© 2012 Pearson Education, Inc. All Rights Reserved

© 2012 Pearson Education, Inc. All rights reserved.

Chapter 1
Ethics in the World of

Business
Two Distinguishing Features of
Business.
• The first distinguishing feature of business
is its economic character
• In the business world we deal with others
as
– Buyers and sellers
– Employers and employees

Two Distinguishing Features
• The second distinguishing feature of

business is that
– It typically takes place in organizations
• Organizations are a hierarchical system of
functionally defined positions that are:
– Designed to achieve some goal or set of
goals

Levels of Decision Making
• Occurs on several distinct levels:
– The level of the individual
– The level of the organization
– The level of the business system
Ethical displacement Richard T. DeGeorge

Addressing a problem on a level other than
the one on which it appears. It is often
needed to resolve an ethical problem

Relevant
Level Type of Problem Question
The Individual The problem confronts an individual and What do I
requires that person to make a decision do?

about his or her own response.

The The problem requires that the individ- What do we
Organization ual decision maker act on behalf of the as an organi-
organization to resolve the situation zation do?

and possibly bring about some organi-

zational change.

The Business The problem results from accepted What do we
System business practices or from features of as a society
the economic system which cannot be do?

effectively addressed by any single

individual or organization.

Ethics, Economics, and Law
• Businesses are
– Economic organizations that operate within a
framework of law and regulation
– Organized primarily to provide goods and
services, as well as jobs
• Their success depends on operating
efficiently and competitively

The Relationship of Ethics and
Economics
• According to economic theory, firms in a
free market
– Utilize scarce resources or factors of
production in order to produce an output
• The demand for this output is determined
by the preferences of individual consumers

The Relationship of Ethics and
Economics
• Firms seek to maximize their preferences
or utility by increasing their output.
– This is so the amount of the
sale equals the amount that was spent
• Under fully competitive conditions, the result is
economic efficiency

Two Schools of Thought
• Law and ethics govern two different

realms.
– Law prevails in public life, whereas ethics
is a private matter
• Law embodies the ethics of business.
– Ethical rules that apply to business have
been enacted by legislators into laws

Why the Law is Not Enough
• Ethical and legal aspects of a situation

need to be considered in decision making.
– Approval the legal department does not
always assure a successful legal resolution
• Companies have prevailed in court then suffered
adverse consequences in the marketplace

Why the Law is Not Enough
• The law is:
– Inappropriate for regulating certain aspects of
business activity
– Slow to develop in new areas of concern and
often unsettled
– Employs moral concepts that are not precisely
defined
– Law itself is often unsettled
– Law is rather inefficient instrument, and an exelusive
reliance on law alone invites legislation and litigation
where they are not necessary.

Ethical Management and the
Management of Ethics
• Ethical Management
– Acting ethically as a manager by doing the
right thing
• Management of Ethics
– Acting effectively in situations that have an
ethical aspect

Ethics and the Role of Managers
• Ethical dilemmas for top managers are

due to conflicts between three main roles.
– Managers as economic actors
– Managers as company leaders
– Managers as community leaders

Individual Decision Making
• Rule-of-thumb methods in reasoning.

• The main heuristics people employ are:
– Anchoring and Adjustment heuristics
– Representativeness heuristics
– Availability heuristics

Test for Moral point of view
Would you feel comfortable if colleagues,
friends, and family knew about your decision,
or if it were reported on TV or in the
newspapers?
Reasons why individuals make bad
decisions
• Bad character
• Lack of guidance and receive conflicting
signals
• Persuade themselves as action is morally right
(in this circumstances)
• Psychological tendencies or biases
Some Biases
1. Loss Aversion Bias. People tend to weigh losses
more heavily than gains, thus take greater risks
to avoid loss .
2. Framing Effect. People’s decisions depend on
how the choices are presented or framed.
3. Confirmation Bias. This is the tendency of

people to seek and process information that
confirms existing attitudes and beliefs instead
of seeking and processing information that
poses challenges to their attitudes and beliefs.
4) Cognitive Dissonance. the tendency of people to
dismiss info. that would disrupt their existing attitudes
& beliefs.
5) Commitment and Sunk Costs. Once commitments are
made and resources expended, people tend to persist
in a course of action, even in the face of information
that should lead them to reconsider their initial
decision.
6) Hindsight Bias. People tend to believe that events are
more predictable than they are, and blame themselves
for not anticipating events that occur.
7) Causation Bias and Illusion of Control. People often
find causal patterns in random events, which leads to
the belief that they have a greater ability to control
events than is warranted.
8) Overoptimism and Overcofindence Bias.
People are unduly confident of their own
knowledge and abilities and thus
overestimate the likelihood of success.
9) Self-interest Bias. People tend to make
judgments, especially about fairness, that
favour themselves.
10)Risk Perception Bias. People make poor
judgments about risk, overestimating some
risk and discounting others.
• What is Ethics?
– The inner guiding moral principles and
values people use to analyze a situation
and decide what is right.
• Ethical Dilemma
– The Quandary /Predicament /Fix /a
Sticky situation people experience when
they must decide whether or not they
should act in a way that benefits
someone else even if it harms others
and isn’t in their own self interest.
Major branches of ethics include:
– Meta-ethics,
– Normative ethics
– Applied ethics
– Moral psychology
– Descriptive ethics
Within each of these branches are many

different schools of thought and still further
sub-fields of study.
• The Authority to Decide
An angry customer is speaking on the phone
with a customer ser- vice representative. The
customer demands a full refund for the
defective item she purchased online, although
it is past the 30-day period allowed for
returns. Describe a possible solution that
could be offered at each level of decision
making, and explain which level is required to
resolve the problem to the customer’s
satisfaction.
•

© 2012 Pearson Education, Inc. All Rights Reserved

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

© 2012 Pearson Education, Inc. All Rights Reserved

Uploaded by

Copyright:

Available Formats

© 2012 Pearson Education, Inc. All rights reserved.