CHAPTER COVERAGE

Stakeholders and the Ethical Concepts, Understanding Ethics in

Changing Theories and Islam and Its
Expectations Philosophies and its Application to Business
Application to Business (Islamic Ethics)
(Conventional Ethics)
 LEARNING OUTCOME

At the end of the topic, students would

be able to:
Explain 13 factors affecting public expectation
for business behaviour
Explain the new expectations for business.
Explain Milton Friedman’s theory about making
profit.
RECAP
 RECAP

Moral Ethics Legal

Personal value / Social system / Rules developed
internal external

Personal Professional/ Official

Behavior social behavior behavior
 FACTORS AFFECTING
MORAL REASONING
MORAL DEFINITION
Sensitivity the ability to see an ethical dilemma, including how our actions
will affect others
Judgment the ability to reason correctly about what 'ought' to be done in a
specific situation
Motivation a personal commitment to moral action, accepting responsibility
for the outcome
Character a courageous persistence in temptations to take the easy way out
 HOW TO ANALYSE

Identify the following:

1. Key Fact:
2. Key Factor:
3. Key Player:
4. Whistleblower:
5. Primary Stakeholder:
6. Secondary Stakeholder:
7. The interest of Primary Stakeholder:
8. The interest of Secondary Stakeholder:
9. Issue/Problem:
10. Ethical Dilemma:
11. Ethical Decision:
 Factors
Affecting
Public
Expectati
ons for
Business
Behaviour
 THE ETHICS
EXPECTATION
During the last 30 years, there has
been an increasing expectation that
business exists to serve the needs
of both shareholders and society.
Many people have a “stake” or
interest in a business, its activities
and impacts.
If the interests of these stakeholders
are not respected, then action that is
often painful to the shareholders,
officers and directors usually
occurs
 THE ETHICS
EXPECTATION (Con’t)
The public expects business to act ethically and conform to
ethical behaviour.
The public expects management/BOD to fulfil their
responsibilities to the best of their ability for the sake of the
organization and shareholders in the purest manner possible,
free of corruption, fraud, and bribery.
The public expects accountants to undertake their fiduciary
duties ethically for the public interest and not for
self-interest.
 THE ETHICS
EXPECTATION (Con’t)
However, not all expectations
turn out positively as expected.
The unexpected also has
become a disastrous reality.
Thus, the new mandates arise
to prevent worsen scenario to
occur in the future.

So, should we stop

expecting?
•Line Clear Nasi Kandar
was forced for 2 weeks
temporarily closure due to
rat droppings, cockroaches
& dirty toilets.

•Restaurant operator fails to

comply with the hygiene
practice

•Do you EXPECT this to

happen?
 Do we expect parents to
disallow their children to have
Rejection was due to: proper vaccine for
• Doubt on halal status of immunization purpose?
the vaccine
• Doubt on the safety
contents of the vaccine
Do we expect parents to trade
• Family influence
the life of their children by
• Worry on the side effect refusing them to have proper
of the vaccine vaccine for immunization
• Alternative medication purpose?
available (homeopathic) 17 diphtheria cases reported
2015-2017, 4 deaths recorded
 FACTORS AFFECTING
13

PUBLIC EXPECTATION FOR

BUSINESS BEHAVIOUR
1. Physical
(Environmental 2. Sense of Morality 3. Bad Judgement
Concern)

4. Activist 5. Economic Pressure 6. Competition

Stakeholders
13. Environmental
Reality

7. Financial 8. Governance
malfeasance Failure 9. Accountability

10. Synergy among 11. Institutional

Factors reinforcement 12. Unbridled Greed
 1. PHYSICAL
(ENVIRONMENTAL
CONCERNS)
Public expects business to take
care of the environment and set
aside budgets for purposes of
improving the environment.

Example:
Replanting of Trees
No Plastic Bags Day
Recycling of Waste
Separation of Rubbish
No Plastic Straw
 2. SENSE OF MORALITY

The public expects businesses to

exercise sense of moral
sensitivity.
Example:
Not to employ child labour
Treating everyone equally without
discrimination (age, gender,
status)
Respecting other religion, belief
and races
 3. BAD JUDGEMENT

The public expects directors, managers and decision-makers

to make wise and good decision.
CEOs must make decision not just for PROFIT but for public
interest.

Example:
Eggs contaminated with salmonella bacteria were sold to restaurants
and food service companies in Quebec. They were then distributed to a
charity food organization that put them in Christmas baskets
The public is outraged that the factory manager allowed this to happen!
 4. ACTIVIST
STAKEHOLDERS
The public expects businesses to allow activist groups to also
play their role for the sake of better business services.
Two types of activists:
✔ Ethical consumers : interested in buying products and services that
were made in ethically acceptable manners.
✔ Ethical investors : not only make investment for reasonable return,
but should do so in an ethical manner.

Example:
Public can seek help from Consumer Association/FOMCA if they feel they
are cheated by unscrupulous business people.
Public also at the same time must always alert to uphold their rights as
consumers.
Stakeholders become more actively involved in ethical issues
Consumers boycott unethical products and services
 5. ECONOMIC PRESSURE
The public expects businesses to act in good
faith even if they are put under pressure by
the economic recession and faced with great
business competition.
Pressure to survive - Falsification of
transaction : window dressing; and
exploitation of the environment or workers
Example:
Some irresponsible shopkeepers did hide stock
of cooking oil for the purpose to increase the
price in times of limited supply.
During festive seasons, there are business owners
that hide flour, butter and sugar for the same
purpose!!!
What a selfish mindset!
 6. COMPETITION

The public expects businesses to practice healthy business

competition and not to ‘beat up’ consumers and ‘step on
consumers’ in order to be market leaders.
Increasing competition also has resulted management to cheat
due to the pressure to attract customers to buy the business
product

Example:
Sales are done near to product’s expiry date
‘Sales’ are actually not sales when price of the ‘sales’ items has been
mark-up.
Selling imitated items at lower price but claiming they are original.
 7. FINANCIAL
MALFEASANCES
The public expects businesses to act honestly and should
never be involved in financial scandals.
Public becomes cynical about the financial integrity of
corporations.
Expectation gap : difference between what the public
thinks, he is getting in audited financial statements and
what he actually gets.
Example:
Management board involvement in fraud and corruption have
resulted collapse of corporation- shareholders affected!
Many cases are reported- tarnished trust of the public towards the
management board.
The ENRONs in the making should be rid off!!!
 8. GOVERNANCE
FAILURES
The public expects government to play its
corporate governance role in serving the public.
Example: Not compulsory to follow, work for best practice

The Malaysian Code on Corporate Governance – to

strengthen corporate governance.
The Whistleblower Protection Act
The Minority Shareholders Watchdog Group
In 2002 the reforms of the Sarbanes Oxley Act
Risk management is emphasized as a tool to prevent
failures in governance
The ENRONs in the making should be rid off!!!
9. ACCOUNTABILITY Responsible

The public expects companies and businesses to be

accountable for their products, like in the case if they
discover defect then those must be recalled.
Example:
Toyota recalled on Takata airbag which may
explode, injure and even kill drivers and
passengers.
Johnson & Johnson recalled on Tylenol capsules
which were claimed to have caused death to those
consuming them.
The desire for increased accountability and
transparency on corporate matters - company
responded by publishing more information on their
websites on their CSR performance including
environmental, health and safety etc.
 10. SYNERGY AMONG
FACTORS
The public are afraid of the repercussion of businesses
unethical behaviour towards the society, so the public expects
businesses to be more cautious of what they do.
The public awareness has increased on the need of having
better mechanisms and control to prevent the unethical
corporate behavior.
This also impacts politicians who react byreally
preparing
by preparing newnew
laws laws
or tightening of regulations.
 11. INSTITUTIONAL
REINFORCEMENT
The publics expects that the Regulatory Institutions to
look into any irregularity and reinforce laws so that
the public does not suffer due to the act of BAD BIG
GUYS in business.
The creation of IFRS and the Code of Ethics for
Professional Accountants are two examples as the
focal points for harmonization worldwide.
 FURTHER READING

Read in detail as per pages in textbook – Chapter 1

(page 1 – 9): Brooks & Dunn
Self-readings on the following two factors:
Unbridled greed “Tamak untuk kaya” - now greed become not encourage
Environmental Reality “sustain, we can enjoy on what environment reality nowadays”
 OUTCOMES

The public expectations have changed to exhibit less

tolerance, heightened moral consciousness and higher
expectations of business behaviour.

In response to this heightening of expectations, a few

monitor
watchdogs and advisors have emerged to help or
harry the public and business.
THE THEORY OF PROFIT
Conventional theory

MILTON
FRIEDMAN
MILTON FRIEDMAN (1970)
In a free-enterprise, a corporate executive has the
responsibility to make as much money as possible while
conforming to the basic rules of society, both in law and in
ethical customs. This is the appropriate way to determine
the allocation of scarce resources to alternative uses.
 Spot Questions - Mid Term Test // Final

NEW EXPECTATIONS FOR

BUSINESS
If you were to deviate from just concentrating on profit, it does
not mean profit will decline, in fact profit may rise.
Profit alone is an incomplete measure of corporate performance,
therefore an inaccurate measure for resource allocation.
In making profit, the expected performance must be within the
law and ethical custom.
Three critical issues:
The deviation from a profit-only focus does not mean that profit will
fall – in fact, profit may rise.
There is the myth that business could not afford to be ethical because
too many opportunities would be given up for profit to be maximized.
Above-average social performance is positively correlated with profits
(Clarkson, 1988).
NEW EXPECTATIONS FOR
BUSINESS (Cont’d)
Profit is now recognized as an
incomplete measure of corporate
performance and therefore an inaccurate
measure for resource allocation.
Friedman explicitly expected that
performance would be within the law
and ethical custom.
✔ Chaos would result if the business
was carried out in an
absolutely-no-holds-barred
environment.
✔ Increased regulation by government
is an increasing self-emphasis on
better ethical governance and
NEW EXPECTATIONS FOR
BUSINESS (Cont’d)
Profit is now recognized as an
incomplete measure of corporate
performance and therefore an inaccurate
measure for resource allocation.
Friedman explicitly expected that
performance would be within the law
and ethical custom.
✔ Chaos would result if the business
was carried out in an
absolutely-no-holds-barred
environment.
✔ Increased regulation by government
is an increasing self-emphasis on
better ethical governance and
THANK YOU..