BusinessEthicsModule1 220130628

COURSE MANUAL
E24: Business Ethics

Modules 1 and 2
Open University of Mauritius

Rduit
Mauritius
2013
Copyright
Commonwealth of Learning, 2013
All rights reserved. No part of this course may be reproduced in any form by any means
without prior permission in writing from:
Commonwealth of Learning
1055 West Hastings Street
Suite 1200
Vancouver, BC V6E 2E9
CANADA
Email: info@col.org
Open University of Mauritius

Reduit
MAURITIUS
Fax: +230 4648854
Tel: +230 403 8200
E-mail: academic-affairs@open.ac.mu
2013
Acknowledgements
The Commonwealth of Learning (COL) wishes to thank those below for their contribution to the
development of this course:
Course author
Dr Rajiv Prasad
Amrita School of Business
Coimbatore, India
Subject matter experts
Dr Sheron Lawson
University College of the Caribbean, Jamaica
Dr A. K. M. Moniruzzaman
Bangladesh Open University, Bangladesh
Dr C. I. Okeke
National Open University of Nigeria, Nigeria
Mr. Salman Ali Qureshi
Allama Iqbal Open University, Pakistan
Ms. Lilian Yap
Wawasan Open University, Malaysia
Course editor
Symbiont Ltd.
Otaki, New Zealand
COL would also like to thank the many other people who have contributed to the writing of this
course.
Contents
About this course manual
How this course manual is structured ................................................................................ 1

Course overview
Welcome to E24: Business Ethics ..................................................................................... 3

Business Ethics is this course for you?......................................................................... 3
Course outcomes ............................................................................................................... 4
Timeframe ......................................................................................................................... 4
Study skills ........................................................................................................................ 5
Self-assessment.................................................................................................................. 6
Activities............................................................................................................................ 6
Getting around this course manual
Margin icons ...................................................................................................................... 7

Module 1
Personal Ethics .................................................................................................................. 8

Introduction .............................................................................................................. 8
Terminology ...................................................................................................................... 9
Values and Ethics ................................................................................................... 10
Activity 1.1 ...................................................................................................................... 12
Personal Ethics Its importance for Business ....................................................... 14
Aristotles Virtue Ethics ........................................................................................ 16
Moral Development and Moral Reasoning ............................................................ 18
Module summary ............................................................................................................. 25
Self-assessment................................................................................................................ 26
Self-assessment answers .................................................................................................. 27
References ....................................................................................................................... 29
Module 2
30
Introduction to Business Ethics ....................................................................................... 30

Introduction ............................................................................................................ 30
Terminology .................................................................................................................... 31
What is Business Ethics? ....................................................................................... 31
Activity 2.1 ...................................................................................................................... 35
Why is Business Ethics so important? ................................................................... 35
Module summary ............................................................................................................. 46
Self-assessment................................................................................................................ 47
Self-assessment answers .................................................................................................. 48
References ....................................................................................................................... 51

How this course manual is
structured
The course overview
The course overview gives you a general introduction to the course.
Information contained in the course overview will help you determine:
If the course is suitable for you

What you will already need to know
What you can expect from the course
How much time you will need to invest to complete the course.
The overview also provides guidance on:
Study skills
Where to get help
Course assignments and assessments
Activity icons
Modules.
We strongly recommend that you read the overview carefully before

starting your study.
The course content

This course consists of nine modules. Each module comprises:
An introduction to the module content

Module outcomes
New terminology
Core content of the module with learning activities
Module summary
Self-assessment
Self-assessment answers
Error! No text of specified style in document.
Resources
For those interested in learning more on this subject, we provide you with
a list of references at the end of each module; these may be books,
articles or websites.
Course overview
Welcome to E24: Business Ethics
This course is organised into nine modules covering different areas
relevant to business ethics. It starts with an exploration of some key
perspectives relevant to ethics at the micro level, namely personal values
and ethics, then moves on to looking at ethics from the organisational and
the environmental perspectives. The topics covered under different
modules include the context for and relevance of business ethics;
different theoretical approaches to resolve ethical problems and
dilemmas; the various stakeholders and the necessity of balancing their
interests; ethics in core business areas such as marketing, production,
advertising, human resource management; business ethics and
environment and sustainability issues; business ethics and shareholders;
and finally, creating and managing an organisation that supports ethical
practices. The overall purpose of the course is to make the students aware
of the different issues relevant to ethics in business and to equip them
with tools which will help them to deal with such issues.
Business Ethics is this course

for you?
This course is intended for people who want to have a deeper
understanding of ethical issues and values guiding corporate and
administrative practices in todays world. The course is designed as an
elective for the Commonwealth Executive MBA and MPA programme,
and all those who are interested in gaining exposure to the critical
requirement of ethical business practices in their organisation may like to
opt for this course.
The need for businesses adhering to universally accepted standards of
values and ethics has increased in the last few years due to a series of
corporate scandals in quick succession that has hit some of the major
companies in the recent past. It is no longer possible for businesses to
ignore these concerns as the expectations of society in general for ethical
behaviour is gaining in stridency. It has already started to influence the
choices made by key stakeholders such as customers, employees,
investors as well as government.
This course on business ethics is expected to enable the learners to gain a
thorough understanding of the theories and issues shaping ethical
dimensions of business and to apply these in real life decision-making
situations.
Course overview
Course outcomes
Upon completion of Business Ethics, you will be able to:
Outcomes
describe and apply different theories of ethics in real life

decision-making situations.
discuss the ethical issues relevant to different functional areas of

a contemporary business organisation.
apply the insights gained from different theoretical perspectives

to analyse the morality of different possible decisions in a given
situation, and to justify your decisions.
explain the nature of the stakes of all the stakeholders of a

business and how their interests can be satisfied.
explain the role of leaders/managers of an organisation in the

creation and development of an ethical work culture.
Timeframe
This course will take approximately 120 hours of study time.
How long?
Study skills
Study skills
As an adult learner your approach to learning will be different to that

from your school days: you will choose what you want to study, you will
have professional and/or personal motivation for doing so and you will
most likely be fitting your study activities around other professional or
domestic responsibilities.
Essentially you will be taking control of your learning environment. As a
consequence, you will need to consider performance issues related to
time management, goal setting, stress management, etc. Perhaps you will
also need to reacquaint yourself in areas such as essay planning, coping
with exams and using the web as a learning resource.
Your most significant considerations will be time and space i.e. the time
you dedicate to your learning and the environment in which you engage
in that learning.
We recommend that you take time nowbefore starting your selfstudyto familiarise yourself with these issues. There are a number of
excellent resources on the web. A few suggested links are:
http://www.how-to-study.com/
The How to study web site is dedicated to study skills resources.
You will find links to study preparation (a list of nine essentials for a
good study place), taking notes, strategies for reading text books,
using reference sources, test anxiety.
http://www.ucc.vt.edu/stdysk/stdyhlp.html
This is the web site of the Virginia Tech, Division of Student Affairs.
You will find links to time scheduling (including a where does time
go? link), a study skill checklist, basic concentration techniques,
control of the study environment, note taking, how to read essays for
analysis, memory skills (remembering).
http://www.howtostudy.org/resources.php
Another How to study web site with useful links to time
management, efficient reading, questioning/listening/observing skills,
getting the most out of doing (hands-on learning), memory building,
tips for staying motivated, developing a learning plan.
The above links are our suggestions to start you on your way. At the time
of writing these web links were active. If you want to look for more go to
www.google.com and type self-study basics, self-study tips, selfstudy skills or similar.
Course overview
Self-assessment
Assessment
A self-assessment is provided at the end of each module. You should

work through the self-assessment questions without looking at the
solutions that follow. Use the self-assessment solutions to ensure you
have understood the material covered in the module.
Activities
Activities
Each module, except Module 8, has at least one activity that you should
work through and then submit to the Course Instructor for feedback. Use
the activity feedback as reassurance that you have understood the
material.
Getting around this course manual

Margin icons
While working through this course manual you will notice the frequent
use of margin icons. These icons serve to signpost a particular piece of
text, a new task or change in activity; they have been included to help you
to find your way around this course manual.
A complete icon set is shown below. We suggest that you familiarize
yourself with the icons and their meaning before starting your study.
Activity
Assessment
Assignment
Case study
Help
Outcomes
Reading
Self-assessment
answers
Study skills
Summary
Terminology
Time
Module 1
Module 1
Personal Ethics
Introduction
In this module we try to understand the meaning of the terms values and
ethics and see the relationship between them. We also explore the
underlying values that people hold and the impact of these values on
ones personal code of ethics. Some of the key questions that we examine
in this module are as follows:
Are there certain universally held moral values that human societies have
respected across the world irrespective of cultures? If yes, then what are
the differences between these universal values and personal values, and
what are the interactions between them?
Do these values serve a major role in a managers career and life?
How do they influence the managers personal ethical codes as

well as the corporate code of ethics?
What are the ways in which conflict amongst ones core values
can be minimized or sorted out when needed in different
decision-making situations?
Does greater awareness of ones own value system and ethical

codes help in ensuring more ethical behaviour?
Does greater awareness of ones own values and ethical codes

help an individual to grow or develop morally into a greater
alignment with universal values?
Does moral development of a manager affect his or her decision

making and the kind of leadership that he or she brings to the
workplace?
Apart from seeking to answer these questions, this module also looks at
some important theories and frameworks in the area of virtue, or
personal ethics.
Upon completion of this module you will be able to:
define the terms values and ethics and describe how they are
related.
define the terms universal values and personal values and

describe how their interaction has a bearing upon a persons
character.
describe the relationship between ethics and trust
describe the importance of sound personal ethics for a business

executive
identify key theoretical perspectives in the area of personal ethics.
Outcomes
Terminology
Terminology
Values:
Principles, standards or qualities that are

considered morally worthwhile or desirable.
Universal values:
Those principles, standards or qualities that are

accepted universally across geographical locations
and different cultures in almost all parts of the
world. Truth, honesty, punctuality, tolerance, love,
compassion, co-operation etc. are some examples
of universal values.
Personal values:
Those qualities, principles or standards of

behaviour that a given person considers desirable.
Core values:
Foundational values which govern every aspect of

ones life, behaviour and work.
Ethics:
A rationally developed set of rules and guidelines,

which help one to determine what is right or
wrong in a given situation.
Personal ethics:
Practical rules and guidelines based on one's

personal values and standards that a person uses to
resolve ethical dilemmas.
Module 1
Values and Ethics

Values are principles, standards or qualities that are considered morally
worthwhile or desirable. Whenever we bring the term moral into the
picture, it implies a value judgement in terms of rightness or wrongness,
desirability or undesirability, acceptability or unacceptability of a certain
thought, word or action. Values are morally sound or desirable principles,
standards or qualities that impose shoulds on human behaviour. They
are prescriptive in nature. One should be honest in ones dealings is a
morally prescriptive statement which is based on the moral value called
honesty.
Universal values are those principles, standards or qualities that are
accepted universally across geographical locations and different cultures
in almost all the parts of the world. Truth, honesty, punctuality, tolerance,
love, compassion, co-operation etc. are examples of universal values.
Personal values are those qualities, principles or standards of behaviour
that a given person considers desirable. These values may or may not be
in sync with the timeless and universal principles of truth, love, cooperation, freedom, honesty, justice, fairness, tolerance for differences of
opinion, integrity and so on.
Within the set of personal values, not all the values are held with the same
intensity. Some of these values are more central to us in that they form a
part of the very core of our personality. These foundational values that
govern every aspect of our life, behaviour and work are called the core
values. These core values are very stable and do not change so easily with
time or external circumstances. They are our anchor in a changing world.
The peripheral personal values are more susceptible to change with new
experiences and to being adapted to changing life circumstances, but the
core values are more resistant to change. The greater the overlap between
ones personal core values and universal values, the better the moral
health of an individual. It can be observed that the greatest leaders of
humanity, such as Abraham Lincoln, Mahatma Gandhi, Martin Luther
King, who are universally admired and are cited as role models, had
managed to develop a highly moral character with a great degree of
overlap between the set of universal values and their personal values. A
business executive whose personal core values are in greater alignment
with the universal values will be more resistant to unethical practices.
Evidence of executives succumbing to unethical practices can be seen in
the corporate frauds and corporate scandals, involving world-renowned
companies, of the last decade or so.
Some of the most important universal values, which are very useful for an
executive to possess as core values, are integrity, wisdom, honesty,
sincerity, transparency, truthfulness, punctuality, humility, courage. There
are many other good values that one could aspire to develop in oneself
but the above mentioned are some of the most important ones. Let us look
at the meaning of these values one by one in brief.
Integrity: Integrity is the ability of an individual to hold firm to his or her
personal moral values under all circumstances. The more developed
10
integrity is within a individual, the greater his or her ability is to

withstand temptations, coercion, distractions from the path of morality.
Such an individual displays a very high degree of consistency between his
or her espoused values (or what he or she preaches) and his or her
expressed behaviour (what he or she practises).
Wisdom: Wisdom is a value that, when well developed, enables a person
to choose what is good, right and beneficial in the long term as opposed
to the more tempting and weak options which may be pleasurable and
exciting in the short term but ultimately end up harming the individual or
the organisation
Honesty: When a person practises honesty, he or she acts without any
intention of deceiving anyone. It implies behaving very simply and
directly according to the rules and practices of a given workplace, making
ones required contribution to the best of ones ability, sharing every
relevant fact as truly as possible, and being happy with ones just reward
for the contribution made.
Sincerity: Sincerity refers to ones purity of intention and application in
carrying out ones allotted duty. It is giving of ones best efforts in
performing ones work. When one is sincere in ones work, no one can
doubt the genuineness of effort in trying to accomplish it.
Transparency: Transparency is a value that, when practised, makes a
persons life like an open book. He or she shares all the relevant
information about him or herself freely and openly with everyone. He or
she does not hide anything significant about himself.
Truthfulness: Truthfulness is the willingness and ability to speak in
accordance with facts. A truthful person does not bend or tweak the facts
while talking about them. He or she says things as he or she perceives
them to be.
Punctuality: This value governs how much respect one gives to doing
ones work in accordance with the times prescribed. It can help one to
keep to a time schedule. Adhering to punctuality also shows respect for
other peoples time.
Humility: Humility is a value that allows a person, to retain simplicity
and naturalness even if they become very rich, successful or famous in
their personal life. It is a value which is like an antidote to pride or
arrogance.
Courage: Courage prevents a person from being intimidated by threats or
personal risks while discharging his or her duty. Even an otherwise honest
and sincere person may succumb to fear when faced with risks to personal
security. But a courageous person, who is also honest and sincere, will
not succumb so easily and will try to resist unethical coercion.
11
Module 1
Activity 1.1
Activity
From your own life experience so far, think of the person that you found to be
the most outstanding. This person should be someone that you have known
from close quarters through personal experience. Then list the qualities that
he or she possessed that you think have helped him or her to become such an
exceptional individual.
How many of these qualities do you think belong to the set of universal
values? Compare your findings with your peers in your class.
Perhaps you would have seen from the exercise that you did above that
the individual that you found to be the most outstanding in your life was
someone who had developed a good deal of alignment with the set of
universal values. The author of this course book has given this exercise to
the students in live Business Ethics classes on many occasions and has
repeatedly found that students admire such people as their role models
who have developed a highly moral character by aligning their personal
set of values with the set of universal values. A very high level of
competence in their area of expertise was another quality common to
almost all these role model figures from students lives. So, it is quite
evident that whenever we come across individuals who have a highly
developed moral character along with a high degree of competence, we
tend to admire such people. Such individuals command the respect of
their peers naturally by virtue of their moral excellence.
Personal Values
Universal Values
Figure 1.1: Aligning personal and universal values
12
The finding shown in the figure above was predicted a long time ago by
the Greek philosopher Aristotle who said that there are three ways by
which a person can try to influence other people logos, pathos and
ethos. Logos is an appeal to the logical side of man and is an attempt to
influence by giving arguments in favour of ones opinion or viewpoint. It
is the least effective method of influencing people according to Aristotle.
The second method, pathos, is an appeal to the emotional side of people
and is an attempt to influence by evoking the emotions for the cause
which one is trying to influence. An example would be an inspirational
speech given by a military general at the time of war to rouse the patriotic
instincts of the soldiers. According to Aristotle, this method of
influencing people is more effective than the first one but not as effective
as the last one. The third and last method is ethos, which generates trust
and enables influence by virtue of a virtuous character. For such a person,
the support of the people comes naturally on account of his exemplary
character. We discuss later in this Module Aristotles concept of virtue
and a virtuous man when we come to reviewing his Nicomachean Ethics.
On account of what we have seen so far, we can see why it is important to
check and see from time to time if ones personal core values are in
alignment with the universal values or not, especially if one intends to be
ethical in ones actions. Ones personal values influence the decisions that
one makes or the actions that one takes, very powerfully, though one may
not be aware of these values in the background that are operating at a
given point of time.
Ethics: Ethics is a rationally developed set of rules and guidelines, which
help one to determine what is right or wrong in a given situation. So,
whereas values are morally desirable principles or qualities, ethics are
practical rules and guidelines for behaviour that are evolved by
individuals based on those values. Every individual has his or her own
ethical code which he or she uses to resolve ethical dilemmas in various
situations. This ethical code develops in an individual based on the value
system (set of moral values) that he or she holds. This personal code of
ethics that an individual has is called his or her personal ethics. Even
though ones personal ethics primarily flow out of ones personal
values, they are also influenced in a given situation by the contextual
variables such as organisational culture, group norms, company rules,
personal risks involved in a particular decision-making situation, and so
on. For example, truth is a dear value to me. So, speaking the truth in
different situations is a part of my personal ethics when there is no
pressure upon me to do otherwise. But in a given context, there may be a
pressure upon me in terms of potential losses, personal or organisational
to do otherwise. In such cases, the strength of my conviction about this
particular value would determine my actual behaviour. So, personal ethics
takes into account the values held dear, the strength of ones conviction as
well as the situational variables.
A perfectly aligned and integrated set of personal ethics can only flow out
of a perfectly aligned and integrated personal value system. A high degree
13
Module 1
of integration and alignment in ones value system, with respect to the set
of universal values, is attained only by the highly integrated (in terms of
consistency between thoughts, words and actions) and morally developed
individuals.
A close to perfect overlap between the universal values and personal core
values is the ideal situation, which will be found extremely rarely in real
life. Only a very few great spiritual and humanitarian leaders such as
Jesus Christ, Prophet Mohammed, Mahatma Gandhi, Mother Teresa,
Buddha would come close to this ideal. Even in the field of business,
some of the most highly respected business leaders across the world have
earned names for themselves because of their ethical practices and
admirable values. Warren Buffet, J R D Tata, David Packard, Robert
Wood Johnson the author of the famous Johnson & Johnson Credo
exemplify a high integration of some of the most important universal
values The rest of us can strive in that direction. The greater the values
overlap, the more ethical one is likely to be in day-to-day dealings.
We have had quite a few examples of business leaders who had
exemplary moral characters enabling them to earn the respect of the
community, apart from creating economic value for all. For example,
Anita Roddick who founded The Body Shop, a cosmetics company
producing and retailing beauty products that shaped ethical consumerism;
Warren Buffet, the legendary investor; John C. Lincoln, the founder of
Lincoln Electric Company, which is admired for the excellent and
humane work culture that has been at the core of its performance over a
hundred years. There are many others.
Personal Ethics Its importance for Business

Why did we begin a course on business ethics by discussing the
individual and his or her values and ethics? What makes it so important?
Perhaps a more relevant question to ask would be: what is the relevance
of personal ethics to a course on business ethics? If you look at business
today, it is dominated all over the world by corporate organisations.
These organisations are collections of individuals who are organised
formally to carry out the business of the organisation for which they
work. Every large organisation has an organisation chart that shows the
different formal roles within the organisation and the relationships
between these roles. But these formal roles or positions are manned by
individuals who, apart from being members of the organisation, have their
own personal lives. Whatever may be the policies and operating
guidelines prevailing in the organisations where they work, the various
decisions pertaining to their roles or formal positions are made ultimately
by the individuals. In the recent past we have had many corporate frauds
involving well known and respected firms, such as Enron, WorldCom,
Arthur Andersen, Satyam Computers, which have demonstrated that
when the individuals working in an organisation in responsible positions
resort to unethical practices to maximise their personal interests, even if it
is at the cost of the organisation and all its stakeholders, then all the rules,
regulations and procedures of formal corporate governance are of little
use. So, ensuring that the personal values and ethics of executives
14
working in corporate organisations are in alignment with sound moral

principles becomes very important in order to prevent or minimize such
incidents in future. Sound moral character is at least as important as the
knowledge of formal ethical reasoning skills for a business executive
when it comes to resolving the various ethical dilemmas at the workplace.
Another reason why an exemplary character based on sound moral
principles is important in a business executive is the fact that an executive
is also a leader with many people reporting to him. It is very important for
a leader to have support and trust. As we saw above while discussing
Aristotles ideas about influencing people, ethos, or an influence style
based on an exemplary moral character, is the most effective of the three
influence styles Aristotle listed. Having an ethical character enables a
leader to gain the support and trust of his or her team very easily and
naturally provided he or she has the competence to go with such a
character.
Another reason personal ethics becomes such an important factor in
business is the role that it plays in governing the nature and costs of
business contracts between any two parties. Suppose there are two parties
A and B. They agree to enter into a business transaction. A would supply
a consignment of a certain product of a certain quality in a specified
period of time at a specified price to B. B would pay the bill raised by A
after a month of receiving the consignment in proper order. In this
transaction, both the parties need to trust each other that they will be able
to deliver on the promise that they have made to one another. If B knows
that A is honest in its dealings with its customers, then it certainly would
help B to trust it. Similarly, if A knows that B is honest in its business
dealings and clears its bills promptly, it would help it to trust that B
would clear the bills at the end of the credit period. Of course, B and A
would need to know more about each other apart from their honesty alone
to be comfortable with this deal.
B would need to know that A is capable of producing or acquiring the
product that it has agreed to supply. So, the technical ability of A to
execute the deal is obviously important. Similarly, A would need to be
sure about the solvency of B apart from its honesty in order not to worry
about its ability to pay. Even if the two parties are sure about each other
in all respects, their transaction may require a formal contract to govern
the basic terms of the transaction in order to cover for the risk of
uncertainty. But contracts can be very elaborate and detailed if the two
parties do not trust each other, and quite simple if they do trust each other.
So if they know about each others honest business practices pretty well
and also know about their ability to deliver upon their promises, the
contracts can be very simple thus significantly reducing the cost of
drawing up and administering a contract. So the more the trust the less the
contract costs and vice versa. Thus the trust that a business firm enjoys
because of its managers exemplary personal ethics is a significant factor
in lowering the costs of doing business. It can allow a firm easy credit on
easy terms from suppliers and financiers thus reducing the cost of capital.
15
Module 1
If a firm has a reputation for ethical business practices, such as honesty

and fairness, its stakeholders will trust it and thus be willing to support it
in times of crisis.
Aristotles Virtue Ethics

Aristotle (384322 BCE) was a Greek philosopher whose influence on
modern human civilization is enormous. Apart from his other intellectual
accomplishments, he wrote a thought-provoking and influential work
called the Nicomachean Ethics in which he presented his views on the
nature of virtue, the means of developing it, its importance for a happy
life both individually and for the society as a whole, the chief purpose of
the state, and the ideal for human life. Let us have a look at the main ideas
of his work.
Importance of character: Aristotle believed that character is more
important than actions as it is from the character that human actions
proceed. So the important question to ask is not what I should do in this
or that situation but what type of a person I should seek to become. As
a virtue theorist he believed that we should be good or virtuous people
and should have good or virtuous moral characters. Every human being
has an essence which needs to be actualised. Just as the form of the oak
tree is latent in the acorn, the human essence which is of the nature of
virtue is latent in the human baby which needs to unfold as it grows up.
But unlike the acorn the human baby does not actualise its essence
automatically. It is far more difficult than that. So what is the way by
which this essence or human virtue can be actualized?
Importance of rationality: Aristotle explained that the human being is a
combination of rationality and irrationality. But the irrational part is
superficial while the rational part is essential. A properly functioning
human being is a rational person with a very highly developed faculty of
reason. The development of human rationality can be helped by teaching
and also requires experience and time for its development. The
irrationality in human beings consists of desires, appetites and negative
emotions. The human being is able to develop an essential or virtuous
nature when the rational part governs the irrational part. Apart from
intellectual virtue, which is a fully developed capacity to reason correctly
in different situations, a person should also develop moral virtue which is
the habit of always doing good actions.
Teleology: Aristotles theory is teleological in the sense that it assumes
that human beings have an end towards which they strive and that end is
happiness, which in turn depends upon the development and fully fledged
unfolding of their essential rational and moral nature which leads to virtue
or arte (excellence). Happiness is naturally felt by an individual when he
lives in accordance with the appropriate virtues. To prove that happiness
indeed is the end goal of all human striving, he argued that every other
end or goal that humans have in their mind is ultimately subservient to
some higher goal in turn. But happiness is the summumbonnum or the
chief good because it is an end in itself. For example, when we want to
earn a lot of money, we are not going to directly consume the money.
16
That money will be used to buy other things the consumption of which
will perhaps give us happiness. But when we are happy we cannot
imagine a higher purpose for which that happiness is needed. Happiness
is an end by itself.
Virtue, Arte (Excellence) and Happiness: The highest form of
happiness arises in a human being when he or she realises his essential
nature as a rational and moral being at which point he or she becomes a
virtuous person or a person with arte (excellence). He or she develops an
exemplary character whose behaviour is always in accordance with
reason. According to Aristotle, virtuous action always follows a rational
principle. It is only when one consistently thinks and acts virtuously, that
is to say rationally, that arte and true happiness are attained. Even
though Aristotle agrees that arte is possible to accomplish in different
skills, such as horsemanship or athletics, arte for a human being is
accomplished only when one is able to develop a virtuous character
through constant application of rational and moral principles in different
situations. A man with arte or moral excellence does not possess only a
few of the virtues that Aristotle lists, but all of them.
Developing Virtue: So the next question which arises is how does one
actualise ones essential nature as a virtuous human being, and also what
exactly is the meaning of the term virtue? Aristotle says that one needs to
strive to actualise ones essential nature. To become virtuous one needs to
practice virtue just as one would practice playing golf to become a good
golf player. It does not come easy as there is an irrational part in us that
constantly tries to steer us away from the path of virtue. But to steer away
from the path of virtue is to steer away from finding true happiness in life
and hence it is very important to strive hard to develop a virtuous
character. Constantly practising virtue helps us to internalise the various
virtues thereby making us virtuous. So being virtuous is a matter of habit.
Nature of Virtue: Now let us take the question, what exactly is virtue
according to Aristotle? According to him, virtue is the mean between two
vices. Vice is any moral quality which is present in a person in excess or
is in a state of deficiency. For example, let us take courage as a virtue. An
excess of courage will turn into a vice that Aristotle would call
recklessness. Lack of courage would be a vice at the other extreme and
would be called cowardice. It is not desirable for any person to be either
cowardly, as it would prevent one from resisting acts of injustice or from
taking the correct decision in the face of opposition, or to be reckless, as it
would cause one to take extreme or uncalled-for risks. Virtue is not only
useful indirectly because of what it enables a person to do, but it also
causes happiness. So in the above example, the courageous person is not
only capable of showing confidence in adverse circumstances but also
considers his or her courage as intrinsically good and is happy to behave
courageously. One achieves happiness intrinsically when one practises
virtue. Aristotle discussed many other virtues in his work, such as
temperance, patience, magnanimity, modesty, and truthfulness.
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Module 1
But then how does one calculate the mean between two vices. Aristotle
says that it is neither possible nor necessary to calculate the exact mean. It
varies from person to person and also from situation to situation. But with
practice, experience and learning from the behaviour of virtuous role
models, a person is able to develop practical wisdom that helps to
discover ones own mean. So virtue does not have a specific value
between the two extremes. It is based more on experience and intuitive
judgement. One can observe the behaviour of a person over some time
and detect the presence or absence of a particular virtue.
Another aspect to the quality of virtue is that it is a disposition rather than
an activity a disposition which develops and becomes more and more
deeply rooted with constant practice.
Thus a virtuous person is naturally disposed to behave in the right way
and for the right reasons, to feel happy while doing so, and to do so in all
situations. This is because he has been able to actualise his true essence of
fully developed rationality and moral excellence through constant
contemplation of the true and good principles and by constant practice of
applying those virtuous principles in different situations in life.
Purpose and function of the State: Aristotle concludes by suggesting
the true purpose and function of the State or government. According to
him, human happiness includes the well-being of the community. The aim
of the State is to provide a good standard of life to all the members of the
community. It aims to develop virtuous communities governed by
universal principles of justice and develop virtuous citizens without
whom such a community cannot exist. A State does not exist only to
govern the affairs of the community, maintain the rule of law or to
provide for exchanges between its citizens. That is not sufficient. A State
is a community of families, villages and cities in a state of well-being,
which enables a perfect and satisfactory life, a happy and honourable life
based on friendship and brotherhood between the citizens, common
sacrifices for the sake of the community, deep family relationships, and
above all virtue.
Moral Development and Moral Reasoning

Ethics can also be described as a study of morality. A person starts to
practice ethics when he or she starts to examine and apply internalised
moral standards to various situations that involve moral dilemmas. In this
section, we look at two very popular theories of moral development,
which describe how a persons ability to use and critically examine moral
standards develops in the course of his or her life, and also give the
reasoning process through which these moral standards are applied in
concrete situations.
Many times we believe that peoples values are formed during childhood
and remain the same after that. But, a great deal of research as well as
personal observation and experience tells us that as people mature, their
values change quite significantly. In fact, one can identify stages through
which this ability for moral reasoning develops in people. For example,
18
when we are small, our parents tell us what is right and what is wrong and
we obey them to avoid punishment. By the time we move into
adolescence, our adherence to standards is based on fulfilling the
expectations of family members, peer group to which we belong, and
other members of the surrounding society. We do what is morally right
because our group expects us to do so. It is only when we grow up as
rational and mature adults that we start to critically examine these moral
standards and their consequences and to modify them when they are
inconsistent, unreasonable or inadequate. In short, at this stage, we start to
practice ethics consciously and our morality now largely consists of moral
standards that are more unbiased and balanced, taking into account our
own interests as well as those of others involved in a given situation.
Kohlbergs Theory of Cognitive Moral Development

A lot of psychological research in the area of morality shows that
peoples moral maturity develops in the manner described above. For
example, Lawrence Kohlberg, who is a very influential researcher in the
area of cognitive moral development, concluded on the basis of over two
decades of research that there are six identifiable stages in the
development of a persons moral reasoning skills. He arranged these six
stages of moral development into three levels, each consisting of two
stages. Within each level the first stage is a more elementary level of
development of moral reasoning skills while the second stage is a more
advanced one. Each subsequent level represents a more evolved capacity
for moral reasoning compared to the earlier ones. The sequence of six
stages have been presented in the table below and then described in brief.
Figure 1.2: Kohlbergs Levels of Moral Development
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Module 1
Level One: Pre-Conventional Stages

At this stage of moral development, one is able to follow externally
imposed rules or social expectations. One can use the terms right and
wrong, or good and bad, but right and wrong are understood in terms of
pleasant or painful results of actions or in terms of the physical power of
the authorities that impose conformity to the rules. For example, if one
were to ask a six-year-old child if lying is wrong, he or she may say that it
is. If one asks the child why it is so, the answer may be that if he or she
lies, then father or mother may punish him or her.
Stage One: Punishment and Obedience Orientation
At this stage of moral development, the desirability or undesirability of an
act is determined completely by the physical consequences of that act.
Children obey their parents and do what is right because otherwise they
may be punished by the parents, as they have the power to do so. It is a
fear-based morality where the possibility of a painful punishment
prevents them from doing something wrong.
Stage Two: Individualism and Exchange Orientation
At this stage, the right actions are those that can satisfy the individuals
own needs as well as the needs of others in whom one is interested. Now
the child is aware that others have needs and desires just as he or she has,
and helps others to fulfill those needs and desires in order to receive their
help in return. The person at this stage operates on the principle of I
scratch your back, and you scratch mine. In other words, the person is
motivated primarily by the rewards that he or she can get by satisfying the
needs and desires of others.
Level Two: Conventional Stages

At this stage, one seeks to meet the expectations of ones family, peer
group, society and the laws of the country, irrespective of the
consequences. A person at this level of moral development not only
conforms to the expectations of the group but also exhibits loyalty to the
group and its norms. If a person at this level of moral development is
asked as why some action is right or wrong, he or she is likely to answer
in terms of what his friends think, what his family has taught him or what
the law dictates. He or she is able to see situations from the viewpoints of
others but this is limited to those of the familiar groups and conventions.
At this stage, the person adheres to the groups norms and subordinates
his or her own needs to those of the group.
Stage Three: Interpersonal Accord Orientation
Good behaviour at this early conventional stage is to be able to meet the
expectations of the people for whom one feels loyalty, affection and trust,
such as ones family and friends. Right action is to conform to
expectations from oneself in ones social roles, such as being a good son,
daughter, friend, brother, colleague or employee. One is motivated by the
need to be perceived as a good person in ones own eyes and the eyes of
those with whom one has close social relationships. Fear of disapproval
20
from the group would keep one from behaving in ways which are against
the groups expectations.
Stage Four: Social Order Orientation
At this more mature conventional stage, right or wrong are determined by
loyalty to ones wider society and nation. At this stage, one is motivated
to fulfill ones social duties; hence laws and rules are followed unless
they conflict with other prescribed social duties. The person at this stage
of moral development is able to see everyone as a part of a larger social
system that defines individual roles and responsibilities. He or she can
separate the norms and laws of the wider society from interpersonal
relationships and their requirements. So, at this stage one is an honest
member of society following rules and laws to the best of ones ability.
Level Three: Post-Conventional Stages

These are the most developed stages of cognitive moral development in
Kohlbergs schema of moral development. At these stages, one has
become very mature morally and hence does not accept the values, norms
and rules of the groups to which one belongs without critical reflection.
One now analyses situations from as impartial a point of view as possible,
taking into account the interests of everyone involved in different
situations. The individual questions the laws and values that society has
adopted and reinterprets them in terms of his or her own understanding of
the different moral principles. Laws or rules are not likely to be followed
blindly unless they are seen as rational and based on sound moral
principles. If a person at this stage of moral development is asked why
something is right or wrong, he or she is likely to reply in terms of
fairness of processes, principles of justice, societys overall welfare etc.
Only those laws and rules are seen as appropriate that conform to
standard moral principles.
Stage Five: Social Contract and Individual Rights Orientation
A person at this stage of cognitive moral development has a good
understanding of the different moral principles and believes that good
laws and rules are in accord with sound moral principles. Therefore
individuals may or may not follow the rule in a given situation depending
upon an analysis of the relevant moral principles, (such as fairness,
justice, duty, individual rights) and whether the rules are in accord with
the moral principles, and whether individual rights are being respected.
They are aware that different people have different values and opinions
but believe that reasonable people agree about two things: first, they want
certain basic rights, such as liberty and life, and second, they want
democratic procedures for changing unfair laws and improving society.
They realise that values, opinions and norms are relative and hence are
tolerant of diverse opinions, and believe in the democratic process in
order to improve rules, norms, laws and society .Normally they would
respect and follow the laws and rules that have been arrived at through
the means of a democratic consensus, but they would not do so without
having done their own analysis of these laws and understanding the
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Module 1
principles on which they are based. If certain laws are not sound in their
view, they may try to get them changed through evolving a democratic
consensus. If following a rule in a given situation violates someones
basic human rights they may even make an exception to the law.
Stage Six: Universal Principles Orientation
This is the highest stage of moral development according to Kohlberg. At
this stage, right action is defined in terms of universal moral principles
because of their rationality, universal acceptance, and consistency. These
ethical principles are not concrete, but abstract general principles dealing
with justice, social welfare, respect for individual dignity etc. A persons
reason for doing what is right is based on a strong commitment to these
universal moral principles, and these principles are used to analyse and
judge all other rules. He or she may even start a civil disobedience
movement if he or she feels that certain laws are not in accord with
certain universal moral principles. For example, consider Martin Luther
Kings movement against racial discrimination in the U.S.
Kohlbergs theory is useful because it throws light on how our moral
reasoning ability develops and shows how we can become increasingly
more proficient in our understanding and application of the moral
standards that we hold.
Gilligans theory of Cognitive Moral Development

Carol Gilligan was a student of Lawrence Kohlberg who worked with
him in his investigations in the domain of cognitive moral development.
She was in agreement with Kohlbergs view that the moral development
of human beings takes place in stages but as she interviewed more and
more women she started to discover that whereas Kohlbergs schema is
built on the foundation of justice as the dominant principle, women
tended to think more in terms of care. In other words, women have their
own way of ethical reasoning, which is different from mens. For
example, when we look at Level Two, Stage Two in Kohlbergs model,
we notice that adhering to ones social duty is the key, otherwise guilt is
induced in the individual. In Kohlbergs theory the key question seems to
be what are the rules of the game? and then to try and follow those
rules. But Gilligan found in her research that women are more concerned
with the caring thing to do in a situation than to think what the rules
allow or to figure out the rules or demands of abstract moral principles. In
other words, womens morality is based more on feelings than on
thinking about abstract concepts such as justice and rights.
What prompted her to think in this direction was the fact that in some of
Kohlbergs investigations, women turned out to be lower scorers than
men. So this raised the question, are women really less developed
morally than men? Gilligan did not agree with this as a conclusion. In
taking this stand, Gilligan was going against some great psychologists,
such as Freud and Erik Erickson. For example, Freud thought that
womens moral sense was stunted because they stayed attached to their
mothers. Erik Erickson thought that tasks of development included
separation from the mother and the family and if women usually did not
22
succeed in this task then they were certainly deficient in their

psychological development. Gilligan responded to such male biases by
putting forward her own theory of moral development, which is based on
the premise that women are different from men in the way they reason
and that does not mean that they are in any way deficient in their personal
or moral development.
Just like Kohlberg she also postulated three stages of moral development
for women, pre-conventional, conventional and post-conventional. In
Gilligans theory the transition from one stage to the other occurs as a
result of the change that happens in the persons sense of self than in her
cognitive moral reasoning ability. The three stages of moral development
as conceived by Gilligan are presented in the table below and then
described in brief.
Figure 1.3: Three stages of moral development

In the pre-conventional stage, the person is concerned primarily with the
self and the goal at this stage is individual survival. So it is a stage
marked by selfishness as one needs all the energy that one has in order to
survive so one cares primarily for oneself in the pre-conventional stage.
Then in the next stage, a transition happens from care for oneself to
caring for others to whom one is related. The individual primarily cares
for others who are in close relationships with her, for example, ones
family and children. At this stage, one may neglect to care for oneself and
sacrifice a lot for the sake of the close ones. This is the conventional stage
in Gilligans schema and the key principle at this stage is ones
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Module 1
responsibility towards the others.

And then if the person matures further she makes the transition to the
post-conventional stage where she realises that she needs to balance the
care for self and others and starts to care both for the self and for the
other. She realises that focusing entirely on oneself leads to neglect of
others and vice versa, which are both dysfunctional. For healthy
relationships to develop and flourish, one needs to balance the interests of
both oneself and the others.
Assessment of Kohlberg and Gilligans theories

Most developmental psychologists now do not concur with the view that
men and women differ in their moral reasoning as Gilligan argues.
Similarly, people do not use only cognitive skills while evaluating
different situations where moral issues are involved. Several empirical
studies have now found that both men and women use justice as well as
care dimensions in their moral reasoning. But certainly, when we take
both of these theories together, they throw a good deal of light on how
people develop their moral reasoning skills from childhood through
adolescence into the adult stage.
24
Module summary
In this module you learned:
The meaning of the terms values and ethics and how the two
are related.
That there are two types of values, universal values and personal
values. Universal values are the values which are universally
accepted as desirable values whereas personal values are the
values which a person finds desirable for themself. The overlap
between the universal set of values and ones personal values
determines ones character.
Why an understanding of ethical principles and following them in

ones personal practice is useful to managers.
About Aristotles perspective on power or sources of

interpersonal influence. The more ethical a manager is perceived
to be by colleagues and subordinates, greater is the trust that is
reposed in him or her. Ethos power over others based on a
highly integrated moral character is the highest and the most
inspirational kind of power.
That trust is an important element in business and it helps to

reduce the transaction cost of doing business significantly by
reducing the cost of administration and surveillance of contracts.
It also helps an organisation to gain support from all the relevant
stakeholders thus making it easier to carry out its business.
About Aristotles virtue ethics and saw how the inculcation of

virtues helps an individual in achieving excellence in ones
vocation as well as on the character dimension, thus maximising
ones personal happiness.
About the theories of cognitive moral development developed by

Lawrence Kohlberg and Carol Gilligan.
Summary
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Module 1
Self-assessment
1. How are values and ethics related?
Assessment
2. Why is an ethical character important for a manager? How can it help

him in the organisation where he works?
3. How can a person develop a virtuous character according to
Aristotle? Do you think Aristotles theory of virtue ethics is still
relevant in the modern world?
4. What was the main objection that Carol Gilligan raised against
Kohlbergs theory of Cognitive Moral Development?
5. Where do you find yourself in terms of Cognitive Moral
Development on Kohlbergs schema of moral development?
6. Have you ever come across a person who consistently displays postconventional stage of moral reasoning ability? Can you describe how
he/she reasons with a couple of concrete examples?
26
Answers
1. Values are principles, standards or qualities that are considered

morally desirable whereas ethics are principles, standards or
guidelines about the rightness and wrongness of various actions that a
person has internalised. A persons ethics or moral quality of actions
depends upon how correctly he or she has internalised the moral
values. To the extent a persons personal values (internalised values)
are in agreement with the universally held values, to that extent that
persons ethics or moral code of action can be said to be of high
moral quality. So, it can be said that a persons ethics or moral code
of behaviour is influenced significantly by his or her internalised
value system.
2. Values are principles, standards or qualities that are considered
morally desirable whereas ethics are principles, standards or
guidelines about the rightness and wrongness of various actions that a
person has internalised. A persons ethics or moral quality of actions
depends upon how correctly he or she has internalised the moral
values. To the extent a persons personal values (internalised values)
are in agreement with the universally held values, to that extent that
persons ethics or moral code of action can be said to be of high
moral quality. So, it can be said that a persons ethics or moral code
of behaviour is influenced significantly by his or her internalised
value system.
3. An ethical character helps a manager to behave consistently and in a
trustworthy manner. This helps him or her to earn peoples trust and
respect. Trust has been found to be one of the important qualities
which determine the quality of interpersonal relationships at the
workplace. A manager who enjoys the trust and respect of his or her
colleagues and subordinates would find it easier to manage the
workforce.
According to Aristotle, a person can develop virtue or arte by
practising it all the time in different life situations. One needs to first
study and understand these virtues or moral qualities and then start to
practise them in life. Just like a golf player becomes excellent by
constant practice, a person becomes virtuous by constantly and
rigorously practicing virtue. Yes, developing virtue is important for a
manager even in modern organisations as a virtuous character helps
in earning colleagues trust and respect. Also, if modern organisations
were managed by managers with virtuous characters, it would help to
avoid corporate scams such as those of Enron and WorldCom.
4. Gilligan said that Kohlbergs model of cognitive moral development
was applicable to the way men engage in moral reasoning. She
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Module 1
believed that womens moral reasoning is based more on caring and

emotions than on considerations of justice and dispassionate
rationality.
5. Each individual needs to answer this question for him- or herself
citing reasons why he/she thinks so. The instructor could help the
students by giving an honest feedback about the correctness of the
students self assessment.
6. This question again needs to be answered by each student on his/her
own.
28
References
Aristotle, Translated by W. D. Ross (1999). Nicomachean Ethics.
Kitchener: Batoche Books
References
Gilligan, C. (1982). In a Different Voice: Psychological Theory and

Womens Development. Harvard University Press
Kohlberg, L. (1981). The Philosophy of Moral Development: Moral
Stages and the Idea of Justice (Essays on Moral Development,
Volume 1), New York: Harper & Row
Prasad, R. (2011). Unpublished Teaching Notes for Managerial Values
and Business Ethics Course, Amrita School of Business,
Ettimadai, Coimbatore, India.
Trevino, L. K & Nelson, K. A. (2004). Managing Business Ethics:
Straight Talk About How To Do It Right (3rd Edition). New York:
John Wiley & Sons.
Velasquez, M.G. (2001). Business Ethics: Concepts and Cases (5th
Edition), New Delhi: Prentice Hall India.
29
Module 2
Module 2
Introduction to Business Ethics
Introduction
In this module we have an introduction to the broad area of business
ethics wherein we try to understand its meaning, scope, context and
relevance in the contemporary world.
We look at various theoretical approaches to studying business ethics and
the strengths and weaknesses of these approaches.
We also look at the modern-day context because of which the subject
business ethics has assumed a great deal of importance in most good
management education programmes. Some of these contextual factors
include:
Globalisation and the challenges that it has brought about in

dealing with ethically complex multi-national and multi-cultural
situations.
The growing power of the multi-national corporations (MNCs)

and the challenge to governments of regulating their conduct.
The series of corporate scandals that have happened in the recent

past pointing towards falling standards of corporate morality as
well as the inability of corporate governance and legal
frameworks to prevent them.
The issue of balancing the interests of organised business and the

environment in order to ensure sustainable economic
development.
We conclude this module by taking a look at various arguments for and

against business ethics.
30
Upon completion of this module you will be able to:
Outcomes
define the term business ethics
describe how the application of business ethics can help in

ethically complex situations.
identify the various reasons for growing importance of business

ethics in MBA programmes.
gain awareness of the larger context which makes the practice of

business ethics so challenging as well as complex. This larger
context includes factors like pressures due to globalisation,
falling standards of corporate morality and increasing demand by
environmentalists to find sustainable models of development.
Terminology
Terminology
Business ethics:
Application of general ethical guidelines and ideas

to business behaviour.
Globalisation:
A process which is leading to greater integration

between the different economies of the world.
Corporate
governance:
The set of processes and structures which are used

to govern corporate business organisations.
Ethical relativism:
A theory which states that because different

societies have different norms governing
acceptable behaviour, there is no way to rationally
determine whether an action is morally right or
wrong except asking the local people whether they
consider the action to be right or wrong. Or in
other words, there are no moral standards that are
universally true and that can be applied to all
companies operating in all the countries of the
world.
What is Business Ethics?

As we saw in the first module, ethics is a rationally developed set of rules
and guidelines, which help us to determine what is right or wrong in a
given situation. Business Ethics, on the other hand is an application of
these general ethical guidelines and ideas to business behaviour. It is a
subject that helps us to identify what is morally acceptable or
unacceptable in a given business situation. It gives us the tools that can
help us to analyse an ambiguous ethical situation and help us to arrive at
the most acceptable decision, morally speaking. Business Ethics is the
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Module 2
art and discipline of applying ethical principles to examine and solve

complex moral dilemmas (Weiss, 1988, p7). What may be the right
decision from the perspective of business ethics need not always be right
from the finance, marketing or operations perspective, and vice versa.
The society, in which a business operates, tacitly assumes that the
business will behave ethically, upholding the interests of all its
stakeholders as well as obeying the law of the land.
Ethical behaviour by a business:
facilitates and promotes the public good
improves long-term profitability by enhancing the goodwill that

the business enjoys
supports healthy business-to-business relations based on trust
protects business against unscrupulous employees and

competitors
enhances the interests of the employees
allows people in business to act consistently with their personal

ethical beliefs.
Ethical problems may occur in business for various reasons such as:
greed and selfishness of individuals
strong competitive pressures
divergence between personal values and corporate goals, and
cross-cultural contradictions in global business operations.
Business ethics and law

There is a significant overlap between laws and ethics, but they are not
the same. Ethical principles are broader than laws. In fact ethics can be
seen as beginning where the law ends. The law may be defined as the
minimum accepted standard of behaviour. However, many morally
questionable issues or practices are not always covered by the law.
Something illegal is obviously likely to be unethical too but the converse
may not be true. For example, there is no law in many countries
preventing businesses from selling weapons to oppressive regimes, or
testing their products on animals. But these activities may be perceived to
be unethical in many societies. Not being illegal in some countries does
not make them ethical.
Business ethics is mainly concerned with issues that are not covered by
the law. Some unethical business practices that generate a lot of public
attention may eventually lead to the creation of laws to govern such
practices, but for most of the issues relevant to business ethics, law
provides very little or no guidance. Thus, business ethics often deals with
ambiguous areas of business where there is no consensus about what is
morally right or wrong. There may be many situations where ones values
are in conflict, or where the situation pertains to the ambiguous areas of
32
business ethics. In such situations, it is not always easy to arrive at the

correct decision. In fact, there may not be any definitively correct
decisions because the situation involves a grey area of business ethics.
But, if we are trained to think ethically and are able to apply different
principles and theories of ethics, it can help us to arrive at a very good
decision for the circumstances, which is not the same as the correct or
perfect decision. In this sense, business ethics is not like some of the other
subjects of management such as accounting, finance or statistics where
you can have a definitive answer to each problem. Studying business
ethics helps you to make better decisions, not perfect ones.
You can see from the case below that many times the ethical dilemmas
that confront us are not straightforward and require a highly developed
ability in moral reasoning as well as personal courage and conviction of
ones core human values to be able to decide well.
Should we save him or should we not?

Case study
It was quite early on a chilly December morning that Ravi and John, two
marketing executives from ABC Corporation were going towards Delhi
from Faridabad, a town hardly an hours drive away. They had an
important 9 a.m. appointment with an institutional client who might give
their company an order for USD1 million. They had prepared very well
for their presentation and were sure that their product met the
requirements of the client organisation and hence were very hopeful of
clinching the deal. At around 8.35am, when they were still 20 minutes
drive away from their destination, they saw a horrible scene. A person
was lying unconscious on the roadside in a pool of blood under his
partially damaged bike. It seemed that he had met an accident a few
minutes ago. Even though he was wearing his helmet, the amount of
blood that had gathered around his body indicated that his wounds were
quite severe and demanded urgent medical attention. A few minutes
could mean all the difference between life and death for that unknown
person. There was very sparse traffic on the highway so early in the
morning, perhaps because of the severe chill and the dense fog.
Ravi and John stopped their car by the side of the accident site and started
to discuss their next course of action. Should they take him to the nearest
hospital which was 25 minutes drive away but in another direction from
where the client companys office was located? But in that case, they
would not be able to keep the 9am appointment with the client. How
would the client react? Would he understand when they explained the
reasons for the delay? Or should they inform him about the situation and
seek another appointment sometime later in the day and if he agreed then
take the guy to the hospital? But what if the client thinks that his time is
33
Module 2
very important and he does not care about any random accident to a
random individual on the road? Should they inform Mr. Singh, their
regional marketing manager about the situation they were in and seek his
advice? What if Mr. Singh asks them to forget the accident and go and
meet the client? What if he takes them to be very soft people not fit for a
hard professional marketing career? Would it harm their long-term career
prospects? As they were discussing these questions, precious seconds
were ticking by.
Ultimately they decided to call the client organisations representative,
Mr. Mehra, with whom they had the appointment. He received their call
and listened to their explanation of the situation very patiently. After
listening carefully for a minute and understanding the situation, he told
them that he was supposed to meet the marketing representatives from six
organisations who were competing for the deal. Ravi and John from ABC
Corporation were the first out of these six companies. He had a deadline
for that day by the end of which he had to send his recommendation to his
head office by email. If Ravi and John did not meet him at 9am, he could
not find time to meet them at some other time of the day and that would
mean they could forget the deal. Though he sympathised with their
situation and appreciated their humanitarian concerns he would not be
able to help despite his strong desire to do so. He asked Ravi and John to
make their own decision. He would really appreciate their
humanitarianism if they chose to help the accident victim even if it meant
foregoing the $1 million deal but that appreciation would in no way allow
him to reschedule the appointment. Then he hung up the phone. Ravi and
John were now in a real fix. Could they really afford to forego the deal?
How would Mr. Singh, the regional marketing manager and other seniors
in the organisation view their decision if they chose to help the poor guy
even at the cost of this important deal? Would they support their decision
or would it mean curtains for their future in ABC Corporation? What
should they do?
Meanwhile, five minutes had passed since they had reached the accident
site. Some vehicles had passed them but none had stopped to enquire
about the accident. They were really praying hard for some lucky break
so that some good person would arrive on the scene and take the
unfortunate victim to the hospital so that they could proceed on their way
to keep their appointment. But no one came forward for help. Time was
of absolute importance if they wanted to save the victims life. What
should they do now? Should they leave him to his fate and just carry on
with their business? Should they sacrifice the deal and take him to the
hospital and face the consequences whatever they may be? Or should they
first consult Mr. Singh and then decide? They ultimately decided to call
Mr. Singh, whom they knew to be a very warm and lively person but a
seasoned marketing professional. Mr. Singh heard them for a few
moments and then cut in sharply, Just go and meet the client. Someone
will come and help the poor guy. But what if no one came and the guy
died, argued Ravi. Let him die Yaar (mate). So many people die every
day on the Delhi roads. Can we control it? Its a part of life. Those of us
who live have to carry on with our work. Isnt it? But sir, he is not yet
dead. With proper care, he could still survive Ravi argued once more
34
with all the will power at his command. Just do what I say and then Mr.
Singh hung up the phone.
Case study developed for this course by Dr. Rajiv Prasad.
Activity 2.1
1. What would you have done if you were in the shoes of Ravi and
John? Defend your decision with logical arguments.
Activity
2. Ravi and John as responsible citizens have an obligation in their

personal capacity to help the accident victim. But they also have a
professional obligation towards the organisation and its interests.
Which of these two obligations are more paramount in this case?
What would be the criteria by which one would judge? Can there be
an objective, perfect and universally applicable solution to this case?
Discuss.
Why is Business Ethics so important?

Falling standards of morality and corporate governance
Business ethics tries to demonstrate that it is profitable for business
organisations to behave ethically, especially in the long run. Before the
series of massive corporate frauds overtook us in the last decade, many
people thought that business ethics was an oxymoron or a contradiction in
terms just like the terms a cheerful pessimist or glorious ugliness are.
But these unprecedented corporate scandals in highly respected
companies, such as Enron, WorldCom, Arthur Anderson and Satyam
Computers, have shown that societies cannot afford to ignore ethics in
business. Another noticeable aspect of these corporate scandals was that
many of the executives who were involved were graduates from some of
the most highly regarded business schools in the world, thus raising
serious questions about the quality and effectiveness of their MBA
programmes. In order to redress the situation, most good business schools
have started to teach business ethics as part of their curriculum. Given the
erosion of trust in big corporations in the last few years, the
environmental crisis that faces us globally, the current phase of economic
recession in the U.S. and Europe which was partially induced by
corporate greed and brought the banking industry to the verge of collapse
in these economic superpowers a few years ago (refer to the sub-prime
crisis) business ethics has assumed an added importance today.
In almost all these companies that were involved in these scandals, there
were very rigorous systems of corporate governance in place in order to
prevent any wrongdoing on the part of employees or executives. The
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reason for these scandalous events happening was not an absence of

enough rules, laws or norms to govern the companys operations, but the
greed of some senior executives who wilfully violated all the rules and
norms to maximise their personal interests. This illustrates the fact that if
the managers running a company are not ethical at the level of their
intention, no amount of rules or laws can prevent such scandals from
happening in future.
This brings us to another interesting question. If this is true that for the
principles of ethics to be respected in business organisations, the
employees and executives have to develop a morally virtuous character
otherwise the question of adhering to principles of ethics at the level of
intention does not arise then how much can a mere course delivered in a
classroom help in this regard. Isnt it too late to try and rectify peoples
character by the time they have reached the level of management
education? Can acquisition of some analytical tools and techniques that
allow us to analyse situations involving ethical dilemmas help to develop
morally sound character? Developing a character based on moral
principles requires a transformation from within and a strong and
sustained practice at developing the required rationality and virtue, as
Aristotle explained. Can such a thing be hoped for through a single course
on business ethics? Indeed these are valid questions.
One can only hope that teaching the students the various theories and
principles of business ethics and by demonstrating how cultivating these
principles individually can lead to professional and moral excellence thus
ensuring a rewarding career and respect of ones peers, would inspire
them to strive towards developing such a character. Also, using case
studies showing real examples of management professionals and business
organisations that have attained extraordinary success by following the
path of virtue could be motivating. It is indeed a tough task but certainly a
task that the schools offering business management programmes need to
take up seriously. The big corporate scandals of the last couple of decades
only serve to illustrate the growing need for business schools to do so.
Globalisation
Globalisation is a process due to which the barriers to economic, social
and cultural exchanges between different countries are falling rapidly. It
has resulted in the economic and social systems of different countries
getting more and more connected, leading to easy trade of goods,
services, capital, technology etc. across their borders. There are many
factors behind the process: lowering of trade barriers, creation of globalscale open markets, rapid developments in communication and
transportation technology such as the Internet of mobile phones, the
creation of international organisations that govern trade such as the World
Trade Organisation, establishment of international financial institutions
such as the International Monetary Fund and World Bank, and the
emergence of the multi-national corporation (MNC).
Even though international trade is not a new phenomenon and has been
carried out for many centuries before the onset of globalisation, the scale
and scope of the goods and services that are traded now compared to the
36
pre-World War II period is phenomenal. It has transformed our world

beyond anything that one could have imagined even 60 years ago.
Globalisation has resulted in the homogenisation of the markets in many
countries that have benefited from this process. Whether you go to the
United States, Canada, China, Japan, South Korea, India, Brazil or
Australia, you will find the same products, music, clothes, cars, brand
names, cold drinks, books, computers, iPods and so on. Children from
almost all the nations today are familiar with Harry Potter novels written
by a British author; young people from all across the world adore the
same rock stars and bands; one can eat McDonalds hamburgers or drink
Starbucks coffee irrespective of whether one is in Paris, Beijing, New
Delhi, Tokyo, Moscow or Singapore; the same Hollywood movies are
released in all the major cities of the world almost simultaneously; artists
from many countries work together on most large-scale movie projects.
These examples of the effects of globalisation can be multiplied many
times over. In short, globalisation has affected the world in the last few
decades as very few phenomena have affected it in its entire known
history.
Multi-national corporations (MNCs) are one of the primary drivers of this
process. A MNC is a company that operates out of more than one
country. A typical large-size MNC may have its manufacturing units,
marketing, service, research and design units, mining operations and so
on in many countries at the same time. They manufacture, assemble and
market their products in any country which offers them access and a
competitive advantage. Almost all the biggest companies in the world are
MNCs. Companies like General Electric, Wal-Mart, PepsiCo, Motorola,
Nike have presence in dozens of countries. A typically large MNC such
as General Electric has metallurgy plants in Prague, software units in
India, product design offices in Tokyo, Paris and Bangalore, and
assembly operations in Mexico. A large proportion of its employee base
is non-American and a large proportion of its top management team is
from outside the U.S. Raw materials for its products are sourced from all
over the world, its products are engineered by design engineers from
many countries all over the world, much of its work is done online over
the Internet across national boundaries, components for its products are
manufactured all over the world, assembled in different countries, and its
products are marketed almost all over the world. The above is the face of
a typically globalised corporation. Such a scenario was impossible to
conceive of 60 or 70 years ago.
Benefits of globalisation
Globalisation has helped to develop the standard of living in many
developing countries. As MNCs start their factories and assembly
operations in these countries, which have lower wages, they bring the
latest technology, jobs, modern industrial skills, increased income, thus
raising the local standard of living. They also provide consumers with the
best quality products and services at reasonable prices. According to the
World Bank, globalisation has helped reduce the poverty of more than 3
billion people in developing nations that recently opened their borders to
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global trade, such as China, India, Bangladesh, Brazil, Mexico and

Vietnam. During the 1990s, the number of people living on less than $1
per day in these countries declined by 120 million. As a group, these
nations grew at 5 per cent per capita while the rich nations such as the
U.S. grew by only 2 per cent (Velasquez, 2006, pp.1718).
Globalisation has led to the opening up of the protected domestic markets
in many countries, which caused inefficient and obsolete domestic
producers to wind up their businesses as they could not meet the
sophisticated competition from abroad. This has compelled the different
countries to focus on the production of goods and services in which they
have a competitive advantage. This process has helped increase the
overall global productivity due to which all the participating nations are
better off than they would have been if each of them tried to produce
everything on their own (Velasquez, 2006). Many studies have shown
that economic growth and globalization are correlated. The more willing
a nation about lowering its trade barriers and engaging in free trade with
other nations, the higher is its economic growth rate. On the other hand,
nations that do not open up their markets tend to have slower economic
growth rates (Velasquez).
Globalisation has it been an unmixed blessing?

Globalisation has only been a mixed blessing and a number of criticisms
have been made of it on multiple counts. It has allowed the MNCs to shift
their operations from one country to another in search of cheaper labour,
lower taxes, or less-stringent laws. This ability to shift operations from
one country to another allows companies to play off one country against
the other, compelling them to relax their laws, lower their taxes, relax
whatever social controls exist in their socio-cultural milieu thus
promoting a race to the bottom a term coined to describe a global
decline in labour, environmental, and wage standards. Many well-known
MNCs, which have established assembly operations in developing
nations, have been accused of introducing sweatshop working conditions,
and of grossly underpaying their workers. Besides, many of them have
closed down the manufacturing operations in their native countries and
shifted them abroad in search of cheaper labour, less-stringent laws or
lower taxes thus harming their parent economy.
These behaviours of the MNCs have raised very serious ethical questions.
For example, do these MNCs have no responsibility towards their home
country where they originated in the first place and gathered their initial
strength? Does a business exist only to make profit for its owners
(shareholders in most cases)? What about the interests of the other
important stakeholders such as the employees who work for the
organisation and the larger society where they operate their business? Do
MNCs have an obligation to try to improve the labour, environmental,
and wage standards of the countries where they operate? Should they only
look to minimise their labour costs or do they have any obligation to
refrain from exploiting the workers from the country where they operate?
Apart from these ethical questions, which the MNCs need to answer,
there are some administrative and regulation-related questions for the
civil society and the governments across the globe to ponder. Is it in the
38
interests of the global society to let the MNCs behave as they please in
search of greater competitive advantages or should there be some checks
on grossly unethical behaviour? If there some checks are required on
their global operations, then how can the governments of the world get
together to create an international or global legal framework that has
enough teeth to prevent gross exploitation of the host countries and their
resources?
Another interesting ethical issue arises because of the MNCs operating in
different countries with different local cultures. Giving bribes to
government officials to get some out-of-turn favours may be quite
common in certain countries, such as in some of the countries in the
Middle East and parts of Asia. Many MNCs go along with the local
practice of bribing the local officials. Or they may make use of child
labour in their operations to keep their labour costs low just because it is
not unusual in the country where they have set up their manufacturing
base. Sometimes they may take the help of dictatorial regimes to get the
opposition to their projects cleared in a brutal way. For example, the
American oil company Unocal has been accused of receiving help from
the military in Myanmar to construct roads through areas inhabited by
communities opposed to their oil pipeline project. Many dissidents from
these local minority communities were used to contribute forced labour
and some were killed by the military in order to suppress opposition.
Such behaviour from some MNCs raises questions about their ethical
responsibility while operating in countries with different cultures. Is it
right to follow the practices of a local society or should there be some
universal norms reflective of more enlightened societies by which their
behaviour should be judged? Are there any universal moral standards that
all MNCs should be asked to follow irrespective of the country where
they set up their businesses? These are very sensitive issues that need to
be discussed more carefully.
Globalisation and ethical relativism

Ethical relativism is a theory which states that because different societies
have different norms governing acceptable behaviour, there is no way to
rationally determine whether an action is morally right or wrong except
by asking the local people for their opinion. In other words, there are no
moral standards that are universally true and that can be applied to all
companies operating in all the countries of the world. Therefore a
behaviour is morally right if it is acceptable according to the norms of the
society where the company is operating and wrong if it is not.
For example, the labour laws in certain third world countries, such as
Vietnam and Bangladesh, may be so lax that a MNC may not be legally
compelled to create excellent work conditions for its local workers.
Therefore, in order to cut down on overheads and reduce labour costs, a
MNC could let sweatshop conditions prevail at the workplace and,
grossly underpay the workers compared with the global industry
standards although these may fall well within the norms for the wages
prevailing in that country. The company can justify its action by putting
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Module 2
forward the ethical relativism argument but from the perspective of the
standards prevailing in the country from where the MNC originated, it
may be considered quite immoral. So the question which arises is whether
ethical relativism is a morally valid approach to these contentious
practices.
It is certainly true that many practices that are considered morally wrong
by some societies are considered acceptable in others. These practices
include abortion, slavery, polygamy, discrimination on the base of
gender, caste, class or race, homosexuality, torture of animals, or child
labour. Those who criticise ethical relativism argue that there are certain
universal moral standards that the members of any society must accept if
that society is to survive and flourish. For example, all societies have
norms about speaking truthfully while giving information to one another,
about not taking or trespassing on someone elses property without
permission, about not killing or injuring other members of the society,
about taking care of the children when they are very young and so on. So,
the argument for ethical relativism is hard to sustain. There are certain
moral universal norms which make human societies human and no
company should be allowed to violate such universal moral norms.
Some other critics point out that just because different people have
different beliefs about some issue, it does not mean that there is no
objective truth about that issue or that all opinions about that issue are
equally valid. For example, according to James Rachels, a noted
philosopher:
The fact that different societies have different moral codes
proves nothing. There is also disagreement from society to
society about scientific matters: in some cultures it is
believed that the earth is flat, and that disease is caused by
evil spirits. We do not on that account conclude that there is
no truth in geography or medicine. Instead, we conclude that
in some cultures people are better informed than in others.
Similarly, disagreement in ethics might signal nothing more
than that some people are less enlightened than others. At
the very least, the fact of disagreement does not, by itself,
entail that truth does not exist. Why should we assume that, if
ethical truth exists, everyone must know it? (Velasquez,
2006, p.21)
The most serious criticism of ethical relativism is that it leads to illogical
consequences. For this reason, if ethical relativism were true, then one
would never be able to criticise any of the local customs of a community
no matter how barbaric they may be in the light of the standards of the
more enlightened modern society. For example, one could say that child
labour or even slavery, as practised in some parts of the world is
acceptable, or that the German treatment of the Jews during the Nazi
regime was all right, or the practice of gross racial discrimination in early
twentieth century America was acceptable. Also, one would not be able to
criticise the actions of companies that may have supported some of these
practices for their benefit. For example, it was found out by a journalist a
few years ago that IBM had knowingly supplied the data-processing
40
machines to the Nazis which they used to locate and kill Jews in
Germany. Several oil companies helped the South African government
exploit its oil resources in the 1980s though they knew that the revenues
from these explorations would be used to strengthen the oppressive
apartheid regime. So is ethical relativism correct in saying that these
companies were behaving correctly as they had gone by the local
standards prevailing in these countries in those times.
Some critics also argue that if ethical relativism were correct, then one
could not criticise any of the moral standards accepted by ones own
society. That would preclude any possibility of social reform. For
example, if a society believes that women are not fit to study medicine, as
many countries in Europe believed a couple of centuries back, then all the
people from that society have to accept the practice as morally correct and
should not oppose it. By the same token, slavery, apartheid and child
labour would be above criticism from people living in the societies where
they are or were practised. Hence people who protested against these
practices were immoral. In other words, ethical relativism throws up the
conclusion that whatever the majority thinks as morally correct in a
society is correct in fact and cannot be challenged by the minority. This
seems to be a very undemocratic argument and quite clearly untenable in
the enlightened democratic societies from where most of these MNCs
started their business operations.
Going over all these arguments, it seems that the basic problem with
ethical relativism is that it treats the moral standards held by a particular
society as sacrosanct. It gives absolute immunity to a societys internally
held moral standards and prevents anyone from inside or outside that
culture from criticising these standards. It seems to assume that a
societys moral standards cannot be mistaken or be based on wrong
understanding. Critics of this view point out that this conclusion is
obviously wrong. We have so many examples from the past where we
definitely know that views held by certain societies at certain points of
time were definitely wrong. For example, there cannot be any dispute
today that the views held by Nazis about the Jews were wrong, or that
slavery as practised on the American plantations in the pre-Civil War era
was morally wrong. Many more such examples are available from history
of different societies. These examples clearly show that the moral
standards of any society as they prevail at a certain time may be wrong.
But despite the many shortcomings in the ethical relativist view, it cannot
be dismissed completely. It raises the important issue that different
cultures have different world views and that one should not reject the
moral standards of other cultures just because they do not tally with our
own. But at the same time, it cannot be accepted that the only way to
judge what is morally right or wrong in a given society is what the people
of that society believe to be true amongst them. There can be and there
are moral standards more universal in nature in the light of which the
practices within a certain society can be examined or judged.
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Business ethics and environment sustainability

Human society today faces serious environment-related challenges. A lot
of the blame for these environmental problems is laid at the doorsteps of
business and the uncontrolled way in which it has exploited earths
resources for more than two centuries of the post-industrial revolution
era. It is becoming increasingly clear that the global human community at
large has to respond collectively in order to meet the challenge of
sustainability presented by these environmental problems.
The growth of consumerism in many new societies in the last few decades
has led to increased demand for most of the consumer goods, which in
turn has led to higher rates of exploitation of natural resources, greater
production of industrial pollution and waste, causing environmental
problems to worsen. Many governments around the world have responded
with more stringent environmental laws and standards, many companies
have developed innovative and environmentally friendly technologies to
meet the challenge, but still a lot needs to be done in order to adequately
meet this challenge.
Environmentalism and its evolution

Since the advent of the industrial revolution more than 200 years ago,
human activity has taken an increasingly heavy toll on natural resources.
In the U.S., as early as the turn of the 20th century, the importance of
environmental conservation led to the establishment of National Parks by
President Roosevelts administration. Much later, by the 1960s, the
human health risks posed by pollution caused a great deal of concern.
Slowly the concept of environmentalism evolved as more knowledge was
gained about the impact of human activity on the environment. This
increasing knowledge led to the formation of informed public concern
about the worsening environmental situation. Public protest on the
various areas of environmental concern led to the passage of many
environmental laws by the U.S. Congress. Environmental activists
compelled industry to change many of its practices and innovate in order
to help protect the environment.
The support for this movement is growing by the day and governments
and business can no longer take it lightly. More and more scientific
evidence shows that environmental concerns can no longer be ignored
and sustainability of business practices is a chief concern for business and
government policy planners all over the world. The enhanced perception
of an impending crisis has caused a spate of environmental laws and
technological innovation. This has compelled businesses to adapt to these
new regulations which have posed new challenges and also in some cases
created fresh opportunities.
The environmental challenge raises many ethical issues for business
behaviour. Can business organisations be allowed to exploit the
environment unscrupulously, especially in developing countries where the
environmental laws may be quite lax due to the race to the bottom
phenomenon? Is it ethical if they do so? What is the ethical responsibility
of business organisations in the light of the worsening environmental
42
situation? What is the role of the wider society if a given business

continues to flog the environment despite the increasing social awareness
about its practices? What are the various arguments that can be raised
against such behaviour? Under what alternative frameworks can these
complex environmental issues be analysed? We will study these issues in
much greater detail in a later module in this course.
Business ethics is it relevant to a management

programme?
We have seen that business ethics applies rationally developed moral
standards to business situations. But there are many critics who object to
bringing morality to business. In this section, we look at the various
arguments in favour of and against business ethics.
Objections to business ethics

Adequacy of the law: Some people argue that people involved in
business should only seek to maximise the profits of the firm and doing
ethical things is not a part of doing business. If the firm follows the laws
of the land, it is enough. Subject to the condition that a firm has met the
requirements of the law of the land, it should be allowed to focus
completely on its profits. To expect the business organisation to go
beyond following the law and do some good things in the name of
morality is unfair according to this view. The managers of a firm have a
responsibility to maximise the profits for the owners of the firm and if
they do anything that reduces the profits, they are being irresponsible
towards the owners. Doing good things costs money and if such
expenditure does not bring about any additional revenue why should a
business waste its resources on such activities? But then, as we saw in the
earlier module, law and morality do not coincide. Ethics is a broader
construct than law. No society can ever construct a legal system that can
anticipate all possible ethical violations. Just because there is no explicit
law to govern a particular area of business, does not mean that a business
is free to behave unethically.
Profitability as a safeguard: Some others have argued that in perfectly
competitive markets, the pursuit of profit will by itself ensure that the
members of the society are served in the most socially beneficial ways
(LaRue Tone Hosmer, 1995). To be profitable, each firm has to produce
only what the members of society want and has to do this by the most
efficient means possible. Members of the society will benefit most if
managers devote themselves only to the pursuit of profit thus maximising
efficiency in the production of goods and services that the members of
society value.
This sort of argument rests on many assumptions, a number of which can
be seen to be flawed on deeper analysis. First, most industrial markets are
not perfectly competitive as the above argument assumes. To the extent
the markets are not perfectly competitive, they allow inefficient
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businesses also to maximise their profits. Secondly, the argument

assumes that everything that the companies can do to maximise profit will
automatically be socially beneficial. However, a company can do many
things to increase its profits which are actually harmful to the society. For
example, not controlling pollution as it entails costs to do so, hiding
product hazards, tax evasion, deceptive advertising, exploiting the labour
force.
Managers are answerable to their employers: Another type of
argument given in favour of pursuing profits only is: managers are agents
of their employers (owners of the firm or the shareholders). It is the duty
of the managers to serve the employer as best as possible. This type of
argument has often been used to justify illegal or unethical behaviour of
business executives. For example, a manager may violate some law and
then argue that he did it in the best interests of his company, its owners
and employees. But can any society condone illegal behaviour on such a
pretext? Does the manager of a firm have no responsibility towards other
important stakeholders, such as the customers, the members of the larger
society, the government?
Organisations cannot be responsible for educating employees:
Another argument against business ethics is that it is too subjective. There
is no clear-cut solution in every case where an ethical dilemma is
involved. So, there is no point in giving it so much importance at the
organisational level. Every individual working for the organisation is an
adult and should have developed some sense of ethics during their
upbringing and education. An organisation can only ensure that it recruits
skilled employees and then trust them to be ethical with respect to their
job, organisation and the clients. Since ethics is such a vague subject,
clear guidelines for each and every possible situation are impossible.
Thus, it would be futile and waste of resources for an organisation to
spend too much time and effort on explaining situational ethics to the
members of the organisation. It would be good enough if the organisation
follows the law of the land where it operates.
However, as we have seen earlier in this module, laws and ethics do not
coincide. There may be situations where morality requires certain
behaviour but the law is silent in that regard. An immoral behaviour
cannot be condoned by civil society just because the law of the land is
silent on that issue. There may also be instances where the morality of the
law itself can be questioned. For example, in some countries of the
Middle East, the law requires that businesses discriminate against women
and Jews in certain ways. So should a company that is originally from a
society where such laws are not in vogue and such behaviour towards
women and Jews is considered immoral turn a blind eye towards such a
law and keep operating under it just to make profits.
Arguments in favour of business ethics

Trust: Every co-operative human activity requires ethical behaviour on
the part of all the members of such an activity for it to succeed. Business
is a co-operative activity and for the members of a business to trust one
another, they need to behave ethically towards one another. A business
44
cannot survive without the trust of its stakeholders, such as the customers,
suppliers and financiers, so ethical behaviour of the business towards
these stakeholders is necessary.
Ethics governs every domain of human activity: One cannot conceive
of a human society without some moral standards undergirding it.
Therefore business cannot claim exemption from this larger human
requirement. It is only when businesses neglect ethics that scams such as
Enron and WorldCom happen.
Profitability with ethics: There are many companies that that have
demonstrated that pursuit of profits is not inconsistent with ethics. In fact,
many of them claim that their reputation for ethical conduct has enhanced
their ability to maximise their profits. For example, we have companies
like Cisco Systems, Southwest Airlines, Patagonia, Levi Strauss and
Starbucks Coffee that are not only very profitable but also have a
reputation for ethical conduct.
There have been many studies trying to explore the relationship between
ethical behaviour of companies and their profitability. Results have been
quite mixed. While many studies have found a positive relationship
between socially responsible behaviour and profitability, some other
studies have failed to find such a relationship. None of the studies have
found a negative correlation, which means that ethical behaviour does not
reduce the profitability of a company (Velasquez, 2006). There have been
some other studies that have looked at how socially responsible
companies perform on the stock market and have found that ethical
companies provide higher returns than other companies (Velasquez,
2006). Overall, it seems that ethical behaviour has a favourable impact on
a companys financial health as it tends to ensure higher returns for the
same level of profits on the stock market. The rationale for this finding
could be that socially responsible behaviour increases the companys
goodwill in the marketplace and also the trust which the market players
have in the companys management, thus increasing the returns on its
stocks.
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Module summary
In this module you learned:
About the need for a course on business ethics in management

programmes. Formal techniques and theories of ethical decision
making would help management students as well as business
professionals to take better decisions in complex business
situations laden with different types of ethical dilemmas.
Incorporating the ethical dimensions in all the critical decisionmaking situations ensures due respect is given to ethical issues.
Neglecting the ethical dimension can expose a business to
undesirable pressures and embarrassments. Given the falling
standards of corporate morality in the last few decades that have
led to a series of corporate scandals and even wider economic
crises in some instances, and also the need to ensure sustainable
economic development, teaching business ethics to management
students and executives would help in finding a solution to these
problems.
About new ethical challenges that have arisen due to the

globalisation process.
About ethical relativism and its implications for doing business in

a new country without offending the cultural sensibilities of the
local population.
About the increasing pressure faced by business organisations to

find environmentally sustainable ways of doing business. New
laws are being framed to help protect the environment.
Environmental lobbies are growing in size and support base
thereby exerting greater pressure upon the national governments
for more stringent regulations to govern business organisations.
Also about some of the objections raised against business ethics as

well as the major arguments in its favour.
Summary
46
Self-assessment
1. What is the relationship between the requirements of morality and
law? Is it enough for a company to follow the law of the land?
Assessment
2. Why has business ethics become so relevant in the world today?

What are the different arguments in favour of as well as against it?
3. What is your personal opinion about business ethics? Do you think it
makes sense for a business to follow the principles of ethics? Give
arguments in favour of your opinion.
4. What have been the various benefits and harms of the globalisation
process?
5. Do you agree with the concept of ethical relativism? Give some
examples of ethical relativism to support your answer.
47
Module 2
Answers
1. There is a significant overlap between what morality or consideration

of ethics require and law, but they are not the same. Moral or ethical
principles are broader than laws. In fact the domain of morality can
be seen as beginning where the law ends. The law may be defined as
the minimum accepted standard of behaviour. However, many
morally questionable issues or practices are not always covered by
the law. Something illegal is obviously likely to be unethical too but
the opposite may not be true. For example, there is no law in many
countries preventing businesses from selling weapons to oppressive
regimes, or testing their products on animals. But these activities may
be perceived to be unethical in many societies. Not being illegal in
some countries does not make them ethical.
No. It is not enough for a good (morally speaking) company to follow
the law of the land. Doing so is the minimum expectation of society.
Good companies should strive to also be moral or ethical in all their
actions. Good companies by their ethical practices can help the law to
evolve and develop into better laws thus helping to create better
societies.
2. The main reason why business ethics has become so important these
days is the poor moral standards of behaviour shown by many of the
top executives in a number of very big and important companies that
have failed, such as Enron and WorldCom. These cases have
demonstrated that poor ethics on the part of the managers and
businesses can cause severe damage to the company and its direct
stakeholders as well as to the community.
Following are some of the arguments in favour of business ethics:
a) Every co-operative human activity requires ethical behaviour
on the part of all the members of such an activity for it to
succeed. Business is a co-operative activity and for the
members of a business to trust one another, they need to
behave ethically towards one another.
b) Ethics governs every domain of human activity. One cannot
conceive of a human society without some moral standards
undergirding it. Therefore, business cannot claim exemption
from this larger human requirement.
c) Some argue that many modern businesses have demonstrated
that pursuit of ethics is not inconsistent with profits. In fact,
many of them claim that their reputation for ethical conduct
has enhanced their ability to maximize their profits. For
example, we have companies like Cisco Systems, Southwest
Airlines, Patagonia, Levi Strauss and Starbucks Coffee that
are not only very profitable but also have a reputation for
ethical conduct.
48
Following are some arguments against business ethics:

a) People involved in business should only seek to maximise the
profits of the firm and doing ethical things is not a part of
doing business. If the firm follows the laws of the land, it is
enough. Subject to the condition that a firm has met the
requirements of the law of the land, it should be allowed to
focus completely on its profits. Doing good things costs
money and if such expenditure does not bring about any
additional revenue why should a business waste its resources
on such activities?
b) In perfectly competitive markets, the pursuit of profit by
itself ensures that the members of the society are served in
the most socially beneficial ways. To be profitable, each firm
has to produce only what the members of society want and
has to do this by the most efficient means possible. Members
of the society will benefit most if managers devoted
themselves only to pursuit of profit thus maximising
efficiency in the production of goods and services that the
members of society value.
c) Managers are agents of their employers (owners of the firm
or the shareholders). It is the duty of the managers to serve
the employer as best as possible, which is to maximise the
profits, and nothing else matters.
d) Business ethics is too subjective. There is no clear-cut
solution in every case where an ethical dilemma is involved.
So there is no point in giving it so much importance at the
organisational level.
3. This answer has to be given by a student based upon his/her
conviction. The instructor can help the student by evaluating their
answer in an unbiased manner. The student may use arguments given
above in answer to Question 2 in order to justify their stand.
4. Following are some of the benefits of globalisation:
a) Globalisation has helped to develop the standard of living in
many developing countries. As MNCs start their factories and
assembly operations in these countries, which have lower
wages, they bring the latest technology, jobs, modern
industrial skills, increased income thus raising their standard
of living. They also help provide the consumers the best
quality products and services at reasonable prices.
b) Globalisation has led to the opening up of the protected
domestic markets in many countries, which caused inefficient
and obsolete domestic producers to wind up their businesses
as they could not meet the sophisticated competition from
abroad. This has compelled different countries to focus on the
production of goods and services in which they have a
competitive advantage. This process has helped increase the
overall global productivity due to which all the participating
49
Module 2
nations are better off than they would have been if each of
them tried to produce everything on their own.
c) Many studies have shown that economic growth and
globalisation are correlated. The more willing a nation is to
lower its trade barriers and engage in free trade with other
nations, the higher is its economic growth rate. On the other
hand, nations that do not open up their markets tend to have
slower economic growth rates.
Following are some of the arguments against globalisation:
a) It has allowed the MNCs to shift their operations from one
country to another in search of cheaper labour, lower taxes,
or less stringent laws. This ability to shift operations from
one country to another allows companies to play off one
country against the other, compelling them to relax their
laws, lower their taxes, relax whatever social controls exist in
their socio-cultural milieu thus promoting a race to the
bottom a term coined to describe a global decline in
labour, environmental, and wage standards.
b) Many of these MNCs have closed down the manufacturing
operations in their native countries and have shifted them
abroad in search of cheaper labour, less stringent laws or
lower taxes thus harming their parent economy.
5. A student may agree or disagree with ethical relativism. His/her
answer should be judged based on the quality of the examples he/she
chooses of ethical relativism and the arguments that he/she makes.
50
References
Crane, A. & Matten, D. (2010). Business Ethics (3rd Edition), New York:
Oxford University Press.
References
Giri, A. K. (1998). Values, Ethics and Business, Jaipur: Rawat

Publications.
Prasad, R. (2011). Unpublished Teaching Notes for Managerial Values
and Business Ethics Course, Amrita School of Business,
Ettimadai, Coimbatore, India.
Trevino, L.K. & Nelson K.A. (2004). Managing Business Ethics: Straight
Talk About How To Do It Right (3rd Edition), New York: John
Wiley & Sons.
Velasquez, M.G. (2006). Business Ethics: Concepts and Cases (6th
Edition), New Delhi: Prentice Hall India.
51

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COURSE MANUAL

E24: Business Ethics

Open University of Mauritius

Open University of Mauritius

Subject matter experts

E24: Business Ethics

How this course manual is structured ................................................................................ 1

Welcome to E24: Business Ethics ..................................................................................... 3

Margin icons ...................................................................................................................... 7

Personal Ethics .................................................................................................................. 8

Introduction to Business Ethics ....................................................................................... 30

E24: Business Ethics

About this course manual

If the course is suitable for you

The overview also provides guidance on:

We strongly recommend that you read the overview carefully before

The course content

An introduction to the module content

About this course manual

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E24: Business Ethics

Business Ethics is this course

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describe and apply different theories of ethics in real life

discuss the ethical issues relevant to different functional areas of

apply the insights gained from different theoretical perspectives

explain the nature of the stakes of all the stakeholders of a

explain the role of leaders/managers of an organisation in the

E24: Business Ethics

As an adult learner your approach to learning will be different to that

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A self-assessment is provided at the end of each module. You should

E24: Business Ethics

Getting around this course manual

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Do these values serve a major role in a managers career and life?

How do they influence the managers personal ethical codes as

Does greater awareness of ones own value system and ethical

Does greater awareness of ones own values and ethical codes

Does moral development of a manager affect his or her decision

E24: Business Ethics

Upon completion of this module you will be able to:

define the terms universal values and personal values and

describe the relationship between ethics and trust

describe the importance of sound personal ethics for a business

identify key theoretical perspectives in the area of personal ethics.

Principles, standards or qualities that are

Those principles, standards or qualities that are

Those qualities, principles or standards of

Foundational values which govern every aspect of

A rationally developed set of rules and guidelines,

Practical rules and guidelines based on one's

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Values and Ethics

E24: Business Ethics

integrity is within a individual, the greater his or her ability is to

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Figure 1.1: Aligning personal and universal values

E24: Business Ethics

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Personal Ethics Its importance for Business

E24: Business Ethics

working in corporate organisations are in alignment with sound moral