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CHAPTER 1

ETHICS AND BUSINESS
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Learning outcomes
‡ What is ³business ethics´ ‡ What are the six basic stages of moral development? ‡ Should moral standards be applied to business? ‡ When is a person morally responsible for doing wrong?
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WHAT IS BUSINESS ETHICS?
What is ethics? ‡ According to the dictionary, the term ethics has a variety of different meanings. ‡ The principles of conduct governing an individual or a group ‡ Ethics is ³the study of morality´ ‡ A set of moral principles.
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‡ Ethics is the discipline that examines one¶s moral standards or the moral standards of a society. It asks how these standards apply to our lives and whether these standards are reasonable or unreasonable. ‡ Ethics is the study of moral standards-the process of examining the moral standards of a person or society to determine whether these standards are reasonable or unreasonable in order to apply them to concrete situations and issues. ‡ Morality: The standards that an individual or a group has about what is right and wrong or good or evil
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‡ Although ethics deals with morality, it is not quite the same as morality. ‡ Ethics is a kind of investigation and includes both the activity of investigating as well as the results of the investigation whereas morality is the subject matter that ethics investigates. ‡ The ultimate aim of ethics is to develop a body of moral standards that we feel are reasonable to hold i.e standards that we have thought about carefully and have decided are justified standards for us to accept and apply to the choices than we make in our lives.
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Sources of Ethical Norms Fellow Workers Fellow Workers Regions of Country Family The Individual Conscience Friends Profession Employer The Law Religious Beliefs Society at Large 13/02/2012 6 .

´ ³It is wrong to kill innocent people. 13/02/2012 7 . such as ³Always tell the truth.Moral and Non moral Standards Moral standards ‡ The norms about the kinds of actions believed to be morally right and wrong as well as the values placed on the kinds of objects believed to be morally good and morally bad. ‡ Moral norms can usually be expressed as general rules or statements.´ Non moral standards ‡ The standards by which we judge what is good or bad or right or wrong in a non moral way.

the standards of language by which we judge what is grammatically right and wrong. the standards of aesthetics by which we judge good and bad art.‡ Examples of nonmoral standards include the standards of etiquette by which we judge manners as good or bad. the standards we call the law by which we judge legal right and wrong. and the athletic standards by which we judge how well a game of football or basketball is being played 13/02/2012 8 .

the standards remain valid.g moral standards against theft. 13/02/2012 9 . are not established by authority nor does their validity rest on voting procedures. Moral standards. ‡ Moral standards are not established or changed by the decisions of particular authoritative bodies. Laws and legal standards are established by the authority of a legislature or the decisions of voters. the validity of moral standards rests on the adequacy of the reasons that are taken to support and justify them. however. For e. enslavement. murder etc. so long as these reasons are adequate. rape. Instead.‡ What are the characteristics that distinguish moral standards from standards that are not moral? ‡ Moral standards deal with matters that we think can seriously injure or seriously benefit human being.

etc. shame. ‡ Moral standards are associated with special emotions (guilt.‡ Moral standards. 13/02/2012 10 . should be preferred to other values. remorse. including self-interest. ‡ Moral standards are based on impartial considerations.).

Normative and descriptive studies ‡ Ethics is not the only way to study morality. the social sciences engage in a descriptive study of ethics. but do so in a way that is quite different from the approach to morality. 13/02/2012 11 . ‡ Although ethics is a normative study. and psychology also study morality. sociology. ‡ The social sciences-such as anthropology.

‡ A descriptive study is the one that does not try to reach any conclusion about what things. are truly good or bad or right or wrong.‡ Normative study is an investigation that attempts to reach normative conclusion. 13/02/2012 12 .that is. conclusions of what things are good or bad or what actions are right or wrong. it aims to discover what should be. Instead it attempts to describe or explain the world without reaching any conclusions about whether the world is as it should be.

13/02/2012 13 . and behavior.Business Ethics ‡ A specialised study of moral right and wrong that concentrates on moral standards as they apply to business policies. institutions. organisations.

These include questions about the morality of the decisions. economical or other social systems within which businesses operate. or organisational structure of an individual company taken as a whole. practices. political. 14 2. Individual issues: questions about a particular individual within an organisation and their behaviors and decisions. policies.Business ethics issues The three basic types of issues 1.g questions about the morality of laws. Systematic issues: Questions raised about. actions. Corporate issues: questions that are raised about a particular company. 13/02/2012 . For e. 3. These include questions about the morality of the activities. or character of an individual. legal.

Relativism Egoism The 4 Concepts of Ethics Utilitarianism 13/02/2012 Deontologism 15 .

13/02/2012 16 . ‡ Ethical relativism ‡ Ethical relativism is the theory that.Business Ethics and Cultural Differences ‡ When faced with the fact that different cultures have different moral standards. there is no universal way of determining whether an action is morally right or wrong other than by asking whether the people of this or that society believe it is morally right or wrong. because different societies have different ethical beliefs. the managers of some multinationals have adopted the theory of ethical relativism.

‡ Relativism holds that something is right for the people or companies in one particular society if it accords with their moral standards and wrong for them if it violates their moral standards.´ In other words. The best a company can do is to follow the old adage. do as the Romans do. 13/02/2012 17 . ‡ Moral codes demonstrates that there is no one ³right´ answer to ethical questions. ³When in Rome. there are no absolute moral standards.

There are certain moral standards that the members of any society must accept if that society is to survive and if its members are to interact with each other effectively. ‡ norms about using language truthfully when communicating with members of one¶ society.Critics of ethical relativism 1. and ‡ norms against taking the personal goods of other members of one¶s society 13/02/2012 18 . ‡ Thus all societies have norms against the following: ‡ injuring or killing other members of the society.

whereas other societies felt they had a moral obligation to protect and nurture their aged at all times. 13/02/2012 19 .g. Yet on close examination. anthropologists tell us that in some Alaskan Inuit societies it was morally acceptable for families to abandon their aged to die outdoors during times of hardship. it can turn out that underlying the different practices of both kinds of societies is a belief in the same ethical standard: the moral duty of ensuring the long term survival of the community.‡ Many apparent moral differences among societies turn out on closer examination to mask deeper underlying similarities. ‡ For e.

‡ In their harsh environment. Other communities ensured their long term survival by protecting the elders who carried within them the knowledge and experience the communities needed. 13/02/2012 20 . it does not follow logically that there is no objective truth about that issue nor that all belief about that issue are equally acceptable. Because different people have different moral beliefs about some issue. Inuit people may have had no way of ensuring their community¶s survival when food supplies ran short other than by abandoning their aged. 2.

‡ When two people or two groups have different beliefs.µ 13/02/2012 21 . philosophers are fond of pointing out at least one of them is wrong. we conclude that in some cultures people are better informed than in others. Similarly disagreements in ethics might signal nothing more than that some people are less enlightened than others. We do not on that account conclude that there is no truth in geography or in medicine. There is also disagreement from society to society about scientific matters: in some cultures it is believed that the earth is flat and evil spirits cause diseases.g the late philosopher James Rachels put his case on the matter as follows: ´The fact that societies have different moral codes proves nothing. by itself. For e. Instead. At the very least the fact of disagreement does not. entail that the truth does not exist.

Ethical relativism has incoherent consequences. For example. as practiced in many parts of the world. is wrong ‡ nor that the discrimination practiced in the societies of apartheid South Africa in the 20th century was unjust. ‡ nor that the Germans¶ treatment of Jews in the Nazi society of the 1930s was immoral. we could not say that: ‡ child slavery. ‡ If ethical relativism were true.3. 13/02/2012 22 . then it would make little sense to criticize the practices of other societies so long as their practices conformed to their own standards. opponents claim.

helped the South African government exploit its oil resources in the 1980s knowing that government would use the revenues to enforce the apartheid regime that discriminated against blacks and violated their civil rights. including Caltex and Mobil. For example. Several oil companies.‡ Nor could we criticise the actions of businesses that participate in these practices. a journalist recently discovered that IBM knowingly supplied the data-processing machines that the Nazis used to track down and exterminate Jews in Germany and that its profits from doing business with Nazis helped make it the successful company it is today. ‡ Is ethical relativism correct when it tells us that we cannot say these companies acted unethically since they were just following local standards? 13/02/2012 23 .

4. in fact it would be morally wrong to criticise any of the moral standards or practices accepted by our own society. ‡ If our society accepts that a certain practice such as slavery is morally right. the theory of ethical relativism implies that whatever the majority in one¶s society believes about morality is automatically correct 13/02/2012 24 . Opponents also claim that if ethical relativism were correct. ‡ According to critics. we too must accept that practice as morally right. then as members of this society. then it would also make no sense. and it is immoral for us to tell others in our society to go against this belief because right and wrong for us must be determined by the standards of our society. then.

Lesson? ‡ The ethical relativism theory correctly remind us that different societies have different moral beliefs and that we should not simply dismiss the moral beliefs of other cultures when they do not match our own. 13/02/2012 25 .

‡ He concluded that there is a sequence of six identifiable stages in the development of a person¶s ability to deal with moral issues.MORAL DEVELOPMENT AND MORAL REASONING Moral Development ‡ The psychologist Lawrence Kohlberg. each containing two stages. pioneered a research in the field of moral development over 20 years. ‡ He grouped these stages of development into three levels. 13/02/2012 26 .

Heinz. but the druggist was charging ten times what the drug cost him to make. The sick woman's husband. but he could only get together about $ 1. He told the druggist that his wife was dying and asked him to sell it cheaper or let him pay later. 1963.Heinz Steals the Drug ‡ In Europe. 19) 13/02/2012 27 . It was a form of radium that a druggist in the same town had recently discovered. The drug was expensive to make. p. went to everyone he knew to borrow the money.000 for a small dose of the drug. I discovered the drug and I'm going to make money from it. There was one drug that the doctors thought might save her. Should the husband have done that? (Kohlberg. But the druggist said: "No. a woman was near death from a special kind of cancer. He paid $200 for the radium and charged $2.000 which is half of what it cost." So Heinz got desperate and broke into the man's store to steal the drug-for his wife.

right. however. Pre-conventional stages ‡ The Pre-conventional level is especially common in children. ad wrong.Six Stages of Moral Development Level 1. ‡ The child is able to respond to rules and social expectations and can apply the labels good. bad. 13/02/2012 28 . ‡ These rules. are seen as something externally imposed on the self. Right and wrong are interpreted in terms of the pleasant or painful consequences of actions or in terms of the physical power of those who set the rules.

such as you scratch my back and I¶ll scratch yours. ‡ The child¶s reasons for doing the right thing are to avoid punishment or defer to the superior physical power of authorities. right actions become those that can serve as instruments for satisfying the child¶s own needs or the needs of those for whom the child cares.Stage 1: Punishment and Obedience Orientation ‡ At this stage. 13/02/2012 29 . Stage 2: Instrumental and Relative Orientation ‡ At this stage. At stage two the child shows a limited interest in the needs of others. the physical consequences of an act wholly determine the goodness or badness of that act. There is little awareness that others have needs similar to one¶s own. but only to a point where it might further one¶s own interests.

13/02/2012 30 . peer group. ‡ Maintaining the expectations of one¶s family. They judge the morality of actions by comparing these actions to societal views and expectations. Conventional Stages ‡ The conventional level is typical of adolescents and adults. or nation is now seen as valuable in its own right. regardless of the consequences.Level 2. ‡ The conventional level consists of the third and fourth stages of moral development.

gratitude etc. brother. and trust.Stage 3: Interpersonal Concordance Orientation ‡ Good behavior at this early conventional stage is living to the expectations of those for whom one feels loyalty. ‡ Good behavior means having good motives and interpersonal feeling such as love. 13/02/2012 31 . empathy. which now begin to include things like respect. friend and so on. affection. trust and concern for others. ‡ Right action is conformity to what is generally expected in one¶s role as a good son. such as family and friends. daughter. ‡ The morality of an action is judged by evaluating its consequences in terms of a person¶s relationships.

Stage 4: Law and Order Orientation ‡ Right and wrong at this more mature conventional stage now come to be determined by loyalty to one¶s own larger nation or surrounding society. 13/02/2012 32 . ‡ Laws are to be upheld except where they conflict with other social duties. ‡ The emphasis is on obeying laws. respecting authority. and performing one¶s duties so that the social order is maintained.

‡ If an adult at this stage is asked why something is wrong.Level 3. Post-conventional. Instead. the person will respond in terms of what has been decided through processes that are ³fair 13/02/2012 33 . Autonomous or Principled Stages ‡ At these stages. the person now tries to see situations from a point of views that impartially takes everyone¶s interests into account. ‡ The person questions the laws and values that society has adopted and redefines them in terms of self-chosen moral principles that can be justified in rational terms. the person no longer simply accepts the values and norms of the groups to which he or she belongs.

´ or ³society¶s overall welfare. also known as the principle level.to every one´ or in terms of ³justice. Stage 5: Social Contract Orientation ‡ At this stage the person becomes aware that people hold a variety of conflicting personal view and opinions and emphasises fair ways of reaching consensus by agreement. ‡ Individuals are viewed as holding different opinions and values. 13/02/2012 34 . contract. and due process.´ ‡ The post-conventional level. consists of stages five and six of moral development.

right action comes to be defined in terms of moral principles chosen because of their logical comprehensiveness. 13/02/2012 35 . universality.Stage 6: Universal Ethical Principles Orientation ‡ At this final stage. and consistency.

or condemn. or condemn 2. value. value. ‡ Two essential components of moral reasoning 1. Evidence or information that shows that a particular person. prohibit. 13/02/2012 36 . or policies are judged to be in accordance with or in violation of moral standards. institutions. prohibit.Moral Reasoning ‡ Moral reasoning refers to the reasoning process by which human behaviors. An understanding of what reasonable moral standards require. policy. institution or behavior has the kinds of features that these moral standards require.

ethicists employ three main criteria: 1. 2. Moral standards must be consistent. and complete. 13/02/2012 37 . relevant. 3. Factual evidence must be accurate. Moral reasoning must be logical.‡ To evaluate the adequacy of moral reasoning.

13/02/2012 38 . then I must accept that it is morally justified (or unjustified) for any other person: (a) To perform any act relevantly similar to A (b) In any circumstances relevantly similar to C.‡ The consistency requirement can be phrased as follows: If I judge that a certain person is morally justified (or unjustified) in doing A in circumstance C.

First. 13/02/2012 39 . 1.Arguments For and Against Business Ethics Three Objections to Bringing Ethics into Business ‡ Persons involved in business should singlemindedly pursue the financial interests of their firm and not side track their energies or their firm¶s resources into ³doing good works.´ Three kinds of arguments are advanced in support of this view. ensure that the members of a society are served in the most socially beneficial ways. they argue that the pursuit of profit in perfectly competitive free markets will by itself.

13/02/2012 40 . ‡ Questionable assumptions on which the argument rests: ‡ The argument assumes that any steps taken to increase profits will necessarily be socially beneficial. concealing product hazards. etc. each firm has to produce only what the members of society want and has to do this by the most efficient means available.‡ To be profitable. when in fact several ways of increasing profits actually injure society: allowing harmful pollution to go uncontrolled. deceptive advertising.

´ are obligated to serve their employers single-mindedly. they claim that employees as ³loyal agents. 2. in whatever ways will advance the employer¶s selfinterest. by producing whatever the buying public wants (or values).‡ The argument assumes that. Secondly. firms are producing what all the members of society want. 13/02/2012 41 . when in fact the wants of large segments of society (the poor and disadvantaged) are not necessarily met because they cannot participate fully in the marketplace.

‡ Therefore. ± An employer would want to be served in whatever ways will advance his or her self-interests. as a loyal agent of the employer. as a loyal agent of the employer. the manager has a duty to serve the employer in whatever way will advance the employer¶s self-interest. the manager has a duty to serve the employer as the employer would want to be served.‡ The argument can be paraphrased as follow: ± As a loyal agent of his or her employer. 13/02/2012 42 . the manager has a duty to serve the employer in whatever ways will advance the employer¶s selfinterests. ± Therefore.

‡ Agreements to serve another do not automatically justify doing wrong on another¶s behalf..e. the law that specifies the duties of persons [agents] who agree to act on behalf of another party and who are authorised by the agreement to act).The loyal agent¶s argument relies on several questionable assumptions: ‡ The argument tries to show. ‡ An agent¶s duties are defined by what is called the law of agency (i. 13/02/2012 43 . again. that ethics does not matter by assuming an unproved moral standard that the employee has a duty to serve his or her employer and there is no reason to assume that this standard is acceptable.

essentially. fraud etc. ‡ Some laws have nothing to do with morality because they do not involve serious matters.g laws that prohibit murder. The third objection is that.g parking laws 13/02/2012 44 . rape theft. For e. questionable assumptions: ‡ Law and morality do not always coincide and it is wrong to see law and ethics as identical. ‡ It is true that some laws require behavior that is the same as the behavior required by our moral standards. For e.3. nothing more than obeying the law. to be ethical it is enough for business people merely to obey the law and that business ethics is.

g slavery law. ‡ This does not mean. ‡ Our moral standards are sometimes incorporated into the law when enough of us feel that a moral standard should be enforced by the pressures of a legal system. ‡ None of the arguments for keeping ethics out of business seems forceful. In contrast. that ethics has nothing to do with following the law. 13/02/2012 45 . there are fairly strong arguments for bringing ethics into business. of course. For e.‡ Other laws may even violate our moral standards so that they are actually contrary to morality.

cannot exist unless the people involved in the business and it surrounding community adhere to some minimal standards of ethics. 13/02/2012 46 . ethics should also govern business.Arguments for bringing Ethics into Business ‡ Ethics should govern all voluntary human activities and because business is a voluntary human activity. there is nothing about business that would prevent us from applying the same standards of ethics to business activities that should be applied to all voluntary human activities. ‡ Business activities like any other human activities. In short.

Indeed. 13/02/2012 47 . ‡ One interesting argument actually claims that ethical considerations are consistent with business activities such as the pursuit of profit.‡ All businesses require a stable society in which to carry on their business dealings. the argument claims that ethical companies are more profitable than other companies. Yet the stability of any society requires that its members adhere to some minimal standards of ethics.

± If one cooperates while the other chooses not to cooperate. the one who cooperates suffers a loss while the one who chooses not to cooperate gains a benefit. ‡ A prisoner¶s dilemma is a situation in which two parties are each faced with a choice between two options: Either cooperate with the other party or do not cooperate. 13/02/2012 48 .‡ Perhaps the most fascinating argument for bringing ethics into business is the prisoner¶s dilemma. neither gets the benefit. ± If both choose not to cooperate.

‡ This has significant implications for business.‡ Though it may seem a bit stilted. if retaliation is a real threat then such behavior will impose costs that are greater than ethical behavior would have been in the first place. ‡ The prison dilemma demonstrates that cooperation is more advantageous than continuously trying to take advantage of others at least when we will meet these others again. Though a business might get away with unethical behavior much of the time. close examination will reveal that we all face such dilemmas in our everyday lives. 13/02/2012 49 .

‡ In reality. of course. ‡ Finally. most people seem to be social and so are also motivated by a concern for the welfare of others. they will probably behave ethically. we should note that there is also a good deal of evidence that most people so value ethical behavior that they will punish those whom they perceive to be behaving unethically and reward those who are perceived to be ethical 13/02/2012 50 .‡ Even self-interested organisations have a good reason to be ethical in their business dealings: it is in their long-term best interests. To the extent that people are motivated by a concern for others.

‡ People are not always morally responsible for the injuries they inflict on others. who injures someone by accident is ³excused´ from any blame. Sometimes.Moral Responsibility and Blame ‡ Moral responsibility is directed not only at judgements concerning right or wrong. A person for example. 13/02/2012 51 . they are directed at determining whether a person or organisation is morally responsible for having done something wrong.

13/02/2012 52 . this characterisation ignores the fact that people are sometimes responsible for injuries which they did not cause but which they could and should have prevented.‡ So when is a person morally responsible or to blame for an injury? ‡ Traditional: A person is morally responsible for an injury when the person caused the injury and did so knowingly and freely. that is they are morally responsible for their omissions when they had a duty to act. ‡ However.

‡ The absence of any of these three elements will completely eliminate a person¶s responsibility for an injury and so will fully ³excuse´ a person from any blame for the injury. or failed to prevent it (wrong or injury) when he could and should have done so.A person is morally responsible for an injury or a wrong if: 1. and 3. 2. The person did so knowing what he or she was doing. 13/02/2012 53 . The person caused or helped cause it (wrong or injury). The person did so of his own free will.

or 3. or 2. there are also several ³mitigating factors´ that can lessen a person¶s moral responsibility depending on the severity of the wrong. ‡ Although the absence of any of the three requirements will completely remove a person¶s moral responsibility for a wrong.The person did not inflict the injury or the wrong of his own free will. The person did not cause and could not prevent the injury or wrong. The person did not know he was inflicting the injury or the wrong. 13/02/2012 54 .A person is NOT morally responsible for an injury or a wrong if: 1.

‡ The extents to which these mitigating circumstances can diminish an agent¶s responsibility depend on the seriousness of the injury. 13/02/2012 55 . Circumstances that minimise but do not completely remove a person¶s involvement in an act (these affect the degree to which the person actually caused or helped to cause the wrongful injury). 2. the more serious the injury. Circumstances that leave a person uncertain but not altogether unsure about what he or she is doing (these affect the person¶s knowledge). Generally. and 3.Mitigating Factors 1. the less the mitigating circumstances will lessen responsibility. Circumstances that make it difficult but not impossible for the person to avoid doing it (these affect the person¶s free will).

Some of these standards and values are trust.´ Rev. Gotthard Gurirab 13/02/2012 56 . integrity of our calling.³Corruption destroys our good social. good image of a person/institution. ethical and moral standards and values. honesty. reputation and our respectful standing in society. faith.