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ETHICS IN BUSINESS

Prof. P. GURU PRASAD


M.Com., (University of Madras)
L .L. B., (Acharya Nagarjuna University)
M. Phil., (Annamalai University)
PGD in Foreign Trade Management., (SICC)
Senior Finance, law & Accounting Faculty
Center Academic Coordinator
INC - GUNTUR
pgp4149@gmail.com
CHAPTER-2
IMPORTANCE OF ETHICS IN
BUSINESS
Objectives of the Chapter

 Ethical theories
 Market system
 Importance of Trust in Business Relations
 Integrative Social contract Theory
ETHICAL DILEMMAS
Pricing
Advertising
Promotion
Working conditions
Customer service
Work force reductions
Environment
Community relations
supplier relations
Ethical Theories
 Ethics or moral philosophy is at its simplest, a
study of right and wrong behavior, with the
ultimate aim of defining what is right and wrong.
 Ethical theories are commonly divided into three
subject areas:

Metaethics
Normative ethics
Applied ethics
Metaethics
 It is defined as “ The study of the origin and
meaning of ethical concepts.”
 Three issues:
 Metaethics deals with the entire gamut of the
ethics
 Metaphysical issues that deal with the question
whether the moral values exist independently of
humans or whether they are simply human
conventions.
Metaethics
contd…
 Psychological issues that deal with the
psychological basic of the moral action, and
 Linguistic issues that deal with the meaning of
the key moral terms we use.
Normative Ethics

The term ‘normative' implies something


that ‘guides’ or ‘control’. Thus, normative
ethics is that branch of ethics that guides
human conduct. It sets out certain moral
standards that help us to determine what
is right and what is wrong.
Eg: the Golden Rule
The Golden Rule
• The Golden rule is an example of a normative
principle: we should treat others the same way
that we want others to treat us.
• Since I do not want my colleague to cheat me, it
is unethical on my part to cheat my colleague.
• If I would like to receive help from others in times
of trouble, then I should help others when they
are in trouble.
• It is also to be wrong for a person to lie, harass,
victimize or kill others
Normative Ethics
Other normative theories lay down a set of
fundamental principles, such as, “moral
right to life and liberty, which serve as a
guide to ethical behavior.”
Normative Ethics
contd…
 Most ethicists do agree, however if a moral
principle is to be accepted, it must be
• Prescriptive- command, obligatory, imperative
• Universal- applicable to any person
• Overriding – primary consideration
• Public – social interaction
• Practical – achievable in ordinary situations
Normative Theories

 There are three different normative theories


each with its own set of moral principles. The
three theories are:

Teleological ethical theory


Deontological ethical theory
Virtue ethics
Teleological ethical theory

 The word ‘Teleological’ is derived from two


Greek words “telos” meaning ‘end’, ‘goal’ or
‘purposed’ and “logos” meaning ‘logic’ or
‘reason’. Thus, teleological means “thinking
rationally about ends.”
 Teleological theories are also called
Consequentialist theories. These theories hold
that an actions considered morally correct if the
consequences of that action are more favorable
than unfavorable.
Distributive justice
• D J is another teleological approach to ethical decision-
making and one that is based on a concept of fairness. It
is nothing but equal distribution of goods and services.
Therefore it is critical to determine a fair method for
distributing goods and services.
• Would we devise a system of high taxes and expensive
welfare projects that, presumably, would benefit the
impoverished but prove costly to the wealthy?
• Or would we advocate a pure market-based system that
demanded each of us to be responsible for our own
needs and desires?
Veil of Ignorance
• Rawls suggests that we consider how we
would distribute goods and services if
distribute goods and services if we were
under a “ veil of ignorance” that prevented
us from knowing our status in society. (our
intelligence, wealth, appearance)
Teleological ethical theory
contd…
 Consequentialists have offered three definitions
of ‘ good’. Each of these definitions gives us a
different consequnetialist moral theory. These
theories are:
Egoism
Utilitarianism
Altruism
Egoism

An action is morally right if the consequences of


that action are more favorable than unfavorable
only to the individual performing that action.
Utilitarianism

An action is morally right if the consequences of


that action are more favorable than unfavorable
to every one.
Altruism

An action is morally right if the consequences of


that action are more favorable than unfavorable
to everyone except the individual.
Deontological Ethical Theory

 The word ‘deontological’ is derived from the


Greek word “deno” meaning ‘duty’ or ‘obligation’.
Deontological theories focus on certain
fundamental duties that we have as human
being, such as not committing murder or theft.
 The duties upheld by deontological theory may
be classified as
 Duties to God, including honoring him and
praying to him
Deontological Ethical Theory
contd..
 Duties to Oneself includes preserving ones life
and sharing happiness.
 Duties to Others, including family duties, social
duties and political duties.
Virtue ethics

Virtue ethics is concerned with attaining the


dispositions (character or personality). The
theory emphasizes character development
rather than the articulation of abstract moral
principles that guide actions.
Applied Ethics

Applied ethics is a branch of ethics that deals with


specific, often controversial moral issues such
as abortion, female feticide and infanticide,
displacement of tribal people due to huge hydro-
electrical projects, cloning, testing drugs on
animals etc.
Market System

To work efficiently the market system must have


the following:
 The right to own and control private property
 Freedom of choice in buying and selling goods
and service
 Access to quick, reliable, and precise market
information
Impact of unethical behavior on
Market system
Unethical behavior on market system are:

Coercion
Deceptive information
Theft
Bribery
Importance of trust in Business
Relations
 For a business to operate smoothly it should
maintain healthy relations with all its stakeholders.
 Healthy relationships are developed through trust.
 In a business arrangement, trust is the confidence
that the other party has that you will not exploit its
vulnerabilities.
 Trust comprises three elements:
Dependability
Predictability
Faith
Impact of unethical behavior on trust
in business relations
The role of trust in:
Supplier relations
Customer relations
Employee relations
Integrative Social contract theory
 Thomas Donaldson and Thomas Dun fee
proposed the integrative Social contract Theory.
 A social contract is an informal agreement
concerning behavioral norms that are developed
from shared goals, beliefs and attitude of groups
of people or communities.
 The main elements of the Social contract
Theory are:
Hyper norms
Macro social contract
Micro social contract
Hyper norms

Hyper norms are universal norms that apply


equally to all individuals. These include;
 Basic human rights, including right to personal
freedom, physical security and well-being,
political participation, informed consent,
ownership of property and the right to
subsistence
 The duty to respect the dignity of every human
being.
Macro Social contract

Macro social contract provide global norms. Some


of the terms of macro social contract are as
follows:
 Local communities must be allowed ‘moral free
space’ to spell out obligatory ethical norms for
their members
 The macro social contract must be based on the
free consent of the parties involved, all of whom
have the right to exit when they please.
Macro Social contract
contd…
 All macro social contract must be compatible
with hyper norms
 If conflict arises among various micro social
contract, these must be resolved through priority
rules that are compatible with the three principle
listed above.
Micro Social contract

 Micro social norms are developed for a


community, a group and organization.
 Communities may be economic or social. A firm
or an industry and non-profit and service
organizations are all communities.
Micro Social contract
contd…
The following are the priority rules, proposed by
Donaldson and Dun fee.
 The host community’s norms should govern all
transactions within that particular community as
long as they do not have significant adverse
effects on individuals or communities.
Micro Social contract
contd…
 The more extensive or global community norm
is, the greater the priority that should be given to
its norms
 Norms that help preserve the economic
environment in which the transactions occur,
should have priority over norms that could
damage the economic environment.
Summary of the Chapter

 Ethical theories
 Market system
 Importance of Trust in Business Relations
 Integrative Social contract Theory
Thanking you
Prof. P. GURU PRASAD
M.Com., (University of Madras)
L .L. B., (Acharya Nagarjuna University)
M. Phil., (Annamalai University)
PGD in Foreign Trade Management., (SICC)
Senior Finance, law & Accounting Faculty
Center Academic Coordinator
INC - GUNTUR
pgp4149@gmail.com