regularly happen when a company
provides various services to the same customer, such as audit, tax, forensic accounting,
and bankruptcy services. The ethical issues and possibility for conflicts surrounding
accounting practices go over simple combining services. They may involve falsifying
documents, underreporting income, illegally evading income taxes, allowing or taking
questionable deductions, and engaging in fraud.
Even though accounting bodies have issued counsel regarding how possible conflicts
can be determined and managed, the way in which they are essentially resolved is
highly subject to professional judgment. A number of big accounting firms have
professional standards groups that assess possible conflicts, and decide if an
assignment must be accepted or declined. But, regardless of the decision made by the
accountant, it is vital still for legal counsel to comprehend how a specific accounting firm
determines conflicts, and identifies if that conflict can be successfully managed.
Executive Compensation
The financial payments and non-monetary benefits given to high level management in
exchange for their work on behalf of a company. The kinds of employees that are
usually paid with executive compensation packages include chief executive officers,
corporate presidents, vice presidents, chief financial officers, managing directors and
other senior executives.
Executive compensation is a very significant factor to consider when assessing an

investment opportunity. Executives who are unsuitably compensated may not have the
incentive to act in the best interest of shareholders, which can be costly for those
shareholders. Assessing executive compensation can be a daunting task for the
individual investor.
One of the most common ways to assess executive compensation is by comparing pay
and performance. It is unfortunate that a number of executives are given raises and
bonuses even when their companies are struggling. Comparing pay to stock
performance can aid in determining if executives are being overly compensated. The
particular metric used frequently is comparing the change year-over-year in executive
pay increases to the change year-over-year in stock price. If the change in the stock
price outpaces the change in pay, the executive is not overpaid. Another widespread
way to assess executive compensation is to compare an executive to his trade peers.
Most executives should be paid equally as their peers but currently, market leaders
usually have CEOs that are paid a little more than their industries,.
New laws have been passed to help satisfy investor concerns over executive
compensation. Changes in The Securities and Exchange Commission (SEC) reporting
requirements have pushed companies to incorporate an Executive Compensation
Discussion & Analysis portion to go with all future pay documentation in all SEC forms.
Other laws have been more forthright in restraining practices that the companies use.
One example of this was the elimination of the deferred compensation tax shelter that
aided many executives evade millions in taxes. Also, improvements in other tax
loopholes have made it more difficult for boards to rationalize large payouts and hide
these payouts from investors.
Insider Trading
The buying or selling of a security by someone who has access to important confidential
information about the security is called insider trading. It can be illegal or legal
depending on when the trade is made by the insider. It is considered illegal when the
material information is still confidential. Trading while having special knowledge is unjust
to other investors who do not have access to such knowledge.
Illegal insider trading involves tipping others with any kind of confidential information.
Legal insider trading occurs when directors of the company buy or sell shares, but they
disclose their transactions legally. The SEC has policies to protect investments from the
effects of insider trading. Legal insider trading occurs in the stock market weekly. The
SEC necessitates transactions to be electronically submitted promptly and must also be
put on the company’s website.
Chapter 7: ETHICS AND MARKETING
The heart of a business success depends on its marketing. Most aspects of a business
rely on successful marketing (advertising, public relations, promotions and sales).
Marketing is a method by which a product or service is presented and promoted to
possible customers. Without marketing, a business may offer the best products or
services in an industry, but none of the possible customers will know about it. Without
marketing, sales may dive and companies may have to close.
Ethical marketing is more of a philosophy that informs all marketing efforts rather than a
marketing strategy. It pursues to promote honesty, fairness, and responsibility in all
advertising ventures. Ethical marketing is a general set of guidelines to assist
organizations as they evaluate new marketing strategies. Unethical advertising is
usually just as effective as it is unethical and because unethical behavior is not
necessarily against the law, there are many organizations that make use of unethical
advertising to boost competitive advantage. Organizations can use ethical marketing as
a way to establish trust among their customers by living up to the claims made in its
advertising. It can make the customer feel like the company is invested in the quality of
the products and the value they provide consumers. It is futile to claim that any
organization is completely ethical or unethical. Ethics exists in a gray area with many
fine lines and shifting boundaries. Many organizations operate ethically in one aspect of
their advertising and unethically in another.
Marketing: An Ethical Framework

This framework pinpoints rights, responsibilities, duties and obligations, causes and
consequences. When these guidelines are distinguished, the decision-maker uses the
framework to adequately study the circumstance and come at the decision that best
reflects his personal and professional value structure.
This simple situation in which two participants come together and openly agree to an
exchange appears ethically legitimate. The rights-based ethical tradition would deem it
as maintaining respect for individuals by treating them as autonomous agents able to
pursue their own ends. This tradition infers that each individual will remain by
fundamental principles. The utilitarian ethical tradition would take the two participants’
agreement as proof that both are better off than they were before the exchange and
accordingly conclude that general happiness has been raised by any exchange openly
entered into.
This assessment is only assumed because, similar to all agreements, specific

conditions must be met before the conclusion that autonomy has been respected and
mutual benefit has been achieved. Therefore, for instance, one would need to confirm
that the agreement was produced from an informed and voluntary consent, and that
there was no fraud, deception, or coercion involved. When these conditions are
infringed, autonomy is not respected, and mutual benefit is not achieved. In addition,
even when these given conditions are met, other values may supersede the freedom of
individuals to contract for mutually beneficial purposes. For instance, the freedom of
drug dealers to seek mutually agreeable ends is superseded by society’s concern to
maintain law and order.
In general, it will be advantageous to keep three matters in mind when approaching any
ethical issue in marketing: First, the rights-based ethical tradition would ask to what
degree the parties are respected as free and autonomous agents instead of being
treated merely as means to the end of making a sale. Second, the utilitarian tradition
would want to know the degree to which the deal provided concrete benefits rather than
apparent benefits. Third, every ethical tradition would also want to know what other
values might be at risk in the deal.
Consider these three concerns: the degree to which individuals freely participate in an
exchange; the benefits and costs of each exchange; and other values that are affected
by the exchange.
It is quite difficult to ascertain if a person is being treated with respect in marketing

situations. As a first estimate one might propose two conditions: One, the person must
freely agree to the transaction. Definitely transactions done under force are not
voluntary; therefore are unethical. But one must keep in mind that there are many
degrees of voluntariness. For instance, the more consumers need a product, the less
free they are to choose and therefore the more protection they deserve within the
marketplace. Take into account the use of the Windows operating system by the
majority of computer users. How voluntary is the decision to use Windows? Also, bear
in mind the anxiety and stress that a lot of customers go through when purchasing a
car. When a car dealer takes advantage of that anxiety to pitch extended warranty
insurance, it is not clear that the customer has made a totally voluntary decision. More
telling cases of price cheating, price-fixing, and monopolistic pricing clearly raise the
concern of freedom in marketing. Practices focused on vulnerable populations like
children and the elderly also raise questions of voluntariness. So, a fair analysis of
marketing ethics proposes the challenge to be sensitive to the many ways in which
consumer choice can be less than fully voluntary.
Two, the consent has to be not only voluntary, but also informed. Informed consent is
very crucial in the medical ethics field because patients are at an informational
disadvantage when communicating with medical professionals. Disadvantages
resembling this can happen in marketing situations. Complete and total deception and
fraud inarguably breach this condition and are unethical. A customer's consent to buy a
product is not informed if he is being misled or deceived about the product. But there
can also be many more different cases of deception and misleading marketing
practices.
The second ethical matter points to the supposed benefits attained through market
exchanges. Economics textbooks usually presume that consumers benefit whenever
they make a transaction in the market but this assumption will not hold under close
review. Many purchases do not result in actual benefit. For instance, impulse buying,
and the marketing techniques used to promote said behavior, cannot be excused by
appeal to satisfying consumer interests. The continuous rise of individual bankruptcies
suggests that consumers cannot purchase happiness. Studies supply evidence that
implies that more consumption can lead to unhappiness, a condition some call
"affluenza.” Thus, if mere consumer satisfaction is not a definitive measure of the
benefits of market transactions, one should always ask about the ends of marketing.
What goods are achieved by successfully marketing this product or service? How and in
what ways are individuals and society benefited from the product?
Both participants in the marketing transaction are also not benefited in circumstances in
which one party is injured by the product. Unsafe products do not promote the utilitarian
aim of maximizing collective happiness. It would also not be beneficial for the
consumers if the yearnings that they look for to satisfy in the market are somehow
manipulated by the seller.
The third ethical matter is regarding values aside from those served by the exchange
itself. Basic social values such as fairness, justice, health, and safety are some of the
values that can be compromised by some marketing practices. For instance, a bank that
presents lower mortgage rates in opulent neighborhoods than it does in hard up
neighborhoods may be concerned only in transactions that are mutually beneficial since
they do not sell mortgages in the poorer neighborhoods. Such contracts would infringe
important social norms of equal treatment and fairness.
There may be a very strong demand for things such as women or children or particular
body parts of endangered species. But just because there are people interested in
buying and selling these things does not make the exchange ethically legitimate. A
sufficient ethical study of marketing should answer the questions: “Who are those
affected by the transaction?” and, “What social goods are promoted, and which are
threatened, by marketing this product?”
It is also important to note the true costs of production. A decent ethical study of
marketing must take into account externalities; those costs that are not included in the
transaction between buyer and seller. Externalities prove that even when both
participants to the transaction receive actual benefits from the exchange, other
participants external to the exchange might be negatively affected. One keeps in mind
the environmental or health impact of marketing products like SUVs, pesticides, and
tobacco as examples in which a model of individual consumer transaction would ignore
important social costs. With these general matters, a closer analysis of a number of
major aspects of marketing ethics will follow.
Responsibility for Products: Safety and Liability

The blanket classification of business’ responsibility for the products and services it sells
contains a wide range of topics. Few matters have received as much examination in
law, politics, and ethics as has the responsibility of business for the harms caused by its
products. Business has an ethical responsibility to design, manufacture, and promote its
products in ways that prevent causing detriment to consumers.
It was mentioned in a previous chapter that to be responsible is to be identified as the

cause of something. Given this definition, one may say that Super Typhoon Yolanda
was responsible for millions of pesos in property damages in Visayas and other
surrounding areas. In another sense, responsibility entails accountability. This is
apparent when one asks who will be responsible for the damages caused by Yolanda. A
third sense of responsibility, related to but different from the sense of accountability,
entails assigning fault or liability for something.
The typhoon example shows how these three meanings can be differentiated. Yolanda
was responsible for (caused) the damage, but cannot be held responsible (accountable
for paying for the damages), nor can it be faulted for it. In another example, in a car
crash, a careless driver would be pinpointed as the cause of the accident and therefore
be held accountable because he was at fault.
Law and ethics depend on a similar framework when studying situations in which
business products or services cause harm. The core of the deliberation of business’
responsibility for product safety is on assigning liability (fault) for injuries brought about
by unsafe products. The legal dogma of strict liability is ethically contentious because
businesses are held accountable for paying damages whether or not it was at fault. In a
strict liability case the business is liable for any harm that results from the use of its
product or service no matter how careful the business is.
Contractual Standards for Product Safety

The literal translation of caveat emptor is, “let the buyer beware.” In business it means
to allow the potential buyer who is considering the procurement of an item to check the
item, and then allow him to decide the terms on which he is agreeable to buy or decline
the item. The idea that there is something that is at least a little improper or unethical
about the concept of caveat emptor is based on the illogical belief that its application
absolves the seller from his contractual obligations to the buyer, which is a distortion of
the expression. The phrase is simply an effort to illustrate the broader concept of
freedom of contract as it applies to the seller-buyer relationship. The principle does not
have anything to do with the liability of the seller for the promises made regarding the
product he is selling. The seller is liable for his express promises and guarantees, and
in some situations, that liability is expanded to additional promises and guarantees that
may logically be implied from the nature of the specific transaction. Exactly what
promises or guarantees will be implied relies on the intention of the parties as exposed
by the details encircling the transaction.
Where the circumstances substantiate the implication, the implication will be made.
Once it is made, the implied promises are given equal legal effect as the express
promises. The main distinction in the two types of promises is a difference in the
evidence by which they are proved. But once they are proved, they are both considered
as promises actually made, and both are evenly enforceable against the seller.
If law will hold business liable for implicit promises, an intelligent business will try to limit
its liability by clearly disowning any promise or warranty. Because of this, many
businesses will serve a disclaimer of liability, or present an expressed and limited
warranty. Most courts will not let a business to fully disclaim the implied warranty of
merchantability.
Tort Standards for Product Safety

Making use of an implied warranty resolved one set of issues with the contract law
approach to product liability. Buyers need not have sophisticated contracts to guard
themselves from all possible detriments that goods may cause. There is a second
problem, however. If business is held liable solely for promises made during the
transaction, then as the buyer gets farther from the producer by layers of suppliers and
retailers, there may be no relationship at all between the buyer who gets injured and the
ultimate producer who was at fault.
Torts is a term that is usually used in the field of law that is known by lay people as
negligence. It presents buyers an alternative way to hold sellers responsible for the
products they produce. The difference between contract law and tort law also focuses
on two ways to comprehend ethical duties. In a contract model, the mere duties that a
person owes are those that have been explicitly promised to another party. Otherwise,
that person owes nothing to anyone.
Ethically, tort law maintains that people owe others certain general duties, even if it has
not been clearly and voluntarily assumed. For example, a general duty not to put others
at unnecessary and avoidable risk may be owed. So, even if one never declared or
promised people that he will drive carefully, he has an ethical duty to do so.
Negligence is a principal factor of tort law. It concerns a kind of ethical neglect,

particularly neglecting one’s duty to practice reasonable care not to harm others. A lot of
the ethical and legal issues that manufacturers’ responsibility for products can be taken
as the bid to indicate what will be considered as negligence in their design, production,
and sale. What are the duties producers owe to their consumers?
One can think of possible answers to this question as falling along a continuum. On one
substitute “end” for “extreme” is the social contract answer: Producers owe only those
things promised to consumers in the sales agreement. At the other end is something
closer to strict liability: Producers owe compensation to consumers for any harm caused
by their products. In between these extremes is a range of answers that vary with
different interpretations of negligence. We have already suggested why the strict
contract approach is incomplete. In the next section we shall examine the pros and cons
of strict product liability. The remainder of this section will examine the important
concept of negligence.1
Negligence can be distinguished as a failure to practice reasonable care or ordinary

caution that causes another to be harmed. Negligence breaks down two essential
ethical laws in many ways: “ought implies can” (one cannot reasonably oblige someone
to do what he cannot do) and “one ought not harm others.” One commits an ethical fault
when he causes injury to others in manners that he can reasonably be expected to have
avoided. Negligence involves both actions of commission and omission. One is
considered to be negligent by doing something that one should not do or by failing to do
something that one should have done. Negligence includes the capacity to anticipate
the consequences of one’s actions but not being able to do anything to evade the
probable detrimental consequences.
However, the gauges of foreseeability raise gripping questions. One gauge would hold
an individual liable only for those harms he actually anticipated happening (actual
foreseeability). So for instance, one would be negligent if, one concludes, after a series
of tests, that a gas tank positioned behind the rear axle could be perforated and may
explode during crashes but still makes the car available to the market.
This gauge of actual foreseeability is too limited. If an individual thinks that detriments
will probably result from his actions but goes along with it anyway, he has committed a
grave offense and deserves punishment. Such an event appears to be more similar to
1
Hartman, Laura P., Des Jardins, Joseph, & MacDonald, Chris. Business Ethics: Decision -making for Personal
Integrity & Social Responsibility (3 rd ed.). McGraw-Hill, Irwin.
recklessness or intentional harm rather than negligence. But this gauge would also
allude that inconsiderate people cannot be negligent, since one eludes liability by not
considering the consequences of his actions. With this concept of negligence, it is
important to encourage people to be thoughtful and considerate and hold them liable
when they are not.
A preferable gauge would compel consumers to evade detriments that they should have
considered if they had been reasonable. People are expected to act reasonably and are
held liable when they are not. Also, when one notices the probability of harm, the
reasonable person expectation is increased. The issue of foreseeability comes up when
a product might be misused.
Strict Product Liability

There are circumstances in which buyers can be harmed by a product in which no
negligence was involved. In circumstances such as these, where no one was at fault,
the question of accountability is raised. Who ought to pay for damages when buyers are
harmed by goods and no one is at fault? The legal doctrine of strict product liability
holds manufacturers accountable in such cases.
One classic strict product liability case involved the synthetic estrogen hormone
diethylstilbestrol (DES). In the late 1940s, DES was approved for use in the prevention
of miscarriages and was widely prescribed for problem pregnancies until the early
1970s. The drug had been widely tested in clinical trials and proved quite successful in
reducing the number of miscarriages. However, in the early 1970s a connection was
discovered between the use of DES during pregnancy and certain forms of vaginal
cancer in the female children of women who used the drug. These cancers did not
typically appear until more than a decade after the drug was used. In 1972 the FDA
prohibited all marketing of the drug for use during pregnancy.2
Responsibility for Products: Advertising and Sales

Advertising ethics has garnered a lot of notice under the umbrella of business ethics,
aside from the issue of product safety. The aim of marketing is the sale of the product
and a big factor of marketing is sales promotion - trying to sway the consumer to
complete a transaction. Target marketing, finding out which audience is most likely to
buy, and marketing research, which audience is mostly likely to be persuaded by
product promotion are two essential elements of product placement.
There are ethically good and bad ways for swaying consumers to buy a product. Some
examples of ethically acceptable means of influencing consumers are persuading,
2
Hartman, Laura P., Des Jardins, Joseph, & MacDonald, Chris. Business Ethics: Decision-making for Personal
asking, informing, and advising. Unethical ways of influencing include threats, coercion,
deception, manipulation, and lying. It is the sad truth that sales and advertising practices
often involve deluding or manipulative manners of influence. There are times when a
particular manner of advertising is directed at specific audiences that are most likely to
be affected by manipulation or deception.
Manipulation is defined as to guide or direct someone's behavior. It does not require

being in complete control of something; it implies a process of subtle direction or
management. Manipulation suggests operating covertly; directing a person's behavior
without their consent or conscious understanding. Because of this, manipulation differs
from persuasion and other kinds of reasonable influence. One manner of manipulating
someone is through deception - the act or statement intended to make people believe
something that is not true. It is possible to manipulate someone without deception, like
how a professor might manipulate his students into studying by implying that there may
be a quiz during the next class). This manner suggests that the more one knows about
another's psychology (motivations, interests, desires, beliefs, dispositions, etc.) the
better able one will be to manipulate another's behavior.
Ethical Issues in Advertising

The overall ethical defense of advertising mirrors both the utilitarian and Kantian ethical
standards. Advertising gives data for market exchanges that also adds to market
efficiency and to universal happiness. Advertising data also contributes to the
information needed for autonomous individuals to make informed decisions. This is
assuming that the information is authentic and reliable.
Manipulation would be objected strongly by the principle-based tradition in ethics. To

manipulate someone is to treat them as a means to an end; as a tool to be used instead
of as an autonomous individual in his right. Manipulation is an explicit display of
disrespect for people since it ignores others' rational decision-making. Even
unsuccessful manipulations are guilty of this ethical wrong since the evil is in the
intention to use another as a means.
As in the utilitarian tradition, it offers a more conditional review of manipulation

depending on the consequences. There are situations where someone is manipulated
for their own good - paternalistic manipulation - but even in cases like these, unforeseen
harms can happen. Manipulation usually destroys trust and respect between individuals.
It can destroy one’s self-confidence and hamper the development of responsible choice
of those individuals who are manipulated. Utilitarians would tend to believe that
manipulation decreases overall happiness since it is mostly done at the expense of the
manipulated.
A blatant form of manipulation is seen in situations where vulnerable people are
targeted for abuse. Some examples are: cigarette advertising targeting children and the
elderly aimed at goods and services like insurance, casinos and gambling, nursing
homes, and funerals.
Marketing research aims to learn more about how potential customers think but not all
psychological classifications are similar. Some are more rational and logical than others.
Targeting the considered and rational desires of consumers is one thing; targeting their
fears, anxiety, and whims is another.
Marketing Ethics and Consumer Autonomy

Supporters of advertising assert that in general, advertising contributes much to the
economy even though there are a number of cases of deceptive practices. The majority
of advertisements gives buyers information that contributes to an efficient function of
economic markets. The supporters believe that market forces will eventually filter out
deceptive advertisements and practices. They say that the most effective response to a
deceptive ad is a competitor’s ad calling attention to the deception.
A question as important as what advertising does for people is what advertising and
marketing do to people. There are several benefits consumers can get from the
marketing of products such as learning about products they may need or want,
receiving information that helps them make wise choices, and sometimes getting
entertained. Aside from these, some say that marketing aids shape culture and the
individuals who develop and are socialized within that culture. Marketing can have direct
and indirect influence on the kind of person an individual becomes. How it does that,
and the kind of person one becomes as a result, is of fundamental ethical importance.
Critics of such claims either deny that marketing can have such influence or maintain
that marketing only imitates the culture of which it is a part.
The initial proposal in this debate was offered by economist John Kenneth Galbraith in
his 1958 book, The Affluent Society. Galbraith claimed that advertising and marketing
were creating the very consumer demand that production then aimed to satisfy. Dubbed
the “dependence effect,” this assertion held that consumer demand depended upon
what producers had to sell. This fact had three major and unwelcome implications. First,
by creating wants, advertising was standing the “law” of supply and demand on its head.
Rather than supply being a function of demand, demand turns out to be a function of
supply. Second, advertising and marketing tend to create irrational and trivial consumer
wants and this distorts the entire economy. The “affluent” society of consumer products
and creature comforts is in many ways worse off than so-called undeveloped
economies because resources devoted to contrived, private consumer goods are
therefore denied to more important public goods and consumer needs. Taxpayers deny
school districts small tax increases to provide essential funding while parents drop their
children off at school in $40,000 SUVs. A society that cannot guarantee vaccinations
and minimal health care to poor children spends millions annually for cosmetic surgery
to keep its youthful appearance. Finally, by creating consumer wants, advertising and
other marketing practices violate consumer autonomy. Consumers who consider
themselves free because they are able to purchase what they want are not in fact free if
those wants are created by marketing. In short, consumers are being manipulated by
advertising. Ethically, the crucial point is the assertion that advertising violates
consumer autonomy. The law of supply and demand is reversed, and the economy of
the affluent society is contrived and distorted, only if consumer autonomy can be
violated, and consumers manipulated, by advertising’s ability to create wants. But can
advertising violate consumer autonomy and, if it can, does this occur? Consider the
annual investment in this effort. Given this investment, what does advertising do to
people and to society? An initial thesis in this debate claims that advertising controls
consumer behavior. Autonomy involves making reasoned and voluntary choices, and
the claim that advertising violates autonomy might mean that advertising controls
consumer choice. Psychological behaviorists and critics of subliminal advertising, for
example, would claim that advertising can control consumer behavior in this way. But
this seems to be an empirical claim and the evidence suggests that it is false. For
example, some studies show that more than half of all new products introduced in the
market fail, a fact that should not be true if consumer behavior could be controlled by
marketing. Consumers certainly don’t seem controlled by advertising in any obvious
sense of that word. But consumer autonomy might be violated in a more subtle way.
Rather than controlling behavior, perhaps advertising creates the wants and desires on
the basis of which consumers act. The focus here becomes the concept of autonomous
desires rather than autonomous behavior. This is much closer to the original assertion
by Galbraith and other critics of advertising. Consumer autonomy is violated by
advertising’s ability to create non-autonomous desires.3
To understand how desires might be non-autonomous, ponder on the various reasons

people buy the products they buy and consume the products they do, and why people
go shopping. After the basic needs are fulfilled, there is a real question of why people
consume the way they do. People purchase different things for different reasons: for
status, to feel good, because it is the trend, to fit in, etc. The intriguing ethical question
here is where these desires came from, and how much marketing has influenced these
non-necessity purchases.
3
Hartman, Laura P., Des Jardins, Joseph, & MacDonald, Chris. Business Ethics: Decision -making for Personal
Marketing to Vulnerable Populations
A traditional perspective in marketing ethics is that it is ethically taboo to market goods
to specially vulnerable populations in ways that take advantage of their vulnerabilities.
Some marketing practices may target customers who are probably vulnerable and
uneducated as buyers. For instance, marketing that targets children seeks to sell
products to buyers who are incapable to make mindful and informed consumer
decisions. Other marketing practices may aim the populations that are vulnerable in the
general sense like when an insurance company advertises flood protection insurance to
residents living in an area more susceptible to flooding. Are these types of targeting
ethically appropriate?
Initially, one would say that the marketing practice that targets vulnerable consumers is
unethical. It is a way of exploiting their weakness and manipulating it for the marketer’s
advantage. A way that this concern unfolds involves people who are vulnerable in both
senses. Most of the time, people can become vulnerable as a buyer for the reason that
they are vulnerable in some more general sense. For example, a sick individual’s fear
may cause him to make uninformed consumer decisions. Another, elderly people are
vulnerable to illness and injury that may lead to them making consumer choices
because they are guilty or fearful.
Aside from individuals who can be made vulnerable as buyers since they are vulnerable
to other harms, there are situations wherein individuals become vulnerable to other
harms since they are vulnerable as consumers. Most common examples are alcohol
and tobacco; these products can make a person vulnerable to a number of health risks.
Finally, the marketing practice that is aimed at vulnerable population involves potentially
all individuals as consumer targets. Stealth or undercover marketing refers to
circumstances where people are subject to directed commercial activity and are
unaware of it. Undercover marketing is an intentional effort to hide the true marketing
element of the interaction. There are some companies that hire actors and promoters to
pitch their products in everyday situations. An example is hiring actors to pose as
regular people asking help from a potential customer to take their picture with their
phone. After that, the actor will strike up a conversation with the potential buyer about
how great their phone is, mentioning its features, enticing the potential buyer to
purchase one like it.
There are different ways to build a false sense of confidence in a product, and the most
common avenue for that is the Internet. Marketers use online followers to disseminate
positive information and opinion about their products in an effort to disguise it as
legitimate banter. Experts on marketing regard undercover marketing highly effective
since the buyer’s guard is down. The consumer does not raise questions about the
message like in a traditional marketing. Consumers perceive the sender’s opinions as
personal, trusting them more than people in advertisements.
Looking at this marketing form ethically, one can argue that stealth marketing involves
deception and connivance to encourage using a product, or deception in the sense that
it is secretly part of a marketing campaign. From a universalist point of view, there is a
breach of trust in the communication, which may lead to the consumer feeling betrayed
therefore no longer trusting the company.
Supply Chain Responsibility

Supply chains that are founded on strong, honest, and trusted relationships are crucial
to assuring product quality, availability and affordability for consumers. These
relationships are essential in improving business competitiveness and lowering
business risks. And like any successful partnership, a strong supply chain is also
founded on the values of accountability and integrity. In recent decades, the ethical
responsibility that a company has for the activities of its supply chain has been
scrutinized. Nike has gotten much attention in this regard.
In the 1990s, Nike was criticized for contracting with factories in countries such as
China Vietnam, Indonesia, and Mexico and for having poor working conditions in these
factories. There were allegations that the factories contracted by Nike were violating
minimum wage, child labor, overtime laws, abuse, etc.
Initially, Nike denied responsibility for the working conditions their suppliers provided for
the laborers. To Nike, it was beyond their responsibility to ensure that their suppliers
treat their workers fairly. Nike Asia even gave a statement saying that they are a
company that markets and designs products, they do not manufacture them.
Predictably, the public was not sold on their response.
Generally, people do not hold an individual responsible for somebody else's actions.
Inferring that an individual is an autonomous being, it is believed that every individual is
responsible for his actions. This is not always true in the case of business. There is a
legal correlation to the concept that a business must be held responsible for its
suppliers' actions. There is a principle called respondent superior which is Latin for “let
the master answer”. In this doctrine, a principal (example: an employer) is held
responsible for its agent's (example: an employee) actions when said agent is acting in
the regular course of his duties to the principal. For instance, if an employee driving a
company vehicle on company business gets into an accident, an employer can be held
responsible for the damages.
The rationale for doing something that may be considered unjust is that the actions of
the agent is in behalf of the principal, directed by the principal, and that the principal has
direct influence over the actions of the agent. This means, if an employee is doing
something for an employer, at the direction of the employer, and under the influence of
the employer, then the employer must take some (at the very least) responsibility for the
employee's actions.
Sustainable Marketing
Sustainable or green marketing is a trend that is new in marketing and business
sphere but is already proving to be a game changer. It is based on concepts of
environmental and social sustainability, and attempts to meet the needs of the current
generation without destroying the future. Many companies have changed how they
conduct business by this approach. Unlike traditional marketing, sustainable marketing,
needs to heed sustainability principles throughout the marketing process. This aids in
strengthening the brand identity; providing credibility; and ensuring truthful
communications and transparency with partners.
The “Four Ps” of marketing - product, price, promotion, and placement - are the
characteristics considered even before developing a product. The four Ps is also a great
way to understand sustainable marketing.
Product: It is important to have a clear understanding of a product and what makes it

unique before being able to market it successfully. Looking at a product that makes use
of sustainable marketing, a review of how its materials are sourced, ingredients used,
and how it is manufactured must be made. This concerns the use of all natural and
organic materials, sourcing local suppliers, making use of environmentally friendly
materials, and utilizing lean manufacturing and distribution approach that minimize the
firm’s carbon footprint.
Price: Price is the monetary amount a buyer exchanges for a product or service based
on its value or worth. Pricing of sustainable products is an issue that limits a product’s
wide market acceptance and market growth. Green products are likely more expensive
since the materials or ingredients may cost more than their regular counterparts.
Promotion: Promotion is the communication tools and strategies that a company uses
to promote and market their product. There are various ways to promote a company’s
products and benefits. For instance, branding is a vital element of the promotion
platform. A brand is an image in the buyer’s mind for a specific product (or service).
Sustainable brands must have a brand image of the product (or service) having a
positive impact on consumers and the environment.
Placement: The placement of a product pertains to the place where a product can be
bought. This involves how a product is delivered to the location it will be sold in.
Placement may be a physical store or a virtual store on the Internet. A sustainable
marketing placement that interests consumers is buying locally, Consumers are now
mindful of the environment and carbon emissions from distributing products over long
distances.
Green or sustainable marketing is a means for protecting the environment for the
generations to come. More and more people are becoming concerned with
environmental protection that is why there is a new market that has risen which is the
greenmarket. To survive in this kind of market, companies need to go green in every
aspect of their business. Buyers want to be identified with green compliant companies
and are willing to pay more for a greener lifestyle. So, sustainable marketing is not just
an environmental protection tool but a marketing strategy as well.
Chapter 5: Corporate Social Responsibility
Business ethics are moral guidelines for the conduct of business established on notions
of what is right, wrong, and fair. Most business people depend on their own consciences
in making business decisions, reviewing their own moral and religious backgrounds for
guidance. However, people in business can also be influenced by their managers and
peers when making business decisions and may feel pressured to act unethically when
looking to make profits. Acting in an ethical way concerns distinguishing between right
and wrong and then making the right decision. It is rather easy to recognize unethical
business practices. For example, companies should not use child labor, they should not
unlawfully use copyrighted materials and processes, and they should not engage in
bribery. However, it is not always easy to constitute absolute definitions of good ethical
practice. An organization must make a competitive return for its shareholders and treat
its employees fairly. A company also has wider responsibilities; it should minimize any
harm to the environment and work in ways that do not damage the communities in
which it operates. This is known as corporate social responsibility.
Companies have a corporate social responsibility is about caring for the workers, giving
back to the community, and being financially, environmentally, and socially responsible.
Corporate Social Responsibility (CSR) is a business principle which emphasizes the
need for companies to behave as good corporate citizens, not just obeying the law but
managing their production and marketing activities in a way which avoids causing
environmental pollution or exhausting finite world resources. Some businesses behave
in a more socially responsible manner, because their leadership wants to do so, and
because of fear of environmentalist and consumer pressure groups and the media, and
concern for their reputation. Common practices of CSR include recycling, reducing
emissions, treating all employees fairly, giving back to the community by providing
services or support, building new parks for children, assisting the less fortunate in the
area, as well as being honest and disclosing appropriate information.
Ethics and Social Responsibility

Social responsibility is an ethical ideology, in which individuals are responsible for
executing their civic duty; the actions of a person must benefit the whole of society. In
this way, there must be a balance between economic growth and the welfare of society
and the environment. If this balance is maintained, then social responsibility is achieved.
The idea of social responsibility is based on a system of ethics, in which decisions and
actions must be ethically analyzed before moving forward. If the action or decision
causes harm to society or the environment then it would be thought to be socially
irresponsible.
The philosophy of social responsibility and ethics applies in both individual and group
capacities. It should be included into everyday actions and decisions, especially ones
that will affect other persons and/or the environment. In the group capacity, a code of
social responsibility and ethics is implemented within the group and during interactions
with another group or an individual.
Businesses have established a system of social responsibility that is suited to their

company environment. If social responsibility is sustained within a company then the
employees and the environment are held equal to the company’s economics. Keeping
social responsibility within a company guarantees the integrity of society and the
environment are protected.
Philanthropic Model of Corporate Social Responsibility

Philanthropy is a Greek word that literally means ‘love of the fellow human.’ Using this
idea in business involves activities that are within the corporation’s judgment to improve
the quality of life of employees, local communities, and society. Giving donations to
charities, building of recreational facilities for employees and their families,
advancement of religious, racial and gender diversity at workplace, support for
educational institutions, and supporting art and support activities are some examples of
philanthropic responsibilities done by the corporations for the society and its welfare.
Businesses have no strict obligation to contribute to social causes; but it can be a good
thing when they do so.
Some critique philanthropic CSR for not being incorporated directly into an
organization's core business plan. For instance, many large arts organizations receive
funding from corporations in completely different industries because their executives
love music and wish to support a local symphony. Although philanthropic CSR may
provide public relations or branding advantages to a business, these benefits are not
always tracked as part of social accounting, making it difficult for these efforts to be
audited or held accountable to external benchmarks.
A business' philanthropic endeavors do not happen without oversight. Since the early
2000's, companies have sought to hold charities accountable for how the donations are
used. Accordingly, many non-profit organizations have taken up business practices for
measuring their own performance. Thus, these beneficiaries of philanthropy display
both a responsible use of the funds they have received and evidence of their
performance relative to their mission. Organizations engaging in philanthropic CSR can
then use those results to measure the effect of their own efforts to support social
causes.
Social Web Model of CSR

An array of views on Corporate Social Responsibility would be included in what the
social web model of CSR. They all share the perspective that business exists within a
web of social relationships. This CSR model looks at business as a citizen of the society
in which it runs and business must comply with the normal ethical duties and obligations
just like all members of a society. While providing goods and services and generating
wealth and profits are two of business’ responsibilities, these do not surpass the other
ethical responsibilities that equally bind all members of a society.
Norman Bowie, a philosopher, has supported a version of CSR that would be

categorized under the social web model. Bowie explains that business has a similarly
essential ethical duty to respect human rights outside the limits of the economic view’s
duty to obey the law. Bowie labeled his approach as a Kantian theory of business
ethics. He began with the distinction between the ethical mandates to use no harm, to
prevent harm, and to do good. The responsibility to cause no harm overrules other
ethical concerns. People have a strong ethical duty to cause no harm, and only an
apparent duty to prevent harm or to do good. The quest for profit justly can be
constrained by the duty to cause no harm. On the other hand, Bowie acknowledges the
economic view that managers are the handlers of stockholder-owners and their duty to
further the interests of stockholders. So, managers’ duty to their stockholders overrides
the ethical imperatives to prevent harm, and to do good. Provided that managers cause
no harm, they have an obligation to maximize revenue.
According to Bowie, business has a social responsibility to respect the rights of its
employees, even when the law does not deem it necessary. Some examples of these
rights are: the right to privacy, the right to due process, and the right to safe and healthy
workplaces. In addition, Bowie asserts that business has an ethical duty to respect the
rights of consumers, even when it is not required by law. These rights include: the right
to safe products and truthful advertising. But, the contractual duty that managers have
to stockholder-owners overrides the responsibility to prevent harm or to do philanthropic
good.
Integrative Model of CSR

In the study of CSR, the question remains: Should business be expected to forfeit
profits for society? Most CSR research infers a strain between the pursuit of profit and
social responsibility. However, there have always been organizations that put this strain
to good use, companies that seek social ends as the very core of their mission. Non-
profits like foundations, schools and colleges, NGOs, professional organizations,
government agencies, and hospitals have social targets at the center of their
operations. The learning and skills taught in business schools are as pertinent for non-
profit as they are in for-profit organizations.
There is an increasing realization that some for-profit firms have social targets as a
central part of the crucial mission of the organization. Two areas specifically, social
entrepreneurship and sustainability, there are for-profit organizations that do not
presume a tension between profit and social responsibility. Organizations that make
environmental sustainability as central to their mission are examples of the second
area.
Since these organizations bring social goals into the core of their business model, and
fully integrate economic and social goals, it is known as the integrative model of CSR.
On the surface, organizations that embrace the integrative model suggest no specific
ethical issues. Even supporters of the biased economic model of CSR would
acknowledge that owners of an organization are free to make the quest of social goals a
part of their business model. They would just argue that these social targets should be
part of every business’ mission.
It is not to insist that every business should embrace the principles of social
entrepreneurs and dedicate all their endeavors to service of social goals. Of course
there are other obligations that businesses are intended to address. Social
entrepreneurs illustrate that profit is not conflicting with doing good, and therefore that
one can do good profitably. In contrast, there are people who would contend that the
ethical responsibilities related to sustainability are important to every business concern.
At best, sustainability presents a model of CSR that propose that ethical goals ought to
be at the center of every corporate mission.
Exploring Enlightened Self-Interest: Does “Good Ethics” Mean “Good Business”?

Business is good for a community because it generates jobs and helps keep the
community alive and productive. Since business is a competitive industry by nature,
most businesses concentrate on increasing profit while seizing the larger share of a
market. Competition can be good for business since it pushes the business owner to
become more customer-centered and more efficient. But business, and competition in
business, only works for the benefit of everyone when ethics and integrity are included.
Ethics is defined as a system of moral principles of right conduct. Though many people
mistakenly liken morality solely with sexual behaviors, morality is much more. Morality
means being able to differentiate right from wrong in personal conduct; it incorporates
one’s overall character and how one relates with or to others. Although there is no
generally accepted or defined system of either moral values or right conduct, the
majority of cultures include honesty, veracity, trustworthiness, and honor in their

definition of values and right conduct.
Integrity is crucial for an established business. Integrity is construed as incorruptibility,

moral soundness, veracity in speech and action, adherence to a code of moral values.
A business person of integrity is one who the customer can trust to conform to a system
of moral principles and right conduct. A business owner with integrity is beneficial to the
community not because of status, position, name, power, or wealth, but because the
community can trust this business owner to treat everyone with respect, speak with
certainty, act with honor, portray the community in its best light, and do business in
accordance with stable principles of morality and integrity.
Running with integrity and ethics, business owners can contend with similar businesses
without creating malice and bitterness. Acting with integrity can forge positive business
relationships even among similar, competing businesses.
There are some businesses that focus on profit but the truth is, even though people are
in business to make money, the real purpose of business is to bring needed goods and
services to a community in a harmless manner while keeping costs economical for the
average customer.
There has been a battle between doing business with integrity and making a profit
though deceiving customers or back door dealing that closes out other business owners
so the dealer can make money. This battle is threefold: first, the relationship between
the customer and the business owner; second, the relationship between the business
owner and the employee; and, third, the relationship between the business owner and
other businesses.
It is always crucial to be able to recognize and understand the ethics and integrity of the
person one engages in a business deal with, whether one is the customer, business
owner, employee, or involved bystander.
So how do ethics and integrity apply to business?
For business owners, it is vital to speak and act in a trustworthy manner. Doing this
makes customers and employees trust the owner’s word, policies and decisions. They
will trust that the business is not only about making profit, but about enhancing and
enriching the entire community.
Another factor is respect. Owners and manages should respect employees and listen to
their ideas or concerns. Whatever differences an owner and his employees any have,
whether gender, position, age, educational background, or any other difference, it is
always important to treat each person with courtesy and respect. Customers and
potential customers deserve respect, as well. It is necessary to pay attention to their
complaints. Most people do not like to complain, so if they do, they might well have a
legitimate issue.
Proprietors need to honor any commitments made to employees, customers or clients.

Too often, business owners see giving donations of money or goods as more important
than giving time. Owners ought to be aware that often, most communities need
volunteers more than material donations.
Acting with honor is a vital characteristic of a business owner. In the present day
business world, an individual can find many opportunities to earn more through
unethical actions such as scamming another business; taking money without intent to
deliver a product or service as specified; taking money for one’s own pockets intended
for others or other uses; putting oneself in a position of power, and using this position to
set up a monopoly through intimidation or back door deals; etc. In the business
environment, there are many appeals to line one’s pockets unethically. Business
owners should not be perceived as someone participating in unethical practices to keep
loyal employees and customers.
Business owners ought to remember to be straightforward and honest; speak directly

and without evasion. One can be forthright without having to proclaim one’s beliefs and
political views to every customer. What people are most interested in is how people act
towards and treat others because this is where they are impacted most. One facet of
being forthright is being honest to customers about not being able to do a particular job.
Being honest and suggesting a competitor who can do the work well instead of trying
and failing will prove to customers one’s concern for their satisfaction and not just
money.
As for customers, it is paramount that business owners remember that every business
has two kinds of customers: external and internal. External customers are those who
enter a business establishment to make a purchase. Internal customers are the
employees, subcontractors or consignees. With the external customer, the owner’s
actions and words are one’s measure. Once external customers discover that they have
been lied to or cheated, they will slowly stop being a patron of that business.
As internal customers, employees and subcontractors have a daily, firsthand

opportunity to take the measure of the business owner’s character. Internal customers
witness lying to customers, cheating customers, treating others with disrespect and
discourtesy, cheat employees, or speaking ill of other businesses. If owners or
managers attempt to use employees or subcontractors to their detriment and only to the
benefit of the business, these internal customers will be witnesses to these unethical
behaviors.
As an employer, business owners stand as a role model either for or against ethics and
integrity in business. Business owners set the tone for how business will be conducted
in your community. As an employer and business owner, it is solely their decision to
whether they earn a living the honorable way or to cheat or diminish others in the
community in pursuit of money. How they are perceived by their employees, fellow
business owners and customers is also their decision to make.
It may be tempting to badmouth other businesses to make one’s own look better; it can
be appealing to try to drive out one’s competition or use cronyism to ascertain the best
contracts or control over business in one’s community. Although tempting, there can be
adverse effects to these practices such as limiting one’s business growth, limiting
opportunities for people to find employment opportunities and remain in their
communities to raise their own families, and limiting new ideas that could potentially
offer long-term benefits to the community as a whole.
The reality is, business owners who lack ethics and integrity can inflict damage on a
community that can last for years. Whenever a lack of ethics or integrity dominates the
business scene, there is always a consequence. That includes the closing of
opportunity to others, the reduction of potential jobs in a community, the loss of
individual freedom due to intimidation and control, and eventually, the closing of the last
door of the last business.
Chapter 4: The Corporate Culture—Impact and Implications
What is Corporate Culture?

Corporate culture is a set of characteristics that identifies a business. It involves
employee attitudes, standards (policies and processes), and ways of doing things. The
culture of a company is connected to the characteristics found in the surrounding
environment, but it also has some traits, such as a hierarchy system, that are unique. It
can be negative, neutral, or positive, and although some businesses project corporate
culture as static, in most cases, it shifts over time.
Major Components and Development

Perhaps the most primary element of corporate culture is the attitude of those within a
company. When management, and rank and file employees are all of the same mindset
as far as basic corporate values, it becomes probable to have a common ground on the
relationships that must be in place to precisely project the expected set of
characteristics for the business. For example, when employees are given the
opportunity to make offers that could improve production or the working environment of
the company, it is safe to say that the environment is inclusive, as it promotes open
communication between all employees.
Employees use their combined attitude to establish standards that direct the operation
of the business. Companies basically project these standards in terms of the policies
and procedures that characterize how the business will operate. This takes into account
how different departments or functions interact with one another in the production
process, the communication line established between management and employees,
and policies governing suitable employee behavior. Additional factors develop based on
the policies and procedures adopted.
Corporate culture basically projects some ways of doing things. An annual Christmas
bonus, a week-long summer company shut down, and recognizing an employee of the
month are just examples. These activities help to tie people together and offer a feeling
of one identity. They are not always a component of policy, but they become custom
and anticipated because of the general acceptance by those in the workforce.
Culture & Ethics

Culture portrays a collective way of life, or ways of doing things. It is the aggregate of
goals, attitudes, values, and customs shared by individuals in a group, organization, or
society. Cultures differ over time periods, among groups and organizations. Culture
portrays the ethical and moral beliefs and standards that articulate how people should
behave and interact with one another.
Cultural norms are the shared, approved, and incorporated structures of beliefs and
practices that are handed down through generations and typify a cultural group. Norms
promote consistent guidelines for everyday living and contribute to the health and well-
being of a culture. They work as instructions for right and moral behavior, offer a sense
and reason to life, and impart ways of attaining a sense of integrity, safety, and
belonging. These beliefs, together with related cultural values and practices, enforce a
sense of control and order on facets of life that may otherwise seem disorganized or
erratic.
This is where culture meets with ethics. The prospect exists that what is ethical to one
group may not be regarded so by someone living in a different culture since
interpretations of what is moral are affected by cultural norms. This means that there is
no one reality on which to base ethical or moral behavior all the time, as our
interpretations of truths are dictated upon by our own culture, according to cultural
relativists. This approach is unlike universalism, which embraces the position that moral
values are the same for everyone. Cultural relativism is deemed more tolerant than
universalism because, if there is no point for making moral judgments between cultures,
then cultures have to be more tolerant of each other.
Example
Whistle-blowing is viewed differently by the French and Americans. It is considered to
be a natural part of business by the Americans as compared to the French. Americans
welcome anonymous hotlines. The French, on the other hand, tend to look at whistle-
blowing as discouraging unity among co-workers.
Compliance & Value-based Cultures

Ferrell and Fraedrich illustrate two kinds of ethics programs, compliance and values-
based (also known as integrity based). The compliance-based system employs legal
terms, rules of conduct, training, and penalties for non-compliance. The values-based
system depends on self-policing and motivation, rather than coercion.
Balance
Neither type of ethics by itself ascertains an ethical corporation. Take a look at the spate
of corporate scandals in 2002 involving Enron, WorldCom and Tyco, all three were self-
policing. A winning example of an equilibrium between compliance and values-based
ethics is seen at the software-as-a-service (SaaS) company salesforce.com. Sales force
Chief Executive Officer Marc Benioff incorporated ethics into the organization from its
conception. His 1-1-1 model devoted 1 percent of employees’ time; 1 percent of
product; and 1 percent of profit to charitable efforts. It practiced compliance for a year,
employing a finance officer and an accounting firm to monitor it closely before the
company went public on the New York Stock Exchange in 2003.
Tactical Transparency
Transparency is a crucial component of compliance-based ethics. Do auditors and
shareholders have the capability to police the company and get direct answers? Tactical
transparency is practiced by companies like ExxonMobil and Monsanto. Anyone,
shareholder or not, can be present at ExxonMobil annual meetings and ask executives
questions. Monsanto allows executives to be available by email or telephone taking
heat from activists and non-government organizations for its products.
Sarbanes-Oxley
A strong example of compliance-based ethics is the 2002 Sarbanes-Oxley Act (SOX).
This legislation was enacted as a response to the 2002 financial scandals at Enron and
WorldCom that enriched executives and defrauded stakeholders. Among the specific
rules for corporations the SOX outlines are separating the roles of board chairman and
chief executive officer (CEO); calling for CEOs to certify financial statements; stipulating
prison terms and fines for falsified statements; and requiring codes of ethics be
registered with the Securities and Exchange Commission (SEC).
Ethical Leadership & Corporate Culture

The most effective leaders use their influence to shape corporate culture and motivate
ethical conduct. They design strategies to achieve desired outcomes because they are
in the business of making a profit. Life is peppered with obstacles, challenges, and
situations that leave many asking the question, “Why is this happening?” Money,
intelligence, charisma, a positive outlook, or influential social connections – none of
these elements guarantee an end-all solution to effective leadership. Managers are
continually confronted with difficult challenges. Managing these challenging situations
can spell the difference between the likelihood of success and the threat of failure. For
example, when leaders promote a workplace of fraud and deceit, they are nurturing the
ground for failure and damage. For an executive to be considered an effective leader,
he must have the ability to: (a) steer a corporation to profits for the sake of the
stakeholders, (b) attain organizational goals in an ethical manner, and (c) motivate
employees to adhere to behavior that is aligned with the organization’s code of ethics.
Consistency is also important for successful executives. The most effective leaders
integrate policies that arouse high levels of performance and motivate organizational
behavior extending beyond just observing regulations. When trust is earned with
subordinates, leaders gain the loyalty of their people. In return, employees trust their
leaders to safeguard their interests in response for their services, dedication, and
loyalty. Employees who respect their supervisors, feel appreciated and supported by
them, are more likely to become motivated and go beyond just achieving organizational
goals.
Building a Values-based Corporate Culture

These are five ways to build company cultures while protecting against crisis and
pushing for growth:
Create a long-term vision guided by core values. Too often than not, short-term
planning blurs good business decision-making and brings about the wrong moves. The
only way to fulfill long-term goals is to anchor them in missions worthy of our
commitment and the values that significantly connect us and enable us to genuinely
interact with the world around us. National Instruments, the technology company whose
values include respect, integrity, and dedication maintains a 100-year plan, unveiled
when the company went public in 1995 to caution Wall Street analysts that it could not
be driven into a short-term “increase profits at all costs” paradigm. The 100-year plan
focuses on how the company will cultivate its culture (focusing on integrity) over time
while its 10- and 5-year plans cover specific business strategies and market
opportunities.
Integrate values into the recruitment and compensation processes. Hiring bond traders
solely on the grounds of their gifts — and then training them on the values that count to
your company, basically doesn’t work in the long haul. Instead, consider issues like
character from the get-go when focusing on hiring decisions. Here, you’ll raise a group
of employees who naturally appreciate your organization’s objective and will allow
practical and principled, self-directed decisions every day that place the customer first.
Ascertain to reward people for how they get the job done and not just getting the job
done.
Give trust away. Many of us have an innate drive to meet the expectations of others.
However, leaders too often examine others’ behaviors instead of pursuing clear goals
and trusting employees to rise to the occasion. Imagine retailers who require their
employees to carry transparent handbags so they can check whether they’re pilfering
the merchandize. That policy does severe damage to culture and trust in the work
environment. Instead, when trust is given away you’ll see people giving back more in
return.
Gauge your progress based on values – not just profits. The old saying that “what you
measure is what you get” stays true. We’ll always need to follow profits and losses, but
instead of focusing on ‘How much’ got done? we ask the more important ‘How’ did it get
done? We can measure culture in the 21st century just as quality was quantified in the
1990’s. At Barclays, for example, during the LIBOR-rigging scandal, CEO Antony
Jenkins had instituted plans for incorporating ethical behavior standards into the
company’s performance management system that decided the amount of bonus pay.
Inspire employees. Wisdom conveys to us that we motivate with carrots rather than
sticks. But even carrots have limitations, particularly during difficult economic times.
Instead, leaders must inspire their workforce. Reflect about how much we are requiring
of employees today. We want them to generate distinct, pleasurable experiences to go
beyond merely serving customers; to stand for their company and cultivate its brand,
whenever they freely express themselves in emails, tweets, blog posts, or any other
dealings; and to be productive with lesser resources and strong in the face of
inconceivable uncertainty. Employees need to be inspired with a sense of deep purpose
and shared values.
Banking on values and trust can be daunting; it entails leaders to give up certain
techniques they’ve long employed to tell employees what to do. But this new method
arouses behaviors that CEOs look for from their employees: more group effort, more
innovation, and more involvement in the workplace.
I recall what former Southwest Airlines chairman Herb Kelleher replied when asked if he
feared losing hold of the organization with the company’s flat structure. He stated:
“If you create an environment where the people truly participate, you don’t need control.
They know what needs to be done and they do it. And the more that people will devote
themselves to your cause on a voluntary basis, a willing basis, the fewer hierarchies
and control mechanisms you need.”
Culture Integration: Ethics Hotlines, Ombudspersons, & Reporting

Fraud, theft, ethics concerns – these are matters that every organization must be
geared to deal with. It’s vital that employees, customers, shareholders, and other
stakeholders have ways of collecting and transmitting sensitive information that may be
putting you in danger.
Compliant Whistleblower Hotline

A fraud and ethics hotline can cause companies into compliance with the whistleblower
protection provisions of the Sarbanes-Oxley Act (SOX) of 2002 by providing a
confidential answer for receiving and retaining complaints.
Facilitate Anonymous Reporting

Communication channels are often ineffective for illegal or indecent conduct. Even if
policies are in effect to protect them, employees may feel ill at ease filing internal
complaints. Individuals have to be persuaded to report incidents confidentially and
without the fear of retaliation.
Enforce Proper Protocol

Ensure that all reports will be dealt with appropriately from the start, reaching only the
concerned personnel and having the information required to take action.
Encourage Integrity
Setting up an anonymous fraud hotline not only protects your organization from the
harmful effects of wrongdoings, it helps establish a culture of integrity and push honest
deeds.
Assessing & Monitoring the Corporate Culture: Audits

Small enterprises face new risks as they grow even with the influx of new technologies
and globalization. Cyber security is an example, but there are also more risks related to
operations, compliance, fraud, corruption, and – importantly – corporate culture.
Appreciating this concurrence is vital for any organization’s leadership, as well as its
internal audit function. The reason why many businesses, government agencies and
non-profits are prepared for these new global opportunities is because they employ the
benefits of solid internal controls and well-equipped, independent internal audit units.
Organizations can secure assets, abide by regulations and even succeed on new
challenges that promote growth depending on their level of experience and method of
managing risk.
3rd Line of Defense

With the high-profile scandals of FIFA, Toshiba and Hertz, important questions about
the power of corporate culture on internal controls were raised. One after the other,
troubles in these organizations exploded into everyone’s awareness, attracting not only
global media attention, but also igniting speculation about how organizations cope with
inappropriate or misguided top-down pressure.
In each situation, we learned that rampant and systemic accounting irregularities or

alleged corruption were due to the break down in internal control. The biggest lesson
here is that a strong or inappropriate tone at the top can easily cause even workable
internal control processes and policies relatively powerless.
We may not know for sure if internal audit at FIFA, Toshiba, or Hertz tried to raise red
flags regarding flawed internal controls, poor financial reporting, or inapt tone at the top,
but that doesn’t prevent the ability to scrutinize how we can best protect organizations
from becoming prone to a wearing down of good governance. We should probe: how
can external stakeholders be best served, how can we live up to the values espoused
and rectify internal control weaknesses before they get out of hand?
Internal Audit’s Role in Corporate Culture

This is nothing new. Once known as ‘auditing soft controls’, then ‘auditing tone at the
top’ and now referred to as ‘auditing culture’, internal audit’s role has to be moved to the
forefront.
If internal audit can establish skills that include subjective and objective measures then
it can gain its position to aptly scrutinize and monitor corporate culture. These
quantitative and qualitative skills are a necessity if we are to consider auditing beyond a
mere checklist of feel-good policies and protocols. The success of auditing culture rests
on discovering the root cause of problems that begin with or are fed by flaws in
corporate culture.
It is also vital to realize that the importance in auditing lies in its ability to offer constant
assurance. Meaning to say, all stakeholders must concur that auditing culture is a
constant and continuous effort.
CHAPTER 3: Philosophical Ethics and Business
Ethical Frameworks: Consequences, Principles, Character
People encounter moral issues each day that may be in the form of the daily
newspaper, workplace memos, household chores, and even on the evening news.
Issues such as the justice of foreign policy, the morality of medical technologies that can
extend lives, the rights of the homeless, the fairness of teachers to the different
students. It is often disconcerting to deal with these moral issues on a daily basis.
Questions such as “How should one think through an ethical issue?” and “What
questions should be asked and what factors should be considered?”
There are different moral approaches that make it easier to resolve conflicts in decision-
making namely consequences, principles, and character. Moral dilemmas emerge when
individuals or groups need to pick between contending values, choosing one value over
another. Even intelligent and good-hearted people can wrestle with competing values
and hold differing opinions about which values should abound.
The challenge of resolving moral predicaments is intensified by the problem that people
have different approaches to moral decision-making. There is a tendency to forget that
ethical theories are thoughts of and elaborations on the experience of people seeking to
live morally. People who have never come across the different ethical theories however
function unconsciously out of one or more of those theories when making moral
decisions in one’s personal and professional lives.
There are three clearly different approaches in which people make moral decisions.
Almost everyone uses all of these ways. People make use of the varied approaches in
different roles, in different situations, and in different times in life. Yet it is done so
unreflectively and nearly always unconsciously, not due to any adherence to
corresponding ethical theories. Some make use of one way chiefly; others vary their
approach according to an array of factors. Most likely irreconcilable conflicts happen
when two or more parties argue or negotiate their positions from different moral
approaches. Usually, resolution or consensus may occur only when the different parties
use the same approach.
Consequence Approach
In the consequence approach, those who make decisions weigh several probable
results and arrive at the decision likely to produce the best result. The focus here is on
the outcomes of attempting to follow certain principles. People using this approach often
ask such questions as “What’s the bottom line?” “What effect will this have?” “What
good will this bring about?” and “Will this help in the long run?”
A balance in the use and misuse of the consequence approach to moral decision-
making should be observed because people who appear unconcerned about results
may be accused of being naïve while people who always use this approach may be
perceived as cold and uncaring.
Principle Approach
This approach is the most familiar since most ethics education is based on principles.
Business ethics is generally expressed in terms of principles, including those restricting
fraud, misrepresentation, and false billing. A principle is a common normative standard
of conduct, holding that a specific decision or action is good or true or right for all every
time and everywhere. Familiar examples of principles are The Ten Commandments and
the Golden Rule. An individual who uses the principle approach believes that an action
or decision is right or wrong regardless of the consequences.
There will be no parameters limiting what a person will or will not do if principles did not
exist and for this reason, the principle approach is essential. Conversely, a person who
always makes use of the principle approach will likely be considered dogmatic and hard
to get along with.
Character Approach
This approach analyzes a person’s or group’s intentions, inclinations, and motives and
then creates a moral judgment of the person’s or group’s character. People who apply
the character approach frequently make use of the words “good” or “bad,” instead of
“right” or “wrong.” The judgment concerned addresses neither the morality nor the
consequences of an act but the character of the person performing the act.
When the character approach is used frequently, people can take advantage of one’s
strong sense of personal responsibility. On the other hand, people may find it difficult to
understand one’s identity and what one stands for if the approach is not applied.
Utilitarianism: Making Decisions Based on Ethical Consequences

Utilitarianism was developed by Jeremy Bentham and John Stuart Mill in the 19th
century to help lawmakers decide which laws were morally best. Bentham and Mill
proposed that ethical actions are actions that present the greatest balance of good over
evil.
Utilitarianism poses a relatively simple mode for determining the morally right course of
action for any specific situation one may be in. To study an issue using the utilitarian
approach, first, recognize the different courses of action available. Second, ask who will
be affected by each action and what gains or harms will be assumed from each. And
lastly, the action chosen should be the one to present the greatest benefits and the least
harm. The ethical deed is the one that generates the greatest good for the greatest
number.
Utilitarianism can be applied to either particular actions (act utilitarianism) or general

rules (rule utilitarianism).
Act utilitarianism generally asks the question "What effect will this act have in this
situation on the general balance of good over evil?" The principle of utility is used
directly to each alternative act in a situation of choice. The right act is then determined
as the one which produces the best results or the least amount of bad results. In the
act utilitarian’s perspective, the principle of utility—do whatever will produce the best
overall results—should be applied on a case by case basis. If lying would present the
best consequences in a particular situation, one ought to lie.
Act utilitarianism is usually deemed as the most natural interpretation of the utilitarian
ideal. If one’s aim is always to generate the best results, it seems reasonable to think
that in each case of determining what is the right thing to do, one should consider the
feasible options (what actions could be performed), predict the outcomes, and accept
the action that will produce the most good.
Rule utilitarianism mainly poses the question "What effect would everyone's doing this
action have on the general balance of good over evil?" Rule utilitarians have a two part
perspective that emphasizes the importance of moral rules. First, a specific action is
morally justified if it conforms to a justified moral rule. Second, a moral rule is justified if
its inclusion into the moral code would create more utility than other possible rules (or
no rule at all). According to this viewpoint, people should judge the morality of individual
actions by reference to general moral rules, and people should judge particular moral
rules by determining whether their acceptance into the moral code would produce more
well-being than other possible rules.
Unlike act utilitarians who try to maximize overall utility by applying the utilitarian
principle to individual acts, rule utilitarians maintain that one can maximize utility only by
setting up a moral code that consist of rules. The correct moral rules are those whose
inclusion in the moral code will produce better results than other possible rules. Once it
is determined what these rules are, one can then assess individual actions by observing
if they conform to these rules. So, the principle of utility is used to judge rules and is not
applied to individual actions. Once the rules are defined, compliance with these rules
provides the standard for evaluating individual actions.
The discussion between act utilitarianism and rule utilitarianism focuses on many
important issues about how people should make moral judgments. Act utilitarianism
emphasizes the specific situations and the many individual features of the
circumstances that offer moral problems, and it presents a simple method for
addressing these individual cases. Rule utilitarianism emphasizes the repetitive features
of life and the ways in which related needs and problems arise again and again. From
this viewpoint, rules are needed that deal with types of actions: killing, stealing, lying,
cheating, punishing people for crimes, helping people in need, etc. Both of these
outlooks, however, agree that the primary determinant of what is right or wrong is the
relationship between what one does or what form the moral code takes and what is the
impact of one’s moral perspective on the level of people’s well-being.
A strong allure of the utilitarian approach is its cost-benefit aspect. Business managers
frequently weigh the pros and cons of different economic and managerial actions. They
appreciate the fact that most utilitarians acknowledge that not everyone will benefit from
a particular action. Therefore, the stress in utilitarianism is on the net utility of the set of
outcomes resulting from a decision being considered.
Business executives also understand that their business decisions must usually be
placed in the context of a win-lose situation. That is, the consequences of a business
action are often multiple. For example, in mature markets, the only way to gain market
share is when at least one competitor loses share. Or increasing long term shareholder
value may need sacrificing short-term profits in favor of reinvestment in the business, its
products and services.
Another reason managers approve of the utilitarian thinking is due to its flexibility in
response to differing situations. Utilitarianism accommodates complicated situations
more easily than other, more absolute, philosophical approaches. The factors included
in a utilitarian structure can be conveniently different from the short term to the long
term or from financial to non-financial criteria. While opposing stakeholder claims can be
recognized, managers typically weigh business owner or shareholder goals associated
with corporate profitability as more important than the goals of other groups such as
employees or the community.
An Ethics of Principles and Rights

Making good ethical decisions demands a trained sensitivity to ethical issues and a
practiced manner for surveying the ethical aspects of a decision and weighing the
considerations that should impact one’s choice of a course of action. Having a method
for ethical decision-making is very important. Making decisions based on the
consequences should surely be a part of accountable ethical decision-making but this
approach must be complemented with the acknowledgment that some decisions should
be based on principle, not consequences. In simpler words, the ends do not always
justify the means. How does one know what principles should be followed and how
does one decide when a principle should outdo beneficial consequences? Principle-
based, ethical frameworks resolve the details of these questions.
In this framework, the focus is on the duties and obligations that one has in a given
situation, and consider what ethical obligations one has and what things one should
never do. Ethical conduct is characterized by doing one’s duties and doing the right
thing, and the goal is performing the correct action.
This framework has the favor of developing a system of rules that has constant
expectations of all people. If an action is ethically correct or if a duty is required, it would
apply to every person in a given situation. This equity and fairness encourages treating
everyone with equal dignity and respect.
In addition, this framework gives focus on obeying moral rules or duty despite of
outcome, so it allows for the probability that one might have acted ethically, even if there
is a bad result. Given this, this framework works best in circumstances where there is a
sense of obligation or in those in which one needs to scrutinize why duty or obligation
commands or prohibits specific courses of action.
As like the other frameworks, this framework also has its limitations. First, it can seem
cold and impersonal since it may call for actions which are known to produce harm,
though they are strictly in keeping with a particular moral rule. Also, it does not present
a way to conclude which duty one should follow if one is presented with a situation in
which two or more duties oppose. It can also be rigid in applying the notion of duty to
everyone regardless of personal situation.
Rights define what people can expect as their due, so far as it is under the control of
people or human society. There is always a duty connected with a right, though in many
cases the duty on other people is that they do not interfere with or prevent others
claiming their rights. Any right an individual has depends on other people completing
their duties towards that individual. So it follows that if people neglect their duties, then
other people’s rights may be neglected.
Virtue Ethics: Making Decisions Based on Integrity and Character

Decisions about right and wrong pervade everyday life. Ethics should concern all levels
of life: acting properly as individuals, creating responsible organizations and
governments, and making our society as a whole more ethical. The virtue framework
addresses the elements of individual character and disposition which deepen one’s
humanity and engender one’s relationships with others. These are the qualities which
allow people to act in accordance with their higher selves. Different cultures may value
particular virtues more than others but in most cases virtues refer to traits such as
honesty, kindness, patience, civility, compassion, diligence, self-reliance, loyalty,
fairness, courage, tolerance, conscientiousness, generosity, temperance, self-control,
prudence, etc.
In the virtue framework, one tries to identify the character traits, either positive or
negative, that might motivate people in a given situation. People are concerned with
what kind of person one should be and what one’s actions reveal about one’s character.
People describe ethical behavior as whatever a virtuous person would do in the
situation, and one seeks to develop similar virtues.
Clearly, this framework is favorable in situations that ask what sort of person one should
be. It enables a wide range of behaviors to be considered as ethical, as there might be
various types of good character and many paths to developing it. As a consequence, it
takes into account all parts of human experience and their role in ethical deliberation, as
it believes that all of one’s experiences, emotions, and thoughts can influence the
development of one’s character.
Even though this framework considers a variety of human experience, it also makes it
more challenging to resolve discords, as there can often be more disagreement about
virtuous traits than ethical actions. In addition, because the framework focuses on
character, it is not specifically good at assisting someone to decide what actions to take
in a given situation or ascertain the rules that would guide one’s actions. Also, since it
stresses the importance of role models and education to ethical behavior, it can
sometimes merely reinforce current cultural norms as the standard of ethical behavior.
This framework maintains the moral rightness or wrongness of actions. An action can
be construed as right or wrong separately from any consequences of the action. It is not
the consequences that make an action right or wrong, but the principle or inclination on
which the action is based.
A Decision-making Model for Business Ethics Revisited

This chapter has provided a detailed introductory analysis of an ethical framework.
Understanding the philosophical basis of ethics allows a person to become more aware
of ethical issues, to identify the impact of your decisions better, and to hopefully make
better informed and more plausible decisions. Also, the theories allow a person to better
and more articulately provide an explanation as to why one has made or wish to make a
certain decision.
These ethical theories provide vital ways to develop the decision-making model
introduced in the last chapter. Here, a more detailed account of the decision-making
model is given. The aim of this decision-making process is to help make ethically
responsible business decisions. To summarize, here is a review of that decision-making
process taken from Business Ethics: Decision-making for Personal Integrity & Social
Responsibility (3rd ed.).1
1. Identify the ethical issues involved. What is the ethical dimension? What is the
ethical issue? Often we do not even notice the ethical dilemma. Avoid normative
myopia.
2. Determine the facts. Gather all of the relevant facts. It is critical at this stage that
we do not unintentionally bias our later decision by gathering only those facts in support
of one particular outcome.
3. Identify stakeholders. Who will be affected by this decision? What are their
relationships, to me, and what is their power over my decision or results? Who has a
stake in the outcome? Do not limit your inquiry only to those stakeholders to whom you
believe you owe a duty; sometimes a duty arises as a result of the impact. For instance,
you might not necessarily first consider your competitors as stakeholders; however,
once you understand the impact of your decision on those competitors, an ethical duty
may arise.
4. Consider the available alternatives. Exercise “moral imagination.” Are there

creative ways to resolve conflicts? Explore not only the obvious choices, but also those
that are less obvious and that require some creative thinking or moral imagination to
create.
5. Consider how a decision affects stakeholders. Take the point of view of other
people involved. How is each stakeholder affected by my decision? Compare and weigh
the alternatives: ethical theories and traditions can help here.
a. Consequences
i. beneficial and harmful consequences
b. Duties, rights, principles
i. What does the law say?
ii. Are there professional duties involved?
iii.Which principles are most obligatory?
iv.Are people being treated fairly, with respect for their autonomy and
equality?
c. Implications for personal integrity and character
i. What type of person am I becoming through this decision?
1
1. Hartman, Laura P., Des Jardins, Joseph, & MacDonald, Chris. Business Ethics: Decision-making
for Personal Integrity & Social Responsibility (3rd ed.). McGraw-Hill, Irwin.
ii. What are my own principles and purposes?
iii.Can I live with public disclosure of this decision?
6. Guidance. Can you discuss the case with relevant others; can you gather
additional opinions or perspectives? Are there any guidelines, codes, or other external
sources that might shed light on the dilemma?
7. Assessment. Have you built in mechanisms for assessment of your decision and
possible modifications? Are they necessary? Make sure that you learn from each
decision and move forward with that increased knowledge; you may face similar
decisions in the future or find it necessary to make changes to your current situation.
Chapter 2: ETHICAL DECISION-MAKING: PERSONAL & PROFESSIONAL CONTEXTS
A Decision-making Process for Ethics

We all have a picture of how we are when we act ethically or are "at our best." We
probably also have an idea of what an ethical business, an ethical community, an
ethical government, or an ethical society should be. Ethics is involved in all these levels
– acting decently as individuals, promoting ethical organizations and governments, and
making the world as a whole ethical in the way it interacts with everyone.
As earlier stated, ethics refers to standards of behavior that tell us how people should
act in the many situations in which they find themselves – as children, parents, friends,
professionals, citizens, and so on.
It is helpful to identify what ethics is NOT:
Ethics and feelings are not the same. Feelings provide relevant insight for our ethical
choices. Some people have deeply rooted habits that make them feel bad when they do
something wrong, but many people are apathetic even though they are doing something
wrong. Our feelings will often caution us it is awkward to do the right thing if it is difficult.
Ethics is not religion. Many people may not be religious, but ethics is a concern to all.
Most religions do promote high ethical standards however generally do not deal with all
the sort of issues we tend to face.
Ethics does not mean just following the law. A good judicial system does include many
ethical standards, but at times the law can digress from what is ethical. It can deviate to
becoming ethically corrupt, as some authoritarian regimes have made it. It can serve
power alone and the interests of selected groups. The law may have a challenge
designing or imposing standards in some vital areas, and may be slow to address new
problems.
Ethics does not only mean pursuing traditionally accepted norms. Some traditions are
relatively ethical, but others become corrupt or oblivious to certain ethical matters.
Ethics is not science. Even if social and natural science can provide essential data to
help us make better ethical choices, it alone does not tell us what we should do. Ethics
provides grounds for how people should act.
Why Identifying Ethical Standards is Hard

There are two fundamental problems in identifying the ethical standards we are to
follow:
1. On what do we build our ethical standards?
2. How do those standards get applied to specific situations we experience?
If our ethics are not based on feelings, religion, law, accepted social norms, or science,
what are they based on? Five different sources of ethical standards are suggested.
Criteria for Ethical Decision-making

The Utilitarian Approach
The utilitarian approach espouses that moral behavior generates the greatest good for
the vast majority. Under this approach, a decision-maker considers the consequence of
each decision on all concerned and selects the one that amplifies the satisfaction for the
greatest number of people. Some emphasize that the ethical action is the one that
imparts the most good or carries out the least harm.
The Rights Approach

The moral rights approach emphasizes that human beings have basic rights and
liberties that cannot be taken away by one’s decision. Thus, an ethically correct decision
is one that best upholds and respects the moral rights of those affected.
Six moral rights should be regarded during decision-making:
1. Individuals are to be considered only as they knowingly and freely consent to be

treated.
2. Individuals can decide to do as they please away from work and have command of
information about their personal life.
3. Individuals may desist from carrying out any directive that violates their moral or
religious norms.
4. Individuals may truthfully evaluate the ethics or validity of actions of others.
5. Individuals have a right to an fair hearing and treatment.
6. Individuals have a right to live without endangerment or violation of their health and
safety.
Managers must steer clear of interfering with the fundamental rights of others in making
ethical decisions.
The Fairness or Justice Approach

The justice approach maintains that moral decisions must be based on standards of
equity, fairness, and impartiality. Managers are concerned with three types of justice,
namely: distributive justice, procedural justice, and compensatory justice.
Distributive justice is a concept that holds that different treatment of people should not
be based on arbitrary characteristics. In the case of considerable differences, people
should be treated differently in consideration with the differences among them.
Procedural justice is one that rules should be clearly stated and consistently and
impartially enforced.
Compensatory justice is a concept that individuals should be compensated for the

damages of their injuries by the liable party and that individuals should not be held
responsible for matters over which they have no control.
The Common Good Approach

The Greek philosophers have contributed the belief that life in community is good in
itself and our deeds should add to that life. This approach suggests that linked
relationships of society are the foundation of ethical reasoning and that reverence and
concern for all others are conditions of such grounds.
The Virtue Approach

An old approach to ethics is that ethical actions should be consistent with certain virtues
that provide for the full development of humankind. These virtues are beliefs and habits
that enable us to act according to the best of our character and on behalf of values like
honesty and truth. Beauty, empathy, courage, generosity, patience, love, loyalty,
integrity, justice, self-control, and prudence are all examples of virtues. Virtue ethics
asks of any action, "What kind of person am I if I do this?" or "Is this action consistent
with my living at my best?"
Putting the Approaches Together
Each of the approaches helps us decide what standards of behavior can be deemed
ethical. However, there are still problems to be solved.
First, we may not concur on the content of some of these particular approaches. We
may not all be in agreement with the same set of human and civil rights.
We may not see eye to eye on what represents the common good. We may not even
agree on what is a good and what is bad.
Second, the different approaches may not all answer the question "What is ethical?" in
the same way. Nonetheless, each approach gives us vital insight on what is ethical in a
particular circumstance. More often, the various approaches do point to similar answers.
Making Decisions
Making sensible ethical choices requires an understanding of ethical issues and a

prepared method for discovering the ethical sides of a decision and evaluating the
alternatives that should impact our choice of action. Having a strategy for ethical
decision-making is absolutely necessary. When applied regularly, the method becomes
so common that it becomes a natural behavior.
The more difficult the ethical choice we have to make, the more we need to discuss and
consult with others about the situation. Only by careful evaluation of the problem with
others, can we make good ethical choices.
The following is a framework for ethical decision-making which is a useful method for
evaluating ethical situations and identifying ethical courses of action.
A Framework for Ethical Decision-Making
Recognize an Ethical Issue

Consider these questions in recognizing an ethical issue. Could this decision or
situation be harmful to someone or to some group? Does this decision involve a choice
between a good and bad option, or perhaps between two "goods" or two "bads"?
Ethical issues may go unnoticed through:

Normative myopia is a shortsightedness of values.
Inattentional blindness results from focusing on failures.
Change blindness occurs when decision-makers fail to see gradual changes over time.
Get the Facts

Here are questions to ponder on. What are the relevant facts of the case? What facts
are not known? What can I still learn about the situation? Are my facts enough to make
a decision? Who has an important interest in the outcome? What are the possible
courses of action? Have all the concerned personalities been consulted? Have I
identified creative alternatives?
Evaluate Alternative Actions

Assess the alternatives by asking the following questions:
Which alternative will generate the most good and produce the least harm? (The
Utilitarian Approach)
Which alternative respects most the rights of all who have a stake? (The Rights
Approach)
Which alternative treats people equally or fairly? (The Justice Approach)
Which alternative best serves the community as a whole, and not just some members?
(The Common Good Approach)
Which alternative leads me to act as the sort of person I want to be? (The Virtue
Approach)
Make a Decision and Test It

Which choice best addresses the situation taking to account these approaches?
What would people say about the choice I made?
Act and Reflect on the Outcome

How can my decision be applied with the greatest care and attention in consideration of
the concerns of all stakeholders?
How did my decision turn out and what have I learned from this specific situation?
Decision-making Goes Wrong: Why Do “Good” in “Bad” Acts?

At some point, most management teams will make the right decision and will be
handsomely rewarded. Southwest Airline’s decision in 2007 to guard against increases
in the price of jet fuel proved remarkably prophetic. But sometimes the big decision will
go terribly erroneous. In 2007, AOL and Time Warner finally called off their $350 billion
merger that was eventually tagged as “the biggest mistake in corporate history”.
Normally, one may think that there’s a lot of fortune and inspired leadership behind
successful choices such as Southwest’s. But if you examine closely, that’s not exactly
true. The leadership teams at AOL and Time Warner were hardly foolish.
Good decisions, like Southwest’s, are nearly always a consequence of healthy decision
processes. Similarly, decisions that go wrong, such as Time Warner’s, nearly always
result from procedural or organizational failures.
These five mistakes account for the vast majority of poor decisions:
An idealistic search for silver-bullet solutions. Most business problems are complex. But
many managers badly want a simple action that will leapfrog the competition or boost
an organization’s performance in one fell swoop. One example is when the corporation
reorganizes. Companies are reorganized by nearly half of CEOs in the first two years of
their tenure. Many preside over various reforms. Yet less than one-third of these acts
produce any significant improvement in performance.
Before Fiat bought into Chrysler, it reorganized three times in the thirty-six months prior
to its sale. Each time, management believed the reorganization would turn around the
ailing automaker. Each time, nothing happened.
So the next time you are asked, “Is there an easy resolution to this problem?” be
prepared to answer, “Perhaps not.”
Failure to consider alternatives explicitly. Business is a play of choices, and you can’t
make good choices without worthy alternatives. However, most organizations do not
clearly formulate and evaluate alternatives in making big decisions. What do you think
might have happened if the team at Time Warner had considered other alternatives for
venturing into the world wide web: strategic partnerships, joint-venture deals, even
increased growth of the company’s own capabilities. The habit of formulating and
evaluating clear alternatives greatly improves the quality of decision-making.
Too many people involved. Vital decisions are difficult to make in large groups. At times,
crucial points don’t get discussed thoroughly. Different personalities interfere with
reason and argument.
In fact, research highlights the “Rule of 7”: for every individual you add to a group
beyond seven, decision effectiveness declines by 10 percent. Apple Computer and
Facebook are successful because of their highly streamlined decision-making models.
At Ford Motor Co., the senior leadership team attends to the company’s most important
decisions in “special attention” meetings for a small group of executives.
The next time you receive a notice of meeting with more than fifteen invitees, ask
yourself: “Are we really going to be productive and make significant decisions in this
forum?”
Failure to consider opportunity cost. The decision to begin doing something different is
only one form of high-stakes decision. Another—often with equally big results—is to
continue what you’re doing. The decision not to terminate an uncompetitive product line
or leave an unprofitable market can consume whatever little management time and
other resources there are. Yet few executives value the opportunity cost associated with
pursuing with a losing project. Blockbuster’s failure to shut down its legacy bricks-and-
mortar operations and transfer attention to home delivery and digital downloading
doomed the once-powerful retailer.
The next time you are considering keeping an ailing operation, ask yourself: “Where
else could we invest the resources that this business is eating up?”
Underestimating the challenges involved in execution and change management. The

intricacies associated with a big-stakes decision seldom end with just the decision.
Indeed, recent Bain research shows that only 12 percent of large-scale changes are
applied as intended. That’s because change is hard—and the more the change, the
bigger the risks. The launch of Healthcare.gov may be an example of underestimating
the difficulties of implementation. While the risks associated with the website were
predictable, they appear never to have been elevated to the level that demanded action.
As a result, concerned officials did not prepare the necessary precautions, and the
project failed during the weeks following its launch.
The next time you are thinking through a big-stakes decision ask yourself: “What
happens first thing Monday morning? What behaviors will have to change?”
When big-stakes decisions go awry, it is typically because the organization has fallen
victim to one or more of these failures. Success will not come by avoiding them but it
will greatly increase the chance of a better decision.
Ethical Decision-Making In Managerial Roles

Managers are accountable for the ethical conduct of those who report to them. This is
made possible by making sure employees are aware of the organization's code of ethics
and have the opportunity to validate and clarify their understanding. Employees’
behaviors are monitored in accordance with it. Managers are responsible to respond
quickly and appropriately to lessen the impression of suspected ethical violations.
Finally, managers make themselves available as a resource to counsel and coach
employees who face ethical situations.
Let’s not forget that managers are responsible for advocating ethical standards in their
own behaviors and decisions. Managers may be required to follow a separate
professional code of ethics, depending on their role, responsibilities, and training, in
addition to following the organization's ethical code.
Managers are also responsible for interacting with external stakeholders such as
customers, local community, government officials, suppliers, or owners. In those
interactions, managers may be tasked to explain a decision or a planned action in
connection with ethical considerations. The stakeholders will be interested to hear how
the organization took ethics into account, and in those cases it is the manager's duty to
speak on the company's behalf.
Stakeholder Map
Employees
Owners Customers
The
Corporation
Suppliers Local
Community
Government
Finally, managers may be responsible for creating and/or implementing changes to an

organization's ethical codes or guidelines. These changes may be in response to an
internal determination based on the experience of employees; for instance, additional
clarification may be needed about what constitutes nepotism or unfair bias in hiring.
Alternatively, new regulations, altered public perceptions and concerns, or other
external factors may require the organization to make adjustments.
CHAPTER 1: Ethics and Business
Ethics in the Business Environment

Ethics regard an individual's moral judgments about right and wrong. Decisions taken
within an organization may be made by individuals or groups, but whoever makes the
decisions will be affected by the culture of the company. The decision to behave
ethically is a moral one; employees must decide what they think is the right course of
action. This may include rejecting the course that would lead to the biggest short-term
profit.
Business ethics is the applied ethics discipline that focuses on the moral aspects
concerning business activity. Programs of legal compliance, empirical studies into the
moral beliefs and attitudes of business people, a display of best-practices claims,
arguments for or against mandatory worker participation in management, and attempts
at applying traditional ethical theories, theories of justice, or theories of the state to firms
or to the functional areas of business are all advanced as contributions to business
ethics. These projects differ significantly and usually seem to have little in common
other than the conviction, held by those who pursue them, that whatever each is
pursuing is considered as business ethics. Business ethics are carried out to ensure
that a specific required level of trust exists between consumers and various forms of
market participants with businesses.
There are several factors that play a part in the success of a company that extend
beyond the range of financial statement. Organizational culture, management
philosophy and ethics in business each have an impact on how well a business
performs in the long term. Business ethics is one of the most important aspects of
success in the long run.
Ethics in Leadership
The management sets the manner by which the company operates on a daily basis.
When the current management principles is based on ethical practices and behavior,
leaders within an organization can instruct employees by example and guide them in
making decisions that are not only beneficial to them as individuals, but also to the
organization. Building on a foundation of ethical behavior aids in creating long lasting
positive effects for a company, including the capability to invite and keep highly talented
individuals and building and maintaining a positive reputation within the community.
Operating a business in an entirely ethical way builds a stronger bond between
individuals in leadership positions that further creates stability within the company.
Employee Ethics
When the management team is leading a company in an ethical manner, their
employees follow suit. Employees make better decisions efficiently with business ethics
as a governing standard and this increases productivity and overall employee morale.
When employees accomplish tasks in a manner that is based on honesty and integrity,
the whole company benefits. Employees who work for an organization that requires a
high standard of business ethics in all aspects of operations tend to complete their job
duties at a higher level and tend to stay loyal to that organization.
Business Ethics Benefits

The essence of business ethics extends beyond employee loyalty and morale or the
strength of a leadership bond. Like with all businesses, the ethical movement of a
company is connected to profitability in both the short and long term. The reputation of a
business from other businesses, the community, and investors is important in
determining whether a company is a beneficial investment. If a company's reputation is
tainted based on the idea that it does not run ethically, investors are less inclined to buy
stock or otherwise support its operations.
Business Ethics as Decision-making

Each employee is obliged to make decisions in the business environment every day.
Working for an organization often necessitates following an ethical framework when
making these decisions. Business ethics lays out the acceptable behavior organizations
expect to see from their employees. Strong decision-making and business ethics can
also aid companies choose the best business opportunities.
Decision-making in business ethics often compels organizations to recognize specific

ethical standards, which usually means different things to different people. As
companies continue to develop and expand, new people are hired who may not have
the same ethical standards as employees currently working in the company. A
dissimilarity in ethics often changes how individuals approach the decision-making
process. Organizations usually use the company’s mission statement to establish a
model for helping employees make ethical business decisions.
There are five types of ethical standards: utilitarian, rights, fairness or justice, common
good, and virtue. Utilitarian ethics is a principle that seeks to do the most good and
restrict the amount of harm for each individual. A rights style protects and respects the
moral rights of individuals impacted by decisions. The fair or just approach attempts to
generate equality among all individuals while the common good type centers on making
society as a whole better. The virtue approach focuses on the ideal characteristics
required for promoting employees for the company.
Business ethics is an instrument organizations use to guarantee managers, directors, or

executive officers act responsibly in different business situations. Ethical decision-
making seeks to benefit the company as a whole, instead of allowing just one individual
gain from business decisions. Individuals who constantly make decisions based on their
personal profit may initiate legal liabilities for an organization that may lead to
bankruptcy.
Building an ethical business environment does not happen in a day. Organizations may
need to spend time and money preparing and advocating business ethics among
managers and employees. In addition, companies may observe that implementing an
ethical decision-making process may prompt negative feedback from managers or
employees. Opposing this negative feedback may be a challenging part of implementing
business ethics.
Organizations may hire professional consultants and organize seminars or other training
programs to educate employees on decision-making in business ethics. These outside
sources may be able to supply organizations with an objective critique of their current
operations and offer advice on how to enforce a strong ethical code in their business
operations.
Business Ethics as Personal Integrity and Social Responsibility

Personal Integrity
Integrity is an internal system of principles which guides one’s behavior with intrinsic
benefits. Integrity is a choice instead of an obligation. One’s upbringing and exposure
may influence integrity but it cannot be forced by outside sources. Integrity expresses a
sense of wholeness and strength. People of integrity are led by a set of core principles
that allows them to act consistently to high standards.
There is a vital relationship between integrity and ethics, where each reinforces the
other. Personal integrity is the base for ethics - good business ethics encourages
integrity. One’s words and deeds will be in agreement with the ethical standards of the
company when a person has a high degree of integrity.
It can be quite a challenge for companies to establish and then abide by their own
ethical standards. Employees at all levels face pressures to act against ethical
standards and oppose their own integrity. Integrity is what supplies the inspiration to
convert knowledge into action. There is intrinsic contentment in gaining courage at
times when one’s integrity is tested.
Social Responsibility
The approach of social responsibility is based on a system of ethics, in which decisions
and actions must be ethically ratified before proceeding. If the decision or action brings
about harm to society or the environment then it would be regarded as socially

irresponsible. Moral values that are fundamental in society establish a distinction
between right and wrong. Each individual has a responsibility to behave in a manner
that is advantageous to society and not to the individual alone.
The theory of social responsibility and ethics applies in both individual and group
contexts. It must be included into day to day decisions and actions, specifically ones
that will have an effect on other people and/or the environment. In a group context, a
law of social responsibility and ethics is implemented within as well as during
interactions with another group or an individual.
Businesses have established a code of social responsibility that is especially made to fit
their company environment. Maintaining social responsibility within an organization
ensures the integrity of society and the environment are protected. Usually, the ethical
implications of a decision or action are disregarded for personal gain and the profits are
often material. This is generally exhibited in companies that attempt to cheat
environmental regulations. When this happens, government interference is necessary.
Ethics and the Law

Ethics is the ideology about right and wrong in the workplace distinguished by social
notions of people's moral actions. Ethical concepts do not evolve unless new knowledge
is found that will make people think differently. An example of this is, racial segregation;
it was perceived as ethical years ago until equal rights and the liberation of all people.
Laws are rules of behavior authorized by governments that demonstrate what people
can or cannot do in the workplace. It is only a lawmaker who can formally produce a
legal standard of change. Laws can be morally wrong or unethical as observed in
controversial issues like abortion, slavery, and child labor.
The central difference between ethical and legal business practices is that the law does
not completely address all ethical issues that businesses face. Something might be
legal but unethical. Legal practices include processes and policies to comply with the
law, like honesty and transparency in keeping financial accounts. Ethical practices
pertain to efforts to meet stakeholder expectations for business activities.
Legal business practices are implemented due to the inherent legal requirement that the
organization behave or act in certain ways. Companies often have employees or
contracted lawyers to help guarantee compliance with business and industry-related
laws. Technically, ethical practices provide a bit more choice. A company does not
automatically have to recycle plastics and other materials unless local laws dictate it.
However, many organizations do practice environmental recycling and reuse for ethical
purposes and to meet public and customer expectations.
Ethical responsibilities are founded by society itself, through history and those things
that most people perceive to be the 'right thing to do.' In that situation, society punishes
disturber. Legal responsibility is when the state uses laws to punish actions of a person
by using of legal methods.
Ethics as Practical Reason

Practical reason is described as a unique standpoint of reflection. Practical reason is
logic that is used to direct action, and is compared with theoretical reason, which is
used to guide thinking.
Theoretical reason is in use when one engages in reasoning that is focused on the
resolution of questions of explanation and prediction. Looking back at events that have
already taken place, it asks why they have occurred; looking forward, it seeks to find out
what is going to happen in the future. In these ways, theoretical reflection is focused on
matters of fact and their explanation.
In contrast, practical reason takes an especially normative question as its kickoff point.
It commonly asks, of a set of options for actions that has yet to be performed, what one
ought to do, or what it would be best to do. It is therefore focused on matters of value, of
what it would be advantageous to do rather than matters of fact and their explanation. In
practical reasoning, one seeks to assess and evaluate their reasons for action, the
considerations that speak for and against other courses of action that are open to them.
In addition, one does this from a distinctively first-person point of view, one that is
defined in terms of a practical circumstance in which one finds himself.
Sometimes practical reason concerns any way of figuring out what to do; more
commonly it implies proper or authoritative, therefore reasoned, ways of figuring out
what to do. On various accounts practical reasoning is only instrumental - it recognizes
ways of reaching specific result, but does not dictate which ends should be pursued or
which types of action are good or bad, required or prohibited. Instrumental reasoning is
essential not only for ethics and politics, but for all activities like resolving how to travel
to a certain place. Other accounts of practical reason assert that it is more than
instrumental reasoning - it is involved not only with figuring out how to attain given ends,
but with recognizing the ethically essential ends of human activity, or the ethically
essential norms or principles for human lives, and presents the basis for all ethical
judgment.
Theoretical reason tries to gauge the way things are. Practical reason determines how
the world should be and what individuals should do. A theoretical motion is good if it
agrees with reality, while a practical motion has more complex and debatable
standards. While practical reason decides what to do, it cannot change reality any way it
likes. The successful practical person must take into account facts and truths about the
world. Some have concluded from this that practical reason consists largely in using
such knowledge for practical purposes. Likewise, while theoretical reason attempts to
conform to the world, its proceedings are influenced by the practical needs of inquirers.
Some have inferred from this that theoretical reason is the specification of the norms of
practical reason to the practical project of theoretical inquiry. How individuals ought to
believe is then a practical question.

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Chapter 8: Ethical Decision-Making: Corporate Governance, Accounting, & Finance

Corporate governance refers in general to the rules, procedures, or laws whereby

Professional Duties and Conflicts of Interest

Investors depend on auditors to objectively assess a company’s financial statements.

The Sarbanes-Oxley Act of 2002

Sarbanes-Oxley Act entails requirements for verification of the statements by officers.

The Internal Control Environment

Based on the COSO framework, internal control is made up of five integrated

Going Beyond the Law: Being an Ethical Board Member

Legal Duties of Board Members

Beyond the Law, There is Ethics

Conflicts of Interest in Accounting and the Financial Markets

Executive compensation is a very significant factor to consider when assessing an

Marketing: An Ethical Framework

This assessment is only assumed because, similar to all agreements, specific

It is quite difficult to ascertain if a person is being treated with respect in marketing

Responsibility for Products: Safety and Liability

It was mentioned in a previous chapter that to be responsible is to be identified as the

Contractual Standards for Product Safety

Tort Standards for Product Safety

Negligence is a principal factor of tort law. It concerns a kind of ethical neglect,

Negligence can be distinguished as a failure to practice reasonable care or ordinary

Strict Product Liability

Responsibility for Products: Advertising and Sales

Manipulation is defined as to guide or direct someone's behavior. It does not require

Ethical Issues in Advertising

Manipulation would be objected strongly by the principle-based tradition in ethics. To

As in the utilitarian tradition, it offers a more conditional review of manipulation

Marketing Ethics and Consumer Autonomy

To understand how desires might be non-autonomous, ponder on the various reasons

Supply Chain Responsibility

Product: It is important to have a clear understanding of a product and what makes it

Ethics and Social Responsibility

Businesses have established a system of social responsibility that is suited to their

Philanthropic Model of Corporate Social Responsibility

Social Web Model of CSR

Norman Bowie, a philosopher, has supported a version of CSR that would be

Integrative Model of CSR

Exploring Enlightened Self-Interest: Does “Good Ethics” Mean “Good Business”?

majority of cultures include honesty, veracity, trustworthiness, and honor in their

Integrity is crucial for an established business. Integrity is construed as incorruptibility,

So how do ethics and integrity apply to business?

Proprietors need to honor any commitments made to employees, customers or clients.

Business owners ought to remember to be straightforward and honest; speak directly

As internal customers, employees and subcontractors have a daily, firsthand

What is Corporate Culture?

Major Components and Development

Culture & Ethics

Compliance & Value-based Cultures

Ethical Leadership & Corporate Culture

Building a Values-based Corporate Culture

Culture Integration: Ethics Hotlines, Ombudspersons, & Reporting

Compliant Whistleblower Hotline

Facilitate Anonymous Reporting

Enforce Proper Protocol

Assessing & Monitoring the Corporate Culture: Audits

3rd Line of Defense

In each situation, we learned that rampant and systemic accounting irregularities or

Internal Audit’s Role in Corporate Culture

Utilitarianism: Making Decisions Based on Ethical Consequences

Utilitarianism can be applied to either particular actions (act utilitarianism) or general

An Ethics of Principles and Rights

Virtue Ethics: Making Decisions Based on Integrity and Character