Velasquez

Eighth edition

Chapter 1
Ethics and Business

Merck & Co Inc.

1.1-The nature of business ethics
1.2-Moral development and moral reasoning
1.3-Arguments for and against business ethics
1.4-Ethical Issues in International Business
1.5-Moral Reasoning
1.6-Moral Responsibility = Blame
• River Blindness bite of the black fly parasitic worm under
the skin
• Intense itching goes through the skin eventually to eyes
• Blinded over 60% of wester African villagers over 50
• Pesticide immunity
• What should they do?
• Ethic s Vs Profits?
Solution:
• Human version of Invermectin: Mectizan
• Once a year one pill took 7 years to make
• NO ONE stepped in to help not the WHO or the US or any
organization
• Distribute for free though no distribution channels

• Read the article at the beginning of the Chapter

• Dr. Roy Vagelos, CEO of the
company, replied that once
the company suspected that
one of its animal drugs
might cure a severe human
disease that was ravaging
people, the only ethical
choice was to develop it.
Moreover, people in the Third World “will remember”
that Merck helped them, he commented, and will
respond favorably to the company in the future.
1.1-The nature of business ethics

• Ethics: “the principles of conduct governing an individual

or a group” or “the study of morality.”

• So what is Morality: “the standards that an individual or a

group has about what is right and wrong, or good and
evil.”
1.2-Moral development and moral
reasoning
• BFGoodrich: vehicle parts and aircraft brakes.
• What is the difference between the decision-making
process in the Merck case and the one involving
BFGoodrich?
• BFGoodrich’s decision-making was based on what would
benefit the company.
• What moral standards were reflected in the BFGoodrich
employees interviewed about the case?
• One believed that as an engineer, he had an obligation “to do
your best, no matter what it cost.” Another believed that it was
wrong to lie and to endanger the lives of others, and he also
believed that integrity is good, and dishonesty is bad.
1.2-Moral development and moral
reasoning
• Moral standards: The norms about the kinds of actions believed
to be morally right and wrong as well as the values placed on
what we believe to be morally good and morally bad.
• Nonmoral standards The standards by which we judge what
is good or bad and right or wrong in a nonmoral way.

Group One Group Two

• “Do not harm other people,” “Do not eat with your mouth open,”
• “Do not lie to other people,” “Do not chew gum in class,”
• “Do not steal what belongs to “Do not wear sox that do not match.”
others.”
1.2-Moral development and moral
reasoning
Six Characteristics of Moral Standards
• Involve serious wrongs or significant benefits
• Should be preferred to other values including self-
interest (example Human safety vs. job)
• Not established by authority figures – they are set by
family and schools…
• Felt to be universal: do not lie, do not sell expired
products.
• Based on impartial considerations
• Associated with special emotions and vocabulary: I will
feel bad if I act immorally
1.2-Moral development and moral
reasoning
• Ethics:
The discipline that examines one’s moral standards or the
moral standards of a society to evaluate their
reasonableness and their implications for one’s life.

• Business ethics
A specialized study of moral right and wrong that
concentrates on moral standards as they apply to business
institutions, organizations, and behavior.
1.2-Moral development and moral
reasoning
Kinds of Ethical Issues
• Systemic—ethical questions about the social, political, legal,
or economic systems within which companies operate

• Corporate—ethical questions about a particular corporation

and its policies, culture, climate, impact, or actions

• Individual—ethical questions about a particular individual’s

decisions, behavior, or character
1.3-Arguments for and against business
ethics
• Applying Ethical Concepts to Corporations

Are the acts of

organizations moral or
immoral in the same way
that the actions of human
individuals are?
1.3-Arguments for and against business
ethics
• Should Ethical Qualities be Attributed Only to People or Also
to Corporations?
• One view says corporations, like people, act intentionally and have
moral rights, and obligations, and are morally responsible.
• Another view says it makes no sense to attribute ethical qualities to
corporations since they are not like people but more like machines;
only humans can have ethical qualities.
• A middle view says that humans carry out the corporation’s actions
so they are morally responsible for what they do and ethical
qualities apply in a primary sense to them; corporations have
ethical qualities only in a derivative sense.
1.3-Arguments for and against business
ethics
• Objections to Business Ethics
• In a free market economy, the pursuit of profit will ensure
maximum social benefit so business ethics is not needed.
• Free market: To be profitable, each firm has to produce only
what the members of society want and has to do this by the
most efficient means available. But are all markets free? Are all
steps socially beneficial? Are all social class wants met?
• In a free market economy, the pursuit of profit will ensure
maximum social benefit so business ethics is not needed.
• Employee loyalty to the firm and to the employer.
• Law of Agency A law that specifies the duties of persons who
agree to act on behalf of another party and who are authorized
by an agreement so to act.
• So long as companies obey the law they will do all that ethics
requires.
• Is ethics simply following the law?
 1.3-Arguments for and against business
ethics
• The Case for Ethics in Business
Ethics applies to all human activities.
Imagine a world with
no ethics • Business cannot survive without
ethics.
Business with no • Ethics is consistent with profit
ethics seeking.
• Customers, employees, and people
in general care about ethics.
• Businesses require ethical • Studies suggest ethics does not
employees. detract from profits and seems to
• Businesses require an ethical contribute to profits.
society.
• Businesses require back and forth
ethical relationships.
1.3-Arguments for and against business
ethics
• Business Ethics ≠ Corporate Social Responsibility
• Corporate Social Responsibility (CSR)
• A corporation’s responsibilities or obligations to society.
• Shareholder view (Milton Friedman Economist), employed to
make as much money as possible for them.
• Stakeholder view (Freeman and Reed):managers should give
all stakeholders a fair share of the benefits a business
produces that is do what’s best for anyone affected.
• So how are business ethics and corporate social
responsibility related? Being ethical is one of the obligations
companies owe to society. Complicated relationship. Business ethics is
both a part of corporate social responsibility and part of the justification
for corporate social responsibility
1.4-Ethical Issues in International
Business
Agriculture Consistent
Surplus
revolution supply of food

Trade, First
Ethics
commerce Business
1.4-Ethical Issues in International
Business
• Examine ethical issues arising from globalization and
international business connections and practices
• Technology and Globalization
• Types of new technologies
• Significant issues in international business and new technologies.
• Globalization (discussed in next slide)
• Technology and Business Ethics
• Ethical issues raised through technological advancements
• Industrial and agricultural revolutions: Labor, fair trade, deception
and stock manipulation.
• Information technology: risk, privacy, and property rights.
• Nanotechnology and biotechnology: risk and dangerous products.
1.4-Ethical Issues in International
Business
• Globalization and Business Ethics
• Largely driven by multinationals.
• Benefits to developing countries including jobs, skills, income,
technology, a decrease in poverty, specialization.
• Blamed for, e.g., rising inequality, cultural losses, a “race to the
bottom” (lowering prices and standards to attract foreign
companies),” introduction of inappropriate technologies into
developing countries (pesticides with no protection, formula
milk with no clean water).
• Differences in laws, governments, practices, levels of
development, and cultural understandings raise ethical
problems, which suggests ethical relativism (I follow my
national laws or local country laws).
1.4-Ethical Issues in International
Business
Ethical or moral relativism: The theory that
there are no ethical standards that are
absolutely true and that apply or should be
applied to the companies and people of all
societies

Criticisms of ethical relativism:

• Some moral standards are found in all societies. Love, murder,
fairness…
• Moral differences do not logically imply relativism. (in famine
allow the old to die or not)
• Relativism has incoherent consequences.
• Societal standards are not above criticism.
1.4-Ethical Issues in International
Business
• The upshot is that there are two kinds of moral
standards: those that differ from one society to
another, and those that should be applied in all
societies.

• Integrative social contracts theory:

• Hypernorms should apply to people in all societies. (Justice,
Human rights) and should take priority over Microsocial norms
• Microsocial norms apply only in specific societies and differ
from one society to another. (in Tibet a father and son can take
on the same wife)
1.5-Moral Reasoning

• Explain the deep foundations and structure of

moral reasoning
• Key goals:
• Examination of moral standards and the reasoning process by
which such standards are applied to issues.
• Description of the development of one’s critical capacities over
one’s lifetime.
• Description of reasoning processes used to evaluate moral
standards.
1.5-Moral Reasoning
• Moral Development
• The Psychologist Lawrence Kohlberg’s stages of moral development:
(20 years research)
• Level 1: Preconventional Stages (Child)
• Punishment and Obedience: define right and wrong
• Instrumental and Relative: based on need and to get what they want
• Level 2: Conventional Stages (Adolescent)
• Interpersonal Concordance. (Living up to expectations and to be liked)
• Law and Order. (Loyalty to nation and society)
• Level 3: Postconventional Stages (questioning and impartial)
• Social Contract. (person believes all moral views to be tolerated)
• Universal Moral Principles. (personal choice)

• We progress following the same stages, but some get stuck at some
stages.

• Criticisms of Kohlberg’s view by Carol Gilligan

Gilligan’s Theory of “Female”
Moral Development
• For women morality is primarily a matter of caring
and responsibility.
• Moral development for women is progress toward
better ways of caring and being responsible.
• Women move from a conventional stage of caring
only for oneself, to a conventional stage of caring
for others to the neglect of oneself, to a post-
conventional stage of achieving a balance between
caring for others and caring for oneself.
1.5-Moral Reasoning

• The Structure of Moral Reasoning

• Moral reasoning involves:

Be logical Rely on evidence, Be consistent

information that
is accurate, relevant,
and complete
1.5-Moral Reasoning
Four steps leading to Ethical or unethical behavior
These steps may occur simultaneously and do not have
to occur in sequence (details in following slides)
1.5-Moral Reasoning
• Recognizing a situation as ethical:
• Requires framing it as one that requires ethical reasoning, is it business,
legal, family…
• Situation is seen as ethical if it involves serious harm that is concentrated,
likely, proximate, imminent, and potentially violates our moral standards.

• Obstacles to recognizing a situation is ethical include:

• Euphemistic labeling (downsizing vs firing, torture vs enhanced
interrogation techniques),
• rationalizing our actions (bombing, war)
• diminishing comparisons (well its not as bad as what they did)
• displacement of responsibility (I had to do it my boss ordered me)
• diffusion of responsibility (the team worked on this, I just had a small role)
• disregarding or distorting the harm (no one was really hurt, nothing
happened when hit by the car, hes lying about injury)
• dehumanizing the victim (enemies)
• redirecting blame fired for being honest about a crime, so manager said
fired for being disloyal)
 1.5-Moral Reasoning
• Judging the ethical course of action.
• Avoid the following forms of biased theories:
the world: taking into consideration the world reaction to an event ex.
British Petroleum p52),
Others: ethnocentrism, stereotypes
Oneself: tendency to believe we are better, immune, capable, smart…
Organization: same as oneself
• Judging the ethical course of action often depends on:
• The ethical climate of the organization: belief of how you are
expected to behave
• The ethical culture of the organization: behavior that is encouraged
or discouraged

Carrying Out One’s Decision Can Be Influenced by

- One’s strength or weakness of will.
- One’s belief about the locus of control of one’s actions.
- Ones willingness to obey authority.
1.6-Moral Responsibility = Blame
• So far judgments about right and wrong, and good and evil.
• Moral responsibility is determining whether a person is morally responsible for an injury or for
a wrong.

• Assess the factors that define and refine the concept of moral
responsibility
• Responsibility = blame
• Accuracy: who is to blame
• Appropriate emotions: guilt, shame
• Accountability: who needs to accept the blame
• When is a Person Morally Responsible?
• Causality: caused or helped cause it, failed to prevent
• Knowledge: Knew what they were doing
• Freedom: Did so of their own free will
1.6-Moral Responsibility = Blame

• Depending on How Serious a Wrong is, Moral

Responsibility for it Can be Mitigated by:
• Minimal contribution: not my design
• Uncertainty: not sure if what I am doing is wrong
• Difficulty: threats or duress

• Moral responsibility is not mitigated by:

• The cooperation of others.
• Following orders.
1.6-Moral Responsibility = Blame

• Responsibility for Corporate Actions

• Corporate moral responsibility
• Individual
• Corporation

Who is to blame?