ETHICS & BUSINESS

ETHICAL ISSUES & PRINCIPLES IN BUSINESS

Business Ethics

BUILD ON GOOD & SOLID FOUNDATIONS

Good Ethics Means Good Business Good Business results in Good Ethics

BUSINESS ETHICS: WHAT DOES IT REALLY MEAN?

Ethics - Study of what is good and evil, right and wrong, and just and unjust

Business ethics - Study of business practices and behaviours,

to determine what is good and evil, right and wrong, and just and unjust in any business. Are written and unwritten codes of principles and values that govern decisions and actions within a company

-Asking what is right and wrong, good and bad, and

harmful and beneficial dealing with three basic areas of managerial decision making:
1. 2. 3.

Choices about what law permits and whether to follow it or not Choices about economic & social issues outside the domain of law Choices about the priority of self-interest over the companys interests

CONFESSION OF FRAUDULENT EXECUTIVE

Even when put in jail, I didnt feel like a criminal. I somehow felt we were different and I started noticing every white collar guy I did talk to began every sentence with: all I did was. Once youre in jail and you start feeling the animosity the other prisoners have toward white-collar guys, where they say to you, youre no different than us, youre just a thief, you use other words. Even the word embezzlement is a nice wordthey said youre a thief, you lie to people and take their money, thats what I do to and that hit me like a ton of bricks

Business Ethics

ETHICS TEST

Quick and easy ...

First thought that comes to your mind !!!!!!

Ethics should be taught at home and in the family, not in professional or higher education. 1 2 3 4
I consider money to be the most important reason for working at a job or in an organization. 1 2 3 4 Acting ethically at home and with friends is not the same as acting ethically on the job. 1 2 3 4 Lying is usually necessary to succeed in business. 1 2 3 4 I would hide truthful information about someone or something at work to save my job. 1 2 3 4

Cutthroat competition is part of getting ahead in the business world. 1 2 3 4

I would do what is needed to promote my own career in a company, short of committing a serious crime. 1 2 3 4 I consider myself the type of person who does whatever it takes to get the job done. 1 2 3 4 Rules are for people who dont really want to make it to the top of a company. 1 2 3 4 I believe that the golden rule of ethics is not relevant for that person who has already reached the top of the ladder of success . 1 2 3 4

Business Ethics

SELF GRADING ETHICAL TEST

Add up all the numbers you marked

What was your grade? 10 ? 15 ? 30 ? 40 ?

..

10 is the lowest 40 is the highest

The lower the score, the more questionable are your ethical principles regarding Business activities Consider why you answered as you did

KEY QUESTIONS IF FACED WITH AN ETHICAL DILEMMA

Business Ethics

What are my core values and beliefs?

What are the core values and beliefs of my organization?

Who will be harmed or helped by my decision or by the decision of my organization?

How will my own and my organizations core values and beliefs be affected or changed by my decision?

How will I and my organization be affected by the decision?

DETERMINANTS OF BUSINESS ETHICS

Individual factors Organizational factors/relationships Organizational culture Ethical climate Opportunity/environment What encourages or discourages unethical behaviour?

Business Ethics

BUSINESS ETHICS LEVELS

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SOURCES OF ETHICAL NORMS

Education Fellow Workers

Regions of Country

Family

Profession

The Individual
Conscience Friends Employer

The Law

Religious Beliefs

Society at Large

Business Ethics

WHERE THE MOST UNETHICAL BEHAVIOUR HAPPENS ?

1.
2. 3. 4. 5. 6. 7.

8.

Government Sales Law Media Finance Medicine Banking Manufacturing

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Business Ethics

WHY FOSTERING BUSINESS ETHICS IS IMPORTANT

To gain goodwill of the Community To create an organization that operates consistently To produce good business To protect the organization and its employees from legal actions To avoid unfavourable publicity

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Business Ethics

CREATING AN ORGANIZATION THAT OPERATES CONSISTENTLY

Operate with honesty and integrity, staying on Corporate

Principles

Operate according to the standards of ethical conduct, in words and in actions

Treat colleagues, customers, consumers with respect Strive to be the best at what matters most to the Company

Accept personal responsibility for all the actions

Make decisions based on facts and principles
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Business Ethics

COST OF UNETHICAL BUSINESS PRACTICES

Billions of dollars each year in lawsuits and settlements Deterioration of relationships Damage to reputation Declining employee productivity, creativity, and loyalty Ineffective information flow throughout the organization Absenteeism and turnover Theft

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Business Ethics

WE NEED TO FIGURE OUT AN ETHICAL FRAMEWORK!

How to make decisions which would matter or have an impact. How to decide what is right: Morally Economically Socially Legally Ethically

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Common Approaches to Business Ethics

When business people speak about Business Ethics they usually mean one of three things:
Avoid breaking the criminal law in ones work-related activity Avoid action that may result in civil law suits against the company/organisation/business entity

Avoid actions that are bad for the company, organisation,

business entity s image

Lawyers could Assist ! Philosphers could Teach to be Ethical

Deriving Business Ethics from the Profit Motive

Deriving Business Ethics from the Profit Motive

A weak version is often expressed in the dictum :

Good Ethics results in Good Business

which simply means that moral businesses practices are profitable.

Safe Products-less legal actions

Preserve Employees Privacy as matter of Right High Morale

This weak version has problems:

Morale business will have an economic advantage only in the long run. Little incentive for businesses that are designed exclusively to seek short-term profits. As more and more businesses compete for the same market, short-term profits will dictate the decisions of many companies simply as a matter of survival. Some moral business practices may not be economically viable even in the long run. For example, this might be the case with retaining older workers who are inefficient, as opposed to replacing them with younger and more efficient workers. Those moral business practices that are good for business depend upon what at that time will produce a profit. In a different market, the same practices might not be economically viable. Thus, any overlap that exists between morality and profit is both limited and incidental.

Strong version of this profit approach takes a reverse strategy and maintains that, in a competitive and free market, the profit motive will in fact bring about a morally proper environment. That is, if customers demand safe products, or workers demand privacy, then they will buy from or work for only those businesses that meet their demands. Businesses that do not heed these demands will not survive.

Good Business results in Good Ethics

But this strong view also has problems, since it assumes that consumers or workers will demand the morally proper thing. In fact, consumers may opt for less safe products if they know they will be saving money. For example, consumers might prefer a cheaper car without air bags, even though doing so places their own lives and the lives of their passengers at greater risk, which is morally irresponsible. Workers may forgo demands of privacy at work place if they are compensated with high enough wages

Not every moral business practice will simply emerge from the
Profit Principle

Business Ethics Restricted to Follow the Law

Business Ethics Restricted to Follow the Law

In Muslim countries that are not necessarily ruled by Islamic law, there is a strong source of external morality that would be binding on Muslim businesses apart from what their laws would require Confucianism has a strong emphasis on filial piety; thus, in Chinese and other Confucian societies, it is reasonable to expect their businesses to maintain a respect for elders even if it is not part of the legal system In USA culturally pluralistic society, the only business-related moral obligations that are majority-endorsed by our national social group are those obligations that are already contained in the law. These include a range of guidelines for honesty in advertising, product safety, safe working conditions, and fair hiring and firing practices

A morally responsible company must pay special attention to product safety, environmental impact truthful advertising, scrupulous marketing, and humane working conditions

Morally Conscientious business-related laws vs Less Sophisticated Laws & Regulatory Agencies

Deriving Business Ethics from General Moral Obligations

Deriving Business Ethics from General Moral Obligations

Harm principle: Businesses should avoid causing unwarranted harm. Fairness principle: Business should be fair in all of their practices. Human rights principle: Businesses should respect human rights. Autonomy principle: Businesses should not infringe on the rationally
reflective choices of people. Veracity principle: Businesses should not be deceptive in their practices.

Attraction of these principles is that they appeal to universal moral notions that no one would reasonably reject

Problem with these principles is that they are too general. These principles do not tell us specifically : what counts as harm, unfairness, or a violation of human rights. Does all damage to the environment constitute harm? Does it violate an employee's right to privacy if an employer places hidden surveillance cameras in an employee lounge area? Does child-oriented advertising mislead children and thus violate the principle of veracity?

These principles are abstract in nature. That is, they broadly mandate against harm, and broadly endorse autonomy. Because they are abstract, they will be difficult to apply to concrete situations and consequently not give clear guidance in complex situations.

An alternative approach:

Is to forget the abstract, and focus instead on concrete situations that affect the particular interests of consumers, workers, stockholders, or the community. It may be expressed in the following: Stakeholder principle: businesses should consider all stakeholders' interests that are affected by a business practice. Accordingly, the stakeholder approach to business ethics emphasizes that we should map out of the various parties affected by a business practice.

But how to prioritize the various interests once we map them out. Should all stakeholders' interests be treated equally from the largest stockholder down to the garbage man who empties the factory waste?

Business Ethics

ETHICS & BUSINESS

Whats a stakeholder? How are we going to treat stakeholders?

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Business Ethics

PRIMARY STAKEHOLDERS

Owners Employees Suppliers Customers

Should managers pay attention to the needs of these Stakeholders? What priority should they have?

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Business Ethics

SECONDARY STAKEHOLDERS

Local community groups Special-interest groups Consumer groups Environmental groups Media Society-at-large Should managers pay attention to the needs of these groups? What priority should they have?

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An alternative approach:

Is to forget the abstract, and focus instead on concrete situations that affect the particular interests of consumers, workers, stockholders, or the community. It may be expressed in the following: Stakeholder principle: businesses should consider all stakeholders' interests that are affected by a business practice. Accordingly, the stakeholder approach to business ethics emphasizes that we should map out of the various parties affected by a business practice.

But how to prioritize the various interests once we map them out. Should all stakeholders' interests be treated equally from the largest stockholder down to the garbage man who empties the factory waste?

INTEGRATED APPROACH
Laws are insufficient and do not cover all aspects or gray areas of a problem. Free-market and regulated-market mechanisms do not effectively inform owners and managers about how to respond to complex crises

An moral code (eg: Johnson & Johnson Credo) ; Companys way of doing Business can save the day for any Business entity

ETHICS, ECONOMICS AND LAW

6-14

Common Approaches to Business Ethics

UTILITARIANISM

JEREMY BENTHAM, 1748-1832

NATURE HAS PLACED MANKIND UNDER THE GOVERNANCE OF TWO SOVEREIGN MASTERS; PAIN AND PLEASURE. IT IS FOR THEM ALONE TO POINT OUT WHAT WE OUGHT TO DO

JOHN STUART MILL (1806-1873) ACTIONS ARE RIGHT IN PROPORTION AS THEY TEND TO PROMOTE HAPPINESS, WRONG AS THEY TEND TO PROMOTE THE REVERSE OF HAPPINESS

TWO FORMS OF UTILITARIAN THEORY

Principle of Utility:
The best action is that which produces the greatest happiness and/or reduces pain

Greatest Happiness:
We ought to do that which produces the greatest happiness and least pain for the greatest number of people

TWO TYPES OF UTILITARIANISM

Act:
An Action is right if and only if it produces the greatest balance of pleasure over pain for the greatest number. (Jeremy Bentham)

Rule:
An action is right if and only if it conforms to a set of rules the general acceptance of which would produce the greatest balance of pleasure over pain for the greatest number. (John Stuart Mill)

UTILITARIANISM

Moral worth of an action is determined solely by its consequences

What makes an action right or wrong is the good or evil that is produced by the act
Action is right if it produces the best possible balance of good consequences over bad consequences for all parties affected It involves the consideration of alternatives and how they affect all parties concern

RIGHTS & VIRTUES

RIGHTS

Rights Play an important role in Business Ethics; for Employers and Employees, both Employers - conduct the business as they deem fit -make their decisions on hiring & promotions

Employees - be protected against discrimination -hazardous Working Conditions

Customers and General Public also have rights; mkt, advertising, product safety & protection of environment

VIRTUES ETHICS

Role of Ethics. It enable us to lead successful and rewarding life -

Good Life. Good life is possible only for virtuous person, a

person who has been able to develop traits of character that we call VIRTUES

Business Related Character Traits; every day life virtues may not
wholly applicable to business. Caring, Honesty not the same as in other sphere of life

Ethics of Right Actions vs Ethics of Character

APPLICATION OF ETHICS TO BUSINESS

Impact of Fraudulent practices, misleading advertising, unfairness

can be taught in management education, training and seminars

Taught by modeling. Case Studies and personal examples are helpful

Can be reinforced by policies, codes of ethics, Credo Whistle Blowing

Designation of Corporate Ethic Officer/Obudsman

RIGHTS

Kinds of Rights - Legal & Moral

- Specific & General - Negative & Positive

Utilitarianism & Rights - Right of free Speech

- Whistle Blowing

RIGHTS

Kinds of Rights - Legal & Moral

- Specific & General - Negative & Positive

Utilitarianism & Rights - Right of free Speech

- Whistle Blowing

APPLICATION OF UTILITARIAN THEORY

A) You attempt to help an elderly man across the street. He gets across safely. Conclusion: the Act was a good act.

B) You attempt to help an elderly man across the street. You stumble as you go, he is knocked into the path of a car, and is hurt. Conclusion: The Act was a bad act.

APPLICATION OF UTILITARIAN THEORY

If you can use eighty soldiers as a decoy in war, and thereby attack an enemy force and kill several hundred enemy soldiers, that is a morally good choice even though the eighty might be lost. If lying or stealing will actually bring about more happiness and/or reduce pain, Act Utilitarianism says we should lie and steal in those cases.

APPLICATION OF UTILITARIAN THEORY ACTUAL CASES

The decision at Coventry during WWII.

The

decision was made not to inform the town that they would be bombed.

The Ford Pinto case: A defective vehicle would sometimes explode when hit.
The

model was not recalled and repaired by Ford because they felt it was cheaper to pay the liability suits than to recall and repair all the defective cars.

CRITICISMS OF UTILITARIANISM
If I am to bring the greatest happiness to the greatest number, not putting my own happiness above others, that may lead to a dilemma. I live in a neighborhood where 83% of my neighbors use drugs. I could make them most happy by helping supply them with cheap drugs, but I feel uncomfortable doing that. What should a utilitarian do?

CRITICISMS OF UTILITARIANISM
Utilitarianism plays fast and loose with Gods commandments. If lying, stealing, or killing could lead to an increase of happiness for the greatest number, we are told we should lie, steal or kill. Isnt that a rejection of Gods commands?

A SECOND CRITICISM OF UTILITARIANISM

If one must decide the probable outcome of an act before knowing whether it is good or bad, how can children learn to evaluate acts, since they know so little of what consequences might arise from their actions?

BENTHAMS CALCULUS

In determining the quantity of happiness that might be produced by an action, we evaluate the possible consequences by applying several values: - Intensity - duration - certainty or uncertainty - propinquity or remoteness - fecundity - purity - extent.

CRITICISMS OF BENTHAMS THEORY

Benthams theory could mean that if 10 people would be happy watching a man being eaten by wild dogs, it would be a morally good thing for the 10 men to kidnap

someone (especially someone whose death would not

cause grief to many others) and throw the man into a

cage of wild, hungry dogs.

MILLS RULE UTILITARIANISM

. . . Mankind must by this time have acquired positive beliefs as to the effects of some actions on their happiness; and the beliefs which have thus come down are the rules of morality for the multitude, and for the philosopher until he has succeeded in finding better.

Mill concludes, however, that we should always seek

improvements.

MILLS QUALITY ARGUMENTS

It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, are of a different

opinion, it is because they only know their own side of the

question. The other party to the comparison knows both

sides.

JOHN STUART MILLS ADJUSTMENTS TO UTILITARIANISM

Mill argues that we must consider the quality of the

happiness, not merely the quantity.

For example, some might find happiness with a pitcher of Coke and a Pizza. Others may find happiness watching a fine Indian TV Drama. The quality of happiness is greater with the latter.

MILLS QUALITY ARGUMENTS

As between his own happiness and that of others, utilitarianism requires him to be as strictly impartial as a disinterested and benevolent spectator. In the golden rule of Jesus of Nazareth, we read the complete spirit of the ethics of utility. To do as you would be done by, and to love your neighbor as yourself, constitute the ideal perfection of utilitarian morality.

UTILITARIANISM
Major issues with utilitarianism
- Action that produces the greatest balance of
value for the greatest number of people What about the minority? What if society decides that it is in the best interest of the public to deny health insurance to those testing positive for AIDS?

UTILITARIANISM
Problems with Utilitarianism
Not always possible to calculate utility or to analyze massive amounts of information consider the case of oil rigs in Alaska - Ignores distribution of good is it uniformly distributed or favours specific groups? - No common definition of what is good? - Assumes that all can be measured in a common numerical scale
-

NATURE OF ETHICAL PROBLEMS CONCLUSION

Ethical standards change over time Human reasoning is imperfect Ethical standards and principles are not always adequate to resolve conflicts Which theory should be used? Each approach has strengths and weaknesses

--- Need to look at situation and apply best analysis/judgment

Conclusion. Weve looked at three approaches to business ethics, and weve seen that all three have limitations. If we hope to find an approach to business ethics that is free from conceptual problems, we will not likely find any. Ethics is a complex subject and its history is filled with diverse theories that are systematically refuted by rival theories. So, we should expect to find controversies when applying ethics to the specific practices of business. However, following any of the above three approaches to business ethics will bring us closer to acceptable moral behaviour than we might otherwise be. Close attention to ones profit motive and the moral interests of consumers might in fact generate some morally responsible business decisions. We can indeed find additional moral guidance by looking at the laws that apply specifically to businesses. In gray areas of moral controversy that are not adequately addressed profit motives and the law, we can turn for guidance to a variety of general and specific moral principles. In addition to the above three approaches to business ethics, it also helps to examine stories of businesses that have been morally irresponsible. By citing specific cases deceptive advertising, environmental irresponsibility, or unsafe products, we can learn by example what we should not do. Such cases often reveal blatantly crude, insensitive, or reckless attitudes of businesses, which we can view as warning signs of unethical conduct.

IMPORTANCE OF BUSINESS ETHICS

Why Business Ethics, And Why not ?

Business Ethics

RECENT EXAMPLES OF ETHICAL EVENTS

Scandals

Enron Tyco WorldCom, etc.

Excessive Salaries of CEOs and poor performance of firms Sarbanes-Oxley Act of 2002 Outsourcing trends

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Business Ethics

ENVIRONMENTAL DIMENSIONS AFFECTING INDUSTRIES, ORGANIZATIONS, AND JOBS

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PRIMARY & SECONDARY STAKEHOLDER GROUPS

Business Ethics

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COMMON APPROACHES TO BUSINESS ETHICS

Utilitarianism Consequentianal

Universalism the means justify the ends of an action, not the consequences Rights based on entitlements and unquestionable claims

RIGHTS AND UTILITARIANISM

Many philosophers hold that we have certain rights, either from God, nature, or from a social contract Can the idea of rights be made compatible with Utilitarianism? If ignoring rights brings about more happiness to the greatest number, should we ignore so-called rights? Mills rule-based view in On Liberty; having a right to liberty will bring the greatest happiness

UTILITARIANISM
Essential Features

Utilitarianism is committed to the maximization of the good and minimization of harm and evil Society ought to produce the greatest balance of positive value or minimum balance of negative value for all affected
- Ex: Cost and benefit analysis - Risk assessment - Management by objectives

Efficiency is key

UTILITARIANISM
Involves the following steps:
Determining the alternative actions that are available in
any specific decision situation

Estimating the costs and benefits that a given action would produce for parties affected by the action
Choosing the alternative that produces the greatest sum of utility or least amount of disutility

FOUR THESES OF UTILITARIANISM

Hedonism: The greatest pleasure for the greatest number of

persons. Utility is the degree to which an act produces pleasure. Hedonism is the thesis that pleasure or happiness is the good that we seek and that we should seek.

Consequentialism: The rightness of actions is determined

solely by their consequences.

Maximalism: A right action produces the greatest good

consequences and the least bad.

Universalism: The means justify the ends of an action, not the

consequences. The consequences to be considered are those of which everyone is affected, and everyone affected equally.