Business ethics

the values worth pursuing and the character traits deserving development in life. What is ethics? • Ethics is the study of what is right or good for human beings. It systematically attempts to determine the rules that ought to govern human conduct. institutions and decision making. • Business ethics is a subset of ethics: what is right and good in business settings: moral issues that arise from business practices. .

Ethics is moral ideal. Law vs. whereas ethics not. it does not necessarily mean that the same action is ethical. laws are meant to express some moral view as well (remember natural law?) Example is criminal laws. 2) if something is illegal. Laws are moral rules critical to the maintenance of the social fabric. • Law is enforced by punishment. it does not necessarily mean that the same action is unethical. ethics (why ethics matters) • Both law and ethics are strongly affected by moral concepts. social institutions and broad concepts of common good. • Law and ethics are not the same: 1) If something is legal. in fact. .

Scenarios • You watch a blind man walk off a cliff and keep silent. Is it legally allowed to do that? Does it seem ethical to do that? • Nazi edicts prohibited sheltering Jews during World War II. Are you legally obliged to warn him? Does it seem ethical to not warn him? • A US company wants to export products banned in the United States to some developing countries where they are not prohibited. Did those who violated the law and help Jews act morally? .

more creative employees and higher returns than those engage in wrongdoing. . Why be ethical? • Despite it can earn company short term profits. Arthur Andersen LLP (the story of how aggressive accounting tactics and unethical behavior hit one of the largest accounting firms in the world) • Ethical companies tend to have better reputation (associated with goodwill). unethical behavior might hit the company in the long run. eg.

. Utilitarianism in effect is cost-benefit analysis.assesses each separate act according to whether it maximizes overall utility. • Rule utilitarianism.supports rules that on balance produce greatest satisfaction. Utilitarianism • Doctrine that assesses good and evil in terms of the consequences of actions. Something is right if sum of utilities out of that act for majority or society is greater than that of any other acts. • Act utilitarianism.

at least in a way one would measure distance. for instance. Continued… • Criticism: a) it is very hard to measure utility accurately. b) it is very difficult to predict benefit and harm. c) it ignores justice: maximizes pleasure of the majority at great social cost to minority. .

including a disabled grandchild who then could afford medical care that would improve his life dramatically. If he were to die. . Scenario • A wealthy old Buffet has several chronic illnesses. all his heirs would benefit tremendously from the money that they inherited from him. He is such a bad person that everyone who knows him. Would it be ethical to kill Buffet? Analyze from both act and rule utilitarian point of view. hates him.

what makes a choice right is its conformity with a moral norm. b) act as never to treat another human being merely as a means to an end. Deontology • Certain underlying principles are right or wrong regardless of calculations regarding pleasure or pain.motives that led to consequences are very important. some acts are morally obligatory (duties) regardless of consequences. . • Kantian deontology: a) act as if how you act will become a universal law (categorical imperative). a person not only must achieve just results but also must employ the proper means. • To act morally.

• George’s lovely wife (they have been happily married for 10 years) dresses up for their dinner in a fancy restaurant. falsely denying that the wife is hiding at Ted’s house. abusive husband. Did Ted act ethically? Analyze from deontological point of view. Before leaving for the dinner she asks George: “How do you like my dress?” George actually thinks that it is horrible and does not look good on his wife. but nevertheless replies “Gorgeous”. Scenario (criticism) • Ted hides a terrified wife from her angry. Did George act ethically? .

• According to Michael Josephson. • The right thing to do is what a virtuous person would do in the situation. Virtue ethics • Unlike utilitarianism and deontology (ethics of conduct). virtue ethics is ethics of character. • Companies can and some of them do have principles and virtues that they abide by. i.e. there are 6 core values in our modern society: . everyone should have the kinds of virtues which reason determines are best.

the decision process is as follows: a) identify stakeholders (potential gainers and losers). c) consider which stakeholders gain or lose with each option. b) identify the reasonable options you have. . Ethical decision model? • Josephson’s Core Values Model: after collecting all the needed information. d) which decision satisfies the greatest number of core values. try to determine which decision delivers the greatest good to the various stakeholders (it is important to determine which stakeholders group is the most important). e) if cannot achieve (d).

Based on this analysis company waits until there are more accidents and nearly fifteen fatalities. company institutes only a . Even after these events. recalling all the vehicles now and inspecting for the defect would be too expensive and would materially worsen company’s financial situation. According to cost-benefit analysis.• XYZ Motor Corp. The problem is with sudden acceleration. who’s slogan is “Customers first!” begins to get customer complaints about 2 models of its automobiles. It is voluntary to report these incidents to National Highway Traffic and Safety Administration. which almost exposed some of the customers to death. but the company thinks that it will wait awhile and see if there are more complaints.

in doing so the agent will be acting in accordance with a moral rule such as “Do unto others as you would be done by” and a virtue ethicist to the fact that helping the person would be charitable or benevolent.” . To sum up… • “Suppose it is obvious that someone in need should be helped. a deontologist to the fact that. A utilitarian will point to the fact that the consequences of doing so will maximize well-being.

society should provide all persons with equal amounts of goods and services regardless of contributions each makes. elements of this theory is very explicit in stakeholder approach to CSR. • Social egalitarianism (e.people give up certain rights and freedoms to government in exchange for security. . Social ethics • The central question is what special obligations arise from the social nature of human being and what is the fair way of distributing goods among groups of people.g. • Social contract theory. Marxism). common benefits and protection of their other rights.

or to maximize profits. major stakeholders of a corporation are government. community. • Shareholder approach. • Who are stakeholders?. suppliers. trade unions and shareholders (owners). . 2) stakeholder theory. employees.the only moral duty of a corporation is to make the most possible money. customers. short termism. willingness to take greater risks)- Sears Auto Center case.they are parties that have some kind of interest in the enterprise. creditors. for its stockholders within the rules of the game (disregards other stakeholders. Corporate Social Responsibility • Two differing views about to which group a corporation owes its duties: 1) Milton Friedman’s shareholder approach.

d) stakeholders have no remedy to enforce such type of broad obligations. not just to shareholders. . b) almost impossible to balance divergent interests of stakeholders. c)non-shareholder stakeholder interests are already protected by contract and law. but also to their overall affect on the community and other stakeholders: corporations duties are owed to all the stakeholders. Continued… • Stakeholder approach: Corporations must pay attention not only to the bottom line (maximizing profits for shareholders). • Critique: a) who are stakeholders (conflicting criteria and definitions).

• The conscious business has a purpose that goes beyond maximizing profits. partner. A corporation should deliver value to all its stakeholders. harmonizing at best it can the interests of consumers. . the community and the environment. investors. Conscious Capitalism • Attempt to integrate shareholder and stakeholder theories: profit and prosperity can and must go hand in hand with social justice and environmental stewardship.

Scenario • How would a shareholder value proponent approach the XYZ Corporation’s decision making process above? How about a stakeholder value proponent? .