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Ethics introduction lecture 1

Business ethics
Is centrally concerned with conduct. Ethical questions are essential questions about
whether we ought or ought not to perform certain kinds of actions; about whether
those actions are good or bad, right or wrong, virtuous or vicious, worthy of praise or
blame, reward or punishment, and so on.
Corporate social responsibility
Corporate social responsibility (CSR) is a business approach that contributes to
sustainable development by delivering economic, social and environmental benefits
for all stakeholders. CSR is a very broad concept that addresses many and various
topics such as human rights, corporate governance, health and safety,
environmental effects, working conditions and contribution to economic
Example of CSR
Ben and Jerry's, for instance, uses only fair trade ingredients and has developed a
dairy farm sustainability program in its home state of Vermont. Starbucks has
created its C.A.F.E. Practices guidelines, which are designed to ensure the company
sources sustainably grown and processed coffee by evaluating the economic, social
and environmental aspects of coffee production. Tom's Shoes, another notable
example of a company with CSR at its core, donates one pair of shoes to a child in
need for every pair a customer purchases.

What is a 'Free Enterprise'

A free enterprise is an economic system where few restrictions are placed on business
activities and ownership. In this system, governments generally have minimal ownership
of enterprises in the market place. This system aims for limited restrictions on trade and
minimal government intervention.

Importance of business ethics?

Ethical behaviour and corporate social responsibility can bring significant benefits to
a business. For example, they may:

Attract customers to the firms products, which means boosting sales and

Make employees want to stay with the business, reduce labour turnover and
therefore increase productivity

Attract more employees wanting to work for the business, reduce recruitment
costs and enable the company to get the most talented employees

Attract investors and keep the companys share price high, thereby protecting
the business from takeover.

Employee Ethics: When an organization has been led in an ethical

manner, employees follow in those footsteps. Employees make better
decisions in less time with business ethics as a guiding principle; this
increases productivity and overall employee morale. When employees
complete work in a way that is based on honesty and integrity, the whole
organization benefits. Employees who work for a corporation that
demands a high standard of business ethics in all aspects of operations
are more likely to perform their job duties at a higher level and are also
more inclined to stay loyal to that organization. Ethical employees also
meet standards for quality in their work, which can enhance the
companys reputation for quality products and service.
Business Ethics Benefits: The ethical operation of a company is directly
related to profitability in both the short and long term. The reputation of a
business from the surrounding community, other businesses and
individual investors is important in determining whether a company is a
worthwhile investment. If a company's reputation is less than perfect
based on the perception that it does not operate ethically, investors are
less inclined to buy stock or otherwise support its operations.
Cost and risk reduction: companies which recognise the importance of
business ethics will need to spend less protecting themselves from
internal and external behavioural risks, especially when supported by
sound governance systems and independent research.
A stakeholder in an organization is any group or individual who can affect, or is
affected by, the achievement of the organizations objectives.
Stakeholders include: owners, customers, consumer advocates, competitors,
protest groups, employees, suppliers, environmentalists, government, local
community organisations, and the media
Problems with stakeholder theory

The decision-making process may become lengthy as all competing claims of

stakeholders have to be considered

How are bosses to be judged if they are accountable to many stakeholders

If other stakeholders are put before shareholders, this may reduce share values
and may bring less willingness to invest

There seems to be no clear decision rule when attempting to adjudicate between

rival claims of stakeholders

Stakeholder v stockholder

A stockholder or shareholder is the holder or owner of stock in a

A stakeholder is anyone that has an interest or is affected by a
corporation. In other words, the stockholder isn't the only party having a
stake in the corporation. Other stakeholders in a corporation include the
employees, the employees' families, suppliers, customers, community,
and others.
Some organizations do not have stockholders, but have stakeholders.
For example, the state university doesn't have stockholders, but it has
many stakeholders: students, the students' families, professors,
administrators, employers, state taxpayers, the local community, the
state community, society in general, custodians, suppliers, etc.
Ethical theories:
The utilitarian ethical theory refers to: The ability to predict the consequences of
an action. To a utilitarian, the choice that earns the greatest benefit to the most
people is the choice that is ethically correct.
One benefit of this ethical theory is that the utilitarian can compare similar predicted
solutions and use a point system to determine which choice is more beneficial for
more people. This point system provides a logical and rationale argument for each
decision and allows a person to use it on a case-by-case context.
Two types of utilitarianism
1. In act utilitarianism, a person performs the acts that benefit the most people,
regardless of personal feelings or the societal constraints such as laws. OR an
Act utilitarianism looks to single actions and bases the moral judgement on the
amount of pleasure and the amount of pain this single action causes
2. Rule utilitarianism, however, takes into account the law and is concerned with
fairness. A rule utilitarian seeks to benefit the most people but through the fairest
and most just means available. Therefore, added benefits of rule utilitarianism are
that it values justice and includes beneficence at the same time.
Criticism of utilitarianism
Measurement difficulties - how do you quantify happiness?
May be unjust and abuse individual rights
Difficulty with predicting the future. Although people can use their life
experiences to attempt to predict outcomes, no human being can be certain
that his predictions will be true. This uncertainty can lead to unexpected
results making the utilitarian look unethical as time passes because his choice
did not benefit the most people as he predicted
Kantianism theory
For Kantians, there are two questions that we must ask ourselves whenever we decide
to act:

1. Can I rationally will that everyone acts as I propose to act? If the answer is no, then
we must not perform the action.

2. Does my action respect the goals of human beings rather than merely using them for
my own purposes? Again, if the answer is no, then we must not perform the action.
3. Kant makes very certain that everyone on Earth should be treated as an ends and
never as a means. It means you always want to treat someone else as a person who
has dignity and intrinsic worth. Always treat others as if they were as much of a
man/woman as you are.
4. Categorical Imperatives unconditional commands. For example, if I were to say
Lying is wrong, then under no circumstances is it all right to lie.

Criticism of Kantianism
Only acts driven by the categorical imperative are ethical what about outcomes?
Assumption that we are all autonomous rational beings prepared to reason at this
How should conflicting duties be resolved?
No account taken of personal relationships
No account of temporal or cultural differences

Virtue theory
Virtue Ethics (Virtue Theory) is an approach to Ethics that emphasizes an
individual's character as the key element of ethical thinking, rather than rules about
the acts themselves (Deontology) or their consequences.
Three main strands of Virtue Ethics: Eudaimonism, Ethics of care, Agent based

Eudaimonism: It holds that the proper goal of human life is Eudaimoniameans "happiness", "well-being" or the "good life", and that this goal can be
achieved by a lifetime of practising "arte" (the virtues) in one's everyday
activities, subject to the exercise of (practical wisdom) to resolve
any conflicts or dilemmas which
A virtue is a habit or quality that allows individuals to succeed at their purpose.
Therefore, Virtue Ethics is only intelligible if it includes an account of the purpose
or meaning of human life), a matter of some contention among philosophers
since the beginning of time.

Ethics of Care was developed by Feminist writers which says that the idea that
men think in masculine terms such as justice and autonomy, whereas woman
think in feminine terms such as caring. It calls for a change in how we view
morality and the virtues, shifting towards virtues exemplified by women, such
as taking care of others, patience, the ability to nurture, self-sacrifice, etc, which
have been disregarded because society has not adequately valued the
contributions of women. It emphasizes on the importance of
solidarity, community and relationships rather than universal standards and

impartiality. It argues that instead of doing the right thing even if it

requires personal
cost or
of family or community members, we can put the interests of those who
are close to us above the interests of complete strangers.

Agent-Based Theories, as developed recently by Michael Slote (1941), give an

account of virtue based on our common-sense intuitions about which character
traits are admirable (e.g. benevolence, kindness, compassion, etc), which we
can identify by looking at the people we admire, our moral exemplars.
The evaluation of actions is therefore dependent on ethical judgments about the
inner life of the agents who perform those actions.

Criticisms of Virtue ethics:

A major problem with the theory is the difficulty of establishing the nature of the
virtues, especially as different people, cultures and societies often have different
opinions on what constitutes a virtue. Some advocates argue that any character
trait defined as a virtue must be universally regarded as a virtue for all people in all
times, so that such cultural relativism is not relevant. Others, however, argue that
the concept of virtue must indeed be relative and grounded in a particular time and
place, but this in no way disproves the value of the theory, merely keeps it current.
Another objection is that the theory is not "action-guiding", and does not focus on
what sorts of actions are morally permitted and which ones are not, but rather on
what sort of qualities someone must have in order to become a good person.
Thus, a virtue theorist may argue that someone who commits a murder is
severely lacking in several important virtues (e.g. compassion and fairness, among
others), but does proscribe murder as an inherently immoral or impermissible sort
of action, and the theory is therefore useless as a universal norm of acceptable
conduct suitable as a base for legislation.
Descriptive business ethics
Descriptive business ethics theories seek to describe how ethical decisions are
actually made in business, and what influences the process and outcomes of those
decisions (Crane and Matten, 2007: 128)
Descriptive ethics is the study of why people behave in certain ways, what their

moral beliefs are, and how they developed these beliefs.

What is an ethical decision?
Ethical decision-making refers to the process of evaluating and choosing among alternatives in a
manner consistent with ethical principles. In making ethical decisions, it is necessary to perceive
and eliminate unethical options and select the best ethical alternative.
The process of making ethical decisions requires:

Commitment: The desire to do the right thing regardless of the cost

Consciousness: The awareness to act consistently and apply moral convictions to daily
Competency: The ability to collect and evaluate information, develop alternatives, and
foresee potential consequences and risks

Stages in ethical decision-making

Recognise moral issue

Make moral judgement

Establish moral intent

Engage in moral (behaviour)

Individual and situational influences impact on an individuals ability to recognise a

moral issue (the rest of this lecture)
Individual factors unique characteristics of the individual decision-maker
Situational factors the context that influences whether the individual will make
an ethical or unethical decision
These two sets of factors are not mutually exclusive, but interact
Individual factors
Gender has been found to be a significant indicator of ethical decision
making, with women acting more ethically than men. Women and men
differ in their beliefs and judgments about ethical behaviour. Men rely on
their attitudes toward an action when deciding to perform a computing
act, whereas women rely on prevailing social norms (Loch and Conger,
1996). Research shows that women appear to be more cautious in the use
of technology and were less tolerant about the distribution of a banned
violent computer game. Therefore, the process of ethical decisionmaking
is likely to be different for women and men (Gattiker and Kelley (1999).
Research has also identified many personal characteristics that impact
ethical decision-making which can be explained through Cognitive moral
Cognitive moral development was developed by Kohlberg (1969) to explain
why different people make different evaluations when met with the same
ethical issue.

According to the theory, individuals' level of moral development passes

through three major levels of development stages.

The lowest level of moral development means "preconventional" level. At this level, the individual evaluates ethical
issues in a hope to avoid punishment or seek personal reward/selfinterest. This level of moral development is usually associated with
small children or adolescents.

The middle level of development is called the "conventional"

level. At this stage, the individual assesses ethical issues on the basis
of the fairness to others and a desire to follow societal rules and
expectations. Thus, the individual looks outside him or herself to
determine right and wrong. Most adults operate at the conventional
level of moral reasoning.

The highest stage of moral development is the "principled" level. At

this level, the individual is likely to apply principles to ethical issues in
an attempt to resolve them. According to Kohlberg, a principled person
looks inside him or herself and is less likely to be influenced by
situational (organizational) expectations.

The cognitive moral development framework is relevant to business ethics

because it offers a powerful explanation of individual differences in ethical
reasoning. Individuals at different levels of moral development are likely
to think differently about ethical issues and resolve them differently.


Two main types:
Issue-related factors: moral intensity and moral framing
Context-related factors: organisational context, work roles, norms and culture,
national culture.

Issue-related factors
Research by Thomas Jones (1990) suggest that ethical issues in business
must have a certain level of "moral intensity" before they will start ethical
decision-making processes.

Moral intensity is the degree that people see an issue as an ethical one.
Influences on moral intensity include degree of consequences, social
consequence, concentration of effect, temporal immediacy and proximity..
Certain characteristics of issues determine their moral intensity. In general, the
research suggests that issues with more serious consequences are more likely to
reach the threshold level of intensity. Likewise, issues that are deemed by a societal
consensus to be ethical or unethical are more likely to trigger ethical decision-making
Moral framing - How is that issue actually presented within the
How an issue is framed or described in organisational language will
impact how it is perceived and acted upon morally; business only
wants to use business language.
Context-related factors
Context-related factors that influence ethics include:

Systems of reward

o direct instructions to subordinates
o setting subordinates targets so challenging
o Bureaucracy
o Suppression of moral autonomy overridden by the rules
o Instrumental morality morality seen in terms of following rules
o Distancing
o Denial of moral status

Work roles

Organizational culture

National and cultural context

Managing business ethics

Should ethics be managed and why? Corporate accountability, citizenship and responsiveness

Codes of ethics
Managing stakeholder relations

The benefits of corporate social responsibility

Corporate social responsibility (CSR) isn't just about doing the right thing.
It means behaving responsibly, and also dealing with suppliers who do the
same. It also offers direct business benefits.

Companies often favour suppliers who have responsible policies. This is

because it can have a positive impact on how they are seen by their

Some customers don't just prefer to deal with responsible companies,

but insist on it. The Co-operative Group, for instance, place a strong
emphasis on its corporate social responsibility and publishes
detailed 'warts and all' reports on its performance on a wide range of
criteria - from animal welfare to salt levels in its pizzas.

A good reputation makes it easier to recruit employees. Employees

may stay longer, reducing the costs and disruption of recruitment and

Employees are better motivated and more productive.

CSR helps ensure you comply with regulatory requirements.

Activities such as involvement with the local community are ideal

opportunities to generate positive press coverage.

Good relationships with local authorities make doing business easier.

See work with the local community.

CSR can make you more competitive and reduces the risk of sudden
damage to your reputation (and sales). Investors recognise this and are
more willing to finance you.

Putting the fun into CSR: Disney Company example

Today the Disney Company recognised that they cant entertain a family on the one
hand and then neglect the world and circumstances in which they live. Acting
responsibly gives the company credibility and authenticity. Accordingly, they have set
themselves strict environmental targets and disclose their figures in the Global
Reporting Initiative which provides a comprehensive set of indicators covering the
economic, environmental and ethical impacts of a companys performance.

Disney managed to set ambitious financial targets together with environmental

performance targets. For example, Disney took initiatives such as running
Disneyland trains on biodiesel made with cooking oil from the resorts hotels. They
also created the Green standard to engage and motivate employees in reducing
their environmental impact when working, having meetings, travelling and eating
lunch. With more than 60,000 staff, the results are enormous when everyone is
pulling in the same direction.
A clear example of financially benefiting from reducing environmental impact was a
10% reduction in the corporations electricity. Whilst their CSR efforts may have
taken a great deal of organisation, dedication and investment, 2012 was a record
year for Disneys profits.

Corporate accountability
Corporate accountability refers to whether a corporation is answerable in some way
for the consequences of its actions. (Crane and Matten, 2004, p55)
Corporate accountability is the performance of a publicly traded company in nonfinancial areas such as social responsibility, sustainability and environmental
performance. Corporate accountability claims that financial performance should not be a
company's only important goal and that shareholders are not the only people a company
must be responsible to; stakeholders such as employees and community members also
require accountability.

Who controls the corporations and to whom are corporations accountable?

Corporations are accountable to all internal and external stakeholders in a
corporation. This can lead to however agency problems.

Corporate citizenship (Chapter)

It focuses on rights and responsibilities of all members of the community,
who are mutually interlinked and dependent on each other (Crane and
Matten, 2004: p64).
Corporate citizenship is the extent to which businesses are socially
responsible for meeting legal, ethical and economic responsibilities placed
on them by shareholders. The aim is for businesses to create
higher standards of living and quality of life in the communities in which
they operate, while still preserving profitability for stakeholders.

As demand for socially responsible corporations increases, investors,

consumers and employees are now more willing to use their individual
power to punish companies that do not share their values. For example,
investors who find out about a company's negative corporate citizenship
practices could boycott its products or services, refuse to invest in its
stock or speak out against that company among family and friends.

Carrolls model of social responsiveness

Corporate social responsiveness refers to the capacity of a corporation to respond to
social pressures (Crane & Matten, 2010: 57).
This refers to the capacity of the corporation to respond to social pressure, and the
manner in which it does so.
Carroll suggests four possible strategies: reaction, defence, accommodation and
Reaction: The Corporation denies any responsibility for social issues.
Defence: The corporation admits responsibility but fights it, doing the very least that
seems to be required.
Accommodation: The Corporation accepts responsibility and does what is
demanded of it by relevant groups.
Pro-action: The Corporation seeks to go beyond industry norms.
What is business ethics management and how can they do it?
Business ethics management is the direct attempt to formally or informally manage
ethical issues or problems through specific policies, practices and programmes.

Typical components of business ethics management?

Mission or values statements

Codes of ethics

Reporting/advice channels

Risk analysis and management

Ethics managers, officers and committees

Ethics consultants

Ethics education and training

Stakeholder consultation, dialogue and partnership programmes

Auditing, accounting and reporting

Mission or values statements: these are general statement of corporate aims,

beliefs and values. Such statements include social gaols one kind or another. For
example the global pharmaceutical company has a mission to improve quality of
human life by enabling people to do more, feel better and live longer.
Codes of ethics: are voluntary statements that commit organizations, industries,
or professions to specific beliefs, values, and actions and/or set out appropriate
ethical behaviour for employees
There are 4 main types of ethical codes

Organizational or corporate codes of ethics

Professional codes of ethics

Industry codes of ethics

Programme or group codes of ethics

Chartered Management Institute Code of Conduct

Membership of a chartered professional body implies that a duty of care is
accepted by every one of its members in fulfilling their professional management
responsibilities. The Institutes Code of Professional Conduct and Practice, which
is binding on all members of the Institute, sets out the professional standards of
conduct and competence, as well as the personal values, which members are
expected to exemplify. It therefore encapsulates the 'essence' of a professional
Content of codes of ethics

Define principles or standards that the organisation, profession or industry

believes in or wants to uphold

Set out practical guidelines for employee behaviour, either generally or in

specific situations, eg accepting gifts, treating customers

Effectiveness of codes of ethics

Effectiveness of a code is in the implementation and administration less
important what it says, more important how it is developed and then upheld
Suggestions for successful implementation

Maximise participation of organisation members in development stage to

encourage commitment and buy in (Newton, 1992)

Discipline employees found in breach (Webley 2001)

Follow-through (Trevio et al. 1999)

Global codes of ethics

Can organizations devise one set of principles for all countries in which they
They can really only define minimum standards, and then its all about
participation and follow-through.

Ethical issues in the firm-employee relation (chapter)

0 Discrimination in the business context occurs when employees receive
preferential (or less preferential) treatment on grounds that are not directly
related to their qualifications and performance in the job
0 Managing diversity prominent feature of contemporary business
0 Extensive legislation
0 Institutional discrimination: discrimination deeply embedded in business

Sexual and racial harassment

0 Issues of diversity might be exploited to impose physical, verbal, or emotional
0 Regulation reluctant
0 Blurred line between harassment on one hand and joking on the other
0 Influenced by contextual factors such as character, personality, and
national culture
0 Companies increasingly introduced codes of practice and diversity
programmes (Crain and Heischmidt 1995)

Equal opportunities and affirmative action

How should organizations respond to problems of discrimination?
Organizations can eliminate discrimination by applying equal opportunity
programme such as Affirmative action (AA) programmes.

0 Affirmative action (AA) programmes: deliberately attempt to target those who

might be currently under-represented in the workforce
0 Recruitment policies
0 Fair job criteria
0 Training programmes for discriminated minorities
0 Promotion to senior positions

Reverse discrimination
0 In some cases, people suffer reverse discrimination because AA (Affirmative
action (AA) programmes) policies prefer certain minorities
0 Justification for reverse discrimination
0 Retributive justice: past injustices have to be paid for
0 Distributive justice: rewards such as job and pay should be allocated
fairly among all groups (Beauchamp 1997)
0 Stronger forms of reverse discrimination tend to be illegal in many European

Employee privacy
Four different types of privacy we may want to protect (Simms 1994)
0 Physical privacy
0 Social privacy
0 Informational privacy
0 Psychological privacy