Chapter one

1.1 The Definition of Ethics and business ethics

What Ethics is?

Ethics is a branch of philosophy that attempts to understand people‘s moral beliefs and
actions. Ethics, or moral philosophy, considers theories about what human beings are capable of
doing, alongside accounts of what they ought to do if they are to live an ethically good life.
Ethics also explores the meaning and th,e ranking of different ethical values, such as honesty,
autonomy, equality and justice, and it considers ethical quandaries that human beings face in the
course of living their own independent but, also, socially interdependent lives.

Ethics may share common ground with the law, religious belief, popular opinion,
professional codes and the dictates of authority figures, but it is also broader than all of
these and offers a set of tools and values against which their appropriateness can be
evaluated.

Invariably all ethical questions involve a decision about what one should do in a specific
instance. Notice the word should. Ethical questions are not concerned with what one would do
(an essentially psychological concern) but what one ought to do. Judgments about such decisions
are generally expressed with words like right and wrong, should and ought, or obligation and
duty.
ORAL AND CITIZENSHIP EDUCATION (MCED 1011)
When we speak of moral problems then, we generally refer to specific problems, such as ―Is
lying ever right?‖ or ―Is stealing always wrong?‖ in contrast, we can look at ethical problems as
being more general and theoretical. Thus, ―what makes any act, such as lying or stealing, right
or wrong?‖ and ―what makes any entity good?‖ are ethical problems. In short, morality refers to
the degree to which an action conforms to a standard or norm of human conduct.

Ethics refers to the philosophical study of values and of what constitute good and bad
human conduct.

Generally, Ethics is:

1. The critical examination and evaluation of what is good, evil, right and wrong in human
conduct
2. A specific set of principles, values and guidelines for a particular group or organization.
3. Ethics is the study of goodness, right action and moral responsibility, it asks what choices and
ends we ought to pursue and what moral principles should govern our pursuits and choices.
1.2 Business Ethics
Business ethics Concerned primarily with the relationship of business goal and techniques to
specifically human end or goal. It study the impact of of acts on the good of the individual, the
firm and the business community and society at all.
Business ethics means a great deal more than obeying the civil law and not violating the moral
law. It means imagining and creating a new sort of world based on the principles of individual
creativity, community, realism, and other virtues of enterprise. It means respecting the right of
the poor to their own personal economic initiative and their own creativity. It means fashioning
a culture worthy of free women and free men—to the benefit of the poor and to the greater glory
of God. In this light, business ethics means meeting the responsibilities of corporations and
small businesses. Some of these responsibilities may not seem like “ethics” at all. They are
simply the behaviors necessary to make a business succeed. But that’s the point. Quite internal
to business are significant moral hurdles that need to be jumped—before you even come to the
ethical requirements imposed on business from the outside in, by the standards of religious
convictions, moral principles, an adequate humanism, and human rights

1.3 The Types of Ethical Dilemmas

Twelve categories of Ethical Dilemmas are developed and listed in Exchange, the magazine of
Brigham Young University School of Business.
1. Taking Things That Don’t Belong to You: Examples: exaggerations on travel expenses, using
the copy machine at work for your personal copies. Regardless of size or motivation,
unauthorized use of someone else’s property or taking property under false pretenses still means
taking something that does not belong to you.
2. Saying Things You Know Are Not True:
Examples: Assume you are trying to sell your car, one in which you had an accident, but which
you have repaired. If the potential buyer asks if the car has been in an accident and you reply,
“No,” then you have given false information. If you take credit for someone else’s idea or work,
then you have, by your conduct, said something that is not true. If you do not give credit to
others who have given you ideas or helped with a project, then you have not been forthright. If
you state that you have a college degree on your résumé, but have not yet graduated, you have
committed an ethical breach.
3. Giving or Allowing False Impressions: This category of ethical breach is the legal technicality
category. What you have said is technically the truth, but it does mislead the other side. For
example,
If your professor asks you, “Did you have a chance to read the assigned ethics cases?” Even if
you had not read the cases, you could answer a “Yes!” and be technically correct. You had “a
chance” to read the cases; but you did not read them. The answer is not a falsehood, because you
may have had plenty of chances to read the cases, but you didn’t read the cases.
If you were to stand by silently while a coworker was blamed for something you did, you would
leave a false impression. A landscaping company that places decorative rocks in a drawing and
bid for a customer contract proposal has created the impression that the rocks are included in the
bid. If, after the customer signs the contract the landscaper reveals that the rocks require
additional payment, the customer has been misled with a false impression that came from the
drawing including the rocks. However, if decorative rocks are not built later by the landscaping
company, it is counted as falsehood, not as creating false impression.
4. Buying Influence or Engaging in Conflict of Interest:
This category finds someone in the position of conflicting loyalties. Example:
An officer of a corporation should not be entering into contracts between his company and a
company that he has created as part of a sideline of work. The officer is conflicted between his
duty to negotiate the best contract and price for his corporation and his interest as a business
owner in maximizing his profits. In his role as an officer, he wants the most he can get at the
lowest price. In his role as a business owner, he wants the highest price he can get with the
fewest demands. The interests are in conflict, and this category of ethical breach dictates that
those conflicts be resolved or avoided.
A county administrator has a conflict of interest by accepting paid travel from contractors who
are interested in bidding on the stadium project. The interest of the county administrator is to hire
the best contractor in terms of performance and price, but the paid travel from one contactor may
bias him to award the contract for him. The county administrator can not please both the county
and the contractors who arranged his paid visit.
Whether the conflict can or will influence those it touches is not the issue, for neither party can
prove conclusively that a quid pro quo (something given in exchange) was not intended. The
possibility exists, and it creates suspicion. Conflicts of interest are not difficult. They are
managed in one of two ways: don’t do it, or disclose it.
5. Hiding or Divulging Information: Examples Taking your firm’s product development or trade
secrets to a new place of employment constitutes an ethical violation: divulging proprietary
information. A bank that sells financial and marketing information about its customers without
their knowledge or permission has divulged information that should be kept confidential. Failing
to disclose the results of medical studies that indicate your firm’s new drug has significant side
effects is the ethical violation of hiding information that the product could be harmful to
purchasers.
6. Taking Unfair Advantage: So many businesses took unfair advantage of those who were not
educated or were unable to discern the nuances of complex contracts. Example: Truth in lending
rule require lending institutions to disclose the effective cost of borrowing as nominal interest
rates hide other fees charged by the institutions. But such kind of issue is a problem of not
disclosing (hiding) information, rather than being unfair in pricing loan contracts. Asking for
other fees is a fair way of doing business, as the institutions have their own justifications for
charging other fees. Even then hiding other fees charged to customers is an ethical violation in its
own right.
7. Committing Acts of Personal Decadence (moral decline): Although many argue about the
ethical notion of an employee’s right to privacy, it has become increasingly clear that personal
conduct outside the job can influence performance and company reputation. Sometimes our
conduct in our personal lives does have an impact on how well we perform our jobs, and perhaps
even whether we can perform our jobs safely.
For example,A company driver must abstain from substance abuse because with alcohol or drugs
in his blood, he creates both safety and liability issues for his employer. In the olden days, a
teacher didn’t drink alcohol or do another harmful practice in his students presence, as they
consider him as a role model. But what about today? Do students consider their teachers as role
model today? Do teachers show decadence (moral decline) and failed to become role model for
their students? Answer these questions for yourself.
8. Perpetrating Interpersonal Abuse:
Example: A manager who keeps asking an employee for a date not only violates the laws against
sexual harassment but also has committed the ethical breach of interpersonal abuse. A manager
correcting an employee’s conduct in front of a customer has not violated any laws, but has
humiliated the employee and involved outsiders who have no reason to know of any employee
issues.
In some cases in this category, there are laws to protect employees from this type of conduct.
However, many situations are simply ethical violations that we label as “it is not fair” or “it is
not right”.
9. Permitting Organizational Abuse: This category covers the way companies treat employees.
Many U.S. firms with operations overseas, such as Nike, Levi Strauss, The Gap, and Esprit, have
faced questions related to organizational abuse.
The questions focus on the treatment of workers in these companies’ international operations and
plants. The critical issues raised are child labor, low wages, and overly long work hours.
10. Violating Rules : Many rules, particularly those in large organizations that tend toward
bureaucracy from a need to maintain internal controls or follow lines of authority, seem
burdensome to employees trying to serve customers and other employees.
Although rules can be revised and studied because of problems they create, they should be
honored by employees until those changes are made.
Although you feel that your boss is incompetent, you should follow his orders until he is
replaced by a right person. Otherwise, if you jump your boss and go to higher officials for any
case, you are committing an ethical breach of violating your boss’s legitimate authority.
11. Condoning (Overlooking) Unethical Actions: In this category, the wrong is actually a failure
to report an ethical breach in any of the other categories. Examples:
What if you witnessed a fellow employee embezzling company funds by forging her signature on
a check that was to be voided? Would you report that violation? Assume as a product designer
you were aware of a fundamental flaw in your company’s new product. Would you pursue the
problem to the point of halting the distribution of the product? Would you disclose what you
know to the public if you could not get your company to act? Recent studies indicates that over
80% of students who see a fellow student cheating would not report the cheating. A winking
tolerance of others’ unethical behavior is in itself unethical.
12. Balancing Ethical Dilemmas: In these types of situations, there are no right or wrong
answers; rather, there are dilemmas to be resolved.
1.4 How Do We Avoid Ethical Dilemmas
These are false reasons used not to face an ethical dilemma and if faced the solution suggested
to it.
1. Call It by a Different Name: If we can attach a lovely label to what we are doing, we won’t
have to face the ethical issue. Example 1: Some people refer to downloading of music from the
Internet as copyright infringement. However, many says it is a lovely practice of peer-to-peer
file sharing. You are in effect committing an ethical violation of “taking something that don’t
belong to you.”
Example 2: The financial practice of juggling (manipulating) numbers is called cooking the
books by some people. But others say it loosely as smoothing earnings or earnings management
which may be a finance strategy rather than an ethical issue. You are here committing an ethical
violation of “giving false impression”
2. Everybody Does It: If we assure ourselves that, “Everybody does it.”, we can feel comfortable
and not have to face an ethical issue. We say it must be right because many people are doing it.
Example: “Everybody speeds, and so I speed.” If we ask for a list of “everybody,”, you can’t
mention those who speeds. You might say “I just know everyone does it.” You are here
committing an ethical violation of “not following rules”
3. If We Don’t Do It, Someone Else Will: This rationalization is one used frequently by
businesspeople as they face tough competition. Example Even if I don’t evade VAT, my
neighbor business will do it. So why not me do it? You are here committing an ethical violation
of “not following rules” even though others are not following them.
4. That’s the Way It Has Always Been Done: Relying on the past should not be used as an
ethical reasoning. The past hide so many inefficiencies and room for improvement are always
there in the way things are done. Example, a good board for a company should be composed of
independent directors. When many companies, which have no independent directors for many
years, are instructed to change such structure, they resisted by saying “This is the way our board
has always looked.”
5. We’ll Wait until the Lawyers Tell Us It’s Wrong: Many people rely only on the law as their
ethical standard, but that reliance means that they have resolved only the legal issue, not the
ethical one.
Example, White House lawyers concluded in March 2003 that international law did not ban
torture of prisoners in Iraq because they were technically not prisoners of war. However, when
pictures of prisoner abuse at the Abu Ghraib prison in Iraq emerged, the reaction of the public
and the world was very different. Although the lawyers were perfectly correct in their legal
analysis, their analysis did not cover the ethical breaches of “interpersonal and organizational
abuse.”
6. It Doesn’t Really Hurt Anyone: We often think that our ethical missteps are just small ones
that don’t really affect anyone else. We are not thinking through the multi faceted consequences
of our actions on many stakeholders. Example, one fraudulent insurance claim is not going to
bankrupt an insurance company. However, if everyone who believes his or her fraud is singular
and isolated submitted a false insurance claim, we could create significant loss to the insurance
company. In analyzing ethical issues, we should turn to Kant and other schools of thought and
ask, “What if everyone behaved this way? What would the world be like?”
7. The System Is Unfair:
Example 1: the professor is unreasonable and demanding, so why not buy a term paper from the
Internet? Example 2: Students rationalize for cheating in exams by saying we are cheating only
to make up for deficiencies in the system.
8. It’s a Gray Area: Business will try to cheat by saying the regulation is unclear, has loopholes
etc. Example: What do we mean by a “free market economic system”? What is the role of
government, business community, consumers in a free market? Because the definition of the
term is vague and context driven, we see so many abuses of the term by the many economic
actors in many parts of the world. So the word “free market” is a gray area susceptible to abuse
by those involved.
9. I Was Just Following Orders:
Many managers when appearing in courts will disclaim their responsibility by stating, “I was just
following orders.” But an order from your boss is not legal or moral if others will be harmed.
Example 1: when WorldCom collapsed because it had capitalized $9 billion in ordinary expenses
and, as a result, over reported its earnings, one of the accountants involved in making the entries
indicated that she was just following orders from the controller and chief financial officer.
However, she did not deny that she knew such capitalization of ordinary expenses was wrong
legally and ethically. Example 2: the prisoner abuse scandal in Iraq illustrates that even if the
soldiers were following orders, they could not call their abusive conduct ethical.
10.We All Don’t Share the Same Ethics: This rationalization is used quite frequently in
companies with international operations. Some managers will do unethical practice such as
physically abusing a worker and say this is culturally acceptable in this country although it
might not be acceptable in other countries. This rationalization is a failure to acknowledge that
there are some common values that demand universal application worldwide. .

1.5 Resolving Ethical Dilemmas:

1. Peter Drucker
 To solve ethical dilemmas he said “Above all don’t harm”.
  This test
 will keep us from releasing a product that had a defect.
 encourage us be fair in the working conditions we provide for workers in other
countries.
 will prevent us from not disclosing relevant information during contract
negotiations.
2. Laura Nash Solution
Nash proposed twelve questions to be asked in evaluating an ethical dilemma:
1. Have you defined the problem accurately? For example, “would you steal a loaf of
bread if you were starving?” The problem might be better defined by asking, “Is there a
way other than stealing to take care of my hunger?”
The rephrasing of the question helps us think in terms of honoring our values rather than
rationalizing to justify taking property from another.
2. How would you define the problem if you stood on the other side of the fence? This
question asks us to live by the same rules that we apply to others.
You may feel easy while deciding on ethical violation by other persons. But will it have
the same easiness if the violation is made by you? Simply if you were your own judge
will it be simple to you?
3. How did this situation occur in the first place? Investigating the historical background of
the situation helps us to avoid facing the same situation in the future.
4. To whom and what do you give your loyalties as a person and as a member of the
corporation?
Suppose that you know that your manager has submitted false travel invoices to the
company. No one in the accounting or audit department has caught his scheme. Saying
something means you are loyal to your company (the corporation), but you have
sacrificed your loyalty to your manager.
5. What is your intention in making this decision? Often we offer a different public reason for
what we are doing as a means of avoiding examination of the real issue.
An officer of a company may say that liberal accounting interpretations help the
company, smooth out earnings, and keep the share price stable. But his real intention may
be to reach the financial and numbers goals that allow him to earn bonus.
6. How does this intention compare with the likely results? Continuing with the previous
example, the stated intention of the officer may succeed in the short run. But in the long run his
real intention will be revealed. As a result he may face criminal penalties besides repaying those
bonus earned by false financial statements.
7. Whom could your decision or action injure? Think all the direct and indirect effect of your
poor ethical decision.
Example, the direct effects of a false financial statement is on actual and potential
shareholders. But it will affect banks, suppliers who extend credit to the firm, NGOs who
rely on the company's donation, the local economy and jobs.
8. Can you engage the affected parties in a discussion of the problem before you make your
decision? If you are considering “cheating” on a spouse or significant other person, you face an
ethical dilemma.
If you could not discuss such ethical violations to your spouse or very close person your
action cross an ethical line. But if you can engage the affected parties in a discussion,
your ethical violation is not serious or may not occur even.
9. Are you confident that your position will be as valid over a long period of time as it
seems now? (Think the long term impact of your ethical violations)
Sometimes cheating on an exam seems to be an appropriate way of solving time
pressures. But think the long term impact of such small decision. Would you have cheated
if someone who knows that you cheated works for a company you very much want to
work for?
Over the long term your decision might not seem appropriate as it did during the pressure
you faced in the college.
10. Could you disclose without hesitation your decision or action to your boss, your CEO,
the board of directors, your family, or society as a whole?
11. What is the symbolic potential of your action if understood? If misunderstood?
Your action will matter most if there is a potential conflict of interest.
12. Under what conditions would you allow exceptions to your stand? You may have a
strong value of always being on time for appointments. However, sometimes other values
conflict. Suppose that your friend became ill, needed your help and you become late for a
meeting. Would you be comfortable with such variation? Of course yes because your exceptions
relate to the well-being of others. You won’t be late because you stopped to talk or you didn’t
leave your apartment on time.
3. Blanchard and Peale Approach
 These persons offer three questions for managers to ask in resolving ethical dilemmas:
 Is it legal?
 Is it balanced?
 How does it make me feel?
If the answer to “Is it legal?” is no, you should stop there. Although conscientious objection to
the law is needed, it might not be effective. Your role as an agent of a business might not be an
optimum place to exercise moral battles over the law.
Example: Officers of companies cannot trade in their company’s stock when they have
information that has not yet been released to the public
“Is it balanced?” requires a manager to view a problem from other perspectives—those of other
parties, owners, shareholders, or the community.
“How does it make me feel?” requires a manager to do a self-examination of his or her comfort
level with a decision. Some decisions, though they may be legal and may appear balanced, can
still make a manager uncomfortable.
Example: Many managers feel uncomfortable about the “management” of earnings when
inventory and shipments are controlled to maximize bonuses. Such practice is not illegal
but may create appetite problems for many mangers.
4. Warren Buffett’s Front-Page-of-the-Newspaper Test
This very simple ethical model requires only that a decision maker envision how a
reporter would describe a decision or action on the front page of a local or national
newspaper.
The purpose of this test is to have you step back from the business setting and view the
issue and choices from the perspective of an objective outsider.
5. The Wall Street Journal Model
 This model consists of three components:
 Am I in compliance with the law?
 What contribution does this choice of action make to the company, the
shareholders, the community, and others? And
 What are the short- and long-term consequences of this decision?
Like the Blanchard–Peale model, any proposed conduct should be in compliance with the
law and be evaluated as to its impact on many stakeholders. Thirdly its short and term
impact be assessed.
 Example: furniture manufacturer Herman Miller decided to invest in equipment that
would exceed the requirements for compliance with the 1990 Clean Air Act and to refrain
from using rain forest woods in producing its signature Eames chair.
 The decision was costly to the shareholders at first, but ultimately they, the community,
and customers enjoyed the benefits of a reputation for environmental responsibility as
well as good working relationships with regulators.
1.6 Theories of ethics
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1.6.1 Teleological Ethics (Consequentialist)