• THE PURPOSE OF BUSINESS
occurs; and a healthy and free competition
What is the purpose of business?
Thorstein Veblen (1904):“The motive of business is
pecuniary gain, the method is essentially purchase and
sale. The aim and usual outcome is an accumulation of
wealth. Men whose aim is not increase of possession do
not go into business, particularly not on independent
footing.”
Some Subjective Reasons for Putting Up a Business
Subjective reasons refer to reasons that motivate the
individual to put up business.
• business is the desire to make more income for
oneself and his or her family
• you want more independence
• you are continuing the legacy of your family
• you may decide to start a business because you
want to try a unique and novel idea
• desire for competition
• genuine desire to help people
• you like it and you are attracted to the prospect
• Subjective reasons
“Why do you put up a business?”
“Why are you into the business?”
• Objective purpose of business
“Why is there an institution called business?”
THE OBJECTIVE PURPOSE OF BUSINESS
Milton Friedman: Profit as the Primary
Responsibility of Business
 If you are an executive or a manager of a firm,
you are not the owner and that you are hired for
a purpose.
 The manager do not have moral responsibility to
take care of the needs of people outside the firm;
If you use the money of the company for
altruistic purpose, you are assuming the role of
the government.
 You have only one social responsibility and the
corporation has a sole purpose – to increase the
profits of the firm so that you also increase the
wealth of its owners.
 Business must be played within the rules of the
game.
 In the long run, if every business owner and
executive focuses on increasing their
profitability, then free competition in the market
ultimately favors the society.
 Economists say:
 “The rising tide lifts all boats”
Paul F. Camenisch: The Primacy of Business’ Social
Function
 In 1981, Camenisch published an essay titled
“Business Ethics: On Getting to the Heart of the
Matter.”
 In his article, he admitted that his insight s may
not be in the agreement with Friedman’s.
 Friedman has forgotten the other essential
element of business- that it exists to respond to
the societal needs for life-sustenance and life-
enhancement.
 Camenisch argued that there are two essential
elements for any proper definition of business:
1. “the provision of goods and services”
2. “the fact that this is done with the
intention of making a profit”
Ronald F. Duska: The Motive Is Not the Purpose
 Duska’s main contribution is his argument on
the disctinction between purpose and motive.
 “My motive for doing an action is not
necessarily the same as the purpose of action”
(Duska 2007)
 Duska believed that the primary purpose of
business is neither personal benefit nor the
accumulation of profit.
 The purpose of the business is to respond to
society’s needs for goods and services.
TYPES OF BUSINESS ACTIVITY
FORMS OF BUSINESS ORGANIZATION
Types of Business Activity
 Service
 Manufacturing
 Merchandising
Forms of Business Organization
Sole/Single proprietorship
it is the simplest form of business where capital is
owned and provided by only one person called
“proprietor” who may manage the business by
himself or hire another person to do so. Whatever
happens to the business, whether it succeeds or fails,
the owner has to bear it all including any unpaid
obligations that the business may have incurred.
Partnership
the capital of the business is owned or provided by
two or more person called “Partners” who should set
forth agreements among themselves which include
among others, the investment of each partner, how
profit and loss is to be divided and settlement to be
made upon death or withdrawal of a partner as
embodied in the “Articles of Co-Partnership” they
have executed.
• The Nature of Ethics and Business Ethics
Corporation
What is Ethics?
is a form of business organization managed by an
elected board of directors (profit organization) or  “Ethics is the discipline that examines one’s
board of trustees (non-profit organization). The moral standards or the moral standards of a
investors are called stockholders and the unit of society. It asks how these standards apply to our
ownership is called share of stock. lives and whether those standards are reasonable
or unreasonable” (Velasquez 2006).
 “Ethics is the study of what is good and evil,
right and wrong, and just and unjust” (Steiner
ADVANTAGES AND DISADVANTAGES and Steiner 2003)
 “Ethics is the branch of philosophy that deals
with morality. Ethicists are concerned with a
wide range of topics, such as human nature; the
meaning of life; the nature of value; how
judgments are made; how judgment can be
improved; how moral attitudes arise and change;
and the workings of morally significant mental
states such as love, hate, greed, envy,
indifference, pity, desire, aversion, pleasure, and
pain. Moral or ethical theories offer the means of
understanding significant elements in these and
other areas of inquiry” (Finken 2008).
What is Morality?
Related to the term ethics is the term “Morality”, which
originated from the Latin term mos an dits plural mores
which used to refer to one’s disposition, character,
temperament, manners, customs, or the proper behavior
of a person in society.
It is used to signify “the set of beliefs of an individual
and/or the system of principles and judgments shared by
a society, culture or community” (Shabana 2008).
These rules may include the following:
Do not hurt people.
Do not tell lies.
Do not take more than your fair share.
As far as our study of business ethics is concerned, it is
all right for us to interchange our usage of the terms
“ethical’ and “moral”.
However in the stricter treatment of this terms, morality
pertains to the rightness or wrongness of an act while
ethics is the discipline that studies morality.
A practical way of improving ethical decision making is
to run contemplated decisions through an ethics test
when any doubt exists.
This ethic test is used at the Center for Business Ethics at
Bentley College as part of corporate training programs.
Decision makers are taught to ask themselves six tings:
1. Is it right?
2. Is it fair?
3. Who gets hurt?
4. Would you be comfortable if the details of your
decision were reported on the front page of your
local newspaper, on a popular Website or blog,
or through company’s e-mail system?
5. Would you tell your child (or younger relative)
to do it?
6. How does it smell?
Considerations in Ethical Decision Making
(Nash, Wallace, and Peckel)
1. Know all facts and circumstances.
2. Identify other needed information and find ways
to attain them.
3. Identify the ethical problems and issues
involved.
4. Identify those who will be affected by any
decisions that you will make.
5. Consult people whom you trust and those who to
believe to embody firm values and moral
principles.
6. Think of your family and whether they will
agree and support you on your decision.
7. Ask yourself whether your decision contributes
to your overall idea of meaningful life, a
worthwhile living, and a virtuous person.
8. Make a decision and own it.
9. Always remember that your final decision may
be revised in the event that new circumstances or
insights enter the picture. This means that when
it comes to resolving an ethical dilemma, a final
decision will never remain final after all.
What is Business Ethics?
Ethics is the discipline that investigates the rightness or
wrongness of human actions. When this discipline is
used to explore the rightness or wrongness of business
activities and the conduct of the businesspersons and
professionals, then it is called business ethics. Let us list
some textbook definitions and descriptions of business
ethics.
 “In its simplest form, business ethics can be
defined as a systematic study of ethics as applied
to the issues arising in business” (McDonald
2007)
 “Business Ethics is concerned with good and
bad or right and wrong behavior and practices
that take place within a business context.
Concepts of right and wrong are increasingly
being interpreted today to include the more
difficult and subtle questions of fairness, justice,
and equity” (Carroll & Buchholtz 2009)
 Business Ethics is an applied ethics.
Ethics is generally subdivided into three subfields:
 Metaethics
Focuses only on the investigation of the sources
of our ethical principles.
 Normative ethics
Attempts to come up with those ethical
principles that we can use to judge whether our
actions are right or wrong.
 Applied Ethics
Investigates morally debatable issues such as
death penalty, the use of artificial contraceptives,
euthanasia, and others. Thus, business ethics is
an applied ethics because it generally talks about
the morally debatable issues in the field of
business and commerce.
Ethical Temptations and Violations
Certain ethical mistakes, including illegal actions, recurs
in the workplace. Familiarizing oneself with these
behaviors can be helpful in managing the ethical
behavior of others as well as monitoring one’s own
behavior. A list of commonly found ethical temptations
and violations, including criminal acts, follows:
1. Stealing from employers and customers.
Employee theft costs U.S. companies about $50
billion annually. Retail employees steal goods
from their employers and financial service
employees steal money. Examples of theft from
customers include airport baggage handlers who
steal from passenger suitcase and bank
employees, stockbrokers, and attorneys who
siphon money from customer accounts. Many
 corporate security specialists estimate that 25 to
40 percent of all employees steal from their
employers.
2. Illegally copying software. A rampant problem
in the workplace is making unauthorized copies
of software for either company or personal use.
Also, many employees make illegal copies of
videos, books, and magazine articles instead of
purchasing these products.
3. Treating people unfairly. Being fair to people
includes equity, reciprocity, and impartiality.
Fairness revolves around the issue of giving
people equal rewards for accomplishing the
same amount of work. The goal of human
resource legislation is to make decisions about
people based on their qualifications and
performance – not on the basis of demographic
factors such as gender, race, or age. A fair
working environment is one in which
performance is the only factor that counts
(equity). Employer-employee expectations must
be understood and met (reciprocity). Prejudice
and bias must be eliminated (impartiality).
4. Sexual harassment. Sexual harassment involves
making compliance with sexual favors a
condition of employment or creating a hostile,
intimidating environment related to sexual
topics. Harassment violates the law; it is also an
ethical issue because it is morally wrong and
unfair. Sexual harassment is widespread in U.S.
workplaces and in other countries as well.
According to one large-scale study, when
conclusions are based on more specific studies,
58 percent of women report having experienced
potential harassment behaviors and 24 percent
report having experienced sexual harassment on
the job. More recent data suggest that sexual
harassment directed at professional women by
clients and customers is more frequent than
harassment within the company. Sexist hostility,
such as putting a person down because of his or
her sex, was the most frequently noted type of
harassment. A study of 35 teams in the food-
service industry found that when sexual
harassment is frequent within a team,
cohesiveness and financial performance tend to
be lower. Sexual harassment is such a
widespread problem that most employers take
steps to prevent it.
5. Conflict of interest. Part of being ethical is
making business judgment only on the basis of
the merits in a situation. A conflict of interest
occurs when your judgment or objectivity is
compromised. Most of the major financial
scandals in brokerage firms in recent years
stemmed from blatant conflict of interest. An
example would be a research analyst from an
investment firm recommending a stock purchase
from a company that is an investment banking
client of analyst’s firm. If the analyst makes
“buy” recommendations about the company’s
stocks, that company will more likely continue
to be a lucrative client of the analyst’s firm.
6. Accepting kickbacks and bribes for doing
business with another company. Also referred
to as “payola”, accepting cash payments, special
deals on stock purchases, and lavish gifts from
industrial customers is a perennial temptation in
business. Sending a manager and his or her
family on a week’s vacation after the manager
closes deal with a vendor is an example of a
kickback. In the high-tech industry, kickbacks
often take the form of stock options granted to
managers by companies with which their
employers do business. The kickbacks extend to
stock analysts who are inclined to give favorable
recommendations to companies that grant them
stock options. Giving gifts to curry favor in
business has long been standard practice, yet is
unethical because it creates a conflict of interest.
7. Divulging confidential information. Other
people can trust an ethical person not to divulge
confidential information unless the welfare of
others is at stake. The challenge of dealing with
confidential information arises in many areas of
business, including information about
performance-evaluation results, compensation,
personal problems of employees, disease status
of employees, and coworker bankruptcies. A
serious betrayal of confidence took place when
Anil Kumar, a former senior partner at the
consulting firm McKinsey & Co., was paid more
than $1 million to provide tips on McKinsey’s
clients to the hedge fund firm, Galleon Group.
The tips were useful to the hedge fund firm (one
that deals in complex investments) because it
could make profitable trades based on that
information.
8. Misuse of corporate resources. A corporate
resource is anything the company owns
including its name and reputation. Assume that a
woman named Jennifer Yang worked as a
financial consultant at Bank of America, Merrill
Lynch. It would be unethical for her to establish
a financial advisory service and put on her Web
 site “Jennifer Yang, financial consultant, Bank
of America, Merrill Lynch.” Using corporate
resources can fall into the gray area, such as
whether it’s acceptable for an employee to
borrow a company’s notebook computer to
prepare income taxes for a free in a personal
business.
An ethical temptation, particularly among top-
level executives, is to misuse corporate
resources in an extravagant, greedy manner. The
temptation is greater for top executives because
they have more control over resources.
Examples of the greedy use of corporate
resources include using the corporate jet for
personal vacations for oneself, friends, and
family members; paying for personal items with
a company expense account; and paying
exorbitant consulting fees to friends and family
members. Misusing resources is an ethical
temptation; greed can be a cause of additional
ethical problems.
11. Poor cyberethics. Because the Internet creates
considerable potential for unethical behavior,
it’s important for all employees to resist the
temptation of poor cyberethics. One example of
questionable ethics would be to send an e-mail
with large attachments to everyone in your
company. If attachments are not work related
and many people send them, blocked servers
could impede legitimate company business. An
ethical breach of greater consequences would be
to steal personal identities from job resumes
online A scam in this area involves contacting
the author of a resume claiming to be an
employer. The scam artist then asks for
additional personal information such as the
person’s social security number and bank
account number.

9. Extracting extraordinary compensation from

the organization. Related to the misuse of
corporate resources is the extraction of a
disproportionate share of compensation from a
company. A person usually has to be a CEO to
engage in this type of ethical violation. An
extreme example is that of Citigroup, which paid
Andrew J. Hall, the chief of its Phibro energy-
trading unit, $100 million in 2008. The Obama
administration thought that such high pay
encouraged undue risk taking, and pressured
Citigroup to sell Phibro to Occidental Petroleum
Corp. Some management writers, however, do
not regard such payouts as unethical. One
argument for the high compensation is that
unless a talented executive is highly paid, he or
she will join the competition. Another argument
is that some of these high executive payouts are
in stock, and the stock can lose value rapidly.

10. Corporate espionage. An entrenched unethical

practice is to collect competitive information to
the extent that it constitutes spying. Among the
common forms of spying are computer hacking,
bribing present employees to turn over trade
secrets, and prying useful information from
relatives of workers. Outright stealing of
information about rivals is obviously unethical.
A less obvious form of espionage occurs when
an employee leaves to join a competitor and
reveals key insider information about the
original employer.