Business Ethics and Leadership

PART ONE
Business ethics is a subject of business plus ethics, which is
engaged in essential questions related to business and moral values
with business transactions with individuals and groups.
The study of business ethics is gaining importance since last four
decades. Now it is a regular subject to all management students.
During the initial period of Industrial Revolution it was considered
that business and ethics do not go together.
The popular concept was that
“if it is business then it is not ethical and if it is ethical it does not
represent business.”
The concept of business ethics started evolving in 60’s. The social
awareness movement gave birth to business ethics.
 The business houses had the financial assistance to help in solving social
problems.
 The commercial organizations started following their own ethical standards,
since then the business ethics has developed an increase in awareness and
popularity.
 Management experts have developed concepts and understanding of the nature
of business ethics
Decision making is a continuous process in life.
Ethical decision-making in an organization does not occur in a vacuum.
As individuals and as managers, we formulate our ethics (i.e. the standards of
“right” and “wrong” behavior that we set for ourselves) based upon family, peer
and religion influences, our past experiences, and our own unique value systems.
When we make ethical decisions within the organizational context, many times
there are situational factors and potential conflicts of interest that further
complicate the process.
As our economic system has become more successful at providing for needs and wants,
there has been greater focus on organizations' adhering to ethical values rather than
simply providing products.
Decisions are made without thinking about their ethical implications.
A myopic (narrow minded, nearsighted) focus on 'winning the game,' on 'beating the
competition,' or on 'achieving the bottom line' often precludes (to prevent) consideration
of the impact decisions have on the well-being of the firm's stakeholders.
As Manager, you must be aware of ethical standards and acceptable behavior.
This awareness means that managers must recognize the viewpoints of three key players:
1. The company,
2. The industry, and
3. The society.
Since these three groups almost always have different needs and wants, ethical conflicts
are likely to arise.
Ethical conflicts in marketing arise in two contexts:
First, when there is a difference between the needs of the three a fore mentioned
groups (the company, the industry, and society) a conflict may arise.
Second, an ethical conflict may arise when one’s personal values conflict with the
organization.
Ethics is a relationship management
Business involves economic relationships among many groups of people known as
stakeholders:
customers,
employees,
stockholders,
suppliers,
competitors,
governments, and
communities.
Today’s manager must consider all of the firm’s stakeholders, not just the firm’s
stockholders.
 What is Ethics?

The study of ethics belongs primarily within the discipline of philosophy, in the
sub-discipline of ‘moral philosophy’, and so our account begins there.
Philosophy is a theory or attitude that acts as a guiding principle for behavior.
The branch of philosophy called ‘ethics’ is concerned with questions concerning
how human beings ought to live their lives, and about what is ‘right’ or
‘wrong’.
Ethics is distinguished from other fields of philosophy by being concerned
with moral values (i.e., morality of human behavior). As a result, ethics is also
known as Moral Philosophy.
As a branch of axiology, ethics is concerned with a particular type of value,
namely moral value. That is why ethics is also called known as Moral Philosophy.
Moral values are values that determine our actions/conduct as right or wrong,
moral or immoral, good or bad/evil.
The word ethics has emerged from Latin ‘Ethicus’ or in Greek ‘Ethicos’.
The origin of these two words is from ‘ethos’ meaning character.
Ethics: It is a
 Principle of conduct/ the manner in which a person behave
 study of morality
Moral is the standard that an individual or a group has about what is right/good or wrong/bad/evil.
 discipline that examines
 ones moral standard or
 the moral standard
Definition as a Science:
Ethics is the science of judging specifically human ends (GOALS) and the relationship of means to
those ends. (an intention or aim) It:
 Uses human knowledge /judgment is done/
 Is about relationship between men and stockholders
 About suitability of available instrument
The term means to an end refers to any action (the means) carried out for the sole purpose of
achieving something else (an end).
As an Art:
It is controlling means so that they will serve specifically human
ends.
In some way it is also the art of controlling means so that they will
serve specifically human ends.
From this point of view, ethics involves the use of any human
knowledge whatsoever which has something to tell us about the
relations between men or about the suitability of the available
instruments.
 Techniques of checking/tool of social control (monitor/evaluation)
means
 Insures that means serve human ends
 Based on personal development
Thus ethics really is or should be involved in all human activities.
What is ethics?
The discipline dealing with what is good and bad and with moral duty and obligation.
A system of moral principals. Highest value
ETHICS are the rules of personal behavior accepted by society.
Ethics is the field of study that is concerned with moral values.
Moral values are values that determine human conduct (behaviors, actions, decisions) as right or
wrong, good or bad, moral or immoral.
Hence, ethics could also be defined as the field that studies rightness or wrongness (goodness or
badness, morality or immorality) of human conduct.
Morality – principle concerning the distinction between right and wrong. Good and bad behavior.
The extent to which an action right or wrong.
Moral Standard: Characteristics
1. Involves with serious injury or benefit;
2. Not established by law or legislature;
3. Should preferred to other values including self interest ;
4. Based on impartial consideration;
5. Associated with special emotions and vocabulary.
Ethics is about
fairness,
deciding what is right or wrong,
defining the practices and rules which underpin/support/ responsible conduct
between individuals and groups.
Ordinary decency and fairness are vital components of ethics.
Ethics is about or concerned with human conduct/behavior.
Hence, the subject matter of Ethics is human conduct/behavior. Ethics is concerned
with human conduct because only human beings are said to be moral or immoral.
We cannot speak or think about morality of other things or animals.
We do not say, for example, a car or cow is moral or immoral. Hence, morality
(that is, the capacity of moral decision making, or being moral or immoral) is a
major quality that distinguishes human beings from other animals.
It is in this sense that man is defined as moral animal.
 Business Ethics
Business ethics is concerned primarily with the relationship of
business goals and techniques to specifically human ends.
It studies the impacts of acts on the good of the individual, the firm,
the business community, and society as a whole.
Ethical issues in business impact upon everyone. As Elaine
Sternberg put it:
The key business ethics concern is the way that the business
conducts itself in its ordinary, everyday routine activities.
 The way the firm deals with its staff and its customers,
 the way it designs and supports its products,
 the way it awards contracts and apportions blame….
These are the key determinants of whether a business is ethical
Business ethics is concerned primarily with
the relationship of business goals and
techniques to specifically human ends.
It studies the impacts of acts on the good of
the individual, the firm, the business
community, and society as a whole.
Ethical issues in business impact upon
everyone.
The key business ethics concern is the way that the business
conducts itself in its ordinary, everyday routine activities.
 Ethics and its Universality
Ethics is not the study of morals, whether this word is used to designate
conformity to conventional social rules or the existing moral judgments of
men.
Although existing norms and judgments may contain valuable insights,
ethics does not accept them, but sets out to criticize and test them in terms of
more ultimate norms.
To put it another way, custom, convention and the accepted courtesies of a
society are not the foundations of ethics even though they can provide
valuable hints as to what men think.
Hence, the difference between Ethics and morality is that whereas ethics
is the study or inquiry, morality is what is studied or inquired into by
ethics.
Morality refers to a set of rules and principles that guide the
people’s behavior/conduct in day-to-day life; they are set of
rules we ought to obey, or tell us what is right and wrong.
Ethics, as the philosophy of morals/morality, is the discipline
that examines and formulates these rules and principles; it
attempts to discover how these rules and principles are justified,
and the logical consequences of the moral beliefs.
To put the same thing in different words, 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 constitutes good and bad human
conduct.
 Ethics and Law
Law enshrines many of the ethical judgments of a society, but it is not
coextensive with ethics.
In the first place, law is generally concerned only with the minimum
regulation necessary for public order, while ethics examines both the
individual and the social good in all dimensions.
Laws permit many actions that will not bear ethical scrutiny.
In other words, what the low permits or requires is not necessarily what is
ethically right.
For instance, laws allow disloyalty toward friends, the breaking of promises
that do not have the stature of legal contracts, and a variety of deceptions.
Many ethical issues can not be settled by the courts.
Ethics and law differ in that ethics are social guidelines based on moral principles and
values while laws are rules and regulations that have specific penalties and consequences
when violated. 
Ethics do not have punishments, fines or associated penalties when people fail to abide by
them while laws do.
In ethics everything depends on the person’s conscience and self-worth.
1. Ethics are rules of conduct.  Laws are rules developed by governments in order to provide
balance in society and protection to its citizens.
2. Ethics comes from people’s awareness of what is right and wrong.  Laws are enforced by
governments to its people.
3. Ethics are moral codes which every person must conform to.  Laws are codifications of ethics
meant to regulate society.
4. Ethics does not carry any punishment to anyone who violates it.  The law will punish anyone
who happens to violate it.
5. Ethics comes from within a person’s moral values.  Laws are made with ethics as a guiding
principle.
 
 Ethics and Religion
Some will dispute the statement, ethics in not even identical with religious morality
or moral theology. The great religions derive their moral precepts not only from
human experience but from divine revelation. devaine
Ethics must rely on the unaided human reason. Yet there should be no conflict
between ethics and moral theology, for ethics admits its incompleteness and sends the
religious man to his faith for the completion of his moral equipment.
Ethics are man-made codes to distinguish right from wrong. They do not necessarily
take into account a desire to re-connect with God, but they appreciate that acting in
the mode of goodness is beneficial even if there is no clear understanding of why.
People can be religious and unethical. Perhaps you know someone who faithfully
goes to church, ministers to people in need and prays fervently. You might be
surprised to find out the person also has a gambling addiction.
What ethics is /does not
 Study of moral theory or social norms
 Identical with religious morality nor in conflict with it;
 Co-extensive with law, in fact it criticizes it;
 Rest on feeling, attitude, perception or approval or disproval
Ethics:
 Involves all human activity;
 Based on careful examination of the reality;
 Use unaided rationality
Critical Moral Reasoning
1. Be logical
2. Be consistent
3. Be based on accurate, relevant and complete factual evidence
 Why study: Business/Marketing ethics
Contribute for the growth of men and society.
Create a fit place for men to exist.
Purpose:
Sharpen our knowledge
Enlarge once outlook/perspective
Synthesize the common ethical problems
Appreciate acceptable principles
Overcome the root cause of unethical behaviors.
Benefits to business organization.
Improve employee and organizational morale
Increase ability to attract new customer
Improve customer loyalty
Reduces risk of negative exposure and public backlash
Attract new stakeholders
Help make positive impact on communities
If business is governed by ethics, it:
Helps to improve social well being;
Helps to maintain moral decision in time;
Help cultivate team spirit and enhance productivities;
Supports employee growth
Ensures policy are legal
Help avoid criminal acts
Help manage corporate values
Promotes strong public image.
 Different types of Evil and
Consequences
Sources of ethical Dilemma
Specifically Human ends
WHO IS MAN?
Man is not:
 A creature made of power or pleasure;
 Purely or simply a social being.
Man is:
 A complex being existing in an extremely complex world.
 Has worth /having value/ excellence of character or quality.
 Has dignity as an individual; self respect
Sense of self respect and self worth
 Has aspiration (highest attainment) a strong desire/achieve human
perfection.
All aspects of man enter into ethics.
Specifically human goals:
are to attain full human perfection.
Person is not a means to the perfection of society/
state or anything else.
Rather
Societies are means to the real perfection of the
individual even though they may contribute to this
only indirectly. (very important means);
Individual may contribute to this indirectly
(wealth, talent, time etc)
 Root Causes of Unethical Activities
Lack of respect for own personal dignity;
Neglect of the right of others;
Momentary/staying only short time/ desire and narrow
view;
Dearth (lack) of knowledge who man is.
Ethics demands:
An appreciation of what it means to be truly human
Study and practice of ethics that contribute to business growth
Please take note that:
Business may be run efficiently and it could be ‘successful’ but
mediocre /not satisfactory/ and morally crippled/ offensive.
Mere instinct and vague goodwill is not enough in this complicated society.
 Responsibility in a General Sense

Nearly everything we do has some harmful impact on ourselves or others. If we were

responsible for all the evil that flowed from our activities, whether foreseen or not, we
would despair/ loss of hope/ of ever being ethical.
Harmful impact could be caused by:
Most conscientious advertiser
 knows that his carefully written copy will deceive some silly/weak minded/
people.
The employer who must fire an incompetent knows that the man's family will suffer. Is
he responsible for this effect. The answers to these questions are found in the very
traditional ethical theory which states:
“Man is responsible at least for what he freely wills whether as a means or an end."
Ethics demanded that
“Man is oblige to avoid even untended evil consequences”.
 Types of evil and Consequences

Evil is whatever hurts individual/institutions growth.

Morally wrong or bad; immoral; wicked; harmful; injurious.
Good; truly promotes the growth of individuals/ institutions.
During the past thirty years, moral, political, and legal philosophers have become increasingly
interested in the concept of evil.
This interest has been partly motivated by ascriptions of ‘evil’ by laymen, social scientists,
journalists, and politicians as they try to understand and respond to various horrors of the past
eighty years,
e.g., the Holocaust, the Rwandan genocide, the 9/11 terrorist attacks.
Major evils
It is also possible to distinguish between major evils/moral evil, which involve the destruction
of goods necessary for an individual or society as well as the violation of rights, e.g. life,
truth, privacy
That strike human dignity
Destroy goods necessary for human growth e.g. destroy human health and
Moral evils do result from the intentions or negligence of moral agents/ human activity. Murder
and lying are examples of moral evils.
Minor evils
minor evils/physical, which involve harm to a purely physical good or to some means that
is useful but not necessary for the individual and society.
Destroy goods which are only useful,
e.g. a man loss a job
Does not harm dignity
Willing some evil for proportionate reason
e.g. parents spanks his child, employer docks the wage of an employee for consistently
tardy.
Unintended harm but greater than foreseen
No matter what distinction or terminology is used we can say:
It is unethical to will a major or a moral evil either as a means or an end.
Secondly, a physical or a minor evil can not only be permitted or risked, but can even be
wiled as a means if there is a proportionate reason.
The reason is that the physical or minor evil by definition does not go
against the essential dignity of man but promotes it when there is a
proportionate reason.
As a result, the physical or minor evil is really not a full-fledged evil in
many situations.
Principles:
 A side effect foreseen could be permit or risk, if both the means and the
end willed are good, if I have a proportionate reason.”
Example:
Deliberately killing an innocent man to save thousands of lives: yes/no
Steal another man’s property to make millions of birr. Yes/no
I may ethically be permitted or risk foreseen but unwilled side effects if
and only if, I have a proportionate reason for doing so.
Principles:
The best end can supply me with a sufficient reason for permitting or
risking – side effect which are not means to the end.
Permitted:
An evil foreseen it as certain but don’t will it. E.g.. Honest Advertiser
deceived Vs. carefully foreseen few stupid people will miss read.

Risking:
An evil foreseen it as probable but not will it.
The principle does not imply that the end justifies the means.
“The means willed must be good too.”
 Problems Dealing with Evil
 Often difficult to differentiate/deal with major/minor evil.
In the world of business, as elsewhere in human life, it can often be difficult to decide
whether we are dealing with a major or minor evil.
 The danger of consideration harm done to others as any good for ourselves- as
necessary.
In addition, there is the danger of considering any harm done to others as minor and
any good for ourselves as absolutely necessary.
 Danger of subjectivism divorced from objective.
As a result, good demands that the individual make a continual effort to arrive at
objective evaluations of the effects of his acts on individuals and societies.
 Unjustified rational
 Self deception
 Law
 Custom
 Public opinion
The neglect of this obligation is certainly a source
of much unethical conduct and might also be
considered a major problem in ethics.
One might be tempted to call the risk to life a
purely physical evil, but it is more than this since
workers have a right not to be unnecessarily
exposed to risk, while a company has right to a
profit, gained by exposing others to unreasonable
risks.
 Principles of proportionality
Proportionality has been described as meaning, in plain English, “You must not use
a steam hammer to crack a nut, if a nutcracker would do.”
Crack- to break without complete separation of parts.
In fact, proportionality is a very ancient concept. The Code of Hammurabi, a
Babylonian law code dating from about 1722 BC, incorporated the principle of “an
eye for an eye, and a tooth for a tooth”.
The Magna Carta and the English Bill of Rights of 1689 also embodied the
principle of “proportional punishment” under which punishment must be
proportional to the crime.
Germany has since developed the proportionality principle with three elements:
(i) Suitability (the measure should be suitable for achieving the desired objective);
(ii) Necessity (a less restrictive means should be used if it is equally effective); and
(iii) Proportionality in the strict sense (the measure should not be
disproportionate to the objective).
Proportionality is to be judged by:
The type of goodness or evil involved.
The urgency of the situation.
The certainty or probability of the effects.
The intensity of one's influence on the effects.
The availability of alternate means
1. The type of Goodness or Evil involved
In the abstract, a necessary goodwill outweighs a merely useful good.
For example, something necessary to keep a business in existence
will take precedence over a cut in the ordinary dividend.
The more necessary will take precedence/to go before over the less
necessary.
2. The urgency of the situation
In the concrete, necessity is influenced by the urgency of the situation.
Thus, staying in business nowadays involves both research and the ability to meet one’s
payroll because both the company and the employees depend on this for their existence.
3. The Certitude or Probability of an effect
The Certitude or Probability of an effect must be considered since a serious harm which is
only slightly probable can clearly be outweighed by a certain good.
4. The intensity of one's influence
The intensity of one's influence must be considered since often something or someone else
is the major cause of the evil side effect.
5. The availability of alternate means
The availability of alternate means must be considered. If the good effects can be obtained
by a method which involves lesser evils or no evil side effects, it would be irrational and
therefore unethical not to choose the alternate means, all other things being equal.
All of these factors must be considered together in making a judgment about proportionality.
 Positive obligations
The brief statements made above provide analytic tools for the determination of what we must avoid as
unethical.
In addition, we have positive obligations, means duties to bring some thing in to existence.
At times, however, a person can be involved in a situation against his will. If he does not will the evil either
as a means or an end, he may have a proportionate reason for risking or permitting harm.
Positive obligations in human rights law denote a State's obligation to engage in an activity to secure the
effective enjoyment of a fundamental right, as opposed to the classical negative obligation to merely abstain
from human rights violations.
Duties to bring some thing in to existence.
Something necessary for:
 Our own to achieve human perfections;
 The respect of dignity of others;
 Necessary operation of society;
“An individual may often have proportionate reasons for not fulfilling a positive obligation at a given
moment.”
Hence duties are not absolute. The urgency of one may cause other to be postponed.
“A status quo is not perpetual excuse for permitting evils that can be eliminated.” The current situation/the
way things are now. The existing state of affairs.
Limiting Factors of Positive Obligation
I am not obliged;
 To do a good act whose harmful side effects
outweigh the good effect I intended.
 To help someone who will not help himself
although I may do so if I desire.
 To perform a positive good act if someone else
has more primary obligation and is willing and
able to fulfill it.
 Location of Responsibility
It is clear from our understanding that we can be partially responsible
for actions whose primary cause is found elsewhere. Even though
another may bear the major responsibility, we can share in it.
Often, to be sure, we are in a position where we cannot prevent evil or
can prevent it only at a disproportionate price. In such situations, we
may be excused temporarily. More often than not, the obligation is
transformed into the duty to work for the correction of the underlying
situation.
Location of responsibility
Partially responsible for actions whose primary cause is found
elsewhere through cooperation.
We are responsible for our share of the evil.
 Cooperation of evil
Includes willing the evil either as means or end except in that
case where there is proportionate reason for willing
minor/physical harm.
Why at times a person can be involved against his will.
e.g. secretary who type fraudulent reports
Treatment of the power
 Bosses must see that their act shall not encourage other to
engage in unethical conduct.
 The employee may even misinterpret it as innocent act.
 Superiors may permit it or risk the harm for proportionate
reason.
 The Gray Area

It is an undefined situation or subject that does not seem to conform to known
categories or rules; 
an intermediate area or topic that is not clearly defined.
Indeterminate territory, undefined position, neither  here nor there. 
For example, 
There's a large gray area between what is legal and what is not.
This term, which uses gray in the sense of “neither black nor white” 
Fig. an area of a subject or question that is difficult to put into a particular categ
ory because it is not clearly defined
and may have connections or associations with more than one category.
The gray areas themselves are not excuses for unethical conduct so much as
challenges to our intelligence.
Ethics reach on correct decision in majority of cases.
Hence, gray area are not excuse for unethical act.
Study:
Remove darkness/narrow perspectives
Intelligence necessary means to the perfection of
individual/society
Real obligation to study ethics – brings murky
area in to light.
 Rights
In a general sense, we can distinguish between
1.Quasi-absolute rights, which are claims to things which man needs in order to be a man,
and
2.Relative rights, which are claims not to be unreasonably impeded in the pursuit of every
useful goods.
Those to which a person is entitled in consequence of his relation with others such as the rights
of husband in relation to his wife.; of fathers as to his children.
3. Inborn Right
Some rights are inborn; a man has them merely because he is a man. The right to life is a
prime example.
4. Created Right: exist because of act.
Other rights, however, come into existence only when some act has created a title to a
particular thing.
Contact
Man has right to particular job.
5. Gift – Inherit.
The exercise of rights
whether absolute or relative, right is limited by
the rights of others
my obligation to respect them
as well as by my obligation to respect myself.
Example:
Employer to hire- limited by respecting the dignity.
Right to life- not to save his own life by killing innocent.
Right to trade- not to exploits its customer.
“The right of others limits the legitimate extent of your own
claims.”
 Economic and Political Considerations

The businessman is not only a man and a citizen but also a

manager of a group with a specific purpose.
As a result, he has obligations, which arise, specifically from his
role as businessman.
Since these obligations are additions to his basic duties, they form
the proper matter of business ethics.
In theory, the specifically business obligations can be derived by
applying basic principles to particular business situations.
In practice, the beginner is unable to do this effectively, since he is
liable to over look important factors.
Purpose of the firm
From the social point of view,
 the business firm exists to supply goods, services
and ideas to consumers as efficiently as possible.
From the individual point of view,
 the firm exists to supply income, power, prestige,
creative satisfaction, or a combination of these to
those who work for or with it.
 Manager’s/ owner’s: obligation
To put it another way,
The manager is obliged to run the firm as efficiently as possible within the limits set by
the basic ethics.
Manager/owner to run the firm efficiently and ethically.
The manager is oblige/legally or morally bound
To reconcile claims
To balance the claims of various stakeholders
To harmonize means to obtain legitimate goals ethically
Neglect of anyone of this can destroy/injure others.
Furthermore:
“Profit is not the only goal of the firm and not a possible measure of firm’s
performance.”
Profit can result from luck, fraud, coercion or exploitation of ignorance as well as,
economic efficiency.
A manager's/ owner’s is: obligation
 profit is ambiguous both ethically and economically.
 manager/businessman is obliged to be efficient rather than to make profit and should
stress on the:
 ensure firms survival
 Enhance livelihood of employees, owners, mangers
 Create ability to satisfy needs and useful desire depends: on efficiency.
Economic Efficiency
Efficiency demands long-term as well as short term maximization /optimization/ of:
 use of physical resources
Workers moral
 executive development
 research undertaking
Good relation with the community
Good relation with the society.
 Societal Nature of the firm

If the firm is to attain its end and realize its goals,

 All people involved must cooperate.
In short, a firm is a society, which cannot realize its purposes without human cooperation. and
 A unity of purpose is necessary.
In the firm as elsewhere, this cooperation is not automatic, but is created by managers.
How is this done?
Use of basic function of management
It is for this reason that managers have to plan, organize, and control the activities of men so that
the firm will prosper.
Managers are not free to subordinate the good of the firm to one or two individuals.
This means that the manager fulfills his obligations to individuals largely by fulfilling his
obligations to the firm.
Otherwise, it may harm- hundreds who depend on the firm for their livelihood and need of
satisfactions.
The social good of the firm, however, is not identical with the good of the
members.
Example; physical equipment, patent, contracts, high moral, loyalty, managerial
team and reputation.
This social good is composed of various factors, which have the following
characteristics.
 They are produced by the cooperation of many people.
 They belong to the firm and not to any member no matter what the law may say.
 All members benefit in some way from the existence of these factors.
Managers are responsible to reward those who contribute of producing and
maintaining of these factors.
Role of Business/ Firm
Business is expected to create wealth, supply markets, generate employment,
innovate and produce a sufficient surplus to sustain its activities and improve its
competitiveness.
Society is expected to provide:
 Conducive environment
 External defense
 Internal order
Role of Business/Firm
 Economic Role
Business organizations are expected to perform
The economic and production task
(creation and maintenance of wealth, manufacture, farm)
Maintenance task
Transmitting one shaping knowledge culture
Adaptive functions
Provide means to respond to change /research
Managerial or political tasks
 Social Role
Job creation
Owners financial return
Satisfaction of stakeholders
 Rights and Obligations of management

The obligation to manage the firm gives rise to the right to

manage. /position./ the manager’s authority.
To put it another way, the basic authority of the manager arises
from his function.
This is true even in the case where the manager is the sole owner.
His property right may give him control over various things, but it
does not give him authority over workers, their time and energies.
He obtains this latter right by means of the work contract, which
binds the employee to cooperate for the good of the firm in return
for definite benefits.
Contract is a source of managerial authority but also give rise to
many disputes due to its vague nature.
 Management Authority
First
Is limited by its purpose- the good of the firm a right not to use
the firm as personal toy.
Even though has power to subordinate the good of the firm for
own benefit but does not have right to do so.
Second
Is limited by clear rights of stakeholders and community at large.
A manager does not have the right to use the firm as a personal
toy. Even though he has the power to subordinate the good of
the firm to his own personal profit or whim, he does not have the
right or authority to do so.
The rights of stakeholders are relatives – hence hazy.
Managers should work to create a climate by
Obtaining consent freely
Use mutually accepted contract
As result
Trust will flourish
Mutual confidence will develop
Productivity will reinforce
Fair deal will prevail
Ethical manager should continuously/ constantly ask if his act is reasonable interface with
another’s and search for even useful good.
Manger should look long and hard at orders or policy which interferes with:
 Home life of employees
 Political activities
 Personal privacy
 Freedom to change jobs, etc
“Unilateral decisions by power holders constitute a threat to individual rights and
freedom.”
Manager must realize that power, fraud, ignorance, and passion can:
1. Vitiates the relationship of justice
2. Destroys the system of exchange
3. Undermines cooperation.
“If consent is extorted or forced we are dealing corporate tyranny.”
Power should be institutionalized by:
Constitution/directives/legislation
Provide due process
Establish system of check and balance.
How? By:
Providing attention to the reasoned opinions;
Removing suspicion of arbitrary application
Respecting the consent of the governed
 Hierarchy of Goals

The firm and its Economic relationships

The businessman's rights are limited not only by the rights of his own employees, but by those of
the various groups with whom he must deal.
Thus, he must consider the impact of his decisions on stockholders, suppliers, dealers,
competitors, customers, unions, local communities, and on the economic system as a whole.
This is merely to say that the firm is part of a total economic and political system and not an
island without foreign relations.
Like employees, the economic groups that deal with or are affected by the firm have rights which
must be respected.
The managers;
Must seek to reconcile claims of stakeholders
Should balance the claims of various stakeholders
Should recognize the rights and needs of both individuals/groups
Should have
 Real technical competence
 Well thought-out hierarchy of goals
1. The quasi absolute rights of real persons take
precedence over claims of either the company or the
general society.
2. The needs of the nation take precedence over the
needs of the firm, but what is merely useful for the
nation does not take precedence over what is
necessary for the functioning of the firm.
3. Conflicts about relative rights can be settled in favor
of the party whose rights are clearly spelled out in a
contract.
 Why have Values? Tips
10 good reasons for having values:
 They supply behavioral and decisional framework for organization’s managers.
 They define action parameters for new employees and promote an ethical culture,
which becomes a way of life for the workforce across the board.
 Values underpin the strategic direction of the organization.
 Values convey expectations about the conduct of the organization’s stockholders.
 Publication of core values will enhance the company’s public image and raise
level of customer confidence.
 Values reduce and preempt the possibility of legal action.
 Values benefit the bottom line results.
 Values are powerful mechanism for integrating merged or acquired organizations
 Values deter managers for issuing improper instructions to staff and also deter staff
from making improper values encourage open communication.