BUSINESS ETHICS

(BBB 2154)

LECTURE 2
Business Ethics, Changing Environment and
Stakeholder Management & Introduction to Ethical
Decision Making And Stakeholder
 TOPIC OUTLINE
❑ BUSINESS ETHICS AND THE CHANGING

ENVIRONMENT

❑ WHAT IS BUSINESS ETHICS? WHY DOES IT

MATTER?

❑ LEVELS OF BUSINESS ETHICS

❑ FIVE MYTHS ABOUT BUSINESS ETHICS

❑ WHY USE ETHICAL REASONING IN BUSINESS

❑ CAN BUSINESS ETHICS BE TAUGHT AND TRAINED

 BUSINESS ETHICS AND THE
CHANGING ENVIRONMENT
• The study and examination of moral and social responsibility
in relation to business practices and decision making in
business
• Business is individuals or organizations who try to earn a
profit by providing products or services that satisfy people’s
or society needs
• Primary goal of all businesses is to earn a profit
• Businesses have the right to keep and use their profits as
they choose—within legal limits
• Profit is the reward for the risks they take in providing products

• Profits must be earned in a responsible manner

• Business and governments operate in changing technological,

legal, economic, social & political environments with

competing stakeholders & power claims

• Local, national and international environments are increasingly

moving towards and into a global system of dynamically

interrelated interactions among local, national and regional

politics, economies, regulations, technologies, demographics

and international law

• To achieve and maintain profitability, business must produce
quality product, operate efficiently and be socially responsible
and ethical in dealing with dealing with customers, employees,
investors, government regulators and the community
• Involve various stakeholder
• Have a stake in the success and outcomes of a business
• Not all stakeholders agree on goals and strategies of a business
• Businesses should determine what society wants and attempt
to predict the long-term effects of their decisions
• Society is increasingly demanding that business people behave
ethically and socially responsibly toward not only their
customers but also employees, investors, government
regulators, communities, and the natural environment
• To promote socially responsible and ethical behavior while
achieving organizational goals, businesses can monitor changes
and trends in society’s values
For example:
• Home Depot, have a long history of supporting natural disaster
victims, relief efforts, and recovery
• Coca-Cola has launched an anti-obesity campaign with videos
encouraging people to be more active and promising to clearly
label its products with calorie counts
• Such a response could be a smart move on Coca-Cola’s part
because sodas are often viewed as a main contributor to obesity
• Requires an effort to address the interests of all stakeholders,
businesses can prioritize and attempt to balance conflicting
demands
• The rate of change and uncertainty in which stakeholders &
society must make have accelerated due to the impact of:
o Internet and information technologies
o Globalization
o Deregulation
o Mergers
o Wars
 WHAT IS BUSINESS ETHICS?
• Ethical solutions to business and organizational problems may
have more than one right alternative and sometimes no right
solution may seems available
• How our actions affect others in different situations
• Business ethics is the study of how personal moral norms
apply to the activities and goals of commercial enterprise
• Includes 3 basic areas of managerial decision making:
– Choices about what the laws should be and whether to
follow them
– Choices about economic and social issues outside the
domain of law
– Choices about the priority of self-interest over the
company's interest
• Business ethics generally refers to the standards and
principles used by society to define appropriate and
inappropriate conduct in the workplace
• The goal is to develop a solid reputation of trust and avoid
misconduct to develop effective workplace ethics
• Ethics and social responsibility are a good supplement to
business activities
• Ethical behavior can not only enhance a company’s
reputation but can also drive profits
• Personal ethics, on the other hand, relates to an
individual’s values, principles, and standards of conduct
• The acceptability of behavior in business is determined by not only the
organization but also stakeholders such as customers, competitors,
government regulators, interest groups, and the public, as well as each
individual’s personal principles and values
• Organizations that exhibit a high ethical culture encourage employees
to act with integrity and adhere to business values
• Most unethical activities within organizations are supported by an
organizational culture that encourages employees to bend the rules
• Many experts agree that ethical leadership, ethical values, and
compliance are important in creating good business ethics
• Many consumers and social advocates believe that businesses should
not only make a profit but also consider the social implications of their
activities
 WHY DOES IT MATTER?
• Ethical issues often emerge from conflict, it is useful to examine the causes
of ethical conflict
• Business managers and employees often experience some tension between
their own ethical beliefs and their obligations to the organizations in which
they work
• Many employees utilize different ethical standards at work than they do at
home
• This conflict increases when employees feel that their company is
encouraging unethical conduct or exerting pressure on them to engage in it
• Difficult for employees to determine what conduct is acceptable within a
company if the firm does not have established ethics policies and standards
• And without such policies and standards, employees may base
decisions on how their peers and superiors behave
• Professional codes of ethics are formalized rules and standards that
describe what the company expects of its employees
• Is formalized rules and standards that describe what a company expects
of its employees
• Codes of ethics do not have to be so detailed that they take into
account every situation, but they should provide guidelines and
principles that can help employees achieve organizational objectives
and address risks in an acceptable and ethical way
• The development of a code of ethics should include not only a firm’s
executives and board of directors, but also legal staff and employees
from all areas of a firm
• Doing the right thing matters to employers, employees,
stakeholders and the public
• As it can save billions of dollars each year in lawsuits, settlement,
theft
• Managing business with integrity
• Helps the organization to protect their reputation
• Healthy corporate culture are bound to have happier and satisfied
workforce and customers
• Makes business activities fair and reasonable
• Good ethical practices by companies lead to increased trust
amongst stakeholders
• Impact society, consumers, stakeholders and employees
• Unethical behaviour may damage a firm’s reputation and make it
less appealing to stakeholders
 WHAT ARE THE UNETHICAL
BUSINESS PRACTICES?
The most unethical issues faced by businesses and their
stakeholders:
• Managers lying to employees
• Office nepotism and favoritism
• Taking credit for other’s work
• Receiving/offering kickbacks
• Stealing from the company
• Firing an employee for whistle blowing
• Padding expense accounts
• Divulging confidential information or trade secret
• Terminating employment without sufficient notice
• Using company property/ materials for personal use
For example:
Misuse of Company Time
• Theft of time is a common area of misconduct observed in the
workplace
• One example of misusing time in the workplace is by engaging
in activities that are not necessary for the job
• For instance, many employees spend an average of one hour
each day using social networking sites or watching YouTube
• In this case, the employee is misusing not only time but also
company resources by using the company’s computer and
Internet access for personal use
The most unethical behavior, happens in the
following areas:
• Government
• Sales
• Law
• Media
• Finance
• Medicine
• Banking
• Manufacturing
LEVELS OF BUSINESS ETHICS
• Ethical and moral issues in business can be
examined on at least five levels
• 5 levels includes individual, organizational,
association, societal, and international
• Because ethical problems are not only an
individual or personal matter, it is helpful to see
the different levels at which issues originate and
how they move to other levels
• Business leaders and professionals manage a
wide range of stakeholders inside and outside
their organization
• Understanding these stakeholders and their
concerns will facilitate our understanding of the
complex relationships between participants
involved in solving ethical problems
Individual level
• At the individual level, ethical issues arise when, for
example, a sales man is asked to sale the product by
telling a lie to the customers.
Organizational level
• At the organizational level, ethical issues arise, for
example, when employee is asked to perform an
unethical or illegal act to earn division or work unit
profit.
• Members should examine the firm's policies and
procedures and code of ethics, if one exists, before
making a decision or taking action.
Association level
• At the association level, accountant, information
technology (IT) professionals, lawyers, physicians,
and management consultants must follow the
ethics to facilitate the people
Societal level and International level
• At the societal level, laws, norms, customs, and
traditions govern the legal and moral
acceptability of behaviors. For example activities
in china may be not acceptable in UK
 5 MYTHS ABOUT BUSINESS
ETHICS
• A myth is “a belief given uncritical acceptance by the members of

a group, especially in support of existing or traditional practices

and institutions.”
o Myth 1: Ethics is a personal, individual affair, not a public or

debatable matter

o Myth 2: Business and ethics do not mix

o Myth 3: Ethics in business is relative

o Myth 4: Good business means good ethics

o Myth 5: Information and computing are amoral

 Myth 1: Ethics is a personal, individual affair, not
a public or debatable matter

• This myth holds that individual ethics is based on personal or religious beliefs, and that
one decides what is right and wrong in the privacy of one’s conscience
• Unsuitable for business professionals to address seriously or professionally because they
are not equipped or trained to do so
• Individual ethical choices are most often influenced by discussions, conversations, and
debates, and made in group contexts
• Often rely on organizations and groups for meaning, direction, and purpose
• Moreover, individuals are integral parts of organizational cultures, which have standards
to govern what is acceptable
• Therefore, to argue that ethics related to business issues is mainly a matter of personal or
individual choice is to belittle the role organizations play in shaping and influencing
members’ attitudes and behavior
 Myth 2: Business and ethics do not mix
• The ethicist Richard DeGeorge has noted that the belief that
business is amoral is a myth because it ignores the business
involvement of all of us
• Business is a human activity, not simply a scientific one, and, as
such, can be evaluated from a moral perspective
• If everyone in business acted amorally or immorally, as a
pseudoscientific notion of business would suggest, businesses
would collapse
• Employees would openly steal from employers; employers
would recklessly fire employees at will; contractors would
arrogantly violate obligations; chaos would prevail
 Myth 3: Ethics in Business Is Relative
• In this myth, no right or wrong way of believing or acting exists
• Right and wrong are in the eyes of the beholder
• The claim that ethics is not based solely on absolutes has some truth to
it
• However, to argue that all ethics is relative contradicts everyday
experience
• For example, the view that because a person or society believes
something to be right makes it right is problematic when examined
• Many societies believed in and practiced slavery; however, in
contemporary individuals’ experiences, slavery is morally wrong
Myth 4: Good business means good ethics
• The faulty reasoning underlying this logic obscures the fact that ethics

does not always provide solutions to technical business problems

• Moreover, as Buchholz argued, no correlation exists between

“goodness” and material success

• It also argued that “excellent” companies and corporate cultures have

created concern for people in the workplace that exceeds the profit

motive

• In these cases, excellence seems to be related more to customer

service, to maintenance of meaningful public and employee

relationships, and to corporate integrity than to profit motive

 Myth 5: Information and computing are amoral
• This myth holds that information and computing are neither moral nor immoral—they are
amoral
• They are in a “gray zone,” a questionable area regarding ethics
• Information and computing have positive dimensions, such as empowerment and
enlightenment through the ubiquitous exposure to information, increased efficiency, and quick
access to online global communities
• It is also true that information and computing have a dark side: information about individuals
can be used as “a form of control, power, and manipulation
• The point here is to beware the dark side: the misuse of information, social media, and
computing
• Ethical implications are present but veiled
• Truth, accuracy, and privacy must be protected and guarded: Falsehood, inaccuracy, lying,
deception, disinformation, misleading information are all evils and enemies of the Information
Age, for they undermine it
• Fraud, misrepresentation, and falsehood are unwelcoming to all of them
 WHY USE ETHICAL REASONING
IN BUSINESS
Ethical reasoning is required in business for at least three reasons:
1) Many times laws are insufficient and do not cover all aspects or
gray areas of a problem
For example: How could tobacco companies have been protected by
the law for decades until the settlement in 1997, when the industry
agreed to pay $368.5 billion for the first 25 years and then $15 billion a
year indefinitely to compensate states for the costs of health care for
tobacco related illness?
2) Free market and regulated mechanisms do not
effectively inform owners and managers about how to
respond to complex issues and crises that have far-
reaching ethical consequences
For example: did Microsoft act unethically while
becoming the dominant player in its industry in free-
market environment?
3) Ethical reasoning is necessary because complex moral
problems require” and intuitive or learned understanding
and concern for fairness, justice, due process to people,
groups, and communities”
ASKING KEY QUESTIONS
• The following questions can be asked when a problematic
decision or action is experienced or perceived before it becomes
an ethical dilemma:
✓ What are my core values and beliefs?
✓ What are the core values and beliefs of my organization?
✓ Whose values, beliefs, and interests may be at risk in this
decision? Why?
✓ Who will be harmed or helped by my decision or by the
decision of my organization?
✓ How will my own and my organization’s core values and
beliefs be affected or changed by this decision?
✓ How will I and my organization be affected by the decision?
 CAN BUSINESS ETHICS BE
TAUGHT AND TRAINED?
• Since laws are often not always sufficient to solve complex human
problems relating to business situations, the questions arise: can
ethics help?
• If so➔ how?
Ethic courses should not:

• Advocate a set of rules from a single perspective

• Not offer only one best solution to specific ethical problems

• Not promise superior or absolute ways of thinking and

behaving in situations
Ethic courses and training can do the following:

• Provide people with rationales, ideas, and vocabulary

• Help people make sense of their environments

• Provide intellectual weapons

• Enable employees to act as alarm systems for company practices

• Enhance conscientiousness and sensitivity

• Enhance moral reflectiveness and strengthen moral courage

• Increase people's ability to become morally autonomous ethical dissenters

• Improve the firm’s moral climate

• Other scholars argue that ethical training can add value to the moral environment of a
firm and to relationships in the workplace by:
✓ Finding a match between employer’s and employee’s values
✓ Managing the push-back point
✓ Handling an unethical directive
✓ Coping with a performance system that encourages unethical means
DISCUSSION
 Ralph Lauren Sets Example in FCPA Case
What does a company do when an internal audit finds that bribery has occurred? For Ralph
Lauren Corporation, it turns itself in. The company discovered that from 2005 to 2009, bribes
were paid to customs and government officials in Argentina in the form of cash, dresses,
handbags, and perfume to expedite processes of merchandise in the South American
country. This misconduct violates the Foreign Corrupt Practices Act (FCPA), which makes it
illegal for companies with operations in the United States to bribe foreign officials.
When Ralph Lauren discovered the bribery, it immediately reported the misconduct to the
Securities and Exchange Commission (SEC) and worked with government authorities in the
investigation. The company agreed to pay $1.6 million to settle investigations. More than
$700,000 of this payment covers the amount of the bribes paid to officials. By turning itself
in, Ralph Lauren received applause from several SEC officials, who deemed the company’s
actions ethical. The clothing retailer was able to resolve charges and sign non prosecution
agreements. This was the first such agreement in history related to the FCPA. This case
demonstrates that it pays to comply with the law when misconduct is discovered. Not only
can penalties be less severe, but Ralph Laurens reputation as a company committed to doing
the right thing will likely improve.

Discussion Questions
1. How did Ralph Lauren violate the FCPA?
2. Why did Ralph Lauren receive less severe penalties for the misconduct?
3. How can the Ralph Lauren bribery case set a precedent for other firms when discovering
misconduct?
Lisa is trying to raise funds to support the creation of a
free clinic in a poor neighborhood in her hometown.
She has been trying very hard, but she has not been
able to raise enough money to get the clinic up and
running.
One day, she gets a huge cheque from a high-profile
business executive whom she met at a fund raiser. She
is delighted and finally sees her dream taking shape.
However, after a few days, the person who gave Lisa
the money is arrested for fraud, money laundering, and
tax evasion.

Advice what should Lisa do.

 Customer Privacy
Checkers Pizza was one of the first offer home delivery service, with
overwhelming success. However, the major pizza chains soon followed suit,
taking away Checker's competitive edge. Jon Barnard, Checker’s founder and
co-owner, needed a new gimmick to beat the competition. He decided to
develop a computerized information database that would make Checkers the
most efficient competitor and provide is insight into consumer buying
behavior at the same time.
Under the system, telephone customers were asked their phone number; if
they had ordered from Checkers before, their address and previous order
information came up on the computer screen. After successfully testing the
new system, Barnard put the computerized order network in place in all
Checkers outlets. After three months of success, he decided to give an award
to the family that ate the most Checkers pizza.
Through tracking system, the company identified the biggest customer, who
had ordered a pizza every weekday for the past three months (63 pizzas).
The company put together a program to surprise the family with an award,
free-food certificates, and a news story announcing the award. As Barnard
began to plan for the event, however, he began to think that maybe the
1) What are some of the ethical issues in giving
customers an award for consumption
behavior without notifying them first?
2) Do you see this as a potential violation of
privacy? Explain
3) How would you handle the situation if you
were Barnard?
 EXERCISE
1) Discuss how businesses can promote ethical
behavior by employees
2) Analyze what are some ethical issues that may
arise in business
3) Elaborate the importance of social
responsibility of an organization
4) Can business ethics be taught and trained?
5) Determine the use of ethical reasoning in
business