Business Ethics: An Overview, Code of

conduct and ethics for managers,

Principles of personal and professional
ethics, why should businesses act
ethically?
 Ethics
“Ethics” is derived from a Greek word ‘ethos’ which
also means character, guiding beliefs, standards
and ideals that pervade a group, a community or
people. It is the root word of ethics which is a
person's code of behavior - how they determine
what is right or wrong..
Ethics are the formal standard of beliefs or
conduct that an institution uses to determine
right from wrong, good from bad, just from
unjust, etc.
Ethics is the science of conduct, and the
fundamental basis of ethics is determining what
constitutes proper conduct.
 In other words, ethics point to standards or
codes of behavior expected by the group to
which the individual belongs.
 This could be national ethics, social ethics,
company ethics, professional ethics, or even
family ethics.
 Morals and Ethics
Morality is derived from the Latin word ‘moralitas’, meaning manner, character, proper
behaviour.
Morals:
It refers to the principles or rules of moral conduct. (Persons’ personal philosophies
about what is right or wrong relate to you and you alone)
Standards and systems that provide guidance on how to act.
 Morality has a broad meaning that extends beyond rules in professional codes of
conduct adopted by corporations and professional association.
Morals define personal character, while ethics stress a social system in which those
morals are applied.
 Morality, therefore, is “the character of being in accord with the principles or
standards of right conduct” (Jackson, 1984, p. 319).
Principles of personal ethics
Personal ethics refers to the application of
values in everything one does. Principles of
personal ethics include:

1. Concern for the well being of others;

2. Respect for the autonomy of others;
3. Trustworthiness and honesty;
4. Willing compliance to law;
5. Basic justice: being fair;
6. Refusing to take unfair advantage;
7. Benevolence: doing good; and
8. Preventing harm to any creature
Principles of Professional Ethics
The basic principles people are expected to
follow in their professional career are the
following:

•Impartiality: Objectivity;
•Trustworthiness and honesty;
•Openness: Full Disclosure;
•Confidentiality: Trust;
•Due Diligence: Duty of care;
•Fidelity to professional responsibilities; and
•Avoiding potential or apparent conflict of
interest.
Where do morals and ethics come from
1.Personal Beliefs
2.Societal Norms
3.Cultural Values
4.Religious teachings
5.Philosophical principles
6.Laws and Regulations
7.Influence of education and media
Definitions of Business ethics
Peter F. Drucker
"Business ethics is simply the application of ethics
to business. It is a reflection of what is right or
wrong in business practices."
Philip Kotler
"Business ethics deals with the moral principles
and norms governing the conduct of individuals
and organizations in business."
Joseph W. Weiss
"Business ethics is the application of ethical
principles and standards to business behavior.“
What is Business Ethics?
Business ethics is the application of
general ethical ideas to business
behaviour.

It is based on the principle of integrity and

fairness and concentrates on the benefits to
the stakeholders, both internal and external.
Stakeholder includes those individuals and
groups without which the organization does not
have an existence. It includes shareholders,
creditors, employees, customers, dealers,
vendors, government and the society.
 Business ethics means both as written and
unwritten codes of moral standards that are
critical to the current activities and future
aspirations of a business organisation.
 They can differ from one company to another
because of differences in cultural perspectives,
operational structures and strategic
orientations.
 The guiding framework of business ethics
exists at all levels of the organisation. It is all
about having the wisdom to determine the
difference between right actions and wrong
decisions.
Code of conduct and Ethics for managers
Managers must observe the following ethical
values while performing their duties:
•Impartiality
•Responsiveness to public interest
•Accountability
•Honesty
•Transparency
•Integrity
https://www.youtube.com/watch?v=wzicXbnmllc
Why Should businesses act ethically
The reasons for an organization to be ethical
include:
•To protect its own interest,
•To protect the interests of the business
community as a whole so that the public will have
trust in it,
•To keep its commitment to society to act
ethically, and
•To meet stakeholder expectations
•To prevent harm to the general public,
•To build trust with key stakeholder groups,
•To protect themselves from abuse from unethical
employees and competitors,
•To protect their own reputations,
•To protect their own employees, and
•To create an environment in which workers
can act in ways consistent with their values.
How Corporations Observe Ethics in Their Organizations?
•Publish in-house codes of ethics to be strictly followed by
all their associates.
•Employ people with a reputation for high standards of
ethical behaviour at the top levels.
•Incorporate consideration of ethics into performance
reviews.
•Give rewards for ethical behaviour
•SEBI, CII and such other organizations representing
corporations issue codes of best practices and enjoin their
members to observe them.
•IIMs and highly rated B-schools give extensive and
intensive instruction in business ethics, corporate social
responsibility and corporate governance as part of their
curriculum.
•Conduct an Ethics Audit.
 The Role of Organizational Ethics in
Performance

Source: Adapted from “Business

15
Ethics Contributes to Employee
Commitment

Commitment comes from employees who are

invested in the organization
 Employees willing to make personal sacrifices
for the organization
 The more company dedication to ethics, the greater
the employee dedication
 Concerns include a safe work environment,
competitive salaries and benefits packages, and
fulfillment of contractual obligations

16
 Ethics Contributes to Investor
Loyalty

Companies perceived by their employees as being

honest are more profitable
 Ethical climates in organizations provide a
platform for
 Efficiency
 Productivity
 Profitability

17
Ethics Contributes to Customer
Satisfaction

Consumers respond positively to socially concerned

businesses
 Being good can be profitable
 Customer satisfaction dictates business success
 A strong organizational ethical climate places
customers’ interests first
 Research shows a strong relationship between
ethical behavior and customer satisfaction

18
Ethics Contributes to Profits

 Corporate concern for ethical planning is being

integrated with strategic planning
 Maximizes profitability
 Corporate citizenship is positively associated with
 Return on investment and assets
 Sales growth
 Studies have found a positive relationship between
corporate citizenship and performance

19
Stakeholder and business ethics- Identifying stakeholders,
stakeholder orientation, social responsibility and business
ethics
Learning Objectives (1 of 2)

Identify stakeholders’ roles in business ethics

Define social responsibility
Examine the relationship between stakeholder orientation
and social responsibility
Delineate a stakeholder orientation in creating corporate
social responsibility
Learning Objectives (2 of 2)

Explore the role of corporate governance in structuring

ethics and social responsibility in business
List the steps involved in implementing a stakeholder
perspective in social responsibility and business ethics
 Who Is a Stakeholder?

Stakeholders are those who have a stake or claim in some

aspect of a company’s products, operations, markets, industry
and outcomes
Customers – Investors
Employees – Suppliers
Government agencies – Communities
Stakeholders can influence and are influenced by businesses
Primary vs. Secondary Stakeholders

Primary stakeholders
Those whose continued association and resources are absolutely necessary for
a firm’s survival (customers, shareholders, employees, suppliers).
Secondary stakeholders
Those who are not typically engaged directly in transactions with a company
and are therefore not essential to its survival (government agencies and
communities).
The Stakeholder Interaction Model
Stakeholder Expectation from the company

Competitors Fair competition

Creditors Creditworthiness, security

Consumers Offer, quality, value for money Employees Fair pay,

job satisfaction, health and

Government Compliance with laws, social responsibility

Shareholders Financial earnings, long-term stock value, added value

Society Safety, concern for environmental protection, social

contribution

Suppliers Fast billing, long-term relationships

Financial earnings, job security, greater authority

Managers
 Stakeholder Orientation
Stakeholder orientation refers to an organization's approach to understanding,
addressing, and prioritizing the interests, needs, and concerns of its stakeholders. It
reflects the degree to which an organization actively engages with its stakeholders and
integrates their feedback into decision-making processes. A strong stakeholder
orientation demonstrates a commitment to creating value not just for shareholders but
for all stakeholders.

Source: Digital Vision

Key Elements of Stakeholder Orientation (1 of 2)

1. Stakeholder Identification
2. Understanding Stakeholder Needs(Interests, Expectations, Concerns)
3. Engagement and Communication
4. Prioritization(power, legitimacy, and urgency-allocate resources)
5. Integration into Decision-Making(Incorporated stakeholder feedback)
6. Monitoring and Accountability
 Stakeholder theory

Stakeholder theory focuses on understanding and managing the relationships

between an organization and its stakeholders. It suggests that organizations should
create value not just for shareholders but for all stakeholders. Different approaches
to stakeholder theory have emerged, each offering unique perspectives on how
stakeholders should be identified, prioritized, and engaged. Here are the main
approaches. Organizations should also focus on their social performance

 The needs of all stakeholders in the organization should also be understood and
met.

 Involving stakeholders in corporate decisions is considered an ethical

requirement and a strategic resource.
Descriptive Approach
•What it is: Focuses on describing and understanding how organizations
actually manage their relationships with stakeholders.
•Purpose: To observe and explain the reality of stakeholder interactions and
how organizations behave in practice.
Instrumental Approach
•What it is: Examines how managing stakeholder relationships can lead to
achieving specific organizational goals, such as profitability or long-term
success.
•Purpose: To highlight the benefits of stakeholder management for
organizational performance
Normative Approach
•What it is: Focuses on the ethical and moral obligations of organizations to
stakeholders.
•Purpose: To argue that organizations have an inherent duty to consider the
interests of all stakeholders, not just shareholders.
Stakeholder Interaction Model

Reciprocal relationships between the firm and a host of stakeholders.

Recognizes other stakeholders; explicitly acknowledges dialogue exists
between a firm’s internal and external environments.
 Implementing a Stakeholder Perspective (1 of 4)

Step 1: Assessing the Corporate Culture

Identify the organizational mission, values, norms, and behavior likely to have
implications for social responsibility.
Step 2: Identifying Stakeholder Groups
Recognize stakeholder needs, wants, and desires.
Step 3: Identifying Stakeholder Issues
Implementing a Stakeholder Perspective (2 of 4)

Step 4: Assessing Organizational Commitment to Stakeholders and Social

Responsibility
Used to evaluate current practices and to select concrete social
responsibility initiatives.
Social responsibility disclosures in company annual reports are directly
related to the quality of corporate governance.
Implementing a Stakeholder Perspective (3 of 4)

Step 5: Identifying Resources and Determining Urgency

Two main criteria: Level of financial and organizational investments required
by different actions and urgency when prioritizing social responsibility
challenges.
When the challenge under consideration is viewed as significant and
stakeholder pressures on the issue can be expected, the challenge is
considered urgent.
 Implementing a Stakeholder Perspective (4 of 4)

Step 6: Gaining Stakeholder Feedback

General assessment of a firm and its practices can be obtained through
satisfaction or reputation surveys.
To gauge stakeholders’ perceptions of a firm’s contributions to specific issues,
stakeholder-generated media such as blogs, websites, podcasts, and
newsletters can be assessed.
Formal research may be conducted using focus groups, observation, and surveys.
Social Responsibility and Business Ethics

Social responsibility: An organization’s obligation to maximize its

positive impact on stakeholders and minimize its negative impact.
Four levels of social responsibility:
1. Economic
2. Legal
3. Ethical
4. Philanthropic
 Corporate Social Responsibility
CSR means social responsibility of corporate sector, which also means response of the corporate sector
towards society.
A company concern and commitment towards society sustainability and development.
CSR is the ethical behavior of company towards society.
An idea whereby companies integrate economic, social and environmental concerns in their business
operation.
 Aims of CSR
Environmental Aims
Social and community activities
Sustainable development
Ethical issues
Business relationship
Carrol’s Pyramid of corporate social
responsibility
 Objectives of CSR

Enhance Social Welfare

Promote Environmental Sustainability.
Ensure Ethical Business Practices
Empower Communities.
Achieve Long-Term Business Sustainability
Strengthen Brand Reputation
Encourage Employee Engagement
Comply with Legal and Regulatory Requirements
Contribute to National and Global Goals
Driving forces behind CSR
Globalization
Power and influence of business corporation
Growth access to education and information
Growing awareness of environmental issue.
Spread of corporate scandal and public distrust.
Stages in CSR
Managers of the company get to know the most common social problem and then express
willingness to take a particular project which will solve some social problem.
Intensive study of the problem by hiring experts and getting suggestion to make it operates.
Manager take up the project actively and work hard.
Evaluating of the project by addressing the issue.
 COCA-COLA CSR MODEL
WATER:
Conserve Water
Watershed protection, rainwater harvesting projects
110 recharge shafts that collected rainwater. Reverse filter system.
The company initiated drinking water projects in Maharashtra and Gujarat to provide pure
water to the local communities

2/7/2025
 Cont..
ENERGY:
Reducing energy consumption and emission of GHGs by such as refrigeration
freshment cooler that used technologies devoid of hydrofluorocarbons
GHG emission reduced by three-fourths
increase the energy efficiency of its equipment by 40 to 50%
 Cont……
PACKAGING AND RECYCLING:
Packaging framework that aimed at recycling
A PET recycling project in Mumbai in partnership with Brihan Mumbai Municipal Corporation
Collected the company’s packaging material consisting of glass bottles, cans, etc. after they were
disposed .

2/7/2025
 Cont….
HEALTH:
Provided health checkups, medicine, and education to rural communities on health-related topics
Also funded polio eradication camps
Company conducted blood donation camps and supported a 24-hour emergency service for
children
In a few districts of Andhra Pradesh, conducted camps for Hepatitis B vaccinations, eye checkups,
and malaria eradication
 Cont…
ECONOMIC RESPONSIBILITIES:
Played an active role in providing employment and giving the community opportunities to expand
and grow
For every job in the Coca-Cola system, 10 more jobs were created indirectly
In 2007, launched an initiative called Parivartan (Change) for training small retailers in India.
 Cont…
COMMUNITIES:
A commitment to the community was part of Coca-Cola India’s CSR
In 2003,launched Jagriti Learning Centers to provide education to more than 1,800 children
residing near its bottling facilities in Pune
The initiative aimed to curb waterborne diseases
It set up around 2,000 schools for children
 Cont…
OBSTACLES
The groundwater levels had dropped in the firsts seven years of the company’s operations, from
1999 to 2006
Even in 2008, the company continued to face mass demonstrations from local communities who
demanded that the company shut down its bottling operations
There were also allegations that the company had seized land from farmers and that it had
discharged hazardous material
A few critics came down heavily on Coca-Cola’s much acclaimed TCCC standards for waste
management
 Cont…
RESPONSE
Coca-Cola opened an exclusive website, www.cokefacts.org, which addressed the allegations
related to India and other countries
The National Geophysical ResearchInstitute (NGRI), which had concluded that there was no field
evidence of overexploitation of the groundwater reserves in the area surrounding the plant
Coca-Cola stated that the technology used for waste water treatment at the plant was among the
most advanced in the world.
Coca-Cola India had carried out its CSR activities across 45 bottling plants at an annual spend of
Rs. 70 to 80 million
Tata Group & CSR
CSR Activities of Tata Companies & Societies
Self-Help Groups (SHG’s)
Over 500 self-help groups are currently operating under various poverty alleviation programs; out
of which over 200 are engaged in activities of income generation thorough micro enterprises.
Women empowerment programs through Self-Help Groups have been extended to 700 villages.
 Cont….
b) Supports Social Welfare Organizations
Tata Steel supports various social welfare organizations. They include;
Tata Steel Rural Development Society
Tribal Cultural Society
Tata Steel Foundation for Family Initiatives
National Association for the Blind
Shishu Niketan School of Hope
Centre for Hearing Impaired Children
Indian Red Cross Society, East Singhbhum
 Cont……
Healthcare Projects In its 100th year, the Tata Steel Centenary Project has just been announced.
The healthcare projects of Tata Steel include facilitation of child education, immunization and
childcare, plantation activities, creation of awareness of AIDS and other healthcare projects.
 Cont…..
Economic Empowerment A program aiming at economic empowerment through improvised
agriculture has been taken up in three backward tribal blocks in Jharkhand, Orissa and
Chhattisgarh. An expenditure of Rs 100 crore has been estimated for the purpose and this
program is expected to benefit 40,000 tribal living in over 400 villages in these three States.
 Cont…
Restoring Ecological Balance
Tata Motors has planted 80,000 trees in the works and the township and more than 2.4 million
trees have been planted in Jamshedpur region. Over half a million trees have been planted in the
Poona region. The company has directed all its suppliers to package their products in alternate
material instead of wood. In Pune, the treated water is conserved in lakes attracting various
species of birds from around the world.
Corporate Citizenship

The extent to which businesses strategically meet the economic,

legal, ethical, and philanthropic responsibilities placed on them
by various stakeholders.
Four interrelated dimensions:
1. Strong sustained economic performance.
2. Rigorous compliance.
3. Ethical actions beyond what the law requires.
4. Voluntary contributions that advance the reputation and
stakeholder commitment of the organization.
Reputation is one of an organization’s greatest intangible assets with
tangible value.
Corporate Governance Provides Formalized Responsibility to
Stakeholders

The stakeholder model places the board of directors in the

position of balancing the interests and conflicts of a
company’s various constituencies.
External control of the corporation resides not only with
government regulators but also with key stakeholders
which exert pressure for responsible conduct.
Social responsibility activities have a positive impact on
consumer identification.
Views of Corporate Governance

Classic agency problem: Ownership (investors) and control

(managers) are separate.
Managers act as agents for investors, whose primary goal is increasing the
value of the stock.
Investors and managers are distinct parties with unique insights, goals, and
values.
Corporate governance mechanisms are needed to align investor and
management interests.
Ethical Dilemma, Sources
and their Resolutions
 What is Ethical Dilemma?

An ethical dilemma is a moral situation in which a choice has to be made

between two equally undesirable alternatives.
 What is Business Dilemma?

A business dilemma exists when an organizational decision maker faces

a choice between two or more options that impacts on (a) the
organization’s profitability and competitiveness, and (b) its
stakeholders.
 The Structure of Ethical Dilemma

Doing what is A bad outcome

Either Results in
morally right or
bad effects

Doing what Good or at least

Or is morally Results in better effects or
wrong outcome
 How Ethical Dilemmas in Business Affect the
Stakeholders?
SHARE HOLDER

EMPLOYEE SOCIETY
Ethical dilemmas in business can best be explained by the above triangle with the
stakeholders as its vertices.The stakeholders in this case can be broadly classified
into shareholders, employees and the society at large.
 Corporate Dilemma Over Ethics

People in business come across several ethical problems that cause

ethical dilemmas. For instance,
• They feel that there is lack of clear linkage between business ethics
and financial success;
• They are not clear as to how much they should invest in the
business ethics system;
• They are unclear about the right balance between business ethics
and the investment required for the same; and
• The seemingly long gestation periods and the lack of short term
gains, also, is an obstacle.
 Sources of Ethical Problems

I. Failure of Personal Character

People whose personal values are not desirable may embezzle
funds, steal supplies from the company, pad expense accounts,
take unjustified leave, shirk obligations to fellow-workers, take
bribes for favouring suppliers use inside information for their
personal benefit and to the detriment of others.
II . Conflict of Personal Values and Organizational
Goals:
The company uses methods or pursues goals unacceptable to the
manager.

Reported case: George Couto, an employee of Bayer AG, exposed that

Bayer AG used to re-label Cipro and sell it to another pharmaceutical
company, Kaiser Permanente, with a different identification number so
that it could claim more money from the Medicaid programme.
III. Organizational Goals Versus Social Values

Activities of a company taken as unethical by the stakeholders, due to

changing social scenario or milieu.

Procter and Gamble withdrew its Relytampon promptly when its use was
linked statistically to some deaths and Johnson & Johnson cleared all
retail shelves of its Tylenol analgesic within days of the discovery that
some containers have been poisoned.
IV. Personal Beliefs Versus Organizational
Practices
Ethical dilemmas in organizations arise when they
employ multi-racial and multi-religious employees.
Several organizations are accused of racial
discriminations and gender bias in the work place and
have been paying fines of billions of dollars or opting
for out-of-court settlements.
V. Production and sale of hazardous but
popular products
Where does the ethical burden lie, when business
sells products known to be actually or potentially
harmful to society?

Is the principle of caveat emptor(Let the buyer be

aware) in mercantile law to be adapted suitably?

Should individual rights and free choice override

social costs?
 V. Production and sale of hazardous but popular
products (Contd.)
Could drunken drivers and carefree smokers deprive others of
their legitimate rights to life and safety?

Could free trading in hard drugs, dynamite and guns be considered

ethical?

Will the ineffective control ‘Smoking is Injurious to Health’ and

that too given as a ‘Statutory’ warning legitimatize the unethical
business?
 VI. Other Ethical Challenges
• Price fixing and profiteering due to monopoly, and often by
artificially created scarcity.
• Shifting unfair shares to the producer stakeholders and
employees.
• Discriminatory wage structure.
• Using up too fast, scarce and irreplenishable industrial
resources and raw materials.
• Shifting or locating business at the cost of society.
• Overworking women and children.
 Why do Businesses have such a
Negative Image?
Competitive pressures, individual greed and differing
cultural contexts generate ethical issues for organizational
managers. Further, in almost every organization some
people will have the inclination to behave unethically (the
ethical egoist) necessitating systems to ensure that such
behaviour is either stopped or detected (after unethical
behaviour occurs) and remedied. Ethics, involves
systematizing, defending, and recommending concepts of
right and wrong behaviour.
 Why Should Businesses Act Ethically?

There are a number of reasons why businesses should act ethically:

• to meet stakeholder expectations (and protect the former’s
reputations),
• to prevent harm to the general public,
• to build trust with key stakeholder groups,
• to protect themselves from abuse from unethical employees and
competitors,
• to protect their own employees, and
• to create an environment in which workers can act in ways consistent
with their values.
 How Corporates are Observing Ethics in
Their Organization?

Organizations have started to implement ethical behaviour by the

following actions:
• publishing in-house codes of ethics
• employing people with a reputation for high standards of ethical
behaviour at the top levels
• starting to incorporate consideration of ethics into performance
reviews
• Starting to reward ethical behaviour
• conducting an ethics audit
 Code of Personal Ethics for Employees

Most company codes list the following values being expected from their
employees:
• Respect confidential information to which you have access.
• Maintain high standard of professional responsibility.
• Avoid being placed in situations involving conflict of interest.
 Code of Personal Ethics
for Employees (contd.)

Most company codes list the following values being expected from
their employees.
• Act with integrity.
• Do not be biased against anybody or anything.
• Maintain professional relations based on mutual respect for
individuals and organizations.
• Be committed to the goals of the organization.
• Do not give up your individual professional ethics.
 How to Create an Ethical
Working Environment?

• Make the decision to commit to ethics.

• Recognize that you are a role model by definition, by your
action, and by your values.
• Assume the responsibility for instilling ethical behaviour.
 How to Create an Ethical Working
Environment? (contd.)

● Articulate your values.

● Train your staff.
● Encourage open communication.
● Be consistent.
● Abide by the laws of the land.
 How do We Establish Ethical Standards?

Think and reflect about yourself, about the management, about the
people, and about the relationship and the values you wish to
incorporate.

• Create time for thinking

• Reflect.
• Periodically take time off to reflect and consider ‘where I am’,
‘where I have to go’ and ‘how I am going there’.
 How to Resolve a Dilemma?
 Is a policy, a decision or an action

Ethical? Unethical?
 Ask Three Questions

To resolve these questions that create a dilemma, ask three

questions

• Utility: Do the benefits exceed the cost (Share Holder)?

• Rights: Do they respect human rights (Society)?
• Justice: Does it distribute benefits and burdens evenly
(Employees)?
 How to Resolve
Ethical Dilemmas?

Two basic approaches are possible in resolving ethical dilemmas:

deontological and teleological
Deontological (action-oriented) approach:
An ethical standard consistent with the fact that it is performed by a
rational and free person.
These are inalienable rights of human beings and reflect the “characteristic
and defining features of our nature”.
These fundamental moral rights are inherent in our nature and are
universally recognized.
 How to Resolve
Ethical Dilemmas? (contd.)
Teleological (results-oriented) ethics:

The moral character of actions depends on the simple, practical

matter of the extent to which actions actually help or hurt people.
Actions that produce more benefits than harms are “right”; those
that don’t are “wrong”.
 How to Resolve
Ethical Dilemmas? (contd.)

Center for Ethics and Business offers “a brief, three-step strategy”

in which both the deontological and teleological approaches
converge

• STEP 1: Analyse the consequences

• STEP 2: Analyse the actions
• STEP 3: Make a decision
Ethical Decision Making
in Business
 A Framework for Ethical Decision Making in
Business
Ethical awareness: Ethical awareness means recognizing whether a decision or
action has an ethical dimension. Sometimes, people may not realize that their
actions involve ethical concerns, especially if unethical behavior is normalized
in an organization.
Ethical issue intensity: Reflects ethical sensitivity of individual/group facing the
ethical decision making process. Individuals are subject to 6 spheres of influence.
1. Work place
2. Family
3. Religion
4. Legal system
5. Community
6. Profession
A Framework for Ethical Decision Making in Business (cond.)

Moral intensity: Individual perception of social pressure and

potential harm an ethical issue involves. The more people
affected and the greater the consequences, the higher the moral
intensity.

Example:
•A manager stealing office supplies (low moral intensity).
•A pharmaceutical company hiding dangerous side effects (high
moral intensity).
 Figure 5.1 – Framework for Understanding Ethical Decision 88

Making in Business

© 2019 Cengage. All rights reserved.

 A Framework for Ethical Decision Making in
Business (2 of 2)
Gender: Research suggests that men and women generally have similar
ethical decision-making abilities, but their approach may differ. Women
are often found to be more empathetic, whereas men may focus on
rules and logic..
Education: People with more ethical training or business experience are
better at identifying ethical issues and making ethical choices.
Nationality: Ethical standards vary across countries due to cultural norms
and legal systems.
Example: Gift-giving: In Japan, business gifts are a sign of respect, while in
the U.S., they may be seen as bribery.
Individual Factors (2 of 2)
Age: Older employees with more experience have greater knowledge to
deal with complex industry-specific ethical issues. Younger managers
are far more influenced by organizational culture.
This concept describes how people see their ability to influence
outcomes.
Locus of Control (Internal vs. External)
This concept describes how people see their ability to influence
outcomes.
•Internal Locus of Control: Belief that one controls their fate. These
people are more likely to take responsibility for ethical behavior.
•External Locus of Control: Belief that fate or external forces determine
events. These people are more likely to go along with unethical
practices.
Organizational Factors (1 of 2)
Companies shape employees’ ethical behavior based on culture,
rewards, and job context.
Internal vs. External Rewards
•Internal Rewards: Feeling good about ethical behavior (e.g.,
fairness, trust).
•External Rewards: Promotion, bonuses, or social approval.
If a company rewards honesty, employees are more likely to
report misconduct. If it only rewards sales, employees might lie
to customers.
Individual immediate job context: Where an individual works, whom
they work with, and the nature of the work.
Opportunity
•Opportunity refers to the conditions that allow employees to
behave ethically or unethically.
•It depends on:
• The presence or absence of rules, regulations, and policies.
• The likelihood of being caught and punished.
• The ethical climate within the company.
Business Ethics Intentions, Behavior, and
Evaluations (1 of 3)

Most people don’t intend to be unethical, but poor judgment, pressure,

or a lack of awareness can lead to mistakes.

A CEO cutting costs may decide to delay safety inspections, thinking it’s
a small issue, but this could lead to disastrous accidents (e.g., Boeing
737 Max crisis).
Business Ethics Intentions, Behavior, and
Evaluations (2 of 3)
 Even if they mean well, most businesspeople make ethical mistakes.
 No substitute for critical thinking and the ability to take responsibility
for our own decisions.
 Guilt or uneasiness is the first sign an unethical decision may have
occurred.
 Change the behavior to reduce such feelings.
Business Ethics Intentions, Behavior, and
Evaluations (3 of 3)
 This change can reflect a person’s values or morals shifting to fit the decision or
the person changing his or her decision type the next time a similar situation
occurs.
 The road to success depends on how the businessperson defines success.
Usual justifications for removal of guilt
1. I need the paycheck and can’t afford to quit right now
2. Those around me are doing it, so why shouldn’t I? They believe it’s ok.’
3. If I don’t do this, I may not be able to get good reference from my boss or
company when I leave
4. This is not such a big deal, given the potential benefits.
5. Business is business with a different set of rules
6. If not me someone else would do it and get rewarded.
Using the Ethical Decision Making Model to Improve
Ethical Decisions

Ethical decision making model does not help in determining if a business

decision is right or wrong.
Provides insights about ethical decision making in businesses.
Business ethics involves value judgments and collective agreement about
acceptable patterns of behavior.
Gaining an understanding of the factors that make up ethical decisions helps
in differentiating between an ethical issue and a dilemma.
Normative Considerations in Ethical Decision Making

Normative considerations refer to the ethical frameworks that guide

individuals and organizations in determining what is right or wrong.
These considerations help in structuring decision-making processes in
a way that aligns with moral values, societal norms, and legal
expectations.
Key Characteristics of Normative Values:
•Prescriptive – Dictate how individuals and organizations should act or
behave
•Universally or Culturally Accepted – Some values (e.g., justice, fairness)
are universal, while others depend on cultural context.
•Influenced by Institutions – Legal, religious, and educational
institutions reinforce and propagate these values.
Institutions as the Foundation for Normative Values

Institutions play a crucial role in shaping, preserving, and enforcing

normative values within a society. They provide the structural
framework through which ethical principles, social norms, and legal
standards are developed and maintained. These institutions include
legal systems, educational bodies, religious organizations, cultural
traditions, businesses, and governments, all of which contribute to
defining what is considered right or wrong, fair or unjust in a given
society.
A. Legal and Political Institutions
•Governments, courts, constitutions, and laws provide the
formal framework for ethical conduct.
•Laws and regulations establish the minimum standard for ethical
behavior, such as:
• Human rights (e.g., right to free speech, right to equality)
• Anti-corruption laws (e.g., laws against bribery and fraud)
• Corporate governance (e.g., transparency, accountability in
businesses)
•Example: The United Nations (UN) promotes global values like
human rights and justice through legal treaties.
B. Economic and Business Institutions
Businesses operate within ethical frameworks set by laws,
industry norms, and corporate governance structures.
•Corporate Social Responsibility (CSR) initiatives reflect
institutionalized ethical commitments.
•Example: The ISO 26000 standard provides guidance on ethical
corporate behavior, promoting values like sustainability and
fairness
C. Educational Institutions
•Schools and universities instill ethical reasoning, critical thinking, and
social responsibility.
•Ethics curricula, research, and student policies reinforce societal
values.
Business schools incorporating business ethics courses to train
responsible future leaders.

D. Religious and Moral Institutions

•Religious organizations provide moral guidance based on spiritual or
theological doctrines.
•They influence concepts of justice, honesty, compassion, and
integrity.
The Ten Commandments (Christianity), Dharma (Hinduism), and
Sharia Law (Islam) offer normative ethical frameworks.
Cultural and Social Institutions
•Traditions, customs, and family structures shape ethical behavior
and societal expectations.
•Norms such as respect for elders, honesty, and responsibility
are reinforced through cultural practices.
The Japanese culture of "Wa" (harmony) promotes group
cohesion and ethical cooperation.

F. Media and Technology Institutions

•Media (news, social media, films) shapes public perception of
morality and ethical issues.
•Digital ethics is now a major consideration, influencing how people
interact online.
Principles and Values
Understanding Ethical Decision Making
Top level support for ethical behavior is instrumental in helping
employees engage in their personal approaches to ethical decision
making.
Normative perspectives set forth ideal goals to which organizations
should aspire.
Knowledge about ethical decision making helps in making good decisions.
Steps in Ethical Decision-Making
To integrate normative considerations effectively, decision-makers can
follow a structured process:
1.Identify the Ethical Issue – Recognize the dilemma and its
implications.
2.Gather Relevant Information – Consider facts, stakeholders, and
legal aspects.
3.Evaluate Using Ethical Theories – Apply different ethical principles to
assess the best course of action.
4.Consider Alternatives – Explore various possible actions and their
consequences.
5.Make a Decision – Choose the most ethical and justifiable option.
6.Implement the Decision – Act responsibly and ensure accountability.
7.Reflect and Learn – Assess the impact and refine future decision-
making