CHAPTER ONE: WHY STUDY ETHICS?

AN INTRODUCTION TO BUSINESS ETHICS

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THIS CHAPTER SEEKS TO
 Identify reasons why the study of ethics is important

 Explain the nature and meaning of business ethics

 Explain the difference between ethical values and other

values

 Clarify the difference between ethics and the law

 Describe the distinction between ethics and ethos

 Introduce the distinction between personal morality, virtues,

and social ethics
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DISCUSSION CASE: BARCLAYS BANK
 Barclays admits in 2012 to fraudulently reporting
interest rates used in international financial markets
 Is fined $450 million by U.S. and U.K. regulators
 Barclays manipulated LIBOR since at least 2005
 LIBOR is the rate that major London banks report that
they can borrow
 Evidence found of widespread intentional fraud by
Barclays employees and executives

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BARCLAYS BANK (CONT.)

 Before the 2008 financial collapse, U.S. and U.K.

regulators knew of allegations that Barclays was
underreporting its rates
 Early in 2008, Wall Street Journal articles suggest that
banks intentionally misreported rates to strengthen
public perception of their financial health
 Barclays implicates other banks involved in misreporting
data

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BARCLAYS BANK (CONT.)
 Barclays alleges fraudulent LIBOR reports by the two
other largest U.K. banks and by over a dozen other
international banks
 The scandal spreads to the British government
 A Barclays employee says, “Are we guilty of being part of
the pack? You could say we are.”

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DISCUSSION QUESTIONS
 Identify what ethical issues and questions are involved in the
Barclays case.
 In what ways did the fraudulent actions of Barclays contribute to
the 2008 international financial meltdown?
 Do you think that Barclays’ fraudulent actions were mitigated by
the fact that other banks acted similarly and that regulators were
aware of Barclays’ actions?
 To what degree was this case mostly a failure of individuals, or
organizational structure, or of government?
 Can you imagine anything that could have prevented Barclays’
fraud?

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WHY STUDY BUSINESS ETHICS?

 Is it an oxymoron like “jumbo-shrimp”?

 Is it a discipline of sentimentality and personal
opinion?
 Who’s to say what is right and what is wrong?

 Is there a place for ethics in business?

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THE QUESTIONS TODAY ARE LESS ABOUT WHY,
OR SHOULD ETHICS BE A PART OF BUSINESS?

THAN ABOUT WHICH ETHICS SHOULD GUIDE

BUSINESS DECISIONS, AND HOW ETHICS CAN BE
INTEGRATED WITHIN BUSINESS?

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CONTEXT: WHO WAS HARMED BY THE COLLAPSE
OF ENRON?

 Stockholders
 Employees
 Consumers in California
 Suppliers
 Enron’s accounting firm, Arthur Anderson
 The Houston, TX community
 Families of employees, investors, and suppliers

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REASONS TO BE CONCERNED WITH ETHICS

 The Law: In 2002, Congress passed the Sarbanes-

Oxley Act
 Financial risks

 Reputation and competitive advantage

 Consumer boycotts

 Efficiency and effectiveness

 Employee trust, loyalty, commitment and

initiative
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THE NEED TO STUDY BUSINESS ETHICS

 If business managers see the need to focus on

ethical behavior, so should business students
 Preparation for career in contemporary business

 Consumers are affected by decisions made by

businesses

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VALUES AND ETHICS: DOING GOOD AND DOING
WELL

 Built to Last: Successful Habits of Visionary

Companies by James Collins and Jerry Porras
 Key finding: Exceptional and enduring companies
place great emphasis on a set of core values
 These core values are essential and enduring tenets
defining the company, and not to be compromised
for financial gain

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COMPANIES CITED BY COLLINS & PORRAS
 IBM
 Johnson & Johnson
 Hewlett Packard
 Procter and Gamble
 Wal-Mart
 Merck
 Motorola
 Sony
 General Electric

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WHAT ARE VALUES?

 Those beliefs or standards that incline us to act,

or to choose in one way rather than another
 A company’s core values are those beliefs and
principles that provide the ultimate guide in the
company’s decision-making

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CORPORATE CULTURE

 Another way of saying a corporation has a set of

identifiable values

 However, there is no “right” set of core values

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VALUES VS. ETHICAL VALUES

 What are the ends that our core values serve?

 Financial values serve monetary ends

 Religious values serve spiritual ends

 Aesthetic values serve the end of Beauty

 What ends are served by ethics?

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ELEMENTS OF ETHICAL VALUES
 Ethical values serve the ends of human well-being

 The well-being promoted by ethical values is not

personal and selfish well-being

 No one person’s well-being is to be counted as more

worthy or valuable than any other’s

 Ethical values promote human well-being in an impartial

way

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DISAGREEMENTS ABOUT ETHICS

 People disagree about what ethics commits us

to, and what ends are served by ethical values
 Ethical values can conflict, and may result in
serious illness and death to others
 So, how do you decide if a company is an
ethical company?

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MALDEN MILLS
 December 11, 1995 – A fire destroys most of Malden
Mills, the manufacturer of Polartec
 The last major textile manufacturer in town with 2,400
employees; community life’s blood
 Malden Mills provides fabric to L.L. Bean, Land’s End, J.
Crew and Eddie Bauer
 Aaron Feuerstein, the owner pledged to rebuild the
plant, keep jobs in the community and pay his
employees until work resumes

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MALDEN MILLS (CONT.)

 The factory was rebuilt and reopened in one year

 Employees came back to work

 The community seemed to recover

 Malden Mills filed for bankruptcy protection

 Eventually controlled by creditors

 Remaining employees voted to authorize a strike

in December 2004

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THE NATURE AND GOALS OF BUSINESS ETHICS

 Business ethics refers to those values, standards

and principles that operate within business
 Business ethics is also an academic discipline that
studies those standards, values and principles
while seeking to articulate and defend the ones
that ought or should operate in business

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BUT…

 There is a growing body of literature in business

ethics about the right ways to teach and learn
business ethics
 There are a set of principles, standards, concepts,
and values common to business ethics

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ETHICAL JUDGMENT VS. BEHAVIOR

 From the time of Aristotle, we have noticed a

discontinuity between judging some act as right
and behaving rightly
 Knowing what is right is different from doing
what is right
 People vary in strength of character and
motivation and fortitude

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THE GOALS OF BUSINESS ETHICS
 To treat students as active learners
 To engage students in an active process of thinking and
questioning
 To allow students to think for themselves
 To deal with the mess of relativistic conclusions

“The unexamined life is not worth living.”

—Socrates

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REASONING AND BUSINESS ETHICS

 The process of ethical reasoning must be

emphasized
 Reasoning is distinct from answers

 Begin with an accurate and fair account of the

facts from all “sides”
 Be objective and open-minded

 Analyze each issue fully and rigorously

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BUSINESS ETHICS AND THE LAW
 Compliance with the law will prove insufficient
for ethically responsible businesses
 The Law is rife with ambiguity; many acts are not
illegal until a court rules that they are
 Court cases demonstrate that you cannot always
rely on the law to decide what is right or wrong

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WHETHER WE EXAMINE ETHICAL QUESTIONS
EXPLICITLY OR NOT, THEY ARE ANSWERED BY
EACH OF US EVERY DAY IN THE COURSE OF OUR
LIVES.

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ETHICS AND ETHOS

 The word ethics is derived from the Greek ethos,

meaning “customary” or “conventional”

 To be ethical in the sense of ethos is to conform

to what is typically done, to obey the
conventions and rules of one’s society and
religion

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PHILOSOPHICAL ETHICS

 Denies that simple conformity and obedience are

the best guides to living
 Rejects authority as the source of ethics

 Defends the use of reason as the foundation of

ethics
 Seeks a reasoned analysis of custom and a
reasoned defense of how we ought to live

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PHILOSOPHICAL ETHICS
 Distinguishes what people do value from what
people should value
 Requires we stand back, abstract ourselves from
what is typically done, and reflect upon whether
or not what is done, should be done
 The difference between what is valued, and what
ought to be valued, is the difference between
ethos and ethics

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BUSINESS ETHICS

 A branch of philosophical ethics

 Reflect: In what ways do the practices and

decisions made within business promote or
undermine human well-being?

 How ought we to live?

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MORALITY, VIRTUES AND SOCIAL ETHICS

 Morality: How should I live my life? How should I

act? What should I do? What kind of person
should I become?
 Virtues: character traits that constitute a life
worth living
 Social Ethics: How ought society be structured?
How ought we live together?

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BUSINESS INSTITUTIONS ARE HUMAN CREATIONS

 Humans can not avoid responsibility for something they

have created or contributed to
 Business institutions have a tremendous influence on
human lives and the quality of human life
 As business people, we face particular business
decisions about our corporations, but as citizens, we
have to decide whether or not to regulate those
businesses for the public good

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ETHICAL PERSPECTIVES
 Managerial ethics: What should a business
manager do in various situations?
 The types of questions asked will vary from
perspective to perspective
 All decisions faced by business managers, from
finance to marketing to ethics and human
resources, exist in a social and legal context

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RESPONSIBLE ETHICAL DECISION INVOLVES:
 Understanding the facts

 Identifying the ethical issues involved

 Identifying all stakeholders

 Understanding how those stakeholders will be

affected

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RESPONSIBLE ETHICAL DECISION INVOLVES:
 Employing moral imagination to understand
alternatives

 Considering how others will judge your decision

 Making a decision and monitoring and learning

from the results

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REFLECTIONS ON THE CHAPTER
 A wide range of people can be adversely affected by the
decision made within contemporary business
 Many roles are played within the economic system to
insure the integrity of that system and to prevent fraud
and abuse
 Business operates within a social context and has duties
to a wide range of people beyond those people who
own a company’s stock

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REVIEW QUESTIONS

 Describe several reasons why ethics is relevant to

business? Can a “good business” be an unethical
business?
 What are values? What is the difference between
ethical values and other types of values? What is
the difference between “value” when used as a
verb, and “value” when used as a noun?

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REVIEW QUESTIONS CONTINUED

 What is the difference between “ethics” and

“ethos”?
 How is descriptive business ethics different from
normative business ethics?
 This chapter introduced a distinction between
morality, virtues, and social ethics. How would
you describe each?

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REVIEW QUESTIONS CONTINUED

 How would you answer someone who asked:

Why should I study ethics if I want to be an
accountant?

 Other than business managers and owners,

which other constituencies might have a stake in
business decisions?

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