Canadian Business and Society

ETHICS, RESPONSIBILITIES, AND

Fifth
SUSTAINABILITYAND
Edition

CHAPTE
R5
Ethics of
Business: The
Theoretical
Basis
Prepared By:
Renée Majeau, NAIT

© 2020 McGraw-Hill Education Limited 5-1

 Learning Outcomes
1. Define the ethics of business.
2. Understand the different approaches managers and
businesspersons take to assessing the ethical implications of
their decisions.
3. Identify the influences on ethical behaviour and define ethical
relativism.
4. Describe the seven common theoretical bases for ethical
conduct.
5. Outline a sequence of moral reasoning.
6. Appreciate the challenges of ethics in business.

© 2020 McGraw-Hill Education Ltd 5-2

 Introducing the
Ethics of Business
• Business ethics  rules, standards, codes, or
principles that provide guidelines for morally right
behaviour and truthfulness in specific situations
 Means different things to different managers

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 Levels of Ethical
Assessment

FIGURE 5.1
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 Assessment of Ethical
Implications in Business
Decisions
• Value judgments  subjective evaluations of what is
considered important
 Based on how managers intuitively feel about the goodness
or rightness of various goals
• Moral standards  the means by which individuals
judge their actions and the actions of others
 Based upon accepted behaviour in society

© 2020 McGraw-Hill Education Ltd 5-5

 Influences on Ethical
Behaviour
• Influences become bases for an individual’s value judgments
and moral standards that determine behaviour
 Five categories:
1. Influences of Individuals
2. Corporate or Organizational Influences
3. Economic Efficiency Influences
4. Government and Legal System Influences
5. Social Influences
• Ethical relativism  belief that ethical answers depend on
the situation and no universal standard or rules exist to guide
or evaluate morality

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 Distinguishing among
Values, Morals, and Ethics
Value Judgments             Moral Standards
Managers use value judgments
when they must decide what is
right or wrong
Subjective evaluations of what
managers think is important;
based upon a manager’s own
values
The way managers intuitively
feel about right or wrong
Can be thought of as priorities
or preferences and are variable
Used along with moral
standards when confronted
with a complex managerial
dilemma
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Managers turn to moral
standards of behaviour in
decision making
Represent the expectations of
society and the means by which
managers judge their actions
Vary with individuals and by
culture, country, organization,
and time
Are subjective gauges of
conduct, and are the way
managers bring intuitive feelings
about right or good into decision
making
Are not objective, consistent, or
timeless, as are ethical principles
Ethical Principles
Managers can examine standards
of behaviour and choice of goals
by using the fundamental logic of
ethical principles of analysis
Ethics is the study of what is good
or right in human beings
Ethics is a way of thinking about
morality in a logical and
systematic manner
Do not differ between people and
remain the same
Are the foundation of moral
philosophy
Are the fundamental rules by
which moral standards and value
judgments can be examined
TABLE 5.15 - 7
 The Theoretical Basis
for Ethical Conduct
• Moral problems should be defined as resulting in
harms to some and benefits to others
 Introduces more realism in the business context

• Seven most cited principles of ethical analysis: self-

interest, personal virtues, caring, utilitarian benefits,
universal rules, individual rights, and justice
 Ethical principles are applied the same way in any context 
not subjective measures rather objective statements

© 2020 McGraw-Hill Education Ltd 5-8

 Self-Interest Ethic
(Ethical Egoism)
• Individuals or corporations set their own standards for
judging the ethical implications of their actions
 Individual’s values and standards are the basis for actions

• Problems with self-interest ethic:

 Considered easy way out because person relies on own beliefs
without more complicated analysis
 Viewed as selfish behaviour
 Leads to absolutism; failing to take into consideration interest
of others

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 Self-Interest Ethic
(Ethical Egoism) Cont’d…

• It is acceptable for an individual to be appropriately self-

concerned as long as interests of others are considered
 Enlightened egoist – attentive to needs of others, and self-
interest provides an incentive to restrain one’s self-interest
• Maximization of profits is acceptable as long as interests
of relevant stakeholders are considered
 Corporation must stay within rules of operation provided in
society through government

© 2020 McGraw-Hill Education Ltd 5 - 10

 Personal Virtues Ethic
• An individual’s or corporation’s behaviour is based upon
being a good person or corporate citizen
 Emphasizes traits (virtues) such as courage, honesty, wisdom,
temperance, and generosity
 People should act in ways to convey honour, pride and self-worth
 Virtues are acquired through learning and practice, and will become
habits
• “Does this action represent the kind of person I am or want
to be, or present the desired corporate image or reputation?”

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 Ethics of Caring

• Gives attention to specific individuals or stakeholders

harmed or disadvantaged and their particular
circumstances
 Responsibility for reducing harm or suffering of others
 Solutions designed to respond to needs of particular individuals
or stakeholders
• Managers and corporations should act toward others in a
way they would expect others to act toward them
 Golden rule: “Do unto others as you would have them do unto
you”

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 Ethics of Caring

• Advantages:
 Responsive to immediate suffering or harm
 It allows for flexibility, enabling the manager to respond quickly to
changing circumstances
 Precedents are not a concern

• Problems:
 Lose sight of the bigger picture thus unintentionally harming some
other stakeholder
 Caring actions rely on subjective criteria that limit understanding of
all the factors involved

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 Utilitarian Ethic
• Focuses on the distribution of benefits and harms to all stakeholders
with the view to maximizing benefits
 “The greatest good for the greatest number.”

• Problems:
 Does not account for what is just
 What should be maximized to result in community’s happiness?
 Cannot accurately measure some costs and benefits (and/or risk of
miscalculating them)
 No method for distributing costs or benefits

© 2020 McGraw-Hill Education Ltd 5 - 14

 Universal Rules Ethic

• Ensures that managers or corporations have the same moral

obligations in morally similar situations
 “What individuals believe is right for themselves, they should believe
is right for all others”
 Persons should be treated as end in themselves, worthy of dignity and
respect and never as a mean’s to one’s own ends
 Categorical imperative ethics  rules and morals in society should be
fair to everyone, they should universally apply and apply over time

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 Universal Rules Ethic
Cont’d…
• Problems:
 Difficult to determine if someone is being used merely as a
means to an end
 Not possible to always work to universal rules i.e. exceptions
exist
 No scale between actions that are considered morally right or
wrong

© 2020 McGraw-Hill Education Ltd 5 - 16

 Individual Rights Ethic
• Relies on a list of agreed-upon rights for everyone that will be upheld by
everyone and that becomes the basis for deciding what is right, just, or
fair
 Examples: Rights to safety, information, privacy, property
 Governments identify rights in constitutions

• Problems:
 Determining and agreeing upon the list of rights
 Rights and/or holders of those rights can be in conflict
 Rights are not absolute and overemphasis on one might result in injustice

© 2020 McGraw-Hill Education Ltd 5 - 17

 Ethic of Justice
• Considers that moral decisions are based on the primacy of
a single value: justice which will result in fair outcome
 Ethical dilemmas are a conflict among rights that can be resolved
by the impartial application of some general principle
• Different types of justice:
 Procedural justice
 Corrective justice
 Retributive justice
 Distributive justice

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 Ethic of Justice
• Advantages:
 Looks at dilemmas logically and impartially
 All are perceived to have an equal right to equitable treatment

• Problems:
 Difficult to decide, outside of the law, who has the moral
authority to reward or punish whom
 Ensuring benefits distributed fairly is challenging
 Interests of particular stakeholders may be overlooked
 Perceived as being impersonal, inflexible, cold and uncaring

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 Ethical Dilemmas
• Situation or problem where a person has to make a
difficult choice between two alternatives, neither of
which resolves an issue or problem in an ethically
acceptable fashion
• Approach to handling:
 Identify the ethical principles involved
 Review or analyze the problem using one of the ethical
principles outlined above
 Examine the problem from an ethical perspective different from
the one(s) used initially

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 Moral Reasoning
• Systematic approach to thinking or reasoning through the implications of a moral problem or issue
• Steps to moral reasoning:
 Define moral issue or decision
 Gather all relevant information
 Identify the stakeholders involved
 Develop possible alternative solutions
 Consider applicable value judgments, moral standards, principles
 Identify harms/benefits to stakeholders
 Determine practical constraints
 Decide on action

© 2020 McGraw-Hill Education Ltd 5 - 21

 Approaches to Considering
Ethical Implications in
Business Decisions

TABLE 5.2
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 Kohlberg’s Stages
of Moral Development

• Individuals have identifiable cognitive skill levels that

they use in resolving moral dilemmas
 Developed over time as result of educational experience and the
socialization process in maturing from childhood to adulthood
 Six stages of moral development divided into three levels:
• LEVEL I: Pre-Conventional Level (Self)
• LEVEL II: Conventional Level (Others)
• LEVEL III: Post-conventional Level (Humankind)

© 2020 McGraw-Hill Education Ltd 5 - 23

 Kohlberg’s Stages of Moral
Development Cont’d…
• LEVEL I: Pre-conventional (Self)
 Stage 1 – Punishment and obedience orientation
 Stage 2 – Individual instrumental purpose/ exchange
• LEVEL II: Conventional Level (Others)
 Stage 3 – Mutual interpersonal expectations
 Stage 4 – Law and order orientation
• LEVEL III: Post-Conventional Level (Humankind)
 Stage 5 – Social contract orientation
 Stage 6 – Universal ethical principle orientation

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 Ethics in Business:
Some Challenges
• Too simplistic approaches:
 Indicating “just do the right thing” is not satisfactory
• Myths:
 It’s easy to be ethical
 Unethical behaviour in business is simply result of “bad apples”
 People are less ethical than they used to be
• Lack of awareness:
 Most people believe that they behave ethically towards others, but
self-perception often falls short
 Four biases: prejudice, favouritism, overclaiming credit and conflict
of interest

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 Summary
• An extensive examination of ethical behaviour has occurred
not only as it relates to business and the corporation but
also as it impacts the various interrelationships among
business, society, and stakeholders. (LO 5.1)

• The preferred phrase ethics of business is defined as the

rules, standards, codes, or principles that provide guidance
for morally appropriate behaviour in managerial decision
making relating to the operation of the corporation and
business’s relationship with society. (LO 5.1)

© 2020 McGraw-Hill Education Ltd 5 - 26

 Summary Cont’d…
• The three levels of assessing ethical assessment are:
1. Awareness of moral or ethical implications
2. Ethical implications assessed upon individual,
organizational, economic efficiency, governmental,
and societal influences, described as value
judgments and moral standards
3. Implications assessed upon use of ethical
principles (LO 5.2)

© 2020 McGraw-Hill Education Ltd 5 - 27

 Summary Cont’d…
• The multitude of influences on ethical behaviour range from
educational and religious backgrounds to professional
organizations and governments. These influences lead to
ethical relativism, the belief that ethical answers depend on
the situation and that no universal standards or rules guide or
evaluate morality. (LO 5.3)

• Seven theoretical bases, or ethics, for understanding ethical

conduct are described: self-interest, personal virtues, caring,
utilitarian benefits, universal rules, individual rights, and
justice. (LO 5.4)

© 2020 McGraw-Hill Education Ltd 5 - 28

 Summary Cont’d…
• Kohlberg’s theory of the stages of moral development is outlined
in regard to its application to the ethics of business. The pre-
conventional, conventional, and post-conventional levels and the
six stages illustrate the attitude that managers may have toward
assessing the implications of ethics in the business environment.
(LO 5.5)

• The consideration of the ethical implications of the responsibilities

of business is prevalent in what corporations do. The theoretical
basis for ethics has been outlined and sets the stage for further
examination. But, there are several challenges to ethical behaviour
in corporations. (LO 5.6)

© 2020 McGraw-Hill Education Ltd 5 - 29