Business Ethics

Ethics
The code of moral principles and values that
defines right or wrong conduct.

Business Ethics
Business ethics involves applying general
ethical principles and standards to business
behavior
The Relationship Between General Ethics and
Business Ethics
The Relationship Between Law and Ethics
Why??
 Sources of Ethics

Three schools of thought regarding formation of

ethics
Ethical Universalism

Ethical Relativism

Integrative
Integrative Social
Social Contracts
Contracts Theory
Theory
 Concept of Ethical Universalism
Basic moral standards need not to vary
significantly according to local traditions and
cultural norms/beliefs or religious convictions.
Instead same standards of what is ethical and
what is unethical should be resonate/emphasize
everywhere.
 Concept of Ethical Relativism
• According to the school of ethical relativism . . .
– Different societies/cultures/countries
• Put more/less emphasis on some values than others
• Have different standards of right and wrong
• Have different social mores and behavioral norms

– What is ethical or unethical

• Must be judged in light of local
customs and social mores and
• Can vary from one country to another
 Drawbacks of Ethical Relativism
• The ethical relativism rule of “when in Rome, do
as the Romans do” presents problems
• What if local standards condone kickbacks and bribery?
• What if local standards blink at environmental
degradation?
• From a global markets perspective, ethical
relativism results in a maze of conflicting ethical
standards for multinational companies wanting to
address the issue of what ethical standards to
enforce companywide.
 Concept of Integrative
Social Contracts Theory
• According to the integrative social contracts
theory, the ethical standards a company should try to uphold are
governed by both
– Universal ethical principles that are widely recognized
and
– The circumstances of local cultures, traditions, and
shared values that further prescribe what constitutes
• Ethically permissible behavior and
• What does not in a particular society
 Ethical Dilemma

•• AA situation
situation that
that arises
arises when
when all
all alternative
alternative
choices or
choices or behaviors
behaviors havehave been
been deemed
deemed
undesirable.
undesirable.
•• Potentially
Potentially negative
negative ethical
ethical consequences,
consequences,
making itit difficult
making difficult to
to distinguish
distinguish right
right from
from
wrong.
wrong.
 Ethical Decision Making Approaches
• The utilitarian approach
Which option will produce the most good and do the least
harm?
• The rights approach
Which option best respects the rights of all stakeholders?
• The fairness or justice approach
Which option treats people equally or proportionately?
• The common good approach
Which option best serves the community as whole, not
just some members?
 Ethical Tests
1. Is It Legal? Test
Ethical

Quadrant II Quadrant I
Ethical and Illegal Codification Ethical and Legal
Manifestation

Corporate
Illegal Legal
Decisions

Quadrant IV Quadrant III

Unethical and Illegal Unethical and Legal

Unethical
 Ethical Tests
2. Benefit Cost Test

3. Categorical Imperative
 Ethical Tests
4. Light of Day Test

5. Do Unto Others Test

6. Ventilation Test
 Checklist for Dealing with Ethical
Dilemmas
Step 1. Recognize the ethical dilemma
Step 2: Get the facts
Step 3. Identify your options
Step 4. Test each option: Conduct ethical test. Is it legal? Is
it right? Is it beneficial?
Step 5. Decide which option to follow
Step 6. Double-check the decision
Step 7. Take action.
Factors Influencing Ethical
Managerial Behavior
 Factors Affecting Ethical Choices
The Manager
• Levels or stages of moral development (Self-interest)
 Pre-conventional
 Conventional
 Post-conventional
• Personal values – Individual greed or the desire to
maximize self gain at the expense of others
(Selfishness).
• Ego strength
• Locus of control
 Factors Affecting Ethical Choices
• Organizational Structure
• Organizational Culture
• Pressure from higher management to achieve
goals
– Overzealous pursuit/concern on profits and
competition
• Behavior of senior executives/managers
– E.g. Large numbers of immoral and amoral
managers. (Degree/levels of management morality)
 Three Categories/Levels of
Management Morality

Moral manager

Immoral manager

Amoral manager
 Characteristics of a Moral Manager
• Dedicated to high standards of ethical behavior in
– Own actions
– How the company’s business is to be conducted
• Considers it important to
– Be a steward of ethical behavior
– Demonstrate ethical leadership
• Pursues business success
– With a habit of operating well above what laws require
Characteristics of an Immoral Manager
• Actively opposes ethical behavior in business
• Willfully ignores ethical principles in making decisions
• Views ethical standards as barriers to overcome
• Pursues own self-interests
• Is an example of capitalistic greed
• Ignores interests of others
• Focuses only on bottom line –
making one’s numbers
• Will trample on others to avoid being trampled upon
 Characteristics of an
Intentionally Amoral Manager

• Believes business and ethics should not be

mixed since different rules apply to
– Business activities
– Other realms of life
• Views ethics as inappropriate for tough,
competitive business world.
• Believe concept of right and wrong is law-
driven. It is not a responsibility of managers.
 Characteristics of an
Unintentionally Amoral Manager
• Shows lack of interest when applying ethics to
company actions/ decisions
• Mainly due to lack of knowledge and awareness
• Typical beliefs are;
– Do what is necessary to comply with laws and
regulations are adequate
– If it is not illegal, it is allowed
 Approaches to Managing a
Company’s Ethical Conduct

Unconcerned or non-issue approach

Damage control approach

Compliance approach

Ethical culture approach

 Characteristics of Unconcerned Approach

• Prevalent at companies whose executives are

immoral and unintentionally amoral
• Notions of right and wrong in business matters are
defined by government via prevailing laws and
regulations — after that, anything goes
• Companies are usually out to make
greatest possible profit at most any cost
• Strategies used, while legal, may embrace
elements that are ethically shady
 Characteristics of
Damage Control Approach

• Favored at companies whose managers are

intentionally amoral but who fear scandal
• May adopt a code of ethics as window-dressing
• Executives look the other way when shady
behavior occurs
• Executives may execute questionable
actions that help a company reach
earnings targets or bolster its market
standing
 Characteristics of
Compliance Approach

• Practice at companies whose managers are moral and

see strong compliance as the best way to impose high
ethical standards.
• Moral control resides in a company’s code of ethics and in the
ethics compliance system rather than in

– Strong interest for ethical behavior that come from ingraining

a highly ethical corporate culture and

– An individual’s own moral responsibility for ethical behavior

 Pursuing a Compliance Approach:
Typical Actions
• Make code of ethics a visible and regular
part of communications with employees
• Implement ethics training programs
• Appoint a chief ethics officer
• Have ethics committees to give guidance on ethics matters
• Institute formal procedures for investigating alleged ethics
violations
• Conduct ethics audits to measure and document compliance
• Give ethics awards to employees for outstanding efforts to create
an ethical climate
• Install ethics hotlines to help detect and deter violations
 Characteristics of
Ethical Culture Approach
• Top executives believe high ethical principles must
– Be deeply ingrained in the corporate culture
– Function as guides for “how we do things around here”
• Company seeks to gain employee buy-in to
– Company’s ethical standards
– Business principles
– Corporate values
• Ethical principles in company’s code of ethics are
– Integral to day-to-day operations
– Promoted as “business as usual”
• Strategy must be ethical
• Employees must display ethical
behaviors in executing the strategy
 Characteristics of Managers Committed
to Ethical Approaches to Strategy-Making
• Possess strong moral and ethical characteristics
• Strongly advocate a corporate code of ethics and strict ethics
compliance
• Display genuine commitment to certain corporate values and
business practices
• Walk the talk in
– Displaying a company’s stated values
– Living up to ethical business principles and standards
• Adopt values statements/ethics codes that truly paint the
white lines for a company’s business practices
• Consciously opt for strategic actions passing moral scrutiny
 Toward Improving Ethical Behavior
• Establish codes of ethics and decision rules
A formal statement of an organizations primary
values and the ethical rules it expects its
employees to follow.
• Employee Selection
• Job goals and performance appraisal
• Ethics Training
• Independent social audits
• Formal protective mechanisms
 Corporate Social Responsibility
• Engage in activities beyond the interests of the
firm and which is required by law.

WHY ??
 Six reasons why a business should get involved in CSR

• Satisfied employees – Retention and attraction

• Satisfied customers – Competitive advantage

• Public/Positive image – Supportive environment

• Costs reductions – Minimizes costly legal and regulatory actions

• More business opportunities – E.g. Stockholder interest

• Long-term business sustainability- Business

continuity
Two Opposing Views of Social Responsibility
• Classical view:
The view that management’s only social responsibility is to
maximize profits.
(Interest of Shareholders)

• Socio-economic view:
The view of managements social responsibility goes
beyond making profits to include protecting and improving
society’s welfare.
(Balance interest of all shareholders)
The notion that organizations should balance interests of
all stakeholders began to blossom in the 1960s
 Pyramid of Corporate Social Responsibility
(Major Societal Expectations/Responsibilities)

Philanthropic
Be a good Corporate citizen.

Ethical
Do what is right, fair & just

Legal
Obey the Law & Regulations

Economic
Be profitable.
Maximize sales,
minimize costs, etc.
 Corporate Social Responsibility (CSR)
Carroll’s Four Part Definition
Understanding the Four Components

Responsibility Societal Examples

Expectation
Economic Required Be profitable. Maximize
sales, minimize costs, etc.
Legal Required Obey laws and
regulations.
Ethical Expected Do what is right, fair and
just.
Discretionary Desired/ Be a good corporate
(Philanthropic) Expected citizen.
Major Social Responsibility Initiatives
• Environmental Management – Conducting
programs to preserve the natural environment.
• Work/Life Balance – Develop programs to help
employees balance the demands of the work
and personal life.
• Proactive Stance Against Widespread Diseases
Contribute resources to help combat a disease
that threatens a large number of people.
Example; AIDS
 Social Responsibility Initiatives

• Community Development Programs

Business firms invest resources in helping
distressed communities.
 Arguments Against CSR
Caution should be exercised in pursuing various
societal obligations since this;
• Diverts valuable resources
• Diluting focus on a firm’s business mission
• Disturbing the attention/time/effort of
managers
• Weakens a company’s competitiveness
• Theft from a company’s shareholders
 Linking Business and Social Responsibility
• Social responsibilities are best satisfied through
conventional business activities (doing what businesses are
supposed to do, which does not include social engineering)
• Management should match a company’s
social responsibility strategy to its
– Core values
– Business mission
– Overall strategy
• Some companies are integrating social
responsibility objectives into their
– Missions
– Performance targets
– Strategies